Author Topic: Popular Personal Financial Advice Versus the Professors  (Read 7211 times)

Libertea

  • Bristles
  • ***
  • Posts: 395
  • Age: 48
  • Location: USA
Popular Personal Financial Advice Versus the Professors
« on: September 04, 2022, 05:20:32 PM »
Not a book, but maybe we have room to include a journal club entry in here too?

https://www.nber.org/system/files/working_papers/w30395/w30395.pdf

This article looks at the (psychological) advice of popular financial gurus like Dave Ramsey and how it differs from (purely rational) advice given by economists.  The advice for paying down debt is a perfect example: it's most rational to pay the highest interest debt first, and that's what any economist would say.  But that's not what Ramsey recommends: he recommends paying the smallest balance first so as to get a quick win and build motivation to continue paying down other debts, even if that smallest balance has a lower interest rate than other, larger debts.  And you know what?  Ramsey is more successful as a financial guru than any economist is, because he understands significantly better than the economists do regarding how large swaths of human beings actually think.  Go figure.

It reminds me of a discussion that I recently had with a coworker who was lamenting that our workplace COVID recommendations still include "wash your hands frequently" even though we all know now that COVID is transmitted via aerosols, not via fomites.  He had tried unsuccessfully to get handwashing taken out of the recommendations and was frustrated that the other COVID procedure committee members wouldn't follow the actual science.  I pointed out to him that A) don't let the perfect be the enemy of the good - if they want to include handwashing or safe sex practices or eating more servings of fresh fruit and veggies or....along with masks/testing/social distancing, then fine, let them; and B) handwashing is good general health advice anyway; and C) it costs me nothing as a taxpayer for other people to wash their hands more, so I don't even care from an economic standpoint.  Definitely not a sword worth falling on, and meanwhile, I will continue to wear my respirator at work whenever I'm in close quarters with others.  Shrug.

clarkfan1979

  • Magnum Stache
  • ******
  • Posts: 3383
  • Age: 44
  • Location: Pueblo West, CO
Re: Popular Personal Financial Advice Versus the Professors
« Reply #1 on: September 17, 2022, 07:30:38 PM »
Not a book, but maybe we have room to include a journal club entry in here too?

https://www.nber.org/system/files/working_papers/w30395/w30395.pdf

This article looks at the (psychological) advice of popular financial gurus like Dave Ramsey and how it differs from (purely rational) advice given by economists.  The advice for paying down debt is a perfect example: it's most rational to pay the highest interest debt first, and that's what any economist would say.  But that's not what Ramsey recommends: he recommends paying the smallest balance first so as to get a quick win and build motivation to continue paying down other debts, even if that smallest balance has a lower interest rate than other, larger debts.  And you know what?  Ramsey is more successful as a financial guru than any economist is, because he understands significantly better than the economists do regarding how large swaths of human beings actually think.  Go figure.

It reminds me of a discussion that I recently had with a coworker who was lamenting that our workplace COVID recommendations still include "wash your hands frequently" even though we all know now that COVID is transmitted via aerosols, not via fomites.  He had tried unsuccessfully to get handwashing taken out of the recommendations and was frustrated that the other COVID procedure committee members wouldn't follow the actual science.  I pointed out to him that A) don't let the perfect be the enemy of the good - if they want to include handwashing or safe sex practices or eating more servings of fresh fruit and veggies or....along with masks/testing/social distancing, then fine, let them; and B) handwashing is good general health advice anyway; and C) it costs me nothing as a taxpayer for other people to wash their hands more, so I don't even care from an economic standpoint.  Definitely not a sword worth falling on, and meanwhile, I will continue to wear my respirator at work whenever I'm in close quarters with others.  Shrug.

I have a Ph.D. in Applied Social Psychology. I teach full-time at a community college. Some books that are based on actual science would be...

Thinking in Bets by Annie Duke
Influence by Robert Cialdini
Predictably Irrational: Dan Ariely
Thinking Fast and Slow: Daniel Kahneman

These books provide psychology theory to explain human behavior beyond common sense.

I also like the Freakonomics Podcast. Good content.

I was told to read the book "The Psychology of Money" by Morgan Housel. Just because the title has the word "Psychology" in it, doesn't really mean that it was written by a Psychologist or provides value in Psychology. Morgan Housel admits that he has no formal training in Psychology. I didn't read the book, but I did listen to 2-3 interviews of him. In my opinion, his ideas are just common sense and don't really provide any value in psychology beyond a normal podcast.

