James Krohe Jr.

The lesson of nearly thirty years of research into the psychology of economic decision-making is that the ways we feel about money — having it, making it, losing it — seldom add up. As hundreds of experiments since the 1970s have confirmed, we are haunted by the prospect of loss. Our perceptions are easily skewed according to how a problem is presented. We turn blind eyes to inconvenient facts. We draw big conclusions from samples too small to support them. We confuse economic cause and effect. We analyze problems in terms of what we remember, or what we fear, rather than what we might gain.

Some of these ingrained responses are emotional, some biological, some social, others cognitive. Whatever their origin, decision-making biases of the economic sort work deep in the subconscious. We are no more aware of the process than we are aware of our irises when they shrink in response to a flash of light. And they work whether we are contemplating buying a new car or a new car company.

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