Money & Finance

Your own brain is costing you money! That’s the conclusion of behavioral economist Dan Ariely. He says that we become irrational when we hear the words “sale” or “free” – and marketers know this. So they take advantage of our lapse in logic to get us to spend. Here are a few of Ariely’s examples.

• He says our biggest weakness is “free” offers. He says when the price of something is said to be zero, it blinds us. We get so excited that we don’t realize we will end up paying in some way. For example: You go to the car dealership and the salesperson says, “This car is a bit above your price range but it comes with free oil changes for three years!” You think – “free oil changes, woo hoo!” So you get the car, thinking you’re saving money. What you don’t realize is that the car cost you $3,000 more than you wanted to spend – but you’ll only be saving $600 in oil changes.
• Ariely even tested that theory on trick or treaters one Halloween. He gave the kids two Hershey’s Kisses. Then he told them, they could have a mini-Snickers for free or give back one of the Kisses for a whole, full-size Snickers. The bigger bar was the better deal – but most kids took the mini-Snickers because it was “free.”
• Another way our brains trick us into spending more than we should. is when we compare prices. For example, when people are shopping for real estate. If the broker shows you a house above your price range, all of a sudden the house at the top of your price range seems reasonable. Or if a restaurant menu is offering a $40 steak – another steak at $20 all of sudden seems cheap by comparison.

So how do you overcome this mental money weakness? When you see the word “free”, ask yourself “What’s really going on here?” Also, try not to look at prices first. Decide what you want – and what your budget is – before you shop so you’re not influenced by outside factors.