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Advertising, discounts, “guaranteed winnings” … When we see a chance to win or save money, we seem to be under hypnosis. What do you need to know about your thinking to prevent this from happening?
Blindness to inflation
We know from school what inflation is and why additional zeros in the payroll do not make us richer yet. But studies show that our brain does not distinguish between the imaginary and real value of money. He likes simple signals like “more”, “cheaper”, “right now”.
Imagine that you are invited to participate in the lottery. At stake is a gift card with money that you can spend only on goods from the catalog. Another time you are offered the same lottery. They also offer a 50% discount on items. True, the money on the card is two times less. In fact, the conditions have not changed. But in the experiment, the participants intuitively perceived the second situation as more beneficial.
Faith in a Lucky Star
You will find out that your friend sold the apartment, unable to pay off the bank. “How did he manage to get into such debts? – you are perplexed. “He must have squandered everything. I would be more careful.” Most likely, your friend thought so too. We consider ourselves a little smarter and more fortunate than others – and therefore we make fatal mistakes.
The overconfidence bias often leads us to believe that we are in control. And our behavior convinces everyone around us of this. This mistake becomes especially dangerous when other people depend on us. Suffice it to recall how the blind confidence of investors that they control the market led to its collapse and the 2008 crisis.
Player error
One of the secrets of the gambling business is to make the player believe that he will lose change if he loses, but he can win a fortune. It is psychologically difficult for us to part with something. Especially if it’s money. Even a possible reward will not attract us if something needs to be sacrificed. But until a certain point.
If we see that one loss will have almost no effect on our wallet, it is easier for us to decide on the first bet. And then – as with the first glass. We relax and allow ourselves a little more. The brain sends a signal: “it’s safe here.” And here we face another problem: how to stop?
Pass the tests
- How do you spend money?
dopamine trap
We can stop drinking and smoking. Give up coffee. Even with a heroic effort to stop putting sugar in your food. But there is a drug from which we can never be completely free. It’s dopamine. A neurotransmitter that gives us a sense of well-deserved reward when we receive something valuable and desirable. But it also stands out at the moment when we think we are almost there.
This feature of dopamine has ruined many gamblers. The feeling that we are about to win is stronger than the fear of losing everything. In order not to lose a dose of dopamine, the brain sends a signal of suffering when we try to leave. Those who have ever dealt with street “thimblers” know that if you play once, you can quickly part with all your money.
Right of First Thought
We build our lives based on expectations. “I’ll lose weight by summer if I go to the gym twice a week.” “I’ll save up for a car if I save a quarter of my salary every month.” “We will have another child if the economy in the country improves.” But our expectations are not always rational. Usually what comes to mind first seems the most likely. This trick of thinking is called the “availability heuristic.”
The problem is that the availability heuristic forces us to make non-rational decisions. We go to the supermarket that is closer, although the prices there are high. We choose a vacuum cleaner, the advertisement of which hangs next to our house, although it has bad reviews. Feeling unwell, we run to the pharmacy – for a popular drug that is no more useful than a pacifier. Everyone has their own examples.
See Kabir Sehgal’s book Coined: The Rich Life of Money and How Its History Has Shaped Us (Grand Central Publishing, 2015) for more details.