Freedom Isn’t Free UK Personal Finance
Behavioral Finance
Predictably Irrational: 3 Biases That Cost You Money
MIT ran the same auction twice. Cash bidders and card bidders. Same product, same room. One group paid up to twice as much, and they had no idea why.
Three Ariely biases that drain your account
| Bias | How it shows up | Cost | Counter-move |
|---|---|---|---|
| Anchoring | First number sticks | Overpriced goals | Use multiple data points |
| Pain of paying | Cards dull spending | Up to 2x more | Use cash for discretionary |
| Zero-price effect | Free trials forgotten | ~£600/yr subscriptions | Calendar reminders to cancel |
| Home bias | Overweighting UK | Concentration risk | Hold a global tracker |
MIT Sloan research found credit-card bidders paid up to twice as much as cash bidders.
Key takeaways
1
Anchoring is a bias where the first piece of information influences our decisions, so use multiple data points for better financial goals.
2
The pain of paying varies with payment method, leading to overspending with credit cards; consider using cash for better control.
3
The zero-price effect makes us overvalue free items, so be aware of hidden costs in free trials and subscriptions.