Why Smart People Make Big Money Mistakes–and How to Correct Them: Lessons from the New Science of Behavioral Economics

Why do so many otherwise sensible people make foolish financial choices? Why do so many investors sell great stocks just before they skyrocket or cling tenaciously to lousy ones until they plummet? Why do some Americans overpay when they buy a house while others reap too little when they sell their home? And why are

Why do so many otherwise sensible people make foolish financial choices? Why do so many investors sell great stocks just before they skyrocket or cling tenaciously to lousy ones until they plummet? Why do some Americans overpay when they buy a house while others reap too little when they sell their home? And why are many shoppers willing to spend more for a product bought on credit than with cash? Indeed, whether in the stock market, the real estate market, or the supermarket, most of us keep making financial faux pas that cost us thousands of dollars every year.

Fortunately, many of the most common and costly money blunders we make can be explained — and corrected — by the new science of “behavioral economics.” Gary Belsky, an award-winning journalist, and Thomas Gilovich, one of the leading experts in this burgeoning new area of research, reveal why people spend, invest, save, borrow, and, most important, waste money. They provide fascinating insights into all manner of occurrences — tipping, gambling, plane crashes, lotteries, and game shows, to name just a few — to explain behavioral economics in a way that is as entertaining as it is informative. Best of all, they offer dozens of useful tips that will help us overcome the blind spots that cloud our financial judgment and will allow us to enjoy greater financial freedom.Why do so many otherwise rational individuals make irrational decisions when it comes to money? Financial journalist Gary Belsky and Cornell University psychology professor Thomas Gilovich contend the answers can be found–and the deficiencies remedied–with help from a relatively new science called behavioral economics. Still largely unknown outside academic circles, the field can be traced to research on the impact of rewards and punishments on human judgment and decision- making that first were undertaken at Jerusalem’s Hebrew University some 30 years ago. In Why Smart People Make Big Money Mistakes , Belsky and Gilovich update this pioneering work and show readers how to understand exactly why they invest, spend, and save as they do. More importantly, using examples that everyone can identify with and language that anyone can understand, the authors offer dozens of workable suggestions that can help readers manage their money better. “We believe that by identifying the psychological causes behind many types of financial decisions,” they write, “you can effectively change your behavior in ways that will ultimately put more money in your pocket and help you keep more of what you already have.” –Howard Rothman