The (Questionable) Value of Learning from Experience

When it comes to financial decision-making, Morgan Housel offers an important observation

In The Psychology of Money, Morgan Housel writes:

“Your personal experiences with money make up maybe 0.00000001% of what’s happened in the world, but maybe 80% of how you think the world works.”

There is, I think, a lot of truth to this. As we go through life, we definitely learn from our experiences—and that’s generally a good thing. But sometimes a financial experience can leave such an outsized impression that it distorts future behavior. Sometimes those experiences are positive, and sometimes they’re negative.

The key, though, is to recognize that, as Housel points out, they are very limited data points. The lesson: As much as it seems like the right thing to do to learn from experience, when it comes to financial experiences, you want to tread carefully.