The caller, however, surprised me by saying, “Hi, Honey. It’s Mom. I’m in the emergency room and the doctors tell me I need my gallbladder out. Will you fly out and do the operation?”
The right answer is, of course, “No.” But why?
It’s because when we doctors treat people we love, emotions can cloud our clinical judgment and compromise the medical outcome.
When the stakes are high, we want to make logical considered choices based on the best information available. This is true whether you’re helping patients optimize their health, or you’re building wealth.
Is this how people REALLY make choices?
In the book Nudge: Improving Decisions About Health, Wealth, and Happiness, authors Richard Thaler and Cass Sustein assert that real life decision-making is flawed in predictable and systematic ways.
This may explain why only about half of patients take medication as prescribed.
This may also explain why only about half of physicians report they are on track to retire.
Nudge author Richard Thaler of the University of Chicago received the 2017 Nobel Prize in Economics in recognition of his contributions to behavioral economics. This field explores how psychological biases cause people to act in ways that diverge from pure rational self-interest.
Here are a few predictable errors that erode financial health:
- Loss aversion We will take greater risks to avoid loss than to experience gains. That means investors take risks at the time they should be erring on the side of safety.
- Over and under reactions Investors tend to behave with optimism when the market goes up, and become much more pessimistic when the market goes down.
- Over confidence Investors tend to overestimate their ability to beat the market, and underestimate investing challenges.
- Relativity Investors see the world through the eyes of relative experience. Imagine how you would feel if someone gave you a gift card. Now imagine how you would respond if someone gave you two gift cards and took one back. You have the identical outcome is each case, but it feels much different.
While this is not a formal part of behavioral economics, I observe two other investing mistakes that physicians and dentists make. First, many burned-out physicians use spending as a stress management tool. Second, many physicians are basing their choices on the wrong information.
Here are some steps you can take to avoid the bad decisions that can unwittingly undermine your efforts to achieve financial freedom:
- Recognize the you are subject to emotional, social, psychologic and culteral factors that may lead you to poor investing decisions.
- Identify investing errors you have made in the past.
- Explore the circumstances that made you more vulnerable to investing mistakes.
- Create systems to protect yourself from investing errors. If you are dieting, you would clear unhealthy food from the house. Maybe you decide that you will check with someone before making purchases above a certain dollar amount.
- Ask yourself, “Am I spending as a way to manage stress?” Could you think of other healthier options?
- Ask yourself, “Am I paying attention to the right information?” For example, I recently came to understand the critical impact of taxes on wealth-building.
The most important piece of advice? Bring the principles that work well in the world of medicine into the world of finance. While I did not remove my mother’s gallbladder, I helped select the surgeon with the experience, skill and judgement to optimize the chances of getting a great outcome. I also wanted someone who would listen to my mother and be sensitive to the things that were important to her.
Please allow me to suggest that you want to have in your corner a seasoned expert who can help you assess your financial health, remain divorced from emotion and focus on the things that matter when it comes to diagnostic and therapeutic interventions with your money.
© Vicki Rackner MD 2017. You are welcome to reproduce this blog post with this by-line:
Vicki Rackner MD, founder of Thriving Doctors, helps physicians and dentists achieve the personal, professional and financial rewards that attracted them to a career in medicine. Her latest book The Myth of the Rich Doctor that explores doctors’ relationship with money is now available. Reach her at 425 451-3777.