Kahneman believes that two types of thinking exist. The first kind is intuitive, automatic, and direct. The second is conscious, rational, slow, laborious, and logical. Unfortunately, intuitive thinking concludes long before the conscious mind does.

Conjunction Fallacy means – the false belief that a conjunction of two events is more probable than one of the events on its own. –

When we have a more detailed situation or more options available then we think that occurrence of it is higher. Compared with a situation that does not have details available.  

Investment – When we have a problem then our intuitive brain run for a solution without knowing the problem well but the conscious brain thinks all aspects and makes decisions. As we have seen about system 1 and system 2 if we rely only on system 1 for making an investment decision then it has a higher probability to meet a loss or have to get huge support from luck. When we received any tips or stories about stock from family or relatives then we tend to believe it without thinking further.

Conjunction fallacies continued to occur dominantly when the observed pattern of frequencies resembled conjunction. We should always focus on statistical evidence which helps us to make a rational decision.

Take Baby Steps

When we learn to run before it, we have to learn to stand up, to walk, to lift our weight. We cannot be directly born and start running from the very next day. It is like 1st day of the gym and the expectation of lifting 80kg of weight and coming out with 17 inches of biceps. Nature has created such a process of progress. We also have to keep it in mind. We started taking baby steps for shifting towards the B and I quadrant.

We have to remember that those who do something are much better than those who do nothing.

By looking at the financial statements of all three categories, we can understand what we should focus on and where we have to control.

The author has mentioned seven steps that help us to find our financial fast track and achieve our goal of the B and I quadrant. I will continue with those seven steps from my upcoming articles.

Read for more detail: Rich Dad’s Cashflow Quadrant: Guide to Financial Freedom

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