Even though the economy has bounced back, many people have yet to see the benefits and are still feeling financially insecure.
Yahoo Finance recently published an article discussing the 2007-2008 recession’s effects on Americans’ financial behaviors.
Managing Editor Sam Ro writes: “By most measures, the economy is doing great. The US labor market is creating around 200,000 jobs a month, which has brought the unemployment rate tumbling to 5%. Meanwhile, home prices are up and stock prices (GSPC) are near all-time highs. So, why are there so many people so reluctant to acknowledge how good things are today?”
“Regret aversion occurs when the unpleasant memory of bad decisions in the past puts undue and irrational influence on future decisions.”
Ro points out that Americans are experiencing regret aversion, a behavioral bias studied in the field of behavioral finance. “Regret aversion occurs when the unpleasant memory of bad decisions in the past puts undue and irrational influence on future decisions,” he writes.
He continues, “For example, you lose 20% in the stock market in a very short period of time, so you decide never to buy stocks again because of your perpetual expectation that the market will soon crash again.”
President Barack Obama even used the word “trauma” when describing to Yahoo Finance what people went through financially during those scary years.
Ro writes, “Trauma has the ability to distort how we perceive our present reality. Consider the joy that comes from jumping on a trampoline or the thrill one gets from speeding downhill on a bicycle. For many folks, the unexpected and painful reality of a nasty spill and a couple of fractured bones will forever take away the bliss that once came from those activities. The trampoline and bicycle will continue to offer the same experience, but the trauma can be so intense that it can force many to keep their feet on the ground.”