Thursday, January 18, 2007

neuroeconomics and credit cards

Reading a weekly news magazine today, I came across an article about an economist and two psychologists who teamed up to study how the brain operates when people purchase items (The ECONOMIST, 13 January 2007, p.73). They did experiments which found that the reaction to the desirability of the product and the reaction to the price are processed in two different parts of the brain. This suggests that people’s brains ultimately may be balancing the immediate pleasure of possibly possessing the item with the immediate pain of paying for it.

A hypothesis coming out of these studies is that the abstract nature of using credit cards, coupled with the deferment of the pain of paying, alters this balancing of the benefit and cost by reducing the felt cost. Thus, people are then more likely to purchase the item. More studies are planned to directly test this hypothesis.

In short, the brain is not set up to function as rationally, to make good decisions, when using credit cards.

Then I thought: this problem is not going to change and is part of the long-run nature of humans. Since using credit cards and spending too much does not disadvantage people in the procreation process (in fact it may help!), evolution will not favor the genes of those who can make better decisions with credit cards.

Unreason triumphs!

So much for evolution....

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