Imagine you have a headache and take a pill to feel better. If you knew the pill cost 50 cents, would it make you feel better more than if you were told that same pill cost one cent? The answer for many is “yes”.
Typically we’re not as rational as we think – just ask behavioural economics guru Dan Ariely. In this video, Ariely shares some thoughts on money with the Think Forward Initiative during a Google hangout session.
Why are people so confused when it comes to money?
“The problem is, thinking about money the right way is incredibly tough. Maybe it’s the toughest thing that we as human beings have to do. It’s about now versus later, opportunity costs, it’s about overcoming temptation. What do we do? We think about money the wrong way!
“And not only that, technology is making things more difficult. Think about a world in which you wake up every morning and I give you 30 euros to spend. In that world you would know your trade-offs. You would know if you spent more money on food, you’d have less for lunch. And if you spend more money on beer, you’d have less money to take a cab or something else,” he says.
What tools could help?
Ariely: “Let’s think about things like credit cards, Apple Pay, Android Pay and so on. These tools are incredibly useful – to get people to think less and overspend in the short term. But they’re not designed to get people to live the way we want to live long term. These are designed to reduce thinking, what we call the ‘pain of paying’.
“If we understood something as basic as the psychology of money and specifically the pain of paying, we would design different mechanisms. Who would design those mechanisms? It’s the same institutions. They’d just have to think more carefully about our long-term well-being.”
You can also watch, listen and read the full Q&A on ING.com.