Why We Act Dumb Around Money
Atlantic magazine editor Derek Thompson enumerates some of the ways we act dumb around money:
• We’re heavily influenced by the first number we see—it sets our expectations for all the prices we see afterward.
• We’re terrified of extremes—so we pick the middle, even when it’s not the rational choice.
• We’re in love with stories.
• We do what we’re told—buying the entree highlighted on the menu, for example (usually a high-profit item for the restaurant).
• We let our emotions get the best of us.
• We’re easily made dumber by alcohol, time, decisions.
• We’re pained by transaction costs…
• … but we’re weird about rebates and warranties.
• We’re obsessed with the number 9.
Read more here.
Thompson and William Poundstone, author of the new book Priceless, explain the science behind our strange behavior. It’s worth a read just to see how cleverly marketers manipulate these common human biases. I wonder if a brief educational intervention could inoculate us against such manipulations? Simple awareness could make a big difference.