Behavioral Finance Concepts

𝐑𝐞𝐠𝐫𝐞𝐭. 𝐓𝐡𝐞 𝐬𝐢𝐥𝐞𝐧𝐭 𝐤𝐢𝐥𝐥𝐞𝐫 𝐨𝐟 𝐫𝐞𝐭𝐮𝐫𝐧𝐬. As an investor, your regrets will likely fall into one of these five traps: ❌ Letting emotions override reason ❌ Overestimating how much you actually know ❌ Entrusting your money to the wrong people ❌ Backing doomed businesses - obsolete, over-leveraged, or crushed by competition ❌ Overpaying for hype-fueled stocks with flashy narratives Now, pause and ask yourself: / Do I 𝑟𝑒𝑎𝑙𝑙𝑦 know the subject deeply? / Am I pretending to know more than I do? / Or is it simply unknowable? The answer makes all the difference. This takeaway stuck with me while reading Joel Tillinghast’s 𝐵𝑖𝑔 𝑀𝑜𝑛𝑒𝑦 𝑇ℎ𝑖𝑛𝑘𝑠 𝑆𝑚𝑎𝑙𝑙: 𝐵𝑖𝑎𝑠𝑒𝑠, 𝐵𝑙𝑖𝑛𝑑 𝑆𝑝𝑜𝑡𝑠, 𝑎𝑛𝑑 𝑆𝑚𝑎𝑟𝑡𝑒𝑟 𝐼𝑛𝑣𝑒𝑠𝑡𝑖𝑛𝑔 (Columbia Business School Publishing).

Personal finance is 90% behavior, 10% math. You don’t need complex models or insider tips. You need discipline. The timeless truths still win: - Spend less than you earn - Save before you spend - Avoid bad debt - Invest early, consistently, and patiently - Insure what you can’t afford to lose The problem isn’t that money is complicated. It’s that simplicity gets ignored in the search for excitement. Chasing hot tips is easy. Staying boring and wealthy is hard. But in the end, wealth doesn’t come from timing the market. It comes from time in the market—and control over your impulses. Master your behavior, and the money will follow.

"What are your salary expectations?" "₹12 lakhs." "Done. We can do that." That instant "yes" should have felt like a win. Instead, it felt like a mistake. Because if they agreed that fast, they were probably ready to pay ₹15-18 lakhs. That one number - ₹12 lakhs - just cost ₹3-6 lakhs annually. Over a career? ₹50 lakhs to ₹1 crore lost. I've made this mistake too. Once a vegetable vendor quoted ₹80 per kg for tomatoes. I bargained to ₹60 and felt smart. Next vendor: ₹40 per kg for the same tomatoes. That first ₹80 had trapped my thinking. I was comparing everything to that number, not to reality. This is anchoring bias. Your brain locks onto the first number it hears and uses it as a reference point. Even when it's completely arbitrary. Nobel Prize-winning research proved it: show people random numbers, ask them unrelated questions, and their answers cluster around whatever number they saw first* In salary negotiations, this compounds every single year. Two people start at different salaries - ₹6 lakhs and ₹8 lakhs. After 5 years with standard raises: ₹9.66 lakhs and ₹12.88 lakhs. The gap persists. The initial anchor determines everything that follows. Now imagine one person negotiates their starting offer up to ₹10 lakhs. The other accepts ₹6 lakhs. After 5 years: ₹16.10 lakhs vs ₹9.66 lakhs. Over 30 years, this costs ₹30-50 lakhs in lifetime earnings. Same work. Different starting anchor. In investing, people anchor to recent highs. A stock hits ₹500, drops to ₹300. They wait for it to "come back" to ₹500 before selling. It never does. They hold losing positions for years because ₹500 is stuck in their head. With 93% of F&O traders losing money**, anchoring drives billions in losses annually. So what actually works? When asked for salary expectations: "What's the budgeted range for this role?" Make them name the number first. If forced to give a number: "Similar roles pay ₹16-18 lakhs. Given my experience, I'm targeting the higher end." Same person. Same skills. Different anchor. Anchoring will always affect your decisions. The question is whether you control it or someone else does.

