How many times have you found yourself in a store, buying more than you wanted to?
Or in the case of stocks and cryptocurrencies, how many times have you bought something just because everyone else was buying it?
The result in both cases is the same — you lose money that you didn’t have to lose.
It is time to stop doing these mistakes and learn to recognize when you are being exploited. Once you know how others can take advantage of you, only then can you prevent it.
Let us begin.
There are a lot of factors that influence your shopping habits. Shopping habits don’t include just physical products and services, but also your stock and cryptocurrency investments.
Let us quickly go over some of these factors:
You buy when you believe that the product will satisfy your need or provide value. The more you are convinced, that the product will fulfill your need, the more you are willing to pay.
And believe me — the marketers know how to get the most out of you.
If you wish to make a rational decision about whether the product is worth your money, you need to create some sort of decision-making criteria.
For example, you see a new popular cryptocurrency, that everyone is talking about it and people are convincing you to buy it. You have a list of criteria and the first sentence there is: “I never buy a cryptocurrency that is trending.” You don’t buy it; you don’t lose 50% the next day and you can sleep in peace.
What about a new television? Before you buy it, create a list of what criteria need to be fulfilled. Never go to a shop clueless, because you will overpay! Remember that if you are going to be buying a more expensive item, always set up a list of criteria before you go to a store or shop online.
Let us explore another example — a can of milk. You do not have a criteria list, because it would be pointless and impossible to create a list for every product. Therefore, you need to use some other technique for purchasing products. Your brain is extremely efficient at making a quick decision and it will use your current emotional state, heuristics, and other factors to determine your next action.
Sadly, your brain is not perfect, and sellers will exploit your weaknesses. The good news is that you can improve!
In most cases critical thinking needs time and can be mentally draining, especially if the products are similar and there is no superior purchase option.
On the other side, emotional decision-making is quick and requires less cognitive effort. Because your emotional decisions are often worse for you and better for the marketers, they will try hard to create an emotional bond between you and the product. With that the chance of you purchasing the product will be significantly higher.
One of the tactics is the so-called feeling of attachment. There is a higher chance of you buying if you have used the product for a longer period. For example, all of those 1-month free subscriptions exist purely to get you attached. Do you want to take a car on a test drive? Yes, with no problem, because maybe you will like it or you will feel bad for driving it for free. Result: you buy it. Mistake.
All of those free crypto airdrops? There is a higher chance of you using the crypto project afterward.
Next up — heuristics. You could call them a rule of thumb. It’s a simplified method, where you make a quick decision based on simple rules. For example, you always buy the cheapest option of milk, we call this cheapest price heuristics. You always buy the product with the most attractive packaging, or you always buy a brand that you know. This we call brand recognition heuristics. Probably the most important heuristic is to buy the product because you have bought it the last time.
Remember that in most cases this product is NOT the best. With this in mind always look for other options.
Mental accounting is the way we process and keep track of financial transactions. Some people, for example, set away a specific “money jar” or comparable fund for a vacation or a new home while also carrying significant credit card debt. Instead of repaying the debt as soon as possible, they spend the money they had in their other mental category.
For example: You decide you will invest 20% of your income each month in cryptocurrency. Perhaps one month you will spend more money on a car repair, maybe one month you will be able to invest more. In either case you need to adjust the amount you invest. But remember, investing should be one of the first things you do when you get your paycheque. Do not wait until the month is over, because you will spend most of it on useless things anyway. Find a balance! Investing must be a part of your life.
Social factors mean that if we believe that something is good for others, it must be good for us. An important role here is also played by social endorsement. For example: I am convinced that if Air Jordan Shoes would be called just Air Shoes, they would not sell as well.
Our general mood also plays an important role. It has been shown that people who have experienced a longer feeling of sadness will purchase more than people, who have been feeling good. Buying new things will not make you happy, so don’t use purchasing as an excuse to elevate your mood.
Use what you have read to improve your purchases. In the future we will explore making a good shopping list criteria for crypto!
Drake Flyer: posted by me on Medium.
Business Psychology by Hugo Munsterberg 2018
Business Psychology and Organizational Behaviour by Eugene McKenna 2020
