Table of contents:
- 1. Fear of loss
- 2. Status quo bias
- 3. The Barnum effect
- 4. Money illusion
- 5. Anchoring effect
- 6. The possession effect
- 7. The drowned cost trap
- 8. The expectation effect
2023 Author: Malcolm Clapton | [email protected]. Last modified: 2023-07-28 10:38
If you stop acting automatically, you can avoid many unreasonable spending.
According to classical economic theory, people act rationally and make the most beneficial decisions for themselves. But behavioral economists disagree. They believe that the peculiarities of the human psyche cannot be ignored.
Our mind works according to its own laws, which can hardly be called logical and rational from an economic point of view. Therefore, today we will talk about the traps into which our own mind drives us. Try to avoid them whenever possible.
1. Fear of loss
We are much more afraid of losing something than we are happy to acquire a new one.
Try to imagine what news will impress you more - that you received a salary increase or that this year the expected bonus will not give you? Experiments confirm that we experience loss more strongly.
Remember the site of any course, where every now and then the message "There are only 10 places left" appears. We are afraid of missing out on an opportunity and make an impulse buy.
2. Status quo bias
This effect is partly related to the previous one: we are psychologically comfortable when things remain the same. The thing is that any change, even positive, is stress.
We would rather rather stay with our tit in our hands than try to change something.
Answer a simple question: how often do you change your mobile operator? Over time, the old operator's tariffs are growing, and more and more favorable offers for new customers appear on the market. But we stubbornly continue to endure the unfavorable, but familiar old.
This can be explained by a reluctance to understand the intricacies of the connection. But numerous psychological experiments W. Samuelson, R. Zeckhauser. Status Quo Bias in Decision Making / Journal of Risk and Uncertainty. proved that the real reason for this behavior is the fear of being in a stressful situation, even if there is a reward in the end.
3. The Barnum effect
Think back to the last time you read your horoscope. Even if you do not believe in all these predictions, did it seem to you for a second that they partially describe your life? If so, then you have fallen into Barnum's trap.
The bottom line is that most people tend to attribute general and vague descriptions as a characteristic of their personality and life.
As you probably already guessed, this effect is used in full by astrologers, fortune tellers and other "predictors". The problem is that all the formulations from horoscopes are applicable to almost all people without exception: "you are a responsible person, but sometimes you can make mistakes", "you like to have fun", "good news awaits you." The more positive the descriptions, the more matches we find.
4. Money illusion
We tend to perceive the nominal rather than the real value of money. In other words, we are attracted to large numbers, although the purchasing power of money is much more important (how many goods you can buy for a certain amount).
When your boss announces a pay rise, you are happy that you are earning more. But you are unlikely to think about inflation, which "eats up" all your gain. With the new salary, you can buy fewer goods than the old one last year. Your financial condition has not changed in any way.
But the very fact of a salary increase is very important for a person, because nominally he has become richer.
5. Anchoring effect
This is our tendency to estimate numbers towards an initial approximation. We estimate the value of a thing based on the price quoted by the seller, and do not try to think for ourselves whether it is fair or not.
This effect is especially pronounced in stressful situations.
You decide to rent an apartment, the landlord names his price. You begin to bargain based on this figure, although it is quite possible that objectively it is doubled. But our thinking fails us, and we psychologically cling to this anchor.
6. The possession effect
We tend to overestimate our property. In this case, it is not so important whether you actually own the thing. The main thing is to feel it as your own.
You have probably come across this effect in your life if you have been to the market at least once. There sellers by hook or by crook convince you to hold the thing in your hands, try it on.
As soon as you subconsciously feel the thing as your own, you are ready to buy.
However, there is an exception to this rule - experienced collectors. They are interested in getting the most out of them, are willing to trade, and are more rational in their shopping choices.
7. The drowned cost trap
Another feature of our psyche is a desperate unwillingness to abandon a unprofitable business and move on. It is psychologically difficult for us to admit our losses, so we continue to invest in unprofitable shares or building a house, because so much effort and money has already been spent.
The drowned cost effect is evident in business and in everyday life. The example of General Motors is illustrative: the management believed that Americans would actively buy copies of Japanese cars. And despite the fact that sales clearly showed the opposite, they continued to release a unprofitable product for years. The situation changed only with the change of the management team.
Or an example of the same trap in a typical everyday situation: a wife does not leave her unloved husband, because “we have lived together for so many years”. The result is an unhappy marriage and an unwillingness to admit the obvious.
8. The expectation effect
The more we wait for something, the more we want it. The very fact of expectation, intrigue adds value to the product in our eyes.
A striking example is the presentation of new iPhones, which fans of the company are looking forward to every time. However, this effect also has a downside: with each repetition, its strength weakens. The excitement around new models is getting weaker. If earlier people took a line in front of the door to the store for several days, then gradually this event is perceived more and more calmly and calmly.
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