Kya aapke dimaag mei bhi alag-alag money ke dabbe hai? 🧠💰 Issi ko Mental Accounting kehte hai Mental Accounting is when we treat money differently based on where it came from or what we plan to use it for. For instance: 💼 Salary ka paisa = "Responsible spending" 🎁 Gift ka paisa = "Fun money" 💰 Unexpected bonus = "Splurge!" Why does this happen? Our brain likes to organize things, including money, into different categories. How it affects us: ✅ Can help in budgeting (e.g., separate accounts for bills, savings, fun) ❌ But can also lead to irrational financial decisions Examples: Keeping money in a low-interest savings account while having credit card debt Why? "Savings" & "debt" are in different mental accounts Spending a ₹5000 tax refund on a luxury item Why? It feels like "free money" rather than part of your regular income Tricks to overcome it: 👉🏻 Recognize that all money is the same, regardless of its source 👉🏻 Make financial decisions based on overall financial health, not individual "accounts" 👉🏻 Regularly review your entire financial picture, not just individual parts Next time you get unexpected money, pause & think: "What's the best use for this in my overall financial plan?" Want to understand how mental accounting affects your finances? Let's connect over video call https://lnkd.in/dYMxvvk5 #MentalAccounting #MoneyPsychology #PersonalFinance #BrahmiKapasi

Can Stablecoins hold the answer to one of the biggest challenges – and at the same time opportunities – in #financialservices today? Let’s take a look. According to IFC 65 million firms, or 40% of formal micro, small and medium enterprises (MSMEs) in developing countries, have an unmet financing need of $5.2 trillion every year, which is equivalent to 1.4 times the current level of the global MSME lending! One of the main reasons that this huge #financing gap still exists, even though everyone acknowledges the untapped potential and opportunity has to do with the structure of the modern financial system: Funding is mainly funneled via banks and a very large portion of small businesses do not meet their risk criteria due to: 1. The inherent complexity of SMEs 2. A lack of understanding of their needs from formal lenders, which is a direct result of limited credit modeling sophistication (i.e. granular segmentation) that makes it very costly to service them 3. Unavailability of formal data points based on which banks build their credit models Supply chain financing (SCF) has long been heralded as a solution for covering part of the gap, however it has not managed to address suppliers across the entire value chain and particularly those at its lower end. An ambitious project called Dynamo has tried to turn the problem on its head by using #blockchain to address the main challenge of the traditional SFC flow: trust. Lack of trust is the main reason why all these intermediaries (basically banks) exist in the flow in the first place. They make sure that payment is made only when all conditions are met. Here’s is the new approach: —    Digital Trade Tokens (DTTs) - basically stablecoins minted on Ethereum public blockchain - become the means of payment. —    Funds behind the DTTs are ringfenced in the sense that they are only converted to cash when conditions are met (i.e. delivery of goods). —    Conditions are coded on smart contracts on blockchain and #payments are automatically executed once the pre-set conditions are fulfilled. —    The buyer sends the DTTs to the supplier, but until proof of delivery is there the supplier doesn’t have access to real money but has a number of options 1) keep DTTs and wait until proof of delivery 2) Use DTTs (i.e. sell them) as a means to get funding (factoring mechanism). —    The process works exactly the same if suppliers further down the value chain end up with the tokens. They have the same (sell or hold) options and DTTs are converted to cash once the set conditions are met. —    Given that each shipment is unique, DTTs are non-fungible, meaning that they are non-interchangeable and can't be replaced. Although the project involved several drawbacks (i.e. regulation, privacy, integration costs, fluctuating gas fees) that need to be addressed, the idea of connecting programmable payments with trade finance is very promising. Opinions: my own, Graphics and source: BIS Innovation Hub

