Black Section Separator

Core Financial concepts in psychology

Written By

Aditya Shukla, Psychologist, Cognition Today

White Frame Corner

1

Delay Discounting

Immediate rewards are valued more than those we get far later, even if the future rewards are better. E.g., wanting $20 right now instead of $30 1 week later.

2

Lifestyle creep

Lifestyle creep (lifestyle inflation) - when we spend more and more on our standard of living, our former luxuries become new necessities, and we start paying more for the basics.

3

retail Therapy

We buy things to feel good. We impulsively buy to lift ourselves up. Retail therapy feels good, but over time, it's a habit that can own us instead and make us dependent on money for basic joy.

4

Easterlin Paradox

Happiness generally increases with income, but only to a point. After which, happiness stops trending upwards even though income keeps increasing.

5

Money Scripts

Money Scripts are our beliefs about money that affect how much money we want and need and how we should spend or save it. These beliefs can go toxic and hurt financial wellbeing. E.g., If it isn't best or new, it is not worth buying.

6

Loss Aversion

We generally prefer to avoid a loss as opposed to getting an equal gain. E.g., Losing 100 feels worse than gaining 100.

7

Beauty Premium

We have an inherent bias to pay more for things that look pretty and beautiful and we also have a bias to pay much lesser if it looks ugly. E.g., great packaging inflates value, but an equally good product with bad packaging feels cheap.