3 behavioural conomics terms that explain why we love bargains so much!!

Human beings are not entirely rational. Behavioural economics suggests we're just wired that way for various reasons.

It’s very difficult to ignore a good deal. Even if the product is not something you set out to buy, if the discount is deep enough, you just might end up purchasing it only to regret later. Human beings are not entirely rational, and you might wonder why you find yourself buying something against your better judgement. Behavioural economics suggests we’re just wired that way for various reasons.

We explain three terminologies that should help you understand why you behave the way you do when it comes to shopping during the sale season.

Transaction utility

Everyone loves a bargain. But this runs much deeper than just the desire to save a few bucks. Sales and bargains give people a certain satisfaction about getting a great deal. Even though you end up spending, you feel like you have saved yourself some cash. This is known as transaction utility.

This stems from the fact that people are affected by any departure from a price reference point they have. Combine this with the natural loss aversion human beings have, and you have bargain hunters. For instance, if you expected to pay $100 for a product, and you realise it costs $120, it may jolt you; if, instead, it costs $80, you may jump at it.

Scarcity heuristic

How often have you been told that the piece of clothing you are debating on whether to buy is the last piece? Retailers often use this trick because it triggers what is known in social psychology as scarcity heuristic.

This refers to the phenomenon of people assigning a higher value to what is rare or scarce, and a lower value to what is available in abundance. So, when you’re told that there’s only one of something left, or a deal will end in 24 hours, the urgency of it makes you want the item more.

Sunk cost fallacy

This refers to the desire to make the most of something because you have already paid a part of the cost. This is what drives you to over-eat at the buffet to get your money’s worth. It also makes you want to buy an unnecessary item at the check-out line to bring your total up to the amount that will get you a free gift or bigger discount. Not many of us take the time to factor in how much the extra item costs and whether it will actually save us money by getting the additional discount. Chances are you will never use the free gift either.

Recognising the cognitive biases that make you buy is the first step to avoid falling for the tricks and gimmicks of sellers. So pay attention not only to what you buy, but also to why you buy.