CNN has an excellent piece that distills research from behavioral economics and cognitive biases to help us avoid overspending. My takeaways are:
Buying a lot in one store can decrease your sensitivity to the pain of cost, says Loewenstein. “You hit the what-the-heck effect: You’ve spent $200; what’s another $20 for a T-shirt?” He recommends going to various stores for different purchases.
We overreact to discounts:
“Even psychologists confess that they’ve been seduced.” The anticipation of getting a good deal, says Shell, is what drives us toward the cash register, not the object itself — and as a result, we end up with stuff we don’t particularly want.
Use cash, not credit cards:
“When you pay in cash, you see your wallet getting thinner,” says Dan Ariely, Ph.D., professor of behavioral economics at Duke University. But when you use a credit card, the spending is abstract, “and that makes you trigger-happy.”
…Using cash is the number one antidote to overspending, according to experts.
Your mood can affect how much you’re willing to pay for things:
…participants view either a sad video (a clip from “The Champ,” in which a boy cries at the side of his dying father) or an emotionally neutral one (about the Great Barrier Reef).
Afterward, she asked how much they’d be willing to spend on a sporty water bottle. Those who watched the poignant film offered almost 300 percent more.
Anything that taps willpower can affect your spending:
“Our ability to fight temptation weakens, almost as if we get tired,” says Duke’s Dan Ariely. After engaging in activities that require willpower, you won’t have as much energy left for other challenges, explains Kathleen D. Vohs, Ph.D., assistant professor of marketing at the University of Minnesota. So if you’re using every ounce of discipline at the food court because you’re on a diet, or you’re trying to quit smoking, you’ll be less able to pass up a pair of pumps in a display window.
One of the researchers cited, Dan Ariely, has written two wonderful books about similar quirks of human behavior: Predictably Irrational and The Upside of Irrationality: The Unexpected Benefits of Defying Logic. I highly recommend them both.
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