The economics of stupidity: understanding irrationality in finance
19th April
New Delhi [India], December 27: ‘Stupidity’ is described as behaviour which lacks good sense, judgment, understanding, reason, or wit.
Human nature is extremely fascinating. We are creatures that are genetically programmed to, and hence, aim to survive and thrive with our tribes. In pursuing the same, we fall into paradoxical, contrarian, illogical, and often predictable patterns of behaviour. Let us take certain examples:
- Some parts of the world have been prone to tornadoes, flash floods, earthquakes, etc., for centuries, yet people choose to reside there, time and again without taking the proper precautions or insurance.
- Few events in life are absolutely certain, with death being the most inevitable. Despite this universal certainty, many individuals do not take the measures to have their lives insured. As a result, they risk leaving their dependents in a precarious financial position. This oversight may suggest an unconscious disregard for the full value of their lives.
- It seems, the earliest financial fraud or “get-rich-quick-scheme” (or GeRQS) was recorded in 300 BC, in Greece. There have been numerous similar scams and Ponzi schemes in various industries for many centuries since 300 BC, but people still fall prey to many GeRQS such as MLMs and pyramid schemes, in the hope (read greed) of making quick money, which rarely ever happens.
Approximately 20,000 Indians are scammed every single day, and 80% of those scams are financial in nature. That's 73 lakhs being scammed every year, in one country! The scamming industry might very well be the largest customer acquisition industry in the entire world.
“The antidote to falling victim to our own ‘unconscious stupidity’ starts with awareness. From awareness comes acceptance and understanding, leading us to be ‘on guard’. We need to understand on a cerebral level that nothing worthwhile in life comes easy. We need to take all the necessary precautions and think two steps ahead, such as being insured, researching everything, and not trusting blindly or being consumed by greed when presented with opportunities that seem too good to be true,” says financial expert, Kishore Subramanian.
It is always better to be safe than sorry, and not be another statistic in the ‘economy of stupidity’.
Initiatives To Implement
- Become aware of the necessary measures of safety to protect yourself and your loved ones in the event of any calamity such as fire, earthquakes, floods, etc. Insure your property and valuables, so that you can minimise financial losses
- Invest in the right insurance for yourself and your family so that no one is left financially destitute, in case of an unfortunate event. The right life insurance can serve as a ray of light in the middle of a turbulent storm.
- Always remember: never click on any suspicious link, or sign up for schemes that seem to promise bigger-than-life returns for nothing in exchange. Never share your private credentials over the phone with anyone.
- Repeat this mantra always “If something is free or seems too good to be true, then you are the product” You have every right to scrutinize every offer that comes your way.
To be saved from this cycle one must fortify their shield of awareness, exercise caution and think twice before taking any step. Never trust any third-party blindly, before checking.
Disclaimer: No Business Standard Journalist was involved in creation of this content
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