Hello! Seiiti Arata. There’s a recent discovery showing that we make some decisions that take us away from the path of financial prosperity. It’s as if the brain has a bug that keeps us poor.
For me to able to explain to you how our money psychology stops us making good financial decisions, let me ask you a question. Can you use your imagination? So relax and let me clearly describe the following statement to you:
Imagine that you’re in a shop close to your house and are going to buy a pair of shoes paying one hundred dollars. Imagine that exact pair of shoes exactly how you wanted them. You already decided that you want that product and agree that it’s worth paying the one hundred dollars. It’s the product that you wanted. And then before paying, you discover, quickly checking the internet on your phone, that there’s another shop, 500 meters away (within walking distance) that has the same pair of shoes, same brand, same size, same colour, only with fifty percent off as they’re having a sale. That is, the same product with fifty dollars discount and you have chosen to go to the other shop because it makes sense. Ok?
Now, continue to imagine another similar situation: you’re in a car dealership, near your house and you’re going to buy a new car. Imagine the car, exactly how you want it. A pretty car, costing twenty thousand dollars. You researched it and think it’s worth it, the car is awesome, it’s exactly the product you wanted. So you’re ready to make the payment and discover, using the internet, that there’s another dealership 500 meters away, selling the same car, in the same colour, same model, everything exactly the same, however with a price of nineteen thousand, nine hundred fifty dollars. That is, the same product with 50 dollars discounted. Could you imagine it?
Great! So, the question I ask you is:
And now, will you go to the other dealership to buy the car?
pause the video now and answer with a basic comment: I WILL / I WON’T
Did you answer in the comments?
Are you the type of person that understands the value of your money? Are you a rational person?
Almost everyone says yes. I can’t imagine someone answering that they’re irrational or that they don’t care about money. This is why we say in the title of this video that there’s a bug in the brain inducing irrational behaviour, undesired, inconsistent behaviour… and that makes us poor, takes us away from financial prosperity. I’ll explain to you.
Most people in general like to answer that they’re not going to. They’re people that heard me clearly saying when declaring the first part of the problem that they went to the other shop 500 meters away to buy the shoes with a fifty dollars discount. This part wasn’t a choice, it’s an assumption, it was the part that you had to imagine.
After this announcement, comes the question: Will you also walk to the other dealership, that’s also 500 metres away, so you can get a 50 dollars discount? A lot of people say that they won’t go, as 50 dollars is very little and not worth it. The car costs 20 thousand dollars, it’s not going to make a great difference whether you pay twenty thousand or nineteen thousand nine hundred fifty dollars.
Have you already realised where the bug in the brain is? Where we are lacking good reasoning?
Notice that what is being discussed here is the value you allocate to your effort to walking five hundred metres further, the time that you’re going to spend going to another shop. And in the statement of the problem it’s already been established that fifty dollars saved are worth your time, fifty dollars are worth the calories you’ll burn on your five hundred metre walk to the other shop.
Therefore, if you want to be a rational and consistent person, in the case of buying a car those same saved fifty dollars should be worth the time that you’ll spend on going to the other dealership. The correct thing would be for 100% of people to write I WILL in the comments.
If you’ve been fooled in this example you’ve been a victim of the Weber-Fechner effect that the changes are made relative by the brain. Imagine that you’re carrying three kilos of weight in your suitcase and I put one more kilo in. You’re going to notice the difference much more easily than if you had a suitcase of thirty kilos and then I put one kilo more. The weight of a kilo continues the same, however our brain isn’t able to interpret it in the same way because of the increase being proportionally less.
This is a subjective analysis, depending on the subject. Despite the difference in how the brain makes it’s interpretations, one kilo continues to be a kilo. Fifty dollars continue to be a fifty dollars. This is objective. It doesn’t depend on the subject. It’s a characteristic of the object.
What matters is the amount of money (and not the percentage). Now you’ve learned a logical method of decision making. After the explanation, It must have made sense for you to understand that you mustn’t allow yourself to be fooled by the percentage of the discount (instead of paying one hundred dollars, you paid fifty dollars so you had fifty percent discount). In the case of the car you had less than one percent of discount. If you become dazzled by just looking at the percentage, logically you’re not going to want to make an effort to get a better price.
Stop thinking only about the percentage of the discount when you’re deciding whether to buy or not. There are people who, for example, spend half an hour in a shop whining and arguing with the sales assistant, asking for the manager, embarrassing themselves to get a “good discount”, imploring so they can pay twenty dollars on a product that is offered for twenty-five dollars. And then they come back and brag about it, saying that they saved twenty percent. Forget the idea that you saved twenty percent! The percentage doesn’t matter: you traded half an hour of your life for five dollars.
This same person who traded half an hour for five dollars is the same person that’s too lazy to use the same half an hour to do something for an extra income, to invest better and that a lot of the time could generate a much bigger financial gain. It’s the person who creates the biggest fuss in a bakery because he doesn’t want to accept a sweet as change and wants that penny…
and at the same time is embarrassed to ask for a discount in a fancy shop and spends a fortune. It’s the person who sacrifices their coffee money every day even though they are dying for one (they really want that coffee, but they control themselves so they don’t spend and go almost blue in the face from the craving), but when they’re going to finance their own house or buy a new car they don’t know how to negotiate properly, don’t know how to interpret the interest-funded payment plan and end up paying dozens of thousands more because of financial ignorance. Understand? It makes absolutely no sense to save in little things only to spend big what you shouldn’t afterwards, spend what you can’t on something else. It’s not consistent, it’s not rational. It’s a bug in the brain that impoverishes people and now I’m going to tell you about an even worse problem:
Now you know the Weber-Fechner effect, the famous brain bug that impoverishes people, you might think you’ll behave in a different way, right? Wrong. What you know doesn’t matter. What matters is what you do with what you know. There are many people who just go around saying that they’ll behave in one way, but truly, in practice and in real life, they end up behaving irrationally.
Talk is cheap, but acting is completely different. This is why I invite you to understand how to put all of the financial knowledge that you need into practice – by watching the special classes that you’ll find by visiting the link https://arata.se/moneytaboo