How Our Emotions May Lead To Irrational Money Decisions

As consumers, emotions drive our decisions. Neuroscientists tell us that we make our decisions emotionally and intuitively nearly 95% of the time.

The forces of marketers and our biases make it almost inevitable that we make irrational money decisions.

We will discuss some of the marketing tactics and biases we need to overcome with better financial discipline. By understanding more, we may become more rational decision-makers.

Overspending Due To Irrational Decisions

Marketing strategies, if successful, may lead to consumers being profitable customers and happy being so for many consumers that will lead to overspending because of irrational decision-making.

They nudge us to buy it even if we don’t need it. Nudge marketing is used to influence consumers’ decisions towards specific options. It refers to deliberately manipulating our choices and stimulating purchases.

Biases often result in us spending more than we should, paying off slower or not at all. We need to understand them better to fight off the tendencies to act irrationally regarding money.

Biases Add to Our Bad Choices

The present bias values the present when we are planning for the future. Present bias causes us to spend money on the latest shiny object rather than save for retirement.

Present Bias Allows To Favor Instant Gratification

As a result, we favor the present because we favor instant gratification. However, this bias comes at the expense of our financial discipline. Overspending leads to ramping up big bills on our credit cards we can’t pay off properly.

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