We’re awful at personal finance.   It’s not because we’re dumb — it’s just that personal finance is a minefield of cognitive biases.   Consider almost any cognitive bias: procrastination, planning fallacy, confirmation bias, affective forecasting errors, endowment effects, sunk costs, or hyperbolic discounting. Each of these biases leads to poor decisions that impede our financial goals.…

There are multiple ways to position a product. Marketers often highlight product features, such as “wrinkle free.” However, we know that it’s often best to address specific consumer pain points, such as “iron free.”   It is clear from Google Trends that the pain point solution “iron free” dominates searches, and its cyclicality likely reflects…

Sunk costs are irrecoverable investments of time or money. Since sunk costs were already spent (i.e., we can’t re-spend the $100 that we already spent on non-refundable soccer tickets), it’s irrational to include them in our decision making. The fact that we spent $100 on soccer tickets should not influence whether we subsequently attend the…

In general, we try to make decisions that we think will maximize our expected utility. Typically, we conceptualize expected utility as a property resulting from the product we buy — i.e., we buy chocolate cake because it tastes good.   So why do people buy booger flavored Jelly Beans?   To answer this question, we have to revisit…