The Rationality Behind Our Financial Goals
NEW YORK ( MainStreet) Ever since the Age of Enlightenment, it seems that rational thought has been a given and that people should all strive to view their problems, and the world, as objectively as possible.
But we're still human, and human beings are intrinsically emotional especially when it comes to money. Perhaps that's why there's a growing "rationality movement" that encourages people to make better decisions not by denying their emotions, but by understanding and harnessing them.
Many of us have made financial resolutions for the new year, but one of the big factors that torpedoes our progress isyou guessed itour emotions. For more insights on how to use principles of rationality to achieve resolutions, we spoke to Julia Galef, president and cofounder of the Center for Applied Rationality.
Adding rationality to our lives doesn't mean trying to silence the irrational parts of ourselves. That's because there's no such thing as a totally rational person, Galef says.
"Studying rationality makes you realize just how often people do things that they don't expect to help with any of their goals, not even temporary enjoyment," she says.
Galef points to someone who sticks with a degree or career path long after she realizes it's the wrong field because she can't bear the thought of wasted time, or someone who gets into an argument even though he knows on some level that nothing good will come of it. We've all been there.
Here are some realistic ways to bring forth your inner rationalist and achieve your most coveted goals in 2014:
Ask Yourself, 'What's an Alternative Hypothesis?'
"We so frequently jump to a single conclusion about what we should do, or about what someone meant by a particular comment, or about why a stock went up or down," Galef says. "Considering at least one more possibility, rather than stopping at the first thing that occurs to you, is a simple step, but one that scientists have shown yields a significant improvement."
So, next time you're tempted to sell a stock, make a purchase, choose between insurance policies or any other financial decision, pause to examine an alternative to your gut instinct. Your first impression may be rightand if so, it'll withstand the extra scrutiny.
Consider How Your Actions Affect Your Goals
Galef suggests getting in the habit of asking yourself, "What goal am I hoping to achieve here, and is the action I'm currently taking a good way to achieve it?"
As Galef explained, one strategy called pre-hindsight involves imagining that it's June and you haven't achieved your new year's resolution. Are you surprised? Think out each detailed reason you would not be surprised. Each is a cause you might not succeed, and each can be baked into your initial game plan for a more foolproof resolution.