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Personal experiences significantly influence our perception of the world. They shape our thoughts, beliefs, and actions. For instance, in the context of financial decisions, research has shown that investment choices are often influenced by experiences from early adulthood. Similarly, our understanding of success and failure is often shaped by our personal encounters with luck and risk. For example, Bill Gates' success is partly attributed to his unique experience of attending a high school with a computer, a rare opportunity in the '60s. Therefore, our personal experiences play a crucial role in how we perceive and interact with the world.
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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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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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