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Understanding how you make financial decisions can help you make better investment decisions, which can help you achieve your financial goals.

The field of behavioural science explores how we perceive our world and how that may influence our behaviours. It also studies how to change behaviours in ways that can be beneficial to us. For example, behavioural science techniques can help us follow through on our intentions to save money.

Behavioural scientists have developed a model to help explain how humans process information—known as the Dual Process Theory. According to this theory, information processing can generally be separated into two systems:

• System 1, which involves lower effort thinking, and
• System 2, which involves higher effort thinking.

Each system has its pros and cons depending on the situation or context.

While these two systems can help you process information effectively, they are not perfect and can make mistakes. These mistakes are referred to as cognitive biases, which are flaws or errors in your thinking that can lead you to poorer decision making.

Learn how to recognize cognitive biases and how to change your behaviour, as well as how to protect yourself from fraudsters who take advantage of these biases. Visit  Psychology of Investing on GetSmarterAboutMoney.ca.