Why We Buy
I came across ten costly cognitive biases on PSYBLOG that lead to errors while shopping. Knowing how you think goes a long way in preventing pitfalls. I have taken most of the points and summarized them below.
- Status quo bias – Our tendency to stick to age old preferred items.
- Post purchase rationalization - After we buy something that’s not right, we convince ourselves it is right.
- Relativity trap -
- Ownership effect
- Present bias – In general humans prefer to get the pleasure right now, and leave the pain for later. Economists call this hyperbolic discounting
- Fear of losses – People tend to sell things when they go up in price, but hold on to them when they go down
- 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
- Rosy retrospection – We tend to remember our decisions as better than they really were.
- Free – 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.
- Restraint bias – Many mistakes with money result from a lack of self-control