Polls / January 29, 2013

Do you make different spending choices when you are under pressure than when you have time to think?

Seventy-two percent of respondents to this eZonomics poll say they make different spending choices when they are under pressure.

Turn down the heat
You’re at your local grocery store and spot your favourite biscuits or crisps on discount – but the offer is on for one day only. These types of offers (often, of course, valid only for a limited time) can effect shoppers, increase the pressure to buy and encourage “impulse” shopping.
In more technical terms high pressure situations can invoke what is known as a ”hot” state – or a time when our self-control is reduced, we are impulsive and we tend to focus more on the short-term.
In contrast, a cold state – detailed by George Loewenstein and other behavioural economists – is characterised by more rational, well-thought through decisions that fit with longer term goals.

An exception to the rule?
Although making decisions in a cold state is often considered to be preferable, behavioural economist and author Dan Ariely writes that it can be helpful to remember we are not always in that frame of mind. So when booking travel, a person might decide to save money by booking an indirect flight that has a stopover or two – but Ariely recommends making the choice while remembering what it is like to have just come off a flight, be tired, collect luggage and find a taxi. In these circumstances, giving in to the impulsive, short term ”hot” mind set might be better than sticking with the ”cold”, money-saving state that is more common at home in front of a computer.

Slow it down
It’s difficult to overcome this impulse to make different choices when under pressure. But in an interview with the CFA Institute, academic and Nobel Prize recipient Daniel Kahneman suggests people ask a lot of questions and explore a wide range of options before narrowing in on a short list. Kahneman’s book Thinking, Fast and Slow examines systems of thinking that are similar to the “hot” and “cold” states (system 1 is fast, intuitive, and emotional; system 2 is slower, more deliberative, and more logical). Next time you find yourself at the check-out or surrounded by ads trying to tap into your impulsive side, it might pay to take a minute to think about if you want to give in to impulse or go for the logical choice.

eZonomics team
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