People can do their own taxes, control their spending, contribute to retirement funds, and psychologists will still think they’re irrational about money. And more than likely, they’re are right.
In many situations, people think more about the size of numbers than what they represent, according to an article in Science Daily. Using studies on risk aversion, psychologists at Ohio State University showed that people think of 300 cents as greater than $3, even though they hold the same value.
People also think of money “in terms of percentages, not in terms of absolute numbers,” behavioral economist Dan Ariely told Marketplace. He gave an example: If a person found out that they could save $7 on a $15 pen by walking five blocks, many people would do it. If they were told they could save $7 on a suit that cost $1,015, most people wouldn’t bother.
Both examples show how people can be entirely irrational, even when working with small numbers. When it comes to $700 billion bail out plans, I shudder to think.