Next time you're in a crucial negotiation, this common mistake could cost you the deal. I handle approximately 10+ deals/week and I've seen people push too hard for a 'yes' and that's the worst thing It's even backed by psychology. Research shows people are more motivated to avoid losses than pursue gains. This idea, known as loss aversion, comes from The Nobel Prize winner Daniel Kahneman and Amos Tversky’s Prospect Theory, which explains why we prefer small certain rewards over risky larger ones. We’ve to understand that the harder you push for that "yes"- The more defensive the other party becomes, the faster they look for escape routes, and trust erodes. What actually works is: 💡 Start with the “no” Before pitching, ask what would make this deal a hard no for them. Identifying deal-breakers early allows you to address concerns before they become roadblocks. 💡 Reframe your pitch around their losses. Instead of highlighting what they’ll gain, focus on the problems they’ll avoid or the risks they’ll reduce by saying yes. 💡 Turn the table. Ask questions that let them sell the deal to themselves: “What would make this a no-brainer for you?” “What’s one thing you’d change to feel confident moving forward?” Remember: You're not trying to win an argument. You're building a foundation for a long-term business relationship. The goal isn't forcing a "yes" - it's creating an environment where saying "yes" feels like the natural next step. Have you ever lost a deal by pushing too hard? Or won one by stepping back? Share your negotiation story below.

Why fear of loss is killing your deals (and how to stop it).   In my early years of coaching, I was taught to use fear of loss to win negotiations.    ↳ Create urgency.  ↳ Apply pressure.  ↳ Make the other side afraid to lose the deal.   And yes, it worked—short-term.    But here’s what no one tells you:   ↳ When you use fear to get a '𝘆𝗲𝘀,’ the other side often feels resentful.   Over time, I realized this wasn’t the right way to negotiate.    It’s not sustainable, and it damages relationships.   Here’s what I’ve learned instead:   💡𝗙𝗲𝗮𝗿 𝗶𝘀 𝗮 𝗽𝗼𝘄𝗲𝗿𝗳𝘂𝗹 𝗱𝗿𝗶𝘃𝗲𝗿.   Neuroscience shows that:   ↳ Fear is one of the most dominant emotions in decision-making.    ↳ People will walk away from a deal, even a good one, if they feel they’ve been treated unfairly.   💡 𝗙𝗮𝗶𝗿𝗻𝗲𝘀𝘀 𝗯𝗲𝗰𝗼𝗺𝗲𝘀 𝗲𝘃𝗲𝗿𝘆𝘁𝗵𝗶𝗻𝗴.   Once someone feels cornered:   ↳ They’ll start talking about fairness.  ↳ And when fairness is on the table, the deal is at risk.   💡 𝗟𝗶𝘀𝘁𝗲𝗻 𝘄𝗵𝗲𝗻 𝘁𝗵𝗲𝘆 𝗳𝗲𝗲𝗹 𝘆𝗼𝘂'𝗿𝗲 𝗯𝗲𝗶𝗻𝗴 𝘂𝗻𝗳𝗮𝗶𝗿.   Don’t avoid these conversations.    ↳ Invite them. ↳ Ask them to explain why they feel that way.    This will often reveal their true concerns—and help you address them.   💡𝗕𝗲 𝗱𝗲𝗳𝗲𝗿𝗲𝗻𝘁𝗶𝗮𝗹, 𝗯𝘂𝘁 𝗻𝗼𝘁 𝘀𝘂𝗯𝗺𝗶𝘀𝘀𝗶𝘃𝗲.   ↳ Show respect, ↳ But don’t sacrifice your position.    Negotiation should be 𝗰𝗼𝗹𝗹𝗮𝗯𝗼𝗿𝗮𝘁𝗶𝘃𝗲, 𝗻𝗼𝘁 𝗰𝗼𝗺𝗯𝗮𝘁𝗶𝘃𝗲.   I used to train people to use fear.   But now I coach leaders to remove it from the table entirely.    When you take fear out of the equation, you can create deals that last and relationships that thrive.   Want to learn how to remove the fear of loss from your negotiations? Send me a DM and let's talk. ------------------------------------------ Hi, I’m Scott Harrison and I help executive and leaders master negotiation & communication in high-pressure, high-stakes situations.  - ICF Coach and EQ-i Practitioner - 24 yrs | 19 countries | 150+ clients   - Negotiation | Conflict resolution | Closing deals 📩 DM me or book a discovery call (link in the Featured section)

