Since the eighties has been developing an area of economic theory that delves into the sociological and psychological aspects of those lacking traditional economic theories: Behavioral Finance. Historically, economists treated man as a perfectly rational and balanced being, capable of valuing all available options and always seeking to maximize "utility". Behavioral finances show that the human being has marked emotional preferences and problems of self-control. So, Many of the decisions you make are irrational.
Since prehistory, our brain uses "shortcuts" that sometimes become "snares": in general, when choosing from a range of options, you do not choose the best, but the most familiar one, you avoid the most ambiguous, or even you avoid choosing, clinging to the "status quo." This concept of "status quo" or "trend to the present" is one of the main behavioral trends of people. Making the decision to save is not easy. We let ourselves be carried away by inertia and leave for tomorrow what we can do today. This tendency adds to the feeling of preferring a lower payment today, as opposed to a higher payment in the future.
Another tendency is the aversion to losses: the losses produce more sadness than happiness give us the gains.
In addition to these, there are many other trends that condition our decision making such as overconfidence, the herd effect (we let ourselves be influenced by a friend / family member), the excess of optimism (for which we play the euromillion knowing that we only have one possibility between 76 million that touches us) …
What to do as investors?
Knowing how we are as investors is essential to make better investment decisions. Are you impulsive or does it take you a long time to make a decision? Do you believe in yourself or do you allow yourself to be influenced by others? Do you tolerate the ups and downs of the markets well? To know us better, Schroders makes available to all investors 'investIQ', a tool that allows you, through a brief test, to identify your strengths and weaknesses, as well as to compare yourself with the rest of investors.
In addition, in this context of low return without risk, Many investors go to a financial advisor to find out about investment options that fit their financial objectives and profile. But the role of the advisor can go further. Thus, it can help us to calm down in moments of panic or to stop in those of euphoria and, in short, having professional advice can help us to make our investment decisions more rational. Go to www.schroders.es/investiIQ and find out what kind of investor you are.