If your wallet’s thick and your bank account’s flush, beware: you may start losing your sense of value and begin overpaying for things.
Economists from the University of Chicago, Princeton University and Harvard University recently found that higher-income people don’t always make the wisest choices when it comes to their purchases.
The research argues that lower-income individuals, faced with fewer resources, are often shrewder in their spending decisions. With that concept in mind, let’s see how you do with this simple exercise:
Imagine you’re lying on a beach. It’s hot and you wish you had a cold beer. A friend offers to get you one, but asks, “What’s the highest price you’re willing to pay for the beer?”
What goes through your mind? Any of the following?:
- “I wonder where she’s going to buy the beer.”
- “It’s hot and I’m relaxing, so anything’s great.”
- “If I use my money to buy a beer, I won’t be able to buy…”
- “I wonder what brand of beer she’ll buy me?”
- “Hmm…When was the last time I had a cold beer on a beach?”
If you picked No. 3, congratulations. This is the shrewdest answer. For economists, every transaction involves a trade-off. If you spend money here, you’ll have less money there.
When researchers put this scenario to test subjects, they found people from lower-income levels were more likely to think about the trade-offs, and understood more readily that a can of Bud is a can of Bud, regardless of the vendor it comes from. People from higher-income brackets were more likely to get caught up in irrelevance.
In another example, researchers asked subjects if they’d be willing to drive 30 minutes to save $50 on a tablet computer. Would they do it if the tablet cost $1,000? What about $500? What about $300?
The correct answer is that fifty dollars is fifty dollars. It has nothing to do with its proportion to the tablet’s price. The research showed that higher-income individuals were more likely to get caught up thinking about the proportion of the discount rather than the cost of the drive.
Additional data indicated that scarcity also influences decisions we make regarding resources other than money, including food and time. Just something to think about next time your wallet’s full and you’re hankering for a beer.
