October 30

Humans, Not Econs: 3 Econ Lessons to Avoid Buyer’s Remorse

Newsflash: We humans are not always rational decision-makers. We make some questionable economic (and other) choices, because, in Nobel prize-winning Professor Thaler’s words, ‘We are humans, not econs’.

We operate in a world of sales pitches and marketing traps. To avoid severe buyer’s remorse, we would be well served to understand three fundamental concepts in Economics articulated further in this article.

Now, just because you see the words ‘Economics’ or ‘concepts’ doesn’t mean you should stop reading. I’ll do my best to make this as less dreary as possible. My goal is to help you learn something useful today. Or at least, provide you with enough jargon so you can sound very erudite in your dinner party conversations.

Shopping Trip

Let’s say you’ve been a trooper: you finished your long project, got your exercise in, walked the dog, etc. You feel accomplished. To reward yourself, you head to the mall. Quaint. I know. But stay with me.

You venture out with $50 reserved in your left pocket for clothes-shopping and $15 in your right pocket to spend at the food court. As you enter the mall, someone hands out a free $5 voucher (expiring the same day) to spend at the food court. Do you now:

Choice A

Move $5 from your right pocket to left pocket (to increase your shopping spend to $55) while still being able to spend $15 at the food court - $10 of your own money and the $5 free voucher?

Choice B

Restrict yourself to spending $50 clothes-shopping but plan to get yourself an extra dessert using the free voucher, thus spending $20 on dining?

Choice C

Move $5 from the right (dining) pocket to a third pocket in your shirt to save for future use? (Yes, you’ll need to picture yourself wearing a pocket-heavy outfit). This will still let you spend what you originally intended i.e. $50 on shopping and $15 on dining (using $10 of your own money and the $5 free voucher) but also save $5 for next time.

Decision Time

Have you made a decision yet?

I’m guessing it was a little tough. You may not be able to make a clear choice right now and your decision may vary depending on several factors – how attractive the shopping choices are, how hungry you are, what’s in the food court, and also your general proclivities to sticking to a budget or saving money.

Now, let’s say, I up the ante. The $ value available to you for shopping is now $500 instead of $50. Everything else stays the same. Would your choices between A, B, and C differ?

Likely, right?

The extra $5 in additional shopping money now seems quite inconsequential, doesn’t it? You are not probably not going to spend time debating a spending decision where the added value isn’t that much more.

Here’s the thing about money – the dollar bills that are in your left and right pockets are interchangeable. The same $ will spend equally well on food or clothes or lottery tickets. But we tend to treat it differently, because we are humans, not econs.

Concept 1: Fungibility and its failure

Economists refer to this interchangeability as the fungibility of money.

They say a dollar is a dollar is a dollar. Ad infinitum.

But we create mental accounting categories and start to believe that shopping dollars are different from dining dollars. Or that gifts or vouchers we receive are somehow less money than earned dollars.

This is most apparent on game shows or in gambling.

If you want to watch some incredulous financial behavior, simply tune in to a game show such as ‘Who wants to be a millionaire’ or any of the other shows that require you to stake or risk a percentage of winnings to attempt a shot at the next level.

Jack proves he knows Jack

Let’s say our contestant is Jack. Jack’s annual income is $75,000. Jack knows enough trivial facts to be a strong contestant on ‘Who wants to be a millionaire’. Midway through the show, he’s on a roll and has won a total of $180,000. The crowd is getting behind him.

Jack then is faced with a tricky question. If he cannot answer correctly, he risks losing $150,000 and may have to go home with $20,000. But he’s playing for a chance at doubling his winnings to $360,000.

What does Jack do? He decides to go ahead and risk 150K anyway - two years of his annual income on a single question.

Jack  reasons that the $150,000 he bet, is not HIS money but rather ‘play money’ or in gambling-speak ‘house’s money’. He reckons the remorse in losing play money won’t be quite as bad as losing his own money.

Jack’s behavior violates the fundamental economic law of the fungibility of money. Because Jack belongs to the category of humans, not econs. 

Making a $150,000 bet on a game show is like writing out a blank check for that amount and leaving it on the table in the hope that no one else finds it. Jack would never leave a check sitting out like that.

But his behavior with ‘winnings’ instead of ‘earned’ money is quite the contrary. Why so?

Humans, Not Econs

This behavior was explained by Richard Thaler, Professor of Behavioral Economics, who won the Nobel Prize for his work in this field.

Professor Thaler described how humans behave in ways that are not always rational. Previous economic theories assumed us to be Econs - essentially a figment of economists’ imagination of us being completely rational-choice making machines. Which we are not.

Our irrational behavior is because, we are humans, not econs.

I used to skeptically think people get awarded the Nobel prize