For the next few weeks, I want to discuss money and psychology. What are some of the tactics of marketing that can cause us to consume irrationally?
Podcast Title: Money & Psychology – Part 2
Podcast Series: The Maven’s Keys to Financial Contentment
The Maven’s Keys to Financial Contentment is my idea that true financial contentment can be found when an overlap of money and beliefs occur. Many people ask the question of how to be “financially content” and this is a discussion to uncover those answers.
So last week we discussed the 5 ways to use money. And I invite you to go back and listen because you’ll need context for today’s discussion.
Today I want to start uncovering some of the hubris that plays a part in that “manipulation”. A lot of what I’ll be discussing going forward will be the synthesis of things I’ve heard from a couple of sources primarily and that is a speech given by Charlie Munger at Harvard back in 1995 and some things I’ve read in Bob Cialdini’s book “Influence”. I’ll put links to both in the show notes.
Basically, both describe how we as humans fool ourselves into bad judgment and poor decisions because of cognitive biases we have. Here are some examples of our irrationality…
Psychological denial – The premise is that our reality is too difficult to bear, so we make up something to justify our behavior.
I think the most common instance of this being used against us in when people play the lottery. So statistically speaking, you have a better chance of being struck by lightning than playing the Powerball. I don’t have to even get terribly scientific to prove that either. There are 300 million people in the US so that means there’s at least a 1 in 300,000,000 chance for starters, but when you factor in that people buy multiple tickets…
Consistency and Commitment Tendency
Consistency and Commitment Tendency – This is the idea that we as humans like to be consistent and stick to our word.
Which in and of itself is a great thing–we want people to honor commitments (especially the ones they have made to us). But what if what you are sticking to is just DEAD WRONG. I’ve covered this in a previous episode of the FLBC, where I’ve seen investors that own a company stock and they hold on to that investment even though it is losing value and this is because of a bias they have. Marketers realize this and they know that even if they sell you a bad product or service you will continue to buy because of your commitment to what you have said you will do.
Next week I’ll cover 2 more common tactics that are used by marketers as we continue our discussion on Money & Psychology.