Why You Buy, Part Three



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Summary:
There are thousands in casinos right now, losing more money and mumbling, "I just want to get even."

Investors regularly hold losing investments simply because to sell them is an admission of the truth. They also won't sell them to invest the money in the better stocks they do name, which would be the logical thing to do.

The Future Of Behavioral Economics

The science of behavioral economics is a growing field, with more studies being done every year.


Article:

Still more discoveries from the recent studies in behavioral economics:

Over-Valuing "Mine"

People consistently place a higher value on things they own, even if their "ownership" is temporary. The research is interesting, and I often saw this phenomenum used by salesmen on busses in Ecuador. A product is thrust into your hands, and past a ten-minute sales pitch, you pay or give back "your" item. It's a very effective technique.

Regret Aversion

Of course you should bet $10 to win $20 on a toss of a coin, but for many, fear of regret (I lost $10!) outweighs desire to profit (I won $20!). The applications for this facet of human nature are in how you present things. With a person who has a strong tendency towards regret aversion, you'll more likely to make a sale by suggesting what will be lost if he does't buy, than by promising great benefits.

Refusal To "Book" Losses

I often saw this one when I worked at a casino. The loss doesn't seem real to the player until he leaves the table, so he stays and loses more. There are thousands in casinos right now, losing more money and mumbling, "I just want to get even."

Investors regularly hold losing investments simply insofar as to sell them is an appointment of the truth. Ask them which stocks will have the greatest return, and they won't name their losing ones. They also won't sell them to invest the money in the uplift stocks they do name, which would be the logical thing to do.

The Future Of Behavioral Economics

The science of behavioral economics is a growing field, with more studies present-time done every year. Though it hasn't had much formal transference to the world of diversified corporation yet, the techniques texture studied have decisively been used for ages. Learn them, and you can profit - or protect yourself.



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