Truth used to be an absolute.

As a child, I was often asked “Are you telling the truth?” and there was no two ways about it.

But truth today is subjective; everyone has their version, hence the expression “speak your truth”.

The lines between truth and belief have been blurred, which has consequences for every part of life including financial planning.

Consider the current COVID-19 vaccine debate. The resistance of some and the outright refusal of others to get vaccinated has revealed far less social cohesion on this matter than assumed.

For many, the reasons behind their vaccine hesitancy are valid and rational. Their decision is normal.

Similarly, the reasons why some people insist on accumulating Bitcoin and investment properties, despite the risks, may be misinformed but to them, their logic is sound.

The study of behavioural finance aims to identify biases (or repeatable errors) that lead to conflict between the rational expectations of economists and the real-life experience of individuals.

The subtext is that if people can identify and understand their biases, they won’t make mistakes.

However, even famed economist and Nobel Prize recipient Daniel Kahneman openly talks about the common behavioural errors he makes.

This brings us back to the issue of beliefs.

There are three types of beliefs: factual, preference-based and ideology-based.

Factual beliefs refer to knowledge that is based on an objective definition such as the sun is hot or water is a liquid. Another example could be vaccines prevent death and reduce the risk of serious illness.

Preference-based beliefs are based on some form of cognitive judgment and vary from person to person. An example may be Aussie rules is the best football code or Melbourne is a better place to live than Sydney.