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