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Money Madness is No Oxymoron

Posted By Prucia Buscell, Saturday, March 21, 2009
Updated: Tuesday, February 15, 2011
The very thought or mention of money activates some ancient emotional areas of our brains, some scientists believe.

"Why Money Messes With Your Mind,” an absorbing March 18, 2009 article by physicist Mark Buchanan, describes some of money’s mysterious psychological forces and the odd and unpredictable impact it can have on the things we do.

Barbara Briers and her colleagues at the HEC Business School in Paris, for instance, think people’s desire for money is a modern adaptation of the basic need for food, and their research suggests the interaction between those two urges triggers some pretty primitive instincts. Their paper Hungry for Money reports that hungry research participants were less likely to give to charity than those with full stomachs. People who smelled good food were a little stingier than those in a room without scent, and those whose desire for money was piqued during an experiment ate more candy than those who had other interests. The research suggests our brains process information about money using the same pathways that evolved for food. If that’s correct, Buchanan writes, "It puts a whole new spin on the term ‘greedy banker’.”

His article also cites research that shows our mental accounting is based more on emotion and context than it is on obvious math. There are psychological reasons why we’re more likely to remember an amount we paid in cash than an amount paid with plastic, and why we’ll often take a little money now rather than more later. The reasons just aren’t logical.

Daniel Ariely, a behavioral economist, theorizes that we have two distinct sets of social norms, one for long-term relationships that involve trust and cooperation, and another set of "market norms” that foster money and competition and encourage us to put our own interests first. He notes we get in trouble when we mix them.

Ariely explores contradictory and paradoxical human behavior in economics in his book Predictably Irrational: The Hidden Forces that Shape Our Decisions. He has some provocative thoughts on the Madoff scandal and the possibility that some of the lessons we learn from it may be wrong. While it is important to root out really serious financial miscreants, he worries that we’ll be tempted to pay insufficient attention to other less dramatically egregious financial behavior that could actually have bigger consequences. He says research shows few people cheat a lot, but many will cheat a little. If we ignore small dishonesties by many—fudging financial reports, doctoring documents, little deceptions on mortgage terms and higher pay for cronies—we neglect the real economic sources of the trouble we are in, he says. Listen to Ariely talk about why we think it’s OK to cheat and steal, and the surprising forces and circumstances that encourage and inhibit such behavior.

Tags:  buscell  complexity matters  finance 

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