Behavioral Diagnostics Toolkit

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Money



Unit Bias

One teaspoon only… Unit Bias describes our tendency to believe that the proportion that an entity is presented in (food, medicine, etc.) represents the appropriate and optimal amount. This may partially explain why smaller portion sizes can often lead to reduced consumption of snacks or other foods.

Price Placebo

Expensive, but totally worth it… Marketing actions, such as pricing, can alter our experience of products. For example, paying full price for an over-the-counter medication, can lead to increased perceptions of that medications efficacy.

Post Purchase Rationalization

The idea that we naturally overlook defects and faults in items we have decided to purchase. It is a special case of choice-supportive bias.

Mental Accounting

Savings, food, rent, entertainment… Mental Accounting describes our tendency to divide current and future assets into separate, non-transferrable categories. We can do this with money, time, and and other asset and it can sometimes lead to irrational decisions when we over compensate with our behavior in a single category, without realizing that an asset can be redistributed across categories.

Denomination Effect

Should I break this $100 bill? We are more likely to spend the same amount of money ($100) if we have small denominations (5, $20 bills) as opposed to one large denomination (1, $100 bill).

Cost of Zero

FREE, FREE, FREE! We often act as if decreasing the price of items to zero (free) not only decreases their costs, but also adds to their value. The allure of something that is free, however, can often blind us to its hidden or unforeseeable costs and lead cause us to make bad decisions.