Cultural Influences on Financial Decisions
February 12, 2025
Accounting has been hailed by many as the “language of business”. There are many quotations like “A pen is mightier than the sword but no match for the accountant” by Jonathan Glancey which tell us about the power and importance of accounting. The text book definition of accounting states that it includes recording, summarizing, reporting […]
Many corporations and individuals earn a significant portion of their income from rents that they derive from their immovable properties. The financing needs of these people are different from the vast majority of the population. It is for this reason that special products like lease rental discounting have been created to meet their needs. In […]
Planning is the cornerstone around which business empires are built. Businesses which survive and thrive in the long run are often businesses which have diligently kept track of their external environment and continued to plan ahead. In many ways, planning is intuitive to human beings. Every salaried individual plan how they are going to pay […]
The modern world is globalized. This means that free movement of goods, services, people as well as capital is allowed across the globe. This has important implications for governments. A globalized system means that tax systems can no longer work in a vacuum. The tax systems are continuously interacting with other tax systems, whether the […]
Forex trading is a complicated affair. The complication largely arises because of the innumerable factors that are at play in the Forex market. However, this is further exacerbated by human emotions of greed and fear. Let’s see how forex trading systems can help simplify Forex trading for the average Joe. What is a Forex Trading […]
Investors who have been in the market for a long time know that investing is an emotional activity as much as it is a financial activity. This is the reason that people who have a higher degree of self-control generally tend to do better than their peers. Self-control bias may seem like an obvious and simple flaw. However, it has a profound effect on the behavior of any investor. The details of the self-control bias have been listed below:
Self-control bias stems from a behavioral flaw called hyperbolic discounting. As per hyperbolic discounting, there is an inherent flaw in the way investors perceive gains. They have a large appetite for short term gains. However, if they are asked to sacrifice short term gains for long term gains which will be much bigger, most will still choose the short term gains. Hence, investors have a skewed time preference, which negatively impacts their decision making. In simple words, investors with this bias are inclined towards spending more today at the expense of saving less for the future.
Self-control bias is not only seen in the financial world. It is also seen in the other walks of our daily life. For instance, people may be unable to lose weight despite knowing that it is in their best long term interest to do so. They may continuously choose to eat unhealthy food despite knowing that it will cause harm to them.
The bottom line is that self-control bias is not small or frivolous. Like other behavioral biases, this bias also has a huge impact on the portfolio of the investor as well as the return that they gain from it.
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