Bankrate.com, October 2008
7 Psychological Money Traps and How to Beat Them
by Teri Cettina
When it comes to handling money, most of us aren't as rational and logical as we think. As with losing weight, we know what we need to do -- eat less (spend less) and exercise more (save more), but somehow we can't bring ourselves to do it. Or we buy a hot stock that really doesn't fit our investing needs and later wonder, "What the heck was I thinking?"
You needn't beat yourself up about your seemingly irrational money choices, though -- it turns out there's a lot of psychology and evolutionary history involved in why and how we do dumb things with money.
In fact, there are now entire fields -- neuroeconomics and behavioral economics -- dedicated to how and why we behave certain ways with money. The good news is that researchers in these fields have pinpointed ways we can actually outsmart our brains when it comes to money. We simply need to understand the most typical financial/psychological traps, then shift the way we make certain investing and purchasing decisions.
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