Why we buy

[swatiraohnlu]

We all make mistakes with money, some more than others. And in this economy, who needs it?

But many of these mistakes are avoidable if we can understand how we think about money. Here are 10 biases that psychological research has shown affect our judgement...and how to avoid them.

1. Status quo bias

One of the biggest reason people lose out financially is they stick with what they know, despite much better options being available. We tend to choose the same things we chose before. And we continue to do this even when better options are available, whether it's goods or services.

2. Post-purchase rationalisation

After we buy something that's not right, we convince ourselves it is right.

Most people refuse to accept they've made a mistake, especially with a big purchase. Marketers know this, so they try to encourage part-ownership first, using things like money-back guarantees.

 

[swatiraohnlu]

3. Relativity trap

We think about prices relatively and businesses know this. That's why recommended retail prices are set high, then discounted. Some expensive options on restaurant menus are there only to make the regular meals look reasonable in comparison.

4. Ownership effect

We value things more when we own them. So when it comes to selling our stuff, we tend to set the price too high. It's why you sometimes see second-hand goods advertised at ridiculous prices. Unlike professionals, amateur sellers develop an emotional attachment to their possessions.

5. Present bias

In general humans prefer to get the pleasure right now, and leave the pain for later. Economists call this hyperbolic discounting. In a study by Read and van Leeuwen (1998), when making food choices for next week, 74% of participants chose fruit. But when deciding for today, 70% chose chocolate. That's humans for you: chocolate today, fruit next week.

 

[swatiraohnlu]

6. Fear of losses

People tend to sell things when they go up in price, but hold on to them when they go down. It's one demonstration of our natural desire to avoid losses. This effect has been seen in a number of studies of stock-market trading. The fact that prices are falling, though, is a big clue. If you can fight the fear of losing, in the end it could leave you better off.

7. Familiarity bias

Advertising works partly because we like what we know, even if we only vaguely know it. We even choose familiar things when there are clear signals that it's not the best option.

8. Rosy retrospection

We tend to remember our decisions as better than they really were. This is a problem when we come to make similar decisions again. We have a bias towards thinking our previous decision was a good one; it could be the holiday, house or car you chose.

 

[swatiraohnlu]

9. Free!

The word 'free' has a magical hold on us and marketers know it. Behavioural economics research shows we sometimes take a worse deal overall just to get something for free. Watch out if you are offered something for 'free' as sometimes the deal is not that good.

10. Restraint bias

Many mistakes with money result from a lack of self-control. We think we'll control ourselves, but, when faced with temptation, we can't.

SOURCE

 

[dimpy.handa]

shoppers need the use of their hands to touch, feel, pick up and examine merchandise - if they are burdened down with a coat, several other items that they have picked up, a toddler, etc., they will spend less time in the store than if they had a shopping cart, access to a coat check, strollers, baskets (placed inside the sore interior where they could actually be useful to someone who has already accumulated a few items), etc.
very often, signs in retail environments contain too many words to be scanned quickly, and are placed in locations where they will never be noticed - "Putting a sign that requires twelve seconds to read in a place where customers spend four seconds is just slightly more effective than putting it in your garage."