As life gets better and better and per capita income generally increases, various investment methods have appeared on the market, such as funds, stocks, etc. These investment methods made some people become rich overnight, thus attracting the attention of many people, and people rushed to invest in these investments. However, one thing that cannot be ignored is that not all people who invest have gained huge profits, and some people have even gone bankrupt and lost everything. Therefore, in the face of these venture capital investments, no matter whether you have money or not, you must be cautious.

Investment must be prudent and consumption must be rational. So what is the correct approach?

As the market economy develops with each passing day, rationality is particularly important for business-related behaviors. Because only decisions made through rational thinking can be objective and maximize economic benefits.

For example, investing. Investment is a business behavior that requires a high degree of rationality, and first requires "prudent calculation". The so-called prudent calculation actually requires investors to make careful estimates before investing. The investment can be made only when the benefits outweigh the expenditures based on the estimation of the costs of the upcoming actions and the benefits that the upcoming actions will bring. Therefore, for those who are accustomed to investing, they attach great importance to obtaining returns and controlling risks.

Samuelson, a professor at the Massachusetts Institute of Technology and a famous economist, once conducted this experiment. One time, he toss a coin with a colleague and bet: If the coin lands on heads, he will win $1,000; if it lands on tails, he will pay the colleague $2,000.

At first glance, the bet seemed favorable to Samuelson's colleagues. Because as long as this colleague contributes $1,000, there is a half chance of winning $2,000. Of course, he also has a half chance of losing $1,000. After this analysis, from an economic point of view, the actual situation is as follows: its real expected return is 500 US dollars, and the calculation method is 50% × 2000 + 50% × (-1000) = 500.

Unexpectedly, the colleague rejected the bet, which seemed to put him on the favorable side. He said: "I won't bet with you because I think the loss of $1,000 is better than the loss of $2,000." The return is much more important to me. But if it is thrown 100 times, I agree. "In other words, the point that Samuelson's colleague is making here is that it is difficult to achieve the law of average that I want. results, but 100 times does.

Someone once did an experiment on tossing a coin. The results of the experiment showed that the probability of getting heads after tossing 10 times, 100 times and 1000 times is about 50%. The only difference is that when you toss When you throw it 1000 times, the probability of getting heads is closer to 50% than when you throw it 10 times. This is the so-called law of averages. That is to say, repeating this kind of independent and unrelated experiment many times (the next result has nothing to do with the last result) can reduce the risk of the passive party, so Samuelson's colleagues are ready to use this "law of averages" to stabilize Benefit.

So, next, Samuelson's colleagues proposed this betting rule: "Let's bet 1,000 times, and each time you bet my $1 with $2." In this way, Samuelson Colleague Wilson's portfolio risk was fixed, and his initial capital was significantly reduced, which meant that it was only $500 at most (assuming he was unlucky the first 500 times, which is unlikely). We applaud Samuelson’s colleague’s approach and believe it was his wisest approach. The reason is simple. The rule he proposed is equivalent to spreading $500 into 1,000 identical and independent bets. Then the risk of the asset portfolio will be approximately zero.

From this, we see the extraordinary role of investment rationality in investment - greatly reducing the risk of investment. This is the difference between investing and gambling, because investing is a rational act that is carefully calculated. For people who are good at investing, they will never do anything they are not sure about easily. This is why the stock investor Warren Buffett has only invested in two products for a long time, one is Coca-Cola, and the other is the world's most famous razor. reason.

Because he knows that investing in these two brands is a sure win for him, and the risk is almost zero. So every time he takes a shot, he will hit. Therefore, he has a famous saying: Investment is a gamble, a gamble with known results. The result he is talking about here is simple, that is, victory.

Therefore, "risk avoidance" is the business philosophy of almost all investment masters. We often say that smart people never do blind things. In the same way, those successful businessmen will not spend money rashly and spend blindly.

We have a saying in ancient times: "A gentleman loves money, he takes it in a proper way and disperses it in a proper way."

This actually contains the concepts of investment and consumption. Because the "Tao" and "Fang" emphasized in it refer to the rational planning of investment and financial management.

So, what kind of investment can be called rational investment? According to economic explanation, rationality refers to the characteristic of people maximizing their own utility. Generally speaking, investors in the investment field are divided into three categories based on their different characteristics: the first category is risk averse; the second category is risk neutral; and the third category is risk enthusiasts. Risk-averse people are looking for the word "stable", and their investment rationality is as follows: if there are no excess returns and risk premiums, then no one can try to drag them into the water; the second type of people - risk-neutral people have no third The first type of people are so extreme that they only decide whether to make risky investments based on the expected rate of return, and they are unbiased, always quiet and sometimes active; while the third type of people are completely different. Their purpose is: "Just playing. Heartbeat." They treat risk as a kind of fun and permeate their investment behavior.

According to statistics, most investors in reality are risk averse, but everyone has different levels of risk aversion. Therefore, for most investors, the rational investment performance we define here is: one point more risk must be compensated by one point more income, and risk and income must maintain a certain balanced relationship.

Of course, the counterpart to investment rationality is consumption rationality, but rational consumption is as difficult to grasp as rational investment. Theoretically speaking, the characteristic of personal consumption is that for a specific consumer, each person's consumption will naturally be different according to their own characteristics, and the marginal utility of all consumer goods (including leisure) is equal. The so-called marginal utility refers to the new utility brought by consumers adding one unit of goods or services within a certain period of time, that is, the increment of total utility. In economics, utility refers to the ability of a commodity to satisfy people's desires, or utility refers to the degree of satisfaction that consumers feel when consuming a commodity.

Suppose the consumer is asked to choose between bread and milk. If he eats too much bread, it means that he has reduced the marginal utility of bread (and may even feel disgusted). The result of this can only be that the consumer will reduce his consumption of bread and need to increase his consumption of milk until the marginal utility of both is equal. However, in real life, utility is nothing more than a personal experience, making it difficult to quantify. There are many reasons for this, the most important one is that it is affected by personal preferences, which is not only difficult to compare, but also impossible to measure. And due to the abstraction of measurement standards, it is difficult to achieve rational consumption.

Here is an interesting question about consumption rationality, that is, does the law of diminishing marginal utility apply to all items? Is it a panacea? From the above analysis, it is obviously applicable to bread and milk, but what about money? The answer may not apply.

In addition, consumption rationality is also restricted by other aspects, such as the "completeness of choice assumption." For example: If there are two items A and B, then there will be three situations: people think A is better than B, or B is better than A, or both are equally good. Otherwise, there is no fourth possibility. Condition. If you choose what is better for you, you can say that your consumption behavior is rational. However, economist Amartya Sen told the story of "Buridan's Donkey" in his work to question this "completeness" assumption.

This story goes like this: It is said that Buridan had a donkey, faced with two piles of grass, because he had no way to choose which pile was better, and finally starved to death. Obviously, it does not think that A is better than B, nor does it think that B is better than A, nor does it think that the two piles are equally good. So, what does it think? We certainly don’t know the answer.

This illustrates a problem: in real life, there are many more possibilities than "theoretical arguments". All phenomena in the world are complex and intertwined, and cannot be fully encompassed by theory.

Rationality has always had the characteristic that it is easier said than done. Because rationality means the best choice, which is like how to find the easiest path to reach your goal in a forest with crisscrossed paths. In order to achieve this goal, in addition to having a deep understanding of the environment you are in, you must also be able to eliminate all kinds of external interference and put aside many illusions and temptations. In fact, the same principle applies to rational consumption. Only by not being affected by emotional cognition, taking actual needs as the starting point, and trying to "audit and quantify" your consumption details can you be rational.