I came across an interesting video from TED Conference, presented by Harvard Psychologist, Dan Gilbert, explaining some of the irrational decisions that we can make in money and life. The problem is the way we value things and he linked to Bernoulli’s theory on expected value. Watch the video to learn about your spending habits and in the process, see what you can do to make better money decisions in the future!
Some interesting pointers from the video:
- Sellers may set a highly priced product that nobody wants to buy. This is to lead and influence buyers to buy the second highest priced products.
- You tend to compare the recent prices that you used to pay. From the video example, you find it acceptable to pay for a holiday for $1600, discounted from $2000. However, you are unlikely to pay $1500 for the $2000 holiday when the initial discounted price was $700. Note that you would pay less in the second situation.
- When time and money comes together, we are often confused over our decisions. Now is better than later. More money is better than less money. We all want to have more money now. What happens when I can have less money now, but more money in the future? It seems like a tough decision to make. Maybe this is why we find investing for the future so hard.
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