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An investor can account for risk and luck in their decisions by avoiding the idolization of successful people as this can lead to the neglect of the role of luck and risk in their success. They should also understand that success and failure are often determined by factors that are hard to measure such as luck and risk. Therefore, they should not discount these factors in their decision-making process. Additionally, they should be aware that personal experiences and early adulthood experiences can heavily influence investment decisions, which may not always align with the current economic situation.
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How should investors manage the inevitabilities of risk? What are the most powerful wealth-building tools that require little technical skill? How do...
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Someone's personal experiences make up only a small portion of what happens, but it makes up most of how that person thinks the world works. In theory, financial decisions should be driven by an investor's goals and the characteristics of investment options available to them. Economists from the National Bureau of Economic Research found that instead, investment decisions are anchored by early adulthood experiences. They found that investors tend to weigh more heavily the experience of the economy when they were young than what the economy is like now. Both luck and risk are often the factors that determine success and failure. Because they are hard to measure, they are often discounted. Some of Bill Gate's success can be attributed to hard work and good decisions. Some of it can also be attributed to his going to a high school with a computer. This was a roughly 1 in 1 million chance in the '60s. To account for risk and luck in decisions, an investor should: 1) Avoid idolization of s...
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