Question: scenario 2 kyle has a carefullyconstructed financial plan that...
Scenario # 2: Kyle has a carefully-constructed financial plan that he and his planner have used for the last decade. However, the current recession is causing him some added angst. Stan, his financial planner, can’t seem to understand why. After really trying to get at the root of Kyle’s stress, he finally explained his core issue. His net worth had dropped below $1 million in assets. Even though this was and arbitrary number, and Kyle’s subsequent net worth dipping below this value had no impact on his overall financial plan, he pushed the panic button. He demanded that Stan sell all of his assets and move into cash. Additionally, Kyle was going to put his house on the market and move, even though real estate prices were also depressed and moving was not one of his personal goals. Stan tried to get Kyle to understand the mistake(s) he was about to make, and that his net worth falling below a certain amount was inconsequential, but he just would not listen and forced Stan to sell his holdings. Kyle subsequently put his house on the market, sold it for about 25% less than what he paid for it five years prior, and moved to a remote town in Tennessee, where his “cost of living” would be lower (although he did not really want to move there personally).
1) What behavior/bias is present? 2) Why is this behavior detrimental? 3) What could have been done differently, or what could be done differently next time to avoid this result?