Episode Details

We like to think we make rational decisions with our money, but what if our emotions influence our financial choices far more than we realize?

That’s one of behavioral economics' central findings: human psychology shapes financial decisions. While these discoveries have challenged traditional economic thinking, they reinforce what Scripture has taught for thousands of years: human wisdom is limited, our hearts can deceive us, and our emotions don't always lead us in the right direction.

Mark Biller, Executive Editor and Senior Portfolio Manager at Sound Mind Investing (SMI), believes understanding these tendencies can help Christians become wiser, more disciplined investors.

What Behavioral Economics Reveals About Human Nature

For decades, traditional economic theory largely assumed people make rational financial decisions based on available information and their own economic interests.

But behavioral economists have shown that emotions, cognitive biases, and psychological tendencies often shape our decisions in ways that can undermine our financial well-being.

While these findings have transformed modern economic thinking, they shouldn't surprise Christians familiar with Scripture. Consider what the Bible reveals about human nature:

Our wisdom is flawed. 1 Corinthians 3:18–19 reminds us that human wisdom doesn't always align with God's wisdom. What seems reasonable from our limited perspective may not be wise at all.

Our hearts can deceive us. Jeremiah 17:9 warns that the human heart is deceitful. We may believe we're making objective financial decisions when fear, pride, or greed actually shapes our motivations.

Our emotions can overpower our intentions. In Romans 7:18, Paul acknowledges the struggle between knowing what is right and actually doing it. Investors experience a similar tension when they understand sound financial principles but struggle to follow them during market volatility.

Our ability to predict the future is limited. James 4:13–14 cautions against assuming we know what tomorrow will bring. That principle matters especially in investing, where even the most experienced professionals cannot consistently predict market movements.

Recognizing these limitations should encourage humility, not fear. We don't have to understand everything about the future to make wise financial decisions today. And according to Biller, there are practical ways to account for these human weaknesses when managing investments.

Three Ways to Overcome Emotional Investing

At Sound Mind Investing, Biller and his team encourage investors to recognize their behavioral tendencies and establish disciplined practices to counteract them. Here are three strategies they recommend.

1. Establish Clear, Non-Emotional Selling Guidelines

One of the most difficult investment decisions is knowing when to sell.

Behavioral economists have identified two common tendencies that make selling particularly challenging.

The first is the Endowment Effect, our tendency to value something more simply because we own it.

An investor might become emotionally attached to a particular stock, especially after it has perfor