This is a guest post by Jordan Garrett, one of our undergraduate students of behavioural economics. If you wish to contact Jordan e.g. about internship opportunities etc. then please email david.comerford@stir.ac.uk and I will pass along your message.
In an intimate BBC News article, a 43-year-old mother shares her secret of how she is able to save money on her weekly food shop. Whilst her methods may seem to simply be good advice, concepts from the field of behavioural economics solidify them as more than that.
The article states that Mrs Butler is “very particular” when planning family meals. She writes a weekly dinner plan, puts together her shopping list and compares prices between local grocers to find the best deals.
Cass R. Sunstein and Richard H. Thaler discuss how people think in their 2008 book: ‘Nudge: Improving decisions about health, wealth and happiness’. The pair discuss an approach which “involves a distinction between two kinds of thinking”.
The first is an ‘automatic’ system which is used when we make decisions without consciously thinking about them, this is often seen in sports. For example when a tennis player is returning a serve: their brain may make dozens of estimations about the speed of the ball, it’s trajectory, the weight of the racquet, how far they want to hit the ball; where they want it to go. These are all instinctive, intuitive thoughts made unconsciously.
“The automatic system is rapid and is or feels instinctive”. When it comes to doing your weekly shop, this instinctive way of thinking is often employed, for example when buying a certain yoghurt. It may be the case that this yoghurt is more expensive than a direct substitute, however, we will frequently pay a higher price for a product out of habit or because we know we like it. Employing the more deliberate ‘reflective’ system we may think to buy the cheaper, direct substitute, in turn shaving precious pounds off our weekly shop.
The second system, the ‘reflective’ system, is more controlled and deliberate. We use it every day in deciding what to eat, what to wear or whether or not to cycle to work.
Mrs Butler implements her ‘reflective’ system every week when she settles to write her shopping list. She makes a purposeful and conscious effort to make new savings every month and help get her family through the ongoing cost of living crisis.
A somewhat controversial theory in the field of behavioural economics is that of ‘ego depletion’. The concept of ego depletion subscribes to the idea that humans possess a finite amount of brainpower to use up throughout their day-to-day life. It suggests that making choices depletes these levels and as a result our capacity for self-control suffers.
To test this, various studies and experiments have been carried out. One of which consisted of 25 undergraduate students being randomly assigned into two groups. Each group was presented with a variety of products, the ‘no-choice’ group were tasked simply to provide their opinion on product advertisements. The ‘choice’ group were asked to choose between two similar products depending on which they preferred. Time taken for completion of these tasks was recorded for equitableness. Afterwards participants were asked to submerge their arm in freezing cold water for as long as they could.
The results showed that the ‘choice’ group kept their arms submerged for an average of 27.70 seconds, the no choice group kept theirs submerged for an average of 67.42 seconds. The participants capacity for self-control and will power are seen to have taken a hit amongst the ‘choice’ group compared to the ‘no choice’ group.
An understanding of ego-depletion could be used to avoid unnecessary purchases and save money through the cost-of-living crisis. Using a shopping list curated in advance could reduce the number of decisions that may need to be made on grocery day. Another idea could be to do your shopping earlier in the day, perhaps on a day off, as opposed to after work when the important decisions made throughout the day have had an effect on your willpower.
In trying times such as these, any money saved can go a long way in helping get you and your loved ones through it. Keeping these concepts in mind could set you on the right path to a more comfortable living and financial standard.