ERROR ONE : Unnecessary buying
Psychological pricing to encourage us to buy:
1. Mark prices down from nice round figures like £10 to £9.99
2. Discounts and three-for-two offers
This will encourage people to buy because they think it's a good deal and a bargain.
(My take: Guilty as charge! If I see the original price before the discounted price, sometimes I succumbed to the discounted bargains I think I got instead of off-sale items ... many post on this can be found in my blog!)
ERROR TWO : Influenced by a person's review
Availability heuristic causes us to make terrible decision.
The example cited is as follows:
For example, when you hear or read about one bad experience someone has with a company, and from that you leap to the conclusion that it is more untrustworthy than its competitors, or that all its products are rubbish. Conversely, you may read about one good experience and presume that the company is all nice and fluffy.
It's why, despite the occasional appeal from readers, I single out one financial company as 'bad' only with caution, because to do so could easily be misleading; they're all, pretty much, as foul and incompetent as each other.
In other words, someone gave a bad review of a company, it does not mean all the products by the company is bad.
(My take: I am also influenced by reviews of others. In fact, take the example of dining out, I would try my best to get a few food reviews to get an average opinion. Sometimes it works, sometimes food just sucks.. and you waste your money)
ERROR THREE: Overreacting
Overreacting / 'It's all about the principle' effect: After having one bad experience with a company, sometimes people refuse to deal with them again based on an emotional reaction, which they justify in their heads as 'the principle'.
However, it's usually just the mistake of one employee, whom you'll never have contact with again. Or, you found out the company ripped you off with poor terms and conditions, so you refuse to take out a different, market-leading product from them, even though you know the conditions are better. This is to the detriment of your finances.
(My take: GUILTY as charge! I usually do this error in terms of principle. I've encountered a sleezy property loan officer which give me horrible service and had the nerve to even falsify signature to fulfill their quota of loans... gosh.. that I forgo the loan packages offered by the specific bank. I've also encountered horrible rude waiters which made me ban the whole chain of that particular food outlet altogether.)
ERROR FOUR: Self-consoling after a purchase
Post-purchase rationalisation: It's common for people to make an emotional purchase and then to try to rationalise and justify it afterwards.
(My take: Guilty here! This usually happens when I decide to splurge and shop for clothes that I think look nice on me in the dressing room and then look so-so back home)
ERROR FIVE: Lazy to decide
Sticking to default choices: Research has found that people disproportionately stick with any default choices when making decisions, for example, in retirement planning. When given the choice to select low, medium or high-risk fund, people tend to follow the advice of the agent. Studies have shown only 40% switch to the medium-risk fund when suggested to use high-risk fund. This might be caused by the status quo bias, where people perceive a greater risk if they make changes. Of course, you could also call this laziness.
(My take: I rather say laziness to decide or indecisiveness is the main reason for this error. Why? Well, personally, when I can't decide, I would also take the average approach or the default approach. )
Hence, being guilty to most of the errors above, I need to learn to change for the better!! Especially to my pocket! ;)
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