Financial Pilgrimage

The Psychology of Money: 8 Ways to Improve Your Money Mindset

Human cognition can be messy. Each of us carries a collection of cognitive biases, irrational beliefs, and behavioral quirks. When we make decisions about our money, this can, unfortunately, lead us down the wrong path. 

Understanding each of the money psychology concepts here will help you approach your finances more rationally and avoid some of those poor decisions that stem from cognitive bias.

Optimism bias is the natural tendency to overestimate the likeliness of positive outcomes and underestimate negative ones.


Optimism Bias

Pessimism Bias


Pessimism bias, (also known as negativity bias), draws our attention away from positive circumstances and causes us to weigh negative stimuli more heavily.

Hedonic Adaptation


While adapting to adverse scenarios works well for our survivability, we can also adjust to pleasant things we enjoy. Over time, things that were once exciting and new become familiar.

Sunk Cost Fallacy

The sunk cost fallacy describes the human tendency to keep doing something we have started, even if it isn’t working out.


Social Proof

At a large enough scale, social proof can also trigger a groupthink, gold rush, or bandwagon effect. When everyone around you is talking about and buying into the latest hot investing trend.


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