Neuroeconomics and the science of positive psychology have revealed amazing insights into the inner workings of your brain. Here is a summary of some of the information in this talk on how to make better financial decisions, increase your success rates, and maximize your happiness during times of stress anduncertainty.
1. Refocus on absolute changes, not relative ones. Our neurons are not sensitive to absolute dollar values, only to relative changes in value, which can lead you to make knee-jerk decisions you’ll regretlater. When making economic decisions, evaluate the absolute value involved, not the relative gain or
loss. (Goleman, 2005)
2. Craft your environment. Cut down on environmental cues that will trigger your reflexive brain into unneeded financial panic. If you’re investing for the future, don’t follow the day-to-day changes in the market. We pick up stress like second-hand smoke, so avoid conversations where friends ruminate on their
financial woes or the latest turn in the economy, and limit your own complaining. (Ben-Shahar, 2007)
3. Use your words. Verbalizing emotion moves us from reflexive to reflective decision-making. If you are worrying about bad financial news, write down how you’re feeling. The act of putting the emotions into words will immediately decrease their magnitude, improve your well-being, and enhance your decisionmaking
skills. (Haidt, 2006)
4. Avoid the Gambler’s Fallacy. Your brain often perceives patterns that aren’t really there, which can lead you to falsely anticipate a financial outcome that won’t actually happen. Research shows that you can avoid this trap by taking a 20-minute break to do something else before you make a big financial
decision. As they say in Vegas, ‘let the dice rest.’ (Kahneman & Tversky, 2000)
5. Remember your emotional immune system. No offense, but you’re a bad predictor of your future feelings. It’s a flaw in the human brain. Financial rewards are never as fulfilling as their anticipation, and financial losses will never feel as bad as you think they will. Research shows that even big lottery winners go back to their baseline level of happiness one year later. So try to manage your expectations, and above all else, remember that money and well-being are almost entirely unrelated. (Gilbert, 2005)
6. Money can buy happiness, if you use it well. Aim for ‘inconspicuous spending,’ which focuses on doing and involves experiences with other people. Avoid ‘conspicuous spending,’ which focuses on having and involves status and material goods. What type of spending is most predictive of happiness?
Pro-social spending. Buy for other people and you’ll be getting far more in return. (Norton, 2008)
n To e-mail Professor Achor: achor@fas.harvard.edu.
n For reading list or more information: www.aspirantworld.com
b y S H AWN ACHOR
