09 Apr Economic Decisions: How and Why We Spend Our Money
A brief analysis of the major changes taking place in economic policy, new approaches try to explain why in many more times than we imagine, we make economic decisions that are far removed from what we mean by rationality.
When it comes to saving or spending, our behaviors are quite far removed from the mathematical models found in all economics textbooks. Moreover, the behavior of our neurons is far from the operation of a processor’s latest generation software appropriate for complex decisions and rationally pure.
As if this were not enough, also live with everyday joys, fears, jealousy, envy, dislikes and many other feelings that undoubtedly will shape our decisions and often are what ultimately influence more than anything else in the final conclusion.
Simply just look at how people behave against specific cases, problems or small experiments to understand these paradoxes or recurrent anomalies in our daily business decisions. Some of the mistakes we make are the rule and not the exception, for example, we tend to develop a different approach for the money depending on how you entered into our pockets and how is about to leave them. Such errors are like optical illusions and lead us to believe true the false impressions.
Both visual and cognitive illusions are induced by automatic and spontaneous processes through which decode reality quickly and intuitively, but also approximate and misleading. Faced with the same problem can happen that take diametrically opposite decisions on how we represent it, otherwise why would we prefer a low-fat yogurt 95% instead of 5% fat? Similarly, we react differently depending on whether this risk is presented with the profits instead of losses.
We live in uncertainty and in this context we must make decisions, but our perception of risk is fickle and the way we understand data, proportions, percentages and statistics is easily influenced. The numbers are not at all cold and objectives for our mind, that often tinged with emotions as irrational results as surprising.
Research on the brain and neurobiology suggest that our decisions are the product of a relentless negotiation between automatic and controlled processes between affects and knowledge or, more commonly, between passion and reason, and the game of synapses of the corresponding brain areas. It is shown that often pushed by our primitive impulses sacrifice a bit of our future for immediate pleasure. To make a correct decision not enough to know what should be done, but it is also necessary that the body we do “feel”. As if the instruments of rationality need special assistance to implement their plans: some passion that helps!
If our mind was governed exclusively by processes of deliberate and thoughtful guy, and our brain is composed only of the prefrontal cortex, then the traditional economy would be a good theory of our real choices.
Luckily our emotional economy is much richer, more varied, unusual and funny found in textbooks.