A very passionate Karl Schmedders talks about #ESG and the financial markets in the IMD‘s Breakthrough Program for Senior Executives (BPSE, www.imd.org/bpse). The "tragedy of the horizon" describes how people, businesses, and governments often focus on short-term benefits instead of thinking about long-term problems like climate change. This idea was introduced by Mark Carney, the former governor of the Bank of England. It shows that many see the impacts of climate change as a future issue, rather than something urgent now. Because of this mindset, important steps for sustainability are often delayed. Decision-makers tend to focus on immediate economic growth and short-term profits rather than investing in things like reducing carbon emissions or switching to renewable energy. These actions may not show quick results, but they are crucial for the future. The "tragedy of the horizon" makes it harder to tackle climate change in time, which will lead to bigger problems and higher costs for future generations. Karl cites a study where the average investor (including long-term investors like state and pension funds) holds shares for only 5.5 months. This is according to an analysis of New York Stock Exchange (NYSE) data conducted by Reuters. The analysis also revealed that the average stock holding period has been trending shorter and shorter. In the 1950s, for instance, a typical investor held onto their shares for eight years on average. #climatecrisis #sustainability #esg

As I continue to revisit ‘It Pays to Talk: How to Have the Essential Conversations with Your Family about Money and Investing’—a book I co-authored with my dad almost 25 years ago—one piece of advice has been especially top of mind: the danger of mental accounting. While flipping through the pages, I realized that this is a pitfall I’ve seen many people wrestle with over my 40 years in personal finance. By definition, mental accounting is a behavioral economics concept describing how people categorize, evaluate and manage money in different “mental accounts” rather than treating all money as interchangeable. Let me give you just a few examples. If you tend to treat your hard earned income differently from the way you treat other money- say a tax refund or a lottery winning- you’re guilty of mental accounting. Or think about credit cards. Studies show that people are willing to spend a lot more money on something if they are paying by credit card because they often feel like it’s an unlimited resource and that there is more money available than there actually is. The truth is, a dollar is a dollar—whether you’re using a debit card, credit card, or cash. All your money should be used in accordance with what you are trying to achieve. This is not to say you shouldn’t treat yourself when you receive an unexpected bonus or spend extra money on something meaningful. But regularly treating money differently based on where it’s derived can derail your financial plan. Instead, think strategically about how to allocate any extra money—whether it’s saving and investing for retirement, putting money aside for a rainy day, saving for a special family trip or paying off debt. It’s important to maintain a consistent approach to all money, not just what’s coming from a windfall or a credit card. What’s your approach to handling unexpected money? Do you treat it differently than your regular income? I’d love to hear in the comments below. #ItPaysToTalk #FinancialLiteracy #SmartMoney #MoneyTalks

The Paradox of Financial Markets: Moorad Choudhry's Key Insights One of the most intriguing characteristics of financial markets is how demand behaves in response to price movements. As Moorad Choudhry explains in The Future of Finance (2010): “Consider the following peculiar and virtually unique feature of financial markets: it is the only industry in which rising prices lead to higher demand. In almost every other industry, such as automobiles, energy, airline tickets, white goods, and a whole host of other sectors, holding all else equal, if the price of the product goes up demand will fall. This isn’t so in finance. Here, people treat rising asset prices differently: rising prices lead to increased demand! As equity or house prices rise, more and more customers, the investors, pile into the product. When prices fall, investors pull out, often at a loss. Financial assets are the only asset class where rising prices lead to increased demand. This paradox of finance fuels market booms and busts.” (Choudhry, 2010, p. xxi) This phenomenon—where rising asset prices attract more buyers rather than deterring them—contrasts sharply with traditional supply-demand dynamics. In financial markets, the allure of rising prices often feeds a self-reinforcing cycle of increased demand, speculative behaviour, and heightened market activity. Conversely, falling prices frequently trigger widespread selling, magnifying losses and exacerbating downturns. The behavioural underpinnings of this paradox, including herd mentality and fear of missing out, are significant drivers of market volatility. Understanding these patterns is essential for investors, as they can lead to irrational exuberance during booms and panic selling during busts. This insight reminds us of the importance of disciplined decision-making and prudent risk management in navigating financial markets, which are often influenced as much by human psychology as by economic fundamentals.