Comments on: Review: Why Smart People Make Big Money Mistakes

By: Alex

Alex — Wed, 19 Sep 2007 23:12:04 +0000

It’s a great book and I too would suggest reading it. For those seeking a shorter but very informative alternative, I’d recommend “The Hidden Traps of Decision Making,” by Hammond, Keeney and Raiffa. It’s was published in HBR sometime back and you can find a summary at my blog: http://goldnickel.blogspot.com/ or find a pdf copy at the site: http://www.leadersway.com/email/Hidden_Traps_in_Decision_Making.pdf

By: guinness416

guinness416 — Sun, 09 Sep 2007 21:02:09 +0000

They’re pretty clear in the introduction to the book that some of the information will be contradictory, but that their intent is to hit/summarize all of the big behavioural economics issues.

By: Holly

Holly — Sun, 09 Sep 2007 14:19:03 +0000

It seems that the real estate example in Chapter 6 contradicts the lesson from Chapter 1. The author seems to suggest that a 1 or 2% gain from selling your house yourself (not taking into account the additional time investment) doesn’t justify not using a realtor. BUT, we learn in Chapter 1 to treat all income as earned income. So, if you’re selling a house for $300,000 you can expect to save $4,500 (1.5%) if you sell it yourself. In Chap. 6, the author advises that savings isn’t worth the additional time, but doesn’t Chapter 1 say essentially the opposite?

By: lorax

lorax — Sat, 08 Sep 2007 12:03:52 +0000

I don’t know if I buy those real estate numbers. Does the author give the source?

By: guinness416

guinness416 — Fri, 07 Sep 2007 23:40:13 +0000

Personally, I’ve come back to this book more than once. It’s one of the few that doesn’t date.

By: FIRE Finance

FIRE Finance — Fri, 07 Sep 2007 17:25:17 +0000

This is an excellent review. We too found this book good for a single reading. But there are some important points to be noted. As Trent says, wrt investing, stick to long term policy and reduce movements with short term spikes and trenches. So many of our friends have lost thousands of dollars because they chose to sell when the market was falling and buy when it was climbing. The herd mentality is a killer, we always prefer to stay away from it. Another important issue that we have learnt over time is that every dollar is hard earned and if there is a way to save, it is better to go for the saving. If we don’t have money, we have to earn it, no one gives it FREE to us!

By: Matt

Matt — Fri, 07 Sep 2007 17:14:01 +0000

Wow, seems like a very interesting book.

This line made me think of playing poker. – “It’s actually this same central idea that convinces people to sell winning investments more readily than losing ones and also to make spending decisions based on how much money they’ve already spent.”

I play poker with friends each week (not for much money) and I learn so much about financial behaviour from it. For example let’s say I’ve invested 20 chips in the pot and I’m raised 2 chips. Even if I have an inkling that my opponent has a better hand than me I’ll still usually call his raise because I think “I’ve already invested 20 chips, 2 is just 10% more.” In fact it becomes extremely difficult to fold at this point because I feel like I’m throwing my 20 chips away.

I don’t know if you play poker but I find it to be an amazing teaching tool to learn about handling money (as long as you don’t play for much real money).