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We Believe What We Want to Believe, and How It Can Cost Us
- In the world of finance, emotions often override logic, leading people to believe what they want to believe with significant implications.
- Morgan Housel's notion of 'We believe what we want to believe' highlights how individuals create mental models aligned with their experiences in financial planning.
- Housel suggests a practical approach in financial decisions: 'Save like a pessimist, invest like an optimist,' emphasizing a balanced strategy.
- This strategy, combined with data-driven optimism and academic investing, forms a successful financial planning framework.
- The danger of believing what we want to believe lies in creating blind spots and ignoring factual evidence in decision-making processes.
- Emotional responses often drive financial decisions, creating a disconnect from objective reality and leading to biased assumptions.
- Echo chambers and confirmation bias can hinder evidence-based decision-making in finance, affecting personal finance, business, and policymaking.
- Encouraging mindful, evidence-based decision-making involves seeking disconfirming evidence, surrounding oneself with contrarians, and slowing down the decision-making process.
- Housel's framework, 'Save like a pessimist, invest like an optimist,' promotes preparedness for unexpected events while maintaining a positive outlook on long-term growth.
- Balancing pessimism with optimism in financial planning helps in building resilience, maintaining responsibility, and staying grounded in reality.
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