The Laws of Wealth: Psychology and the secret to investing success by Daniel Crosby

Author:Daniel Crosby [Daniel Crosby]
Language: eng
Format: epub, azw3
Tags: Business, Personal & Professional Development
Publisher: Harriman House
Published: 2016-06-26T21:00:00+00:00

5. Conservation risk

Conservation risk is a by-product of our asymmetrical preference for gain relative to loss and the status quo relative to change. We like winning much more than losing and the old way much better than the new way, all of which contorts our ability to see the world clearly. This conservation effect can be observed in our resistance to new ways of being (status quo bias), our preference for no risk at all relative to large incremental decreases in risk (zero risk bias) and an aptness to privilege our current self over the needs of our future self (hyperbolic discounting).

Evidence of selling winning stocks too quickly and holding losing stocks too long, a failure to maintain appropriate risk levels when “up” and signs of taking excessive risks when “down” are all good signs that you might have fallen prey to conservation risk. Our aversion to change and loss are primal and can only be unseated by a deliberate process aimed at recognizing and overcoming our behavioral inertia.

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