Scenario # 2: Kyle has a carefully-constructed financial planthat he and his planner have used for the last decade. However, thecurrent recession is causing him some added angst. Stan, hisfinancial planner, canât seem to understand why. After reallytrying to get at the root of Kyleâs stress, he finally explainedhis core issue. His net worth had dropped below $1 million inassets. Even though this was and arbitrary number, and Kyleâssubsequent net worth dipping below this value had no impact on hisoverall financial plan, he pushed the panic button. He demandedthat Stan sell all of his assets and move into cash. Additionally,Kyle was going to put his house on the market and move, even thoughreal estate prices were also depressed and moving was not one ofhis personal goals. Stan tried to get Kyle to understand themistake(s) he was about to make, and that his net worth fallingbelow a certain amount was inconsequential, but he just would notlisten and forced Stan to sell his holdings. Kyle subsequently puthis house on the market, sold it for about 25% less than what hepaid for it five years prior, and moved to a remote town inTennessee, where his âcost of livingâ would be lower (although hedid not really want to move there personally).
1) What behavior/bias is present? 2) Why is this behaviordetrimental? 3) What could have been done differently, or whatcould be done differently next time to avoid this result?
Scenario # 2: Kyle has a carefully-constructed financial planthat he and his planner have used for the last decade. However, thecurrent recession is causing him some added angst. Stan, hisfinancial planner, canât seem to understand why. After reallytrying to get at the root of Kyleâs stress, he finally explainedhis core issue. His net worth had dropped below $1 million inassets. Even though this was and arbitrary number, and Kyleâssubsequent net worth dipping below this value had no impact on hisoverall financial plan, he pushed the panic button. He demandedthat Stan sell all of his assets and move into cash. Additionally,Kyle was going to put his house on the market and move, even thoughreal estate prices were also depressed and moving was not one ofhis personal goals. Stan tried to get Kyle to understand themistake(s) he was about to make, and that his net worth fallingbelow a certain amount was inconsequential, but he just would notlisten and forced Stan to sell his holdings. Kyle subsequently puthis house on the market, sold it for about 25% less than what hepaid for it five years prior, and moved to a remote town inTennessee, where his âcost of livingâ would be lower (although hedid not really want to move there personally).
1) What behavior/bias is present? 2) Why is this behaviordetrimental? 3) What could have been done differently, or whatcould be done differently next time to avoid this result?
