Tuesday, May 23, 2006

The Irrational Consumer

I worked a little on a project on retirement savings plan. In the process, I came across a few articles on a topic called Behavioral Finance. Nope, this is not a new targeting option from Revenue Science. Rather, Behavioral Finance is a branch of economics that specifically addresses one of the most vexxing issues for marketers: Why do people often act counter to their best interests?

It's not a trivial question. Classic economics is built upon the theory that, given two choices, people will choose the one that will bring them the most benefit. And yet, every single day we see people walk straight by the gym on their way to buying cigarettes, fried chicken and bad beer. What's up?

Behavioral Finance moves past this simple definition of humans as self-interest accrual machines. Today, there's an article in Business 2.0 that is on the same issue. It's a much richer view of human beings, that highlights the immediate stimuli that can affect a decision, resetting the decision meter away from a purely self-beneficial equilibrium. It helps us understand not only why people indulge, but also why they don't take care of themselves, by investing in their 401(k), go to the gym or even see the dentist regularly.
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