Sometimes we fool ourselves, sometimes we let others fool us. New studies and ancient proverbs remind us that we are often persuaded to make ‘poor’ decisions with our money. Making good choices can be confusing when the numbers don’t add up. What we buy on sale may be costing us much more than we realize.
Alina Tugend of the New York Times interviewed experts in the fields of behavioral economics, marketing, and debt-proof living. She brings us their warnings about how our behavior is affected by the psychology behind a sale sign. Even the most savvy shopper can be persuaded to buy because advertising is a very powerful tool. Headlines and sale signs convince us to buy in ways we are not always aware of. She warns us: “Free is not bad, but it can lead us to make irrational choices. Not only do we con ourselves that we’re not really spending as much as we really are, we often feel virtuous while doing so.”
Did you know “that the word ‘free’ acts like a drug for many people?” Tempted by the word ‘free’, we lose sight of the value and benefit – or “the economic theory of cost-benefit”- when we let a low price or a ‘free offer’, convince us to spend. The expert here, “Dan Ariely, Professor of Behavioral Economics at Duke University, and the author of Predictably Irrational” explains that “getting something for free feels very good. Zero is an emotional hot button-a source of irrational excitement.”
“Free is an aphrodisiac” according to David R. Bell, Associate Professor of Marketing at the Wharton School of the University of Pennsylvania. “A Free Shipping offer that saves $6.99 is more appealing to many customers than a discount that cuts the purchase price by $10.00.” How can that be? Professor Bell found that people will “increase their average order size to get free shipping. People may buy things they don’t need or want to attain free shipping.”
“Mary Hunt, founder and editor of a Web site called Debtproofliving.com http://www.debtproofliving.com” explains another mistake we make. “Using a debit card makes us feel like we’re getting away with something, we pretend that a debit card is the same as cash. But it has a hidden danger, which is that we will spend more when we use plastic than when we have cash.” She also warns us that fees involved with debit and credit cards can be very deceptive. “A credit card may appear to be a better deal because it charges no annual fees. But it’s not better because it charges a higher interest rate than one that does require yearly fees.”
“Duncan Simester, a Professor of Marketing at M.I.T.’s Sloan School of Management, conducted experiments asking people to bid on certain items. One group was told they could only use cash-with access to an A.T.M.-a second group could use their credit cards. The second group bid significantly higher than those limited to cash.”
There is a very old warning, written in Latin, still in use today: CAVEAT EMPTOR – LET THE BUYER BEWARE. I hope you will.
- Nancy
Labels: food for thought, Nancy
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