Behavioral Strategies to Achieve Financial Stability in Uncertain Times

Abstract

The automatic use of heuristics, the effects of framing, and the tendency to procrastinate when combined with the risk and uncertainty inherent in the financial environment can lead to financial instability for ordinary investors. This chapter explores established behavioral tendencies with respect to financial decision making within the framework of behavioral economics: how and why heuristics are used to make decisions, how different choice frames influence decisions, the crucial impact of biases like loss aversion on decision outcomes. The chapter also explores critical factors that induce the tendency to procrastinate saving and investing. The chapter suggests strategies that investors can use to achieve long-term financial stability by achieving predetermined financial goals as well as protect their investments from depreciating in value in the context of financial market instability.

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