yego.me
💡 Stop wasting time. Read Youtube instead of watch. Download Chrome Extension

Psychology of money part 2 | Financial goals | Financial Literacy | Khan Academy


2m read
·Nov 10, 2024

So let's talk about a few more biases that might creep in when we start thinking about money. One is an anchor bias. Now, an anchor bias is where if initially you think something is worth more, say, and then all of a sudden you find out that it costs less, you might get all excited about it. Even though that just might be the right market price, people sometimes use this to sell things to you.

So, for example, let's say you go into a store and they tell you that this shirt is $50. And you're like, "Oh, that's kind of a pricey shirt," but you're like, "I like that shirt. $50, I don't know if I can do it." But then they say, "But because you're a good person and you really seem to like that shirt, for you I will give it—I will sell it to you for $25."

Now, the anchor bias could kick in because they helped you perceive it to be a $50 shirt. And so all of a sudden, if you think it's a $50 shirt and if you can now buy it for $25, you think you're getting a great deal. Now, it turns out that the store right next door might be selling that exact same shirt for $24, but maybe they're not able to sell as much because they're not anchoring people on that higher price. So it's a type of psychology that oftentimes comes into things like sales, where you think you anchor on a high price, and all of a sudden you're like, "Wow, I'm getting a great deal on this, let me get it."

Now another, and maybe this is somewhat related, is known as original belief. This is related to another type of bias that sometimes people will call confirmation bias. Where if you start with a belief about something, that something is a good decision or a bad decision, it's oftentimes human nature to pay attention to data that confirms that belief.

So let's say, for whatever reason, you think that you need to buy a motorcycle. You know, maybe one of the other biases came into it— all your friends are getting motorcycles or whatever—so you've come to a belief that you need to get a motorcycle. Now you start doing web searches on reasons to buy a motorcycle, and you find all of these articles about, "Well, you use less fuel, and you get the wind in your hair and, you know, all the—well, you should wear a helmet— all of these good things about it." Like, "Okay, see? Look, there's evidence that it's good for the climate or whatever. I should ride a motorcycle."

But you might ignore some of the other data points that, hey, it actually could be quite dangerous and noisy or whatever else. I'm, you know, motorcycle riders out there—I'm not saying it's always dangerous or always noisy, but you get the idea. We tend to look for data that backs up an original belief—the thing that we already want to believe.

So watch out for these things when you're making your own decisions in life generally, but especially when we're talking about money.

More Articles

View All
Sigma Male Or Joker? (animated)
The Sigma male is the hierarchical chameleon that shape-shifts himself through life, and by his very nature, does not belong anywhere. Because the Sigma male rather sees human existence as a game, he sometimes chuckles a bit when he sees people taking lif…
Inflation Continues to Sky Rocket: How Warren Buffett Says You Should be Investing
Everyone is talking about inflation, inflation, inflation, inflation. This pesky little thing called inflation has probably been the most talked-about topic in finance this year, and this is likely for a good reason. The cost of mostly everything, from ho…
Optimistic Nihilism: Nothing matters, but it’s ok
Life is but a walking shadow, a poor player that struts and frets his hour upon the stage and then is heard no more. It’s a tale told by an idiot, full of sound and fury, signifying nothing. Have you ever met someone who calls himself a nihilist? Maybe y…
How Do You Become Santa Claus? Santa School, Of Course! | National Geographic
Now the reason why it’s important that you learn to do this, it’s because you’re the most photographed people in the world. The Charles W. Howard Santa Claus School is the world’s oldest Santa Claus school. It is here to help Santa’s become [Music]. The S…
Reasoning with linear equations | Solving equations & inequalities | Algebra 1 | Khan Academy
In many other videos, we’ve taken equations like this and tried to quote solve for x. What we’re going to do in this video is deepen our understanding a little bit about what’s going on and really think about the notion of equivalence, or equivalent state…
Beautiful Animation Shows What It's Like to Be Homesick in a New Country | Short Film Showcase
Every spring, my mom used to plant boxes of violets and propagate the geranium she’s been growing for years in a small garden on a balcony in Tehran. I remember her telling me, “When you move a plant from one place to another, you need to give it some tim…