What are the 7 traps?
- Mental Accounting – Treating some money as more special than other money based on subjective criteria, such as how it will be spent or where it came from.
- The “Anchoring” Effect – Estimating the value of something based on irrelevant information (e.g., the “anchor”), such as the price you paid for it, the cost of something else you own, or what someone told you it was worth.
- Present Bias – Difficulty postponing immediate returns, or delaying gratification.
- Status Quo Bias – Preferring things you know over the things you don’t know, even if other options are superior.
- Restraint Bias – Overestimating our ability to resist temptation.
- Ownership Effect – Placing a higher value on the things you own, because you own them.
- Familiarity Bias – Gravitating toward products and investments that you know over unknown options, which may be better.
While some of them may be pretty similar I’m sure we all have a tendency to fall into one of the traps from time to time. For me, it’s probably “Restraint Bias” – especially once I’ve gotten an idea in my head that I want something. How about you? What’s your biggest trap?