Why we hate making financial decisions – and what to do about it

The Conversation:

The advice to use your head, not your heart, might not be helpful after all.

We all make tough decisions, but choices relating to money send many of us running in the other direction. Unfortunately, ample evidence indicates that aversion toward financial decisions leads many of us to put off things like funding a 401(k), saving at a sufficient rate, or just doing a better job managing our credit card debt. All of these things can hurt our long-term financial health.

Economists and behavioral scientists have proposed several explanations for this phenomenon. For example, financial products are often quite complicated, and we may feel we lack the necessary expertise. We may be overwhelmed by too many choices – such as when picking mutual funds to put in our 401(k) portfolio.

But as valid as these reasons may be, my co-author Jane Jeongin Park and I felt that there was more to the story.