Introduction to Emotional Intelligence with Money HTML version

How Emotions Affect Financial Behavior
Economists define money as a measure of value. The first
thing that all Economics students learn is that money has no
value except the value that we give it.
Neoclassical Economists have always believed that people
make rational economic decisions, this assumption works well in
theory, but it doesn’t hold up in the real world as can be seen by
the economic booms and busts that characterize the global
These booms and busts have given rise to new school of
thought, Behavioral Economics, which argues that people aren’t
rational and are ruled by their emotions when it comes to
making economic decisions.
Dawney & Shah (2005) state that when it comes to decision
making there are 7 principles that affect human behavior:
1. Other people: people will behave in a way that wins the
approval of others
2. Daily habits: people’s behavior is based on past
experiences and is preconditioned
© 2012 Vangile Makwakwa, All Rights Reserved | 11