Why do we make bad purchasing decisions?

Humans don’t always make the smartest decisions when it comes to the products we buy. Time pressure may partly explain this – we grab the first thing we see on the shelf without checking the price and head to the checkout.

grocery stores charge more brands placing items at eye level of the average consumer on the shelves for this reason. But research shows that even when we’re not pressed for time, we don’t always make the right pricing decisions. Understanding why is a question that preoccupies many economists, neuroscientists and psychologists.

A recent study, published in the journal Behavioral Economics Review, proposed a new model to rationalize the reasons why bad decisions are made. This “ratio difference” theory explains that humans sometimes compare prices and savings to each other in relative terms when they should be thinking in absolute terms.

confused minds

When consumers have the opportunity to save $5 on a product priced at $25 and another opportunity to save $5 on a product priced at $500, they will most likely take advantage of the first promotion.

They perceive the savings in relation to the total price. Even though the first scenario is a 20% saving and the second a 1% saving, they both represent the same thing in absolute terms, namely $5. Ideally, consumers should apply absolute thinking here, according to the ratio difference theory, and therefore perceive the savings as equal.

“Solving some economic problems effectively requires thinking in terms of differences while others require thinking in terms of ratios,” says study author Mina Mahmoudi, an economist at Rensselaer Polytechnic Institute. in a press Release. “Because both types of thinking are necessary, it is reasonable to think that people develop and apply both types. However, it is also reasonable to expect people to misapply both types of thinking, especially when they are less experienced with context.

Learn more about decision making:

This new theory builds on previous studies and assumptions. A previous theory is that we have so many decisions to make each day that our brain uses shortcuts – also known as anchoring bias – to help us make choices faster.

As an example, if you used to pay $2 for a loaf of plain white sandwich bread in the history of the grocery store, you might balk at the $5 artisan sourdough on sale at the market. farmer. This may make sense when comparing bread to bread, but research has long shown that benchmarks for one item can end up bleeding into our thinking for other things.

A study published in 1974 showed how thinking about one decision can affect another, even if the variables are unrelated. Researchers asked participants to spin a wheel that landed on a number between zero and 100. The same study participants were then asked how many countries there were in Africa.

Participants who landed the wheel on a high number were statistically more likely to feel that there are more African countries than participants who landed the wheel on a low number. It’s unclear exactly why our brain allows outside factors, like spinning a wheel, to distort our thinking.

A crowded market

Other researchers have shown that humans make better decisions when options are limited. A neuroscientist at New York University scommented on this by asking people to choose between several candy bars.

For this example, everyone’s favorite candy was a Snickers bar. When researchers presented the choice between a Snickers, Milky Way, or an Almond Joy, people always opted for Snickers. But when scientists introduced more choices, offering 20 different candy bars, including Snickers, study participants didn’t always choose Snickers.

Read more: In a world of endless choices, why is decision-making so tiring?

Additionally, when the researchers got rid of all other candy bars and simply presented participants with the candy bar of their choice and a Snickers, the participants couldn’t figure out why they hadn’t opted for the Snickers. Researchers are trying to understand what causes this poor decision making. It may be more urgent because global economies are struggling.

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