Say no to free stuff

I just turned down free stuff. Free stuff that I want. It was a free subscription to LoveFilm for month. Just think how many films I could watch for free? All those blockbusters... All those shoot-em-ups...

So why turn it down?

 

So here's the rub. I know I have finite cognitive power (gasp). I tend to forget things. In this case, I'm fairly likely to forget to cancel the LoveFilm subscription at the end of the month. And the penalty for doing so would be the LoveFilm subscription fee for the next month leaving my bank account.

If I was rational and had an infinitely powerful brain I would get the free month's worth of films, then cancel the subscription. But if I was cognitively limited I would get the free month and then forget to cancel it, and thus have to pay for something I think is good but overpriced.

As it happens, I acted in a rational way to counteract my inherent stupidity: I ignored the deal altogether.

So there you go, a prime example of how seemingly irrational behaviour can be explained by people being aware of their limitations.

Promotions: The Effect of ‘Labelling’ on Customer Behaviour

I've just had the great pleasure of writing a guest blog for The Marketing Directors (the marketing consultancy) and here it is: Promotions: The Effect of ‘Labelling’ on Customer Behaviour

Does the Child Benefit?

In the UK all parents receive Child Benefit from the government (equivalent to Child Tax Credit in the US). It's worth £20.30 per week for the eldest child and £13.40 per week for other children. The government spends 1% of GNP of Child Benefit. So it seems relevant to ask how Child Benefit is actually used by parents...

a) Parents spend a greater proportion of the Child Benefit on their children than they do with other sources of income
b) Parents spend the same proportion of the Child Benefit on their children as they do with other sources of income
c) Parents spend a lower proportion of the Child Benefit on their children than they do with other sources of income

(This data is accurate for the years previous to the recent change: all parents got the whole Child Benefit regardless of income)

The answer is c!

Blow, Walker and Zhu (2012) found that parents spent less of the Child Benefit on their kids than they do with other sources of income. Does this mean that British parents are uncaring?

Well, it gets worse... Parents typically spend nearly half of the Child Benefit on alcohol!

Oh dear. That's what children drive you to. 

- My Dad

But, in fairness, upon delving into the data Blow et al. discovered that parents have already insured their children's consumption out of primary sources of income. So an alternative explanation of the data is that parents don't count the Child Benefit when doing their budgeting and then treat it as an extra to be spent frivolously, safe in the knowledge that their children are cared for.

This is non-fungibility, but just not in the expected direction. The label 'Child Benefit' has a rather perverse effect. 

So, what do you think, does this prove Child Benefit should be axed?

Who Are We Really?

Behavioural economics finds it's significance from the way it reframes the economic perspective of human beings. We are no longer simply called homo economicus. We are allowed to selfless, confused and cooperative.

But that is not entirely satisfactory. The economic paradigm is still in place. We are still primarily consumers. We exist to consume, and consume to exist. We may occasionally give some of our consumption to others, but our primary purpose is unchanged.

There are, as I see it, two main drivers of this consumption complex. Our philosophical leaders (economists and their mindless followers; politicians) who tell us that consumption is everything. And us, who seemingly have an innate drive to get more stuff. More stuff than we had yesterday, more stuff than our neighbours have today.

The problem is that consumption isn't everything. We are more complex than that. Happiness is not just a function of consumption (c.f. friends, family). We cannot be reduced to one-dimensional, consuming robots.

And if that were not enough to make us think twice, limitless consumption is not actually achievable. Our environment has limits. The planet has limits. There are only so many fish in the sea. As Stewart Wallis (of the think tank the new economics foundation) recently said in a TED talk, we need to move on from seeing ourselves as consumers to stewards. Based purely on pragmatism, a serious change in our self-image is needed.