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Participate in Self-Control Research

This article was written by in Personal Development. 6 comments.

I’ve written extensively about taking control of your finances. One aspect of the ability to succeed with your financial goals is making active, thoughtful decisions pertaining to your use of money. Uptal Dholakia is a professor of management at Rice University in Houston, and he is currently conducting research pertaining to self-control and decision making as they pertain to personal finance as well as other personal issues.

I’ve always been excited to participate in academic research; I was a frequent subject for Princeton University’s cognitive psychology department when I was much younger, and I continued through college by participating in occasional research studies conducted by graduate students at my own university. In fact, when I attended a psychology class my sophomore year and was considering the pursuit of a minor in psychology, participation in graduate research studies was mandatory. Regardless of the requirement, I enjoyed it.

Zener CardsProfessor Dholakia is inviting Consumerism Commentary readers to participate in this study. In order to participate, all that is required is to answer questions on a web-based survey.

I completed the survey last night, and it took less than ten minutes to complete. The questions were not difficult, but they did make me think about my decision-making process and how I allow myself to succumb to impulse decisions. There are some questions about demographics at the end of the survey, but the information will be held confidential and reported only in aggregate.

The professor has agreed to share the results of the research with Consumerism Commentary, so once the analysis is complete, you can expect an article discussing the findings published here.

Please help further research regarding the psychology of personal finance by completing the survey here. No electrodes need to be connected to your body and you won’t need to receive any electric shocks.

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Four Mental Mistakes in Investing

This article was written by in Investing, People. 2 comments.

Mental MistakeJonathan Clements from the Wall Street Journal decided to don his psychologist hat and evaluate the muddled minds of investors. He discovered four mindsets that hinder people from investing intelligently.

Let’s face it, amassing a decent-size nest egg isn’t exactly rocket science. All we have to do is save regularly, buy a few low-cost mutual funds and patiently await our reward. Yet most of us scorn such humble simplicity. Instead, we are too confident and too clever.

* People buy the investments they wish they bought at some other time. As the price as an investment rises, investors should “grow leery” of the value. Instead, people jump on the bandwagon for last year’s hot stock or commodity. If it works out in the short term, the investor feels like a genius and gains confidence to make more unsafe moves.

* People want to get even. If Jack’s identically-housed neighbor sold her dwelling last year for $1 million, Jack will have a hard time settling for $800,000. “[This is] about avoiding regret. If we sell for less than we paid or less than the neighbors got, we have to admit we made a mistake, with all the associated pangs of regret.”

* People shy away from their falling investments. In some cases, falling prices represent deteriorating “underlying fundamentals.” Clements uses the example of Treasury Inflation-Protected Securities (TIPS), and he believes the lower prices make them a better investment, with no damage to the fundamentals.

* People have no self-control. With the negative savings rate in the United States, we would rather spend now than put away our money and invest for the future. We convince ourselves that everything will be okay in the end. Jonathan Clements believes this may be our biggest mistake.

I can only speak for myself and say I believe I’ll be fine in the end. I’m working hard, saving money, making money in places I never thought I would be if you asked me a few years ago, finishing a master’s degree and contemplating my next steps in career and education, and always learning about investing. If I were to live like I was in 1999, spending more money on the commute alone than I was making, I would not be able to say the same.

Thanks to Jim Mahar for sharing the link.

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