Behavioral finance FAQ / Glossary (Willpower)

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Dates of related message(s) in the
Behavioral-Finance group (*):
Year/month, d: developed / discussed,
i: incidental

(bounded) Willpower

04/9i + see discipline,
self-control, goal, habit

What better police than yourself can watch yourself?
And give yourself the alert when you get irrational
and take the wrong road!

But are you strong enough?


Willpower / self-control / self-discipline, is a needed personal
commitment and practice to stay the course and not to
stray from a (rational) goal
(see "goal").

People often have bounded willpower and thus do not optimize their behavior
according to their goals.

In the case of money management,
discipline is essential

to avoid that money be unproductive, or worse,
that it falls from the pocket into the ditch.

What makes lose sight of the goal?

The addict, the hare and the tortoise.

People might know from experience their

* cognitive biases (memory flaws / reasoning flaws),

* emotional biases (for example the loss aversion, or greed / fear / mimicry...)

* and automatic reflexes / habits,

as well as their immediate or long term harmful effects.

That knowledge would normally make them in a position to avoid
those biases.With such knowledge, wisdom should be all over the
place! Hear the violins?

Well, you guessed it, this is far from being the general case.
People stay
often conditioned by those biases in a way that
makes them repetitive

This is because:

Too hard to do?

They might lack enough willpower:

* Either to change their damaging habits (see habit),

* Or, if they make that change, to make it sustainable.

They might feel those changes of habits too uncomfortable
and meet too much inner (and outside) resistance.
They may even be victims of addictions

Not thinking strong enough?

Distraction might take over and make them easily
   * revert unconsciously
to those unwanted behaviors,

* or just wander around forgetting their goal, their
   compass, and their suitcase.

Have in mind the playful hare,
while the tortoise keeps dedicated to its goal.

The power of emotions or illusions?

They might let their emotions (see

that word) override their reasoning,

This is rather common when in a stressful situations, but also in
case of elation... or boredom.

Rationalization and self delusion (denial) might also take over.

To think we know the danger might make us
believe that our behavior is not so biased.

Understanding those biases, however necessary it is, should not
make us think naively that we control them better than people
who are unconscious of them.

Effects of bounded willpower on economic /
     financial behaviors.

Money indiscipline.

That bounded willpower could explain the persistence of dangerous
investment habits

A general one is just following, for comfort, a routine that is becoming
maladapted to new situations.

Here are some ( negative) effects of deficient
self control,
notably in saving and investing:

Over-spending instead of saving for the old age,

Not cutting one's losses,

Following the herd for too long,

Choosing exclusively riskless investment instead of optimizing

Concentrating on too few assets instead of diversifying,

Under-trading by procrastinating while the situation is clearly

evolvingand calls for new decisions,

vs. overtrading just to fight boredom or impatience,

And any other biased / addictive practice that can be spotted

...after reading this glossary! Frightening, isn't it? ;-)

Except that a bias can be fought with ...another bias.

People can "fool themselves" into limiting their spending by
subscribing an automatic savings plan ("foot in the door" bias).

Vice + vice = virtue?

Also an emotion can be used to fight an opposite emotion.

Is discipline always a good thing?
     Can it be misapplied or excessive?

Cases of devilish discipline?

Let us not forget that fanaticism exist.

* There are cases in which willpower might support destructive goals.

* Also, when to reach a valuable goal overrides all other
, it might
become itself a destructive fixation / commitment
    / addiction.

See the "goal" article.

(*) To find those messages: reach that BF group and, once there,
      1) click "messages", 2) enter your query in "search archives".

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This page last update: 28/08/15  

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