Page 16 - Psychology of Money - Timeless Lessons on Wealth, Greed, and Happiness-Harriman House Limited (2020)

To write about what was happening, I wanted to figure out what was
happening. But the first thing I learned after the financial crisis was that no
COBACOBA
one could accurately explain what happened, or why it happened, let alone
what should be done about it. For every good explanation there was an

equally convincing rebuttal.

Engineers can determine the cause of a bridge collapse because there’s
agreement that if a certain amount of force is applied to a certain area, that
area will break. Physics isn’t controversial. It’s guided by laws. Finance is
different. It’s guided by people’s behaviors. And how I behave might make
sense to me but look crazy to you.

The more I studied and wrote about the financial crisis, the more I realized
that you could understand it better through the lenses of psychology and
history, not finance.

To grasp why people bury themselves in debt you don’t need to study
interest rates; you need to study the history of greed, insecurity, and

optimism. To get why investors sell out at the bottom of a bear market you
don’t need to study the math of expected future returns; you need to think
about the agony of looking at your family and wondering if your investments
are imperiling their future.

I love Voltaire’s observation that “History never repeats itself; man always
does.” It applies so well to how we behave with money.

In 2018, I wrote a report outlining 20 of the most important flaws, biases,
and causes of bad behavior I’ve seen affect people when dealing with
money. It was called The Psychology of Money, and over one million people

have read it. This book is a deeper dive into the topic. Some short passages
from the report appear unaltered in this book.

What you’re holding is 20 chapters, each describing what I consider to be
the most important and often counterintuitive features of the psychology of
money. The chapters revolve around a common theme, but exist on their
own and can be read independently.