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Behavioral economics to the rescue: becoming a savvy consumer on Black Friday

Plan ahead and buy based on what you need and not on whether it seems like a good deal.

Dr. Guy Hochman, head of the MA program in Behavioral Economics (credit: IDC)
Dr. Guy Hochman, head of the MA program in Behavioral Economics (credit: IDC)

Behavioral economics combines insights from economics and psychology to understand human nature. Based on this understanding, behavioral economists develop behavioral interventions that help people make better decisions for themselves and their society.

One prime example is consumer behavior. Behavioral research, as well as day-to-day conduct, demonstrate time and time again that people are not savvy consumers. We overspend, buy products we don’t really need, etc. The main reason for this is a behavioral tendency called ‘present bias.’ This basic human tendency leads us to consider the here and now while neglecting our future. On top of that, other biases that influence our consumption habits are the ‘projection bias’ – the belief that my current preferences will be the same as future preferences, and overconfidence – our tendency to overestimate our abilities and chances to succeed.

So how can behavioral economics help us be better consumers? First, whenever possible, use cash, not a credit card. While we love to consume, we don’t like to pay. The so-called ‘pain of payment’ adds a psychological tax to consumption and limits our expenditures. But the use of a credit card or new payment technologies reduces this pain and facilitates overspending. Second, if you have to use a credit card (e.g., in online shopping), don’t use the option to save your credit card details. If you need to look for your wallet and type your information every time you want to buy something, you will increase the pain of paying. Moreover, people like to keep things as simple as possible. So when we add this complexity to the buying process, we increase the chance that we will not buy things we don’t really need. Third, track your income and expenses. Use an excel sheet or an app to be at the top of your game. Plan ahead and buy based on what you need and not on whether it seems like a good deal. And lastly, try to resist temptations. Just like going to the grocery store while hungry is not recommended, it is better not to go to the mall or log in to an online store just for browsing.

In the MA program in Behavioral Economics at Reichman University, students learn to identify the factors which influence our decisions, and design interventions that will help us deal with major societal challenges. Students receive a strong theoretical background and gain practical experience that enables them to help people improve their decision-making processes. Our program’s socially-oriented nature allows the faculty members and students to get involved and respond to the strong need to formulate social policies and interventions and help individuals and governments better manage their lives.

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