Behavioral Cents Blog

We all use the feeling or intuitive side of our brain more often than the thinking side of our brain. We get breakfast, ship the kids off to school, drive to work, fetch coffee, say good morning…all largely on auto-pilot.

Mindless Eating

If you think about it, we also eat that way. Brian Wansink, PhD just wrote a great book called Mindless Eating. He and his team ran many tests on the public to learn how people behave when they eat. We rely a lot on visual cues, such as the size of the plate. We automatically fill our plate regardless of size, and don’t stop until the plate is clean. As the size of a plate has grown, so have our waistlines...

Dr. Walter Mischel, PhD, conducted a test with 4-year old children in the 1960’s. The children were offered a marshmallow sitting in front of them. If they waited and didn’t eat it, they would receive two marshmallows instead. It’s a fun exercise all about self-control – regulating emotions and behaviors. Dr. Mischel is still following those same children, and can verify that those who waited were more likely to finish college, earn higher incomes, and be less overweight.

Dr. Mischel does not suggest that we always wait for the two marshmallows. He states it is all about having choices, and understanding the implications of each choice. Sometimes it’s good to live life with abandon and have a little fun. Other times it pays to manage our choices for the bigger pay off later…

Not deciding – is making a decision -to do nothing. Sometimes it is because we have way too many choices. According to Statista we have 8,970 mutual funds from which to choose. It can be overwhelming!

Sometimes we fear we’ll regret the choice we made. This is called Regret Aversion and is a common human trait. If we don’t decide, it has been shown we will have less regret than actually making a decision that turns out badly. This is because we hold ourselves accountable for making a decision, and feel uncomfortable facing the music. If we don’t make a decision, we think no one is accountable.

I received a letter in the mail from US Airlines suggesting I’d won 2 round-trip airline tickets. The letter just didn’t feel right according to the Feeling side of my brain – the side we use for most of the day on auto-pilot. And, my brain was right. But I didn’t figure out exactly why until I engaged the Thinking, or analytical side of my brain.

‘Tis the season to be…Scammed. I’ve had two in the last 2 weeks, and you really need to be on your toes to catch them. The Time Warner magazine renewal is especially obtuse these days. You certainly wouldn’t call it customer friendly or brand building! I had 4 magazines for 1 year free as the result of another promotion. Then of course the renewal fees kicked in without any notice, on my credit card. They’re hoping the Status Quo Bias will take effect and I’ll do nothing, yielding revenue for them.

In our last blog we talked about mental accounting – how we separate our money into buckets in our minds. If we were all completely rational about it, generally speaking we would look at what we earn on our savings, what we pay on our debt, how our taxes are affected, and pay off our most expensive debt as the number one priority. Why? Because at the end of the day, your assets are your assets, wherever they are. And you want to maximize your savings by decreasing what you pay to anyone else. But...

We all do it. We divide our money into buckets, physically or mentally for special purposes. There are buckets that are specifically defined by a financial structure, such as a mortgage or a 529 college savings fund. And then there are the other buckets that we mentally create to help drive our own behaviors. Sometimes this is a good thing, and sometimes it’s bad. What do you do, and is it helping or hindering your saving efforts?

Yes, believe it or not. Our brains get more excited about the money we expect to get – from a bonus, a lottery, a promotion – than when we actually receive it. How many times do you spend that expected reward in your head? A little goes here, a little goes there, some goes in the savings account – until we’ve probably spent it 2 or 3 times in our mind. The anticipation builds and it feels good.

Even if you just buy company stock or mutual funds in your 401(k), you are still considered an investor, and this blog is for you.

In our last blog, we talked about the “feeling” brain and the “thinking” brain. We run on our Feeling brain most of the day until we kick in our Thinking brain for analytical decision making. Quite often, we pick stocks and mutual funds based on our Feeling brain, without even knowing it. Here’s how.

Jason Zweig does a great job of explaining the two sides of our brain in Your Money & Your Brain. We have the “thinking” or Reflective side; and we have the “feeling” or Reflexive side. Our Reflexive side is used more often daily – it is our automatic pilot, or intuition. The reflexive, feeling brain knows your everyday life patterns – what to expect in typical traffic, flow at the coffee shop, etc. And when it sees a SALE sign, it can stop you in your tracks because it is a change.