Author: Emily Guy Birken / Source: Wise Bread
Have you ever gone grocery shopping on an empty stomach? If you’re like most people, you come home with all kinds of random junk food and disparate ingredients you have no specific plans to use, all because they looked good at the time.
So when you decide to throw some “lightly expired” shrimp, Lonely Gal Margarita Mix for One, and an entire shelf’s worth of tortilla chips into your cart when you only needed a gallon of milk, you are falling victim to a cognitive bias known as the projection bias.
This bias causes you to believe that however you are feeling in the moment is how you will still feel in the future. So when you are feeling rumbly in your tummy while cruising the grocery store, you believe you’ll still want to eat shrimp-covered nachos once you get home — even though your enthusiasm for shrimp that’s gone to the bad place will definitely wane once you’ve had a snack.
Of course, the projection bias does more than just fill your grocery carts with food you’ll never eat. It can also cause you to make even bigger financial mistakes. Here’s how your inability to project your future preferences can ruin your finances. (See also: 5 Mental Biases That Are Keeping You Poor)
Irrational shopping
Car dealerships have long found that they sell more convertibles in the spring and summer than in the winter. Some of that is perfectly natural. A car buyer is likely to want to purchase a car whose amenities they can take advantage of right away. But convertible sales also spike during sunny days or warm spells during the winter. In those cases, the irrational convertible owner is projecting that she will want to ride with the top down and the wind in her hair every day, just because that’s what she wants on the unseasonably warm and beautiful day when she buys her new car.
Similarly, when you are in the midst of a new enthusiasm for exercise, it might seem like a great idea to buy a treadmill or elliptical machine. You want to exercise every day right now, so of course you’ll want to continue exercising in the future. There is no possible way that your new BowFlex will collect dust and/or become an impromptu clothes-drying rack within a few weeks of purchase.
One of the best ways of thwarting this expensive projection bias mistake is forcing yourself to take a cooling-off period before making any major purchases. Test driving the convertible BMW may be a blast on that random 70-degree day in late February, but will actually purchasing the car still feel as reasonable a week later when the snow is falling? Forcing yourself to wait a week (or a month) before making…
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