When we think about trying to improve our personal finances, we usually first look at cutting costs. That could look like anything from cutting down on the number of lattes you buy in a week to getting a roommate to supplement your mortgage payments. One of the biggest challenges is to stick to our decisions about spending once we have made them. For instance, if you only want to buy your traditional Grande Caramel Macchiato on Fridays, then you have to drive by that tempting Starbucks advertising every day and remind yourself of your new goals.
Advertising: Our brains on cognitive bias
Our brains are big, beautiful things that can take in a lot of information, sort through all the randomness, and then make good decisions based on only the useful facts. Cognitive psychology uses the term heuristics to talk about brain shortcuts that let us make decisions without being completely overwhelmed with too much information. For example, you can enter your Starbucks, take in the people talking, walking, and standing; all the advertising displays and colourful menus; all the noise from chatter, coffee grinders, and baristas calling orders and navigate your way to the cashier and order your coffee of choice. Your brain sorts through everything, decides what’s important (the cashier and the coffee order), and lets you filter out the rest of it.
Advertisers are very aware of these brain shortcuts for making decisions and use these strategies to sell us stuff without us even being aware of it. One of these brain shortcuts is called cognitive bias – these are basically thinking patterns that lead us to rely on previous experience or expected results. For instance, you go to the store and buy the same brand of bread every week – it’s routine. You save yourself the time and energy of debating over the twenty different kinds and brands of bread every week and just buy the same kind. To have to think critically about every single decision in your life would be crazy-making, your life would grind to a stop if you had to contemplate Crest versus Colgate for hours on a weekly basis.
Advertising: Anchoring, adjusting, & cute skirts
Think about the last time you went to your favourite store. Maybe they were advertising a sale and you were browsing through the racks and found a couple of cute skirts that you like (I’m sure men have found themselves in this situation tonnes of times). Perhaps you were undecided about which one to buy until you notice the price tags. You noticed that cute skirt #1’s original price was $40.00 and that the sale price is $25.00 and then you see cute skirt #2’s original price is $20.00, no sale. Which one would you go for?
Nine out ten people will go for cute skirt #1 for $25.00 instead of cute skirt #2 for $20.00 because people love a deal. People believe that cute skirt #1 is a better deal because its original price was higher even though cute skirt #2 was $5 cheaper. This is called “anchor and adjustment”, basically we compare things of value using the most recent examples available. Businesses love this because it allows them to unload last season’s skirt that they don’t want to ship back to the warehouse for more money ($40 –> $25) than the current in-season skirt which they still have weeks of selling time left on ($20). The “anchor” is the $40 original price and the “adjustment” is the $25 sale price – our brain uses this shortcut to arrive at the instant decision that cute skirt #1 is a better deal. We “compared” cute skirt #1’s $40 original price and the $25 sale price to cute skirt #2’s price of $20 and reasoned which was the best buy. Business is happy because they’ve unloaded unwanted merchandise and customer is happy because they’ve scored a “deal”. This isn’t a bad thing, but it’s good to know what the idea is behind the price tags.
Advertising: Availability is fresh
Another cognitive bias is the “availability heuristic” – this is when we make decisions based on the most recent information presented to us. Think of the concept of “fresh” and how important it is when we go grocery shopping. Supermarkets can go to some extreme advertising lengths to plant that idea firmly in our minds when we go grocery shopping because we value that in our foods. In this era of mass production and mass consumption, the truth behind our food is that it’s probably been sitting on barges/trains/trucks/and grocery shelves far longer than any of us would like to believe. However, that’s the last thing grocery stores want us to be thinking about when we we’re squeezing melons in the produce aisle.
What’s the first thing you usually see when you go into a grocery store? Fresh flowers and plants are usually placed by the main entrance in most supermarkets because it primes us to think of “fresh” things. What’s fresher than flowers? They are vibrant and natural and fade fast. Having this “available” to us right away immediately puts us in the mindset of fresh and natural. Another example of this advertising this fresh idea is how everything in the deli/produce/and seafood aisle that can be placed on ice – usually is. The specialty items like hummus, Tzatziki sauce, and other dips are placed on ice in the deli section. Do you suppose that these items need to be placed on ice? Not at all, they’re just fine sitting in a happily humming cooler. The fact that they’re on ice hearkens back to the idea that they’ve been home made at a local farm just down the road instead of mass produced at X factory in Mexico.
These are just a few examples of advertising at its best in our consumer culture. There’s lots more to come in the following weeks. If we our able to educate ourselves on how advertising works in our everyday lives – we might be able to think a little more clearly about purchases like cute skirt #1.
What is your Spending Kryptonite? What tempts you to buy buy buy when you planned to save save save? A sale? Coupons? Flyers?
Also, please let me know of this is interesting to you – is it too technical? Too wordy? Too dry? I am interested!
Anchoring bias in decision-making. (n.d.). Science Daily. Retrieved April 16, 2013, from http://www.sciencedaily.com/articles/a/anchoring.htm
Dietrich, C. (2010). Decision Making: Factors that influence decision making, heuristics used, and decision outcomes. Student Pulse: Online Academic Student Journal, 2(2). Retrieved from http://www.studentpulse.com/articles/180/2/decision-making-factors-that-influence-decision-making-heuristics-used-and-decision-outcomes
Lindstrom, M. (2011). Brandwashed: Tricks Companies Use to Manipulate our Minds and Persuade us to Buy. Crown Business: New York.
Modest Money “Benefits of a Quality Home Inspection” *A good article on why spending that extra $500 or so on a property inspection is so important.
Girl Meets Debt “Likes and Dislikes Blogging” *An honest look at both sides of the blogging fence
Making Sense of Cents “Financial Goals and Increased Income” *This gal’s got it goin’ on with her side hustles, check out this article on what she does with her extra income
Canadian Budget Binder “The Grocery Game Challenge” *A good article on how to eat healthy (low GI diet) on a reasonable budget
Skinny Seahorse “Why I Lease a Car and How it Saves Me Money” * A look at why leasing works – it’s about priorities.
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