Why Smart People Make Dumb Money Decisions, According to Humphrey Yang
Written by
Ashley Donohoe
Edited by
Amen Oyiboke
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According to the TIAA Institute-GFLEC Personal Finance Index, about half of American adults lack financial literacy, and even more fall short when it comes to decisions regarding risk. According to financial YouTuber Humphrey Yang, being smart can put you at a greater risk of making poor choices.
In a recent YouTube video, Yang covered three biases that often trap smart people into making money decisions that leave them poor. But even if you consider yourself intelligent and financially literate, that doesn’t guarantee you’ll do the best things with your money.
Here are the signs to watch out for if you’re making dumb money decisions, and tips to avoid falling for them.
Trusting Authority Figures
Authority bias is when you believe what a person — like a CEO, celebrity or financial advisor — says because of their high influence or position. This can get you in trouble since their advice might be completely wrong or not based on the reality of your situation.
Yang gave the example of quantum computing stock prices. In December 2024, a Google Willow announcement led many investors to buy these stocks, which boosted their prices. But in January 2025, Nvidia’s CEO said the tech had many years to go, and stock prices fell a lot.
“The truth is that many people probably didn’t do any due diligence when it came to these stocks, and they probably bought them on a speculative future after the Willow announcement, and then they sold them on a whim after a negative comment,” Yang said.
To protect yourself from this bias, don’t rely solely on what a single person says to do with your money. Yang said you should also forget whatever is special about that person to improve your objectivity, see what other people say differently about the topic, and trust your instincts.
Confirmation Bias
If you often look only for information that aligns with your beliefs about money and brush off anything that says differently, you’ve fallen for confirmation bias. Besides leading to bad money moves, this bias can make you an easier person to scam, according to the Ohio Attorney General.
Yang explained, “It’s especially dangerous for those that are super logical because if you’re a super methodical thinker, you can actually build a logical sounding argument to defend your pre-existing opinion.”
He gave an example of how this can play out with tech stocks. If you favor those stocks, you might watch for positive news reports, listen to influencers who are fans of tech, and focus on friends who profited big. You might not consider any bad earnings projections or the investors who went broke.
According to Yang, asking “why” several times helps avoid bad decisions due to confirmation bias. This lets you dig into your motivation and reasoning for making the money move. He also suggested writing down the decisions you make so you can later look back on why you did certain things and what you expected.
Being Overconfident
“This is arguably the most dangerous cognitive bias for smart people, and that’s basically when people overestimate their knowledge, abilities and their predictions,” said Yang.
Overconfidence bias can cause you to not consider risks since you mistakenly think you have an advantage with money over other people, and that could even be due to expertise in an unrelated area. Yang explained that this mistake played a role in various financial crises over the last few decades.
Being overconfident might also lead you to not diversify your money enough and risk major losses. Yang gave examples of copying Warren Buffett’s portfolio with limited investment choices or investing substantially in your own employer’s stock due to familiarity.
To avoid letting overconfidence damage your finances, consider that some successes might have come from pure luck rather than a wise choice you made. Yang said you should also regularly compare your predictions to reality and stick to simple investing strategies, like using index funds instead of betting on the next big individual stock.
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