By FINTECH Books Contributor, Alberts Pumpurs
Have you ever thought why people are bad at understanding and planning their finances? The answer is simple – humans are economically irrational. And it’s perfectly normal, because economics is not in human’s nature. Any finance management requires additional efforts, stress and bad emotions and it`s all because of our brains.
In the 1960s the American physician and neuroscientist Paul D. MacLean formulated his triune brain model of the evolution of the vertebrate forebrain and behaviour. The triune brain consists of the reptilian complex (Lizard Brain), the paleo mammalian complex (Mammal Brain), and the neo mammalian complex (Neocortex) viewed as structures sequentially added to the forebrain in the course of evolution.
Our irrational unconscious, emotions and habits drive 80% of our behaviour. And this is exactly what Lizard and Mammal brain are responsive for. Rational thinking happens in Neocortex, the brain part that has the smallest impact on our routine. Make a guess where the concept of finance lives in? Of course, in our brain’s youngest part.
All those complex terms such as subsidised/unsubsidised loans, running balance, available balance, interest rates, compounding, stocks, bonds, mutual funds. Why are average users supposed to know what all this means if they just want to manage their wealth?
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