Finance
- Siaw Young - Understanding Money
- Dan Ariely on behavioral economics around
money. Notes from the talk:
- People think about money in relative terms. Given a $5 discount on a $100
item and a $10 item, the saving on the $10 item seems more substantial
despite the absolute value of the discount remaining the same.
- Delayed payments make it easy for people overspend. Delayed payments
reduces the pain of payment. An example is how paying $30 in cash for a
taxi feels worse than using an app and having that same $30 taken out of
your bank account later.
- Sometimes you want the pain of payment, if you’re trying to save. On the
other hand, sometimes you’ll want to reduce the pain of payment. For
example if you’re on holiday; you may intentionally want to defer any
financial thoughts in order to enjoy the holiday.
- One strategy to prevent overspending is to assign a budget ahead of time,
and decrement from the budget each time you spend money. This is
different from a budgeting strategy where you track expenditure by
increments. A more tangible example of the differences in those two
strategies to consider a debit card versus a credit card. The debit card
has a maximum limit, and gets decremented to zero as you spend. People
tend to place more weight on the gradual approach of a zero value,
compared to the approach of some arbitrary budgeted amount.
- Consider a scenario where you really want an item. The item is costly,
and you cannot justify its purchase, so you leave it. On your birthday
your partner purchases that item for you, using money from a joint
savings account. You would happily accept the gift, even though you had
previously decided that the purchase of the item was unjustifiable. What
has happened here is not your partner giving you the gift of the item,
but rather your partner giving the gift of absolving you of guilt to
purchase that item. An interesting take on this is that this is what
makes the best gifts; not tangible physical object, but the absolution of
guilt in making an otherwise unjustifiable purchase.