Haver you ever wondered why you hang on to your “anchors” of procrastination and status quo when it comes to managing your family's as well as your own personal financial security which is so critical to your financial future? Defies rational choice and favors irrational choice wouldn't you say?
You see, the prevalence of rational versus irrational choices is a subject of extensive debate and research in various fields, including economics, psychology, and sociology. Rational choices, defined as decisions that maximize personal benefit, are often seen as the norm in economic models and theories. However, real-life scenarios often prove that individuals make irrational choices, decisions that don't necessarily align with their best interests. These irrational choices can be influenced by a range of factors, such as emotions, biases, social pressure, or misinformation. And the mother of all biases: dogmatism which is based on lack of information combined with a heavy dose of wishful thinking.
You and I are often making choices that don't really make sense to economists and economic policy makers. The force with which we hang on to our anchors of financial dogmatism is quite powerful and mostly harmful to our financial well-being. Sadly, this bias is not limited to finance exclusively. Dogmatism is a classic example of dishonesty with oneself. The harm done begins with the self and radiates outwards to others.
Anchoring is a fascinating concept in the realm of behavioral economics. This theory suggests that people rely too heavily on the first piece of information they receive, known as the "anchor". For example, have your ever rationalized “I have no money to save!” Or better yet, “I have no money to invest!" This first mindset sets the trap for every decision that follows in your future savings and investment strategies regardless of their relevance or accuracy. Even if your later circumstances contradict the first mindset, the anchor holds us back and we stay grounded in the mud of rationalization, procrastination and status quo. Despite higher income in our later young adulthood years, we are not likely to adjust our expectations or decisions sufficiently. Instead, we become more prone to reinforce irrationality by relying on the comfort of procrastination and status quo preservation.
Researchers continue to confirm the theory that individuals tend to place undue emphasis on the first piece of information they get (such as the "I-have-no-money-to-invest" syndrome) when making personal financial decisions. This anchor then serves as a reference point for all later decisions, regardless of its accuracy or relevance in later years of our life. The realization that you are heading towards a financial calamity has little or no influence in motivating you to pick up your anchor and sail towards better horizons where better financial security resides. Worth contemplating.
Think about it!