Why You Buy

by Steve Gillman

Behavioral economics is a new science that sheds light on
some of our most important decisions. It is the study of how
and why people make money-related choices. Here are some of
the things the studies have shown thus far:

Decision Paralysis

One study showed that customers spent more when given four
samples of jam to taste than when they had twenty to choose
from. Too many choices seemed to lead to an inability to
decide. Limiting options may be a useful sales technique,
according to this research finding.

Sunk-Cost Fallacy

People are more likely to attend an event if they paid for
the ticket than if they got it free, even with the same
information and interest. The money is spent, and logically
has no relevance to the decision, but this phenomena of
behavioral economics persists even when this is pointed out.
Aren't most of us going to feel worse throwing away a ticket
we paid for?

The applications are obvious, if you look. Perhaps, for
example, rather than giving away tickets to "get rich"
seminars, the organisers would get better attendance by
selling their "$100" tickets for $3. Just having paid
something makes people more likely to attend.

Confirmation Bias

We tend to act economically in a way that confirms our
current beliefs. When negotiating to buy the exact same
model of Mecedes, for example, current owners, who
presumably already believe in the value of a Mercedes, pay
$7,000 more, on average, than new Mercedes customers. I'm
sure you can imagine the value of this knowledge to
companies that sell high-priced items.

Extremeness Aversion

People seem to instinctively avoid extremes, according to
the research. Given a choice of televisions costing $300,
$500, and $700, for example, not many buy the $700 one. Add
a $1200 television to the choices, however, and more will
then buy the $700 one, because it is no longer the most
expensive one.

In the information coming from these studies, you'll find
much to help your sales and marketing efforts right now. You
can also learn enough to protect yourself as a consumer. For
more on behavioral economics, watch for "Why You Buy, Part
Two."

About the Author

Steve Gillman has been studying every aspect of money for
thirty years. You can find more interesting and useful
information on his website;
http://www.Unusual Ways To Make Money.com