Chris Pascale

  • Handlebar Stache
  • *****
  • Posts: 1405
Re: Popular Personal Financial Advice Versus the Professors
« Reply #2 on: March 09, 2023, 05:06:29 PM »

Predictably Irrational: Dan Ariely

I enjoyed Ariely's books.

clarkfan1979

  • Magnum Stache
  • ******
  • Posts: 3383
  • Age: 44
  • Location: Pueblo West, CO
Re: Popular Personal Financial Advice Versus the Professors
« Reply #3 on: May 17, 2023, 07:11:40 PM »
Not a book, but maybe we have room to include a journal club entry in here too?

https://www.nber.org/system/files/working_papers/w30395/w30395.pdf

This article looks at the (psychological) advice of popular financial gurus like Dave Ramsey and how it differs from (purely rational) advice given by economists.  The advice for paying down debt is a perfect example: it's most rational to pay the highest interest debt first, and that's what any economist would say.  But that's not what Ramsey recommends: he recommends paying the smallest balance first so as to get a quick win and build motivation to continue paying down other debts, even if that smallest balance has a lower interest rate than other, larger debts.  And you know what?  Ramsey is more successful as a financial guru than any economist is, because he understands significantly better than the economists do regarding how large swaths of human beings actually think.  Go figure.

It reminds me of a discussion that I recently had with a coworker who was lamenting that our workplace COVID recommendations still include "wash your hands frequently" even though we all know now that COVID is transmitted via aerosols, not via fomites.  He had tried unsuccessfully to get handwashing taken out of the recommendations and was frustrated that the other COVID procedure committee members wouldn't follow the actual science.  I pointed out to him that A) don't let the perfect be the enemy of the good - if they want to include handwashing or safe sex practices or eating more servings of fresh fruit and veggies or....along with masks/testing/social distancing, then fine, let them; and B) handwashing is good general health advice anyway; and C) it costs me nothing as a taxpayer for other people to wash their hands more, so I don't even care from an economic standpoint.  Definitely not a sword worth falling on, and meanwhile, I will continue to wear my respirator at work whenever I'm in close quarters with others.  Shrug.

This podcast from the Freakonomics website is very close to the working paper above.

https://freakonomics.com/podcast/are-personal-finance-gurus-giving-you-bad-advice/

Villanelle

  • Walrus Stache
  • *******
  • Posts: 6773
Re: Popular Personal Financial Advice Versus the Professors
« Reply #4 on: May 17, 2023, 07:53:00 PM »
Not a book, but maybe we have room to include a journal club entry in here too?

https://www.nber.org/system/files/working_papers/w30395/w30395.pdf

This article looks at the (psychological) advice of popular financial gurus like Dave Ramsey and how it differs from (purely rational) advice given by economists.  The advice for paying down debt is a perfect example: it's most rational to pay the highest interest debt first, and that's what any economist would say.  But that's not what Ramsey recommends: he recommends paying the smallest balance first so as to get a quick win and build motivation to continue paying down other debts, even if that smallest balance has a lower interest rate than other, larger debts.  And you know what?  Ramsey is more successful as a financial guru than any economist is, because he understands significantly better than the economists do regarding how large swaths of human beings actually think.  Go figure.

It reminds me of a discussion that I recently had with a coworker who was lamenting that our workplace COVID recommendations still include "wash your hands frequently" even though we all know now that COVID is transmitted via aerosols, not via fomites.  He had tried unsuccessfully to get handwashing taken out of the recommendations and was frustrated that the other COVID procedure committee members wouldn't follow the actual science.  I pointed out to him that A) don't let the perfect be the enemy of the good - if they want to include handwashing or safe sex practices or eating more servings of fresh fruit and veggies or....along with masks/testing/social distancing, then fine, let them; and B) handwashing is good general health advice anyway; and C) it costs me nothing as a taxpayer for other people to wash their hands more, so I don't even care from an economic standpoint.  Definitely not a sword worth falling on, and meanwhile, I will continue to wear my respirator at work whenever I'm in close quarters with others.  Shrug.

I'd argue that Ramsey is more popular--which is not the only measure of success--because he devotes more time and energy to marketing, not because his advice is better in any way. For some people, sure, it's better.  It's a bit like diets--what works for one person doesn't work for the next, so it's tough to say which is better/best.  But to equate Ramsey's popularity and renown with his advice being better seems like an inherently flawed premise.  Is David Hasselhoff a better actor than Mark Rylance (according to Google, one of the best Shakespearean actor ever), simply because more people know his name and more people have viewed his work? 

[Yes, I know this is an older thread.]

Chris Pascale

  • Handlebar Stache
  • *****
  • Posts: 1405
Re: Popular Personal Financial Advice Versus the Professors
« Reply #5 on: November 28, 2023, 01:18:20 PM »

Predictably Irrational: Dan Ariely

I enjoyed Ariely's books.

Following up to say - have you guys heard about Ariely lately?

https://www.youtube.com/watch?v=Q3tSG8h_O3A