Cognitive Abilities and Household Financial Decision Making

[roo_ster]

http://isteve.blogspot.com/2010/11/cognitive-abilities-and-household.html

This one hits quite a few topics I find of interest.  Quantitative analysis crossed with human behavior, to name ust two.

The article goes into how corporations are doing to services (phone, cable, internet, etc.) what has already been done to some financial instruments: increased complexity of interaction to the point where one must be both savvy and motivated to tease out the optimal state for the consumer.

The human side of it is a study showing the relationship of mathematical aptitude with more optimal use of credit As mathematical aptitude goes up, the more optimally the person uses credit instruments.  OTOH, verbal ability has no influence.

Form the article:

"...an awful lot of American corporate activity these days consists of figuring out ways to nickel and dime people over complex monthly charges. It's like a never-ending low intensity war between MBAs with computers versus customers, half of whom will be below average in intelligence, energy, or experience.

The MBA holy grail now is to figure out a way to get people to agree to pay an extra $9.99 per month for something they won't use -- especially, if the original process of coming up with their bill of $173.41 per month was so arduous that they won't bother to go through all the work it would take to have it reduced to $163.42.

...would I have fired up my PC to figure a way to chisel our customers out of an extra $9.99 per month? Well, in 1984 my customer was P&G, my employer's biggest client, and we were all terrified of offending them in any way, so I wouldn't have done it. But, if my customers were just a bunch of nobody consumers, well, yeah, I probably would have done it and then justified it to myself with some libertarian spiel. But now, I'm old, tired, not as smart, and not as persuaded by libertarian theories of ethics."

The comments are also worth perusing.

[AZRedhawk44]

Momma always said stupid is as stupid does.

Ripping off dumb people is part of business.  Whether the source is capitalistic businesses, or labyrinthine government tax laws.

[Brad Johnson]

Ripping off dumb people is part of business.

You don't even have to do it on purpose any more.  It's been my experience that most people do it to themselves through incompetence, ignorance, or just plain old lack of common sense.

Example:  All Natural and Organic
We have a new store in Lubbock, a Sun Harvest market.  People are flocking to it, ready and willing to pay 10-500% more for products just because it's claimed to be all natural or organic.  You know things have really gone off the deep end when the store has a stack of "all natural" firewood out front.  (I'm dead serious. It was labeled exactly that.  Even claimed to be cleaner burning and better for the environment.)  What's next, organic sunshine?  *sigh*

Brad

[roo_ster]

Ripping off dumb people is part of business. 

Yes, yes, but that never required much effort. 

At what level of complexity does it become intentional deception or fraud?

The complexity of many of these transaction & instruments has exceeded the ability of even average to above average folks to suss out.  Even those who have the capacity to suss it out many times do not have the time or energy to do so.  I don't mean "they're lazy," I mean there is a whole host of things competing for their attention, no time to rigorously address them all, and some will thus not be addressed.  Folks are making snap cost/benefit analyses on doing cost/benefit analyses (as time has a value, many times monetary).

I sometimes drive my wife crazy by doing spreadsheet analysis on most major purchases.  Not, just "shopping around."  Autos, cell phone plans, appliances, guns, etc.  I recently had to cut short my usual analysis and said, "Just buy the washer & dryer at Costco.  Most things there are of better than average quality at better than average prices and I don't have the time to find the best deal possible."  I had familial, work, and legal issues that required my time and not all of it was going to get done if I did my usual analysis.

[BrokenPaw]

What's next, organic sunshine?  *sigh*

The Organic/All-Natural Everything folks play a sorry second fiddle to the Magically Awesomer Speaker Cable folks. 

At least in terms of sheer markup percentage; when it comes down to volume, probably the Hipster Food Alliance is raking in more than the Audiophile Disenrichment Industry.

Maybe there's a niche market here:  All-natural, Organic Speaker Cables.  With Electrolytes.

[cassandra and sara's daddy]

interesting as i am in the middle of arm wrestling comcast.  i do believe i got their attention when i had their state corporate agent served to appear in court. i think that might be the way to fight back.

[Phantom Warrior]

I don't have much faith in corporate benevolence either but it seems like a lot of people do it to themselves financially.  It's pretty hard to point the finger at the credit card companies when you spent $30,000 you didn't have.  Yeah, they are hosing you on interest and fees but YOU spent all that money you can't afford to pay off in the first place. 

Regarding cables, MonoPrice.com.  I got a 25' VGA/audio cable that would have been $30-40+ in stores for $16 shipped.

[Lee]

I'm not sure if I buy the premise that people are too stupid to figure out the bill.  I do believe the bills (phone, medical, etc.) are unnecessarily complicated, and probably designed to ding end users; but nearly everyone falls victim at some point, due to  1) too little time to dig into the bill or 2) too little time, or patience, to navigate the complicated "consumer dis-service" systems.  An hour or two of time ain't worth $9.99 for many folks.  If MBA's are rigging the bill, then IT guys are protecting them by building a wall of web sites and voice mail systems.       

[cassandra and sara's daddy]

some folk just don't get it about money.  example? i have a friends who is 53 years old  hes been struggling for 4 years. hes had a 600 dollar a month vette payment the whole time. i found him a place for 625 a month including utilities   he passed took an 1100 a month place.  last night they took his wifes jeep  the one they have been paying  300 a month on a title loan for almost 2 years. so today he paid 10 k for a 2000 windstar at one of those buy here pay here places   420 a month. and when this all started they inherited 80 grand  spent 25 k on parts alone to customize the vette and a host of other pretty shiny things.  in less than 18 months they were in a cheap hotel but hung on to the vette.  not stupid folks  just no good sense