Understanding Behavioral Finance Biases: Why Your Stubborn Brain Refuses to Give up on a Poor Choice

It’s one of the behavioral finance biases that takes out everyone from individual investors to huge corporations. They make a bad choice, but they simply refuse to admit it. Instead of taking the loss and minimizing the damage, they double down on that bad choice. Why do they so stubbornly go down with the ship on their bad picks? The reason is a sneaky cognitive bias called “escalation of commitment.”

Learn the three situations when this bias is most likely to cause you to slip into denial. And learn the one tactic for making sure you don’t fall victim.

In this video on making better investing decisions. Behavioral finance speaker Graeme Newell shows us the powerful draw of escalation of commitment and how this cognitive bias can lure us into making bad financial choices.

Graeme Newell is a researcher in behavioral investing, behavioral economics and finance psychology. He is a professional economics speaker, a personal finance speaker and an expert in behavioral investing.

In this video you’ll learn all about how cognitive bias can trick us into making foolish choices. You’ll learn specific ways to recognize the signs that a bad decision is likely, then how to quickly get back on track.

About Graeme’s Channel:
I’m a researcher, speaker and author who specializes in behavioral finance. I take perverse pleasure in putting people inside of brain scanners, then asking them to make important money decisions.

My videos reveal the vulnerable situations when business leaders and everyday people are most likely to make crazy-bad, impulsive money decisions. I teach how to use brain science insights to make smarter decisions that grow businesses and increase wealth.

Learn more about how brain science insights can help you make smarter decisions:

[marvinorquita]

One time I ate at a restaurant, I tried to explore another dish that was like something new to me. Unfortunately, it was not a good idea since I didn't enjoy it as much as I expected to and it leaves me no choice but to eat it all since I paid for it. I thought it's the right thing to do to get my money's worth.

[marvinorquita]

I remember my previous job where I worked for many years. It got to the point that I realized I was no longer happy with the environment and just thought of looking for another job. But during those times there were a lot of things that bothered my mind like what if I couldn't find another job right away and I also thought I had been in the company for quite some time so why should I give up.

[maetheldelossantos]

I used to hold on to the things that I've worked hard for even if it is of no benefit to me at all. I just can't let it go because the fact that I put so much effort into it pains me. I think I am guilty of this fallacy.

[maetheldelossantos]

For me, this escalation of commitment bias gives us a hard time deciding. In my previous online business, I'm having a hard time letting it go since it was my first business (effort and money), but I decided to stop it because it is losing money and it gives me stress and more debt. But now I realize that it was a good decision.

What is better to do, giving up too soon or holding on too long?

[marvinorquita]

Why do people easily or continue to fall into the escalation of commitment?

[maetheldelossantos]

How does escalation of commitment affect our financial decision making?