Your cognitive biases are making your money decisions. Learn how to overcome them.
In part 1 of a 6-part series, Kelsa discusses cognitive biases and how they impact us and our money. It’s important to know what cognitive biases are because they are impacting the way you make decisions and the way you think about your finances every single day. Advertisers and retailers are fully aware of them, and they’re using your biases to influence you.
Notes from the episode:
- What is cognitive bias?
- The Anchoring Bias: what it is and how it’s being used to affect your decision-making
- An example of how this bias impacted a choice Kelsa made recently
- How we can overcome the anchoring bias
Additional tips/ strategies/ other things to consider/ etc:
- In order to combat the effect of anchoring, it’s important to put your own anchor to the amount of money you would otherwise spend. That’s called self-anchoring. Use something like “# of hours if I spend $x” or “# of days my goal is delayed for $Y.”
- Note that we can fall victim to anchoring when we’re faced with a decision we know very little about. For example, when you buy an electronic device for the first time. That’s why research and price-comparison shopping comes into play b/c you are challenging the anchor.
- A good strategy for determining if a sale price is a good deal is to mentally block out the regular list price. Does it still represent a good deal for the item, for you, and for your budget? This can be hard to do if you’ve already seen the list price, but try it anyway. This approach can help you view the price of “great deal” purchases more realistically.
Resources/ links related to topic/ mentioned in the podcast:
- The Anchoring Effect: What is This Jacket Really Worth?
Music by Annti Luode