"How we Decide" was fooled by the emotional third section

Undergraduate thesis defense finally ended, everything must continue to return to the right track.

This is the last section of chapter three.

Introduction to the Book

Section II of this chapter

The first section of this chapter

"The credit card is my enemy. "Herman Palmer said so. On weekdays, Herman is a very friendly and easygoing person, but when it comes to credit cards, his face becomes very, very poor. "Every day I see everyone having the same problem: the cards in the wallet: Visa and MasterCard. ”

Herman is an economic advisor to GreenPath, a nonprofit organization in Bronx District, New York. His office was minimalist, and there was a glass jar on the desk in the office, not candy, but a jar full of credit card fragments. "I want you to see that they are not alone, and that the problems people face are the same. "Whenever a customer comes, he asks the customer to hand over the credit card and cut the credit card into pieces." "My responsibility is to help my clients live with the least amount of money, and credit cards are the biggest impediment. "January is his busiest time of the year," people are always over-spending on holidays, but they only realize they're over-spending when they see their credit card bills. ”

Herman's main customers are in the very poor conditions near the GreenPath cottage, the house is in disrepair. There is no supermarket near the block, but the cellar and the pawnshop are many. These clients are dominated by single mothers, many of whom are working full-time, but are still struggling to make a living. After Herman's statistics, although his client rented the house is basically the cheapest level in New York, but rents still accounted for 40% of the income.

Herman is very good at understanding the customer's current situation (not because the other side of the economic situation is directly negative from the heart), and practical help customers solve the problem. 65% of customers have completed plans to reduce their liabilities and have had an effect. As an economic advisor, it's easy to criticize and educate your clients, but it's not Herman, he listens to customers. After cutting off the credit card, Herman spent the next few hours talking to the client about their situation. "I did my best to get the customer to walk out of the office with a practical solution. ”

Many of the stories that Herman heard were so open. One day, his client received a credit card promotion ad in his mailbox. (U.S. credit card companies, which sent 5.3 billion ads to nationals in 2007 alone) are extremely tempting, with very low upfront rates, the number of airline miles flown, some free movie tickets, and so on. Customers feel good, so fill out the registration form, a few weeks later, and then get a new credit card. At first, they would not use the credit card, but, slowly, suddenly, one day, in the supermarket forgot to take cash, took out the credit card. "No one would say that they have to use a credit card to buy goods that they can't repay on time, but in the long run, that's what everyone does." ”

Herman that credit cards have led people to make very foolish economic decisions. Credit cards make it more difficult to curb buying impulses. "When I checked their credit card bills, I would pay more attention to about $40 in spending, ask them what they were used to do, and they would tell me ' Herman, I bought a pair of shoes, and the shoe was on sale, ' Herman, this is a pair of jeans, but it was 50 percent!" ' It seems like it's a stupid decision not to buy these things, but it's not. ”

A lot of people, after Herman's financial analysis, admit that they are paying for all sorts of unnecessary things. "I often ask my clients if they do not use credit cards when paying the bill, but need to go to the ATM to get money and pay cash, will you still buy it?" A lot of people think for a minute and say ' no '.

Credit cards Change the way we spend money, and when we use cash to shop, a purchase can lead to a real lighter purse. and credit card shopping makes the loss of property less obvious. After a lot of experimentation, the same expense, the use of credit cards to generate less negative feelings. When people use credit cards, economic decisions are made more lightly.

The results of the statistics are brutal: in the last 10 years, the average American household credit card owed $9000, with an average of 8.5 credit cards per person. Since 02, most Americans have spent more than they have earned.

At first glance, this is astonishing, and the credit card interest rate is very high, and a rational consumer will certainly use the overdraft as the last option for economic spending. However, so many people take the credit card, silently thinking about why they have such a large consumption.

Credit cards are a loophole in the use of our emotional system. An overvalued valuation of something that can be obtained immediately, while spending is the responsibility of the future. The emotional system is more difficult to understand the economic impact of long-term interest. We took out the credit card because our negative emotions only gave us such a small impediment.

Herman also contacted a lot of housing subprime cases, "received the first housing subprime case I think such things are too bad, people are using to buy things they can not bear." "The most common thing he touches is the" 2/28 "loan model, the first 2 years, the interest rate will be very low, then the interest rate will be very very high, and the credit card working mode is very similar: let people get the house at a very low cost, then use high interest rate to squeeze people. When the subprime crisis came into being in 07, 20 of the houses in the market were bought by a similar "2/28" loan. People can't stand the temptation of early low interest rates.

Although our brain's rationality always looks at long-term goals, we are always tempted by short-term benefits. If Platonic's own testimonials, will interrogates sensibility.

Jonathan Cohen, a neuroscientist at Princeton University, has designed this phenomenon for research. He recently discovered through the magnetic resonance instrument that when a subject is considering long-term benefits, the rational region is visibly active, and the region constantly says to the subject: "Calm down, calm down." "And when the subject is considering a short-term benefit. (e.g. credit card payments, immediate access to this pair of trousers) this time, the emotional system, such as the dopamine system, becomes more active. In the experiment, by adjusting the amount of money needed to spend. Cohen can clearly observe the "war" that occurs within the body's nervous system. The rational and perceptual part leads to contradictory conclusions, and the final conclusion depends on which party has played a greater influence. (In the experiment, there was a case in which people who resisted credit-card payments opted for the cash outlay, and later showed a stronger mathematical ability.) ）

The reason we choose to buy more than what we pay for in fiscal spending is that the rational part loses the war. David Laibson, a professor of economics at Harvard University, said, "Our emotional system wants to squeeze credit cards to the fullest." Emotional systems When you want something, let it wait, it's a hard thing to do. "Many businesses in the ads are using large font to show short-term benefits to entice consumers, I have been telling others, do not look at those ads in the big characters, to see the small print." ”

Lawrence Ausubel, professor of economics at the University of Maryland. One of his experiments was as follows: The subjects had two credit cards, the first one: the initial 6-month credit card repayment rate of 4.6, followed by 16. Another, the initial 6.9, the late 14. Here are the results: people who choose a credit card with a higher interest rate are 3 times times more likely to be in the other.

When people make the wrong economic decisions, the big reason is that our emotional part underestimates the future, and it wants to be happy. We need to know under what circumstances our sensibility will mislead us so that we have the opportunity to compensate for these flaws.

Many economists focus on how to prevent people from making impulsive economic decisions, Shlomo Benartzi and Richard Thaler designed a 401K mechanism that takes this into account. This mechanism "Save more Tomorrow". Under this mechanism, the company will consult the staff to pay for the next month's 401K, if agreed, the next month the company will be paid, because this will not generate immediate expenditure, greatly enhance the staff of 401K instant payment rate.

Herman is more confident about his solution. "Cut off the damn credit card and learn to pay in cash." ”

"How we Decide" was fooled by the emotional third section