Behavioral Economics and Purchasing

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I am currently reading a collection of scholarly articles by George Lowenstein. Who is George Loewenstein? Why, only one of the pioneers in the field of behavioral economics! If you did know who he was, well, neither of our lives are very exciting.

Ol’ George is also a man after my own heart. He’s taken concepts from psychology, and applied them to economics.

Painless Saving

Some of you out there will think you are very rational decision-makers when it comes to buying stuff. You are the ones that are especially dangerous…biased but in denial.

The funny thing is that humans make irrational decisions in systematic ways. For instance people fear loss more than appreciate the joy from a gain. We create stories by making sense out of random events. We predict that we’ll be more disciplined in the future than we act today, and inevitably don’t deliver.

It just so happens that in the day job, I advise on purchasing decisions, except in the realm of big corporate decisions rather than on an individual level. The question I get to, then, is whether behavioral economics is applicable at the organizational level. My hunch is that it is, but my next hunch is that “powerful” people will be uncomfortable with this notion…until 20-30 years from now when behavioral economics goes mainstream.

The other issue is the “So What?” factor…i.e. what do we do about it. Going through a process involving multiple viewpoints is a start, but the fundamental challenge is the fact that people who are, in fact, wildly biased are often those most convinced that they are perfectly rational. And, if perfectly rational, what need would there be to account for any biases? Compound all that by those same people surrounding themselves with those who either think the same as they do, or those that will realize it is much more profitable to fly under the radar without saying a word, and the problem is obvious.

All this may sound a bit cynical. However, I prefer to look at it the other way. Those who are open to this new knowledge will have an advantage over the rest.

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One Response to “Behavioral Economics and Purchasing”

  1. Negotiation – a look at empirical evidence « It's more fun than a TPS report… Says:

    […] Behavioral Economics and Purchasing (tpsfun.com) […]

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