The Daily Parker

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The neurology of spending

Last one today, with two articles on paying cash v. paying with credit cards. First, Ryan Sager at Neuroworld:

Every person’s financial situation and mind works differently. For some people, doing many more of their transactions in cash (or check — you have to have some way to pay bills) would be a huge improvement. If you shop a lot recreationally, for instance, this could slow you down. For some people, just using a debit card could be the answer. For me and other people who like a lot of control and data and feedback — and I swear this whole post isn’t a viral add for — a solution like credit cards plus something like… is a good answer.

The key, as in so many things, is a high degree of self knowledge, a willingness to experiment and track results, and the information to understand what biases might be driving your behavior.

An older article on the same subject from Jonah Lehrer:

What's interesting to me is the way credit cards take advantage of some innate flaws in the brain. When we buy something with cash, the purchase involves an actual loss - our wallet is literally lighter. Credit cards, however, make the transaction abstract, so that we don't really feel the downside of spending money. Brain imaging experiments suggest that paying with credit cards actually reduces activity in the insula, a brain region associated with negative feelings. As George Loewenstein, a neuroeconomist at Carnegie-Mellon says, "The nature of credit cards ensures that your brain is anaesthetized against the pain of payment." Spending money doesn't feel bad, so you spend more money.

Once again I remember the semi-dystopian Friday by Robert Heinlein, in which he imagines a Republic of California with a constitutional right to credit. Of course, that means everyone in California is in debt....

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