The Psychology of Money: Timeless Lessons on Wealth, Greed, and Happiness
Highlights
The Psychology of Money: Timeless Lessons on Wealth, Greed, and Happiness
The more you want something to be true, the more likely you are to believe a story that overestimates the odds of it being true. (Biais de confirmation)
The Psychology of Money: Timeless Lessons on Wealth, Greed, and Happiness
An appealing fiction happens when you are smart, you want to find solutions, but face a combination of limited control and high stakes.
They are extremely powerful. They can make you believe just about anything.
Take a short example.
Ali Hajaji’s son was sick. Elders in his Yemeni village proposed a folk remedy: shove the tip of a burning stick through his son’s chest to drain the sickness from his body.
After the procedure, Hajaji told The New York Times: “When you have no money, and your son is sick, you’ll believe anything.”
The Psychology of Money: Timeless Lessons on Wealth, Greed, and Happiness
“appealing fictions.” They have a big impact on how we think about money—particularly investments and the economy.
The Psychology of Money: Timeless Lessons on Wealth, Greed, and Happiness
It’s hard for a policymaker to predict an outright recession, because a recession will make their careers complicated. So even worst-case projections rarely expect anything worse than just “slow-ish” growth. It’s an appealing fiction, and it’s easy to believe because expecting anything worse is too painful to consider.
The Psychology of Money: Timeless Lessons on Wealth, Greed, and Happiness
Everyone has an incomplete view of the world. But we form a complete narrative to fill in the gaps.
The Psychology of Money: Timeless Lessons on Wealth, Greed, and Happiness
I don’t know what I don’t know. So I am just as susceptible to explaining the world through the limited set of mental models I have at my disposal
The Psychology of Money: Timeless Lessons on Wealth, Greed, and Happiness
[History] cannot be interpreted without the aid of imagination and intuition. The sheer quantity of evidence is so overwhelming that selection is inevitable. Where there is selection there is art. Those who read history tend to look for what proves them right and confirms their personal opinions. They defend loyalties. They read with a purpose to affirm or to attack. They resist inconvenient truth since everyone wants to be on the side of the angels. Just as we start wars to end all wars.
The Psychology of Money: Timeless Lessons on Wealth, Greed, and Happiness
the ability to explain the past, gives us the illusion that the world is understandable. It gives us the illusion that the world makes sense, even when it doesn’t make sense. That’s a big deal in producing mistakes in many fields.
The Psychology of Money: Timeless Lessons on Wealth, Greed, and Happiness
I look for the most understandable causes in everything I come across. And, like her, I’m wrong about a lot of them, because I know a lot less about how the world works than I think I do.
The Psychology of Money: Timeless Lessons on Wealth, Greed, and Happiness
Most people, when confronted with something they don’t understand, do not realize they don’t understand it because they’re able to come up with an explanation that makes sense based on their own unique perspective and experiences in the world, however limited those experiences are. We all want the complicated world we live in to make sense. So we tell ourselves stories to fill in the gaps of what are effectively blind spots.
The Psychology of Money: Timeless Lessons on Wealth, Greed, and Happiness
Luck and risk are both the reality that every outcome in life is guided by forces other than individual effort. They are so similar that you can’t believe in one without equally respecting the other. They both happen because the world is too complex to allow 100% of your actions to dictate 100% of your outcomes. They are driven by the same thing: You are one person in a game with seven billion other people and infinite moving parts. The accidental impact of actions outside of your control can be more consequential than the ones you consciously take.
But both are so hard to measure, and hard to accept, that they too often go overlooked.
The Psychology of Money: Timeless Lessons on Wealth, Greed, and Happiness
When judging others, attributing success to luck makes you look jealous and mean, even if we know it exists. And when judging yourself, attributing success to luck can be too demoralizing to accept.
The Psychology of Money: Timeless Lessons on Wealth, Greed, and Happiness
Economist Bhashkar Mazumder has shown that incomes among brothers are more correlated than height or weight. If you are rich and tall, your brother is more likely to also be rich than he is tall. I think most of us intuitively know this is true—the quality of your education and the doors that open for you are heavily linked to your parents’ socioeconomic status. But find me two rich brothers and I’ll show you two men who do not think this study’s findings apply to them.
The Psychology of Money: Timeless Lessons on Wealth, Greed, and Happiness
Be careful who you praise and admire. Be careful who you look down upon and wish to avoid becoming.
Or, just be careful when assuming that 100% of outcomes can be attributed to effort and decisions.
The Psychology of Money: Timeless Lessons on Wealth, Greed, and Happiness
In the early 1900s Wagner-Jauregg began injecting patients with low-end strains of typhoid, malaria, and smallpox to trigger fevers strong enough to kill off their syphilis. This was as dangerous as it sounds. Some of his patients died from the treatment. He eventually settled on a weak version of malaria, since it could be effectively countered with quinine after a few days of bone-rattling fevers.
After some tragic trial and error his experiment worked. Wagner-Jauregg reported that 6 in 10 syphilis patients treated with “malariotherapy” recovered, compared to around 3 in 10 patients left alone. He won the Nobel Prize in medicine in 1927. The organization today notes: “The main work that concerned Wagner-Jauregg throughout his working life was the endeavour to cure mental disease by inducing a fever.”³³
The Psychology of Money: Timeless Lessons on Wealth, Greed, and Happiness
Fevers are not accidental nuisances. They do play a role in the body’s road to recovery. We now have better, more scientific evidence of fever’s usefulness in fighting infection. A one-degree increase in body temperature has been shown to slow the replication rate of some viruses by a factor of 200. “Numerous investigators have identified a better outcome among patients who displayed fever,” one NIH paper writes.³⁴ The Seattle Children’s Hospital includes a section on its website to educate parents who may panic at the slightest rise in their child’s temperature: “Fevers turn on the body’s immune system. They help the body fight infection. Normal fevers between 100° and 104° f are good for sick children.”³⁵
The Psychology of Money: Timeless Lessons on Wealth, Greed, and Happiness
Fever is almost universally seen as a bad thing. They’re treated with drugs like Tylenol to reduce them as quickly as they appear. Despite millions of years of evolution as a defense mechanism, no parent, no patient, few doctors, and certainly no drug company views fever as anything but a misfortune that should be eliminated.
These views do not match the known science. One study was blunt: “Treatment of fever is common in the ICU setting and likely related to standard dogma rather than evidence-based practice.”³⁶ Howard Markel, director of the Center for the History of Medicine, once said of fever phobia: “These are cultural practices that spread just as widely as the infectious diseases that are behind them.”³⁷
The Psychology of Money: Timeless Lessons on Wealth, Greed, and Happiness
Why does this happen? If fevers are beneficial, why do we fight them so universally?
I don’t think it’s complicated: Fevers hurt. And people don’t want to hurt.
That’s it.
The Psychology of Money: Timeless Lessons on Wealth, Greed, and Happiness
My own view is that people are neither rational nor irrational. We are human. We don’t like to think harder than we need to, and we have unceasing demands on our attention.