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Errors in Financial Judgment: How Increasing Awareness Can Lead to Financial Wisdom
Posted By Ron On June 14, 2012 @ 7:30 AM In Money | Comments Disabled
Note: This is a guest post from David Rodwell.
Everyone makes errors in judgment. And, it’s more than likely that everyone makes errors in financial judgment, too. Consumers tend to avoid assessing these errors. Maybe they’re painful or maybe they think they just won’t make them again. Perhaps they feel that no good can come of dwelling on past mistakes. But in the case of financial judgments and understanding, it’s incredibly important to recognize errors. Why? Because increasing awareness can not only prevent future mistakes, but can lead to an all-around financial and personal understanding.
Errors in financial judgment happen no matter what your age, education, or financial background. After all, the mind sifts through hundreds and hundreds of beliefs, cognitive plans, and estimates before making a decision. It’s only reasonable to accept – and expect – that errors can occur. When it comes to financial judgment however, errors are something most consumers strive to avoid.
Some of the most common errors in financial judgment are based on cognitive biases, which is a pattern of behavior that can distort judgment.