Posted on December 21, 2009 - by Aaron Lau

Limitations Of Rational Thinking

Photo by Andrew Mason

People make choices in financial matters like insurance and investment based on knowledge and rational thinking. However, the decision making process is affected by values and emotions. By understanding our inner limitations, we can try to overcome them to make better decisions.

1. Emphasis on recent events
Rely more on information obtained more recently then on the overall big picture.

Implication on financial planning: Most people cannot see pass 5-10 years into the future. Hence, they often fail to plan for retirement until it is about 10 years away.

Implication on investing: Short term trends drive the emotions of investors, resulting in panic buying and selling. Current news also prevent investors from taking a long term position.

That is why visionary leaders have the exceptional ability to see 20, or even 50 years into the future and develop their plans based on that vision. A good local example is MM Lee. Read more…

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1. The Truth About Retail Investors
2. For whom is the whole life insurance meant for?
3. Financial Goals (Part 1 of 8)