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Real-world Applications Of Behavioral Finance

After three and a half years, they were saving nearly 14 percent of their paychecks . In 2006, the Save for Tomorrow plan was incorporated into the Pension Protection Act, a law that clarifies legal issues regarding automatic income reduction and http://www.firstfinancialuk.com helps specify appropriate default investments. Be Honest with Yourself For individual investors or money managers, behavioral finance experts suggest a few strategies to be more rational. Most of their suggestions are complements to traditional quantitative methods of evaluating investments. Although some behavioral finance biases are hard to correct, here are two easy strategies to help you become more rational: Find a partner: Investors should consult partners or objective parties so that they can talk through their investments. Objective parties can help better assess risk and might not be affected by the same biases. Keep track of investments: Investors should keep track of the investments they make as well as the investments they do not make. By keeping track of investments, investors might be able to identify their illogical tendencies. While behavioral finance can be used to minimize investors mistakes, it can also be used to take advantage of others missteps. Behavioral finances increasing popularity has spawned a rise in the number of funds hoping to capitalize on behavioral finance principles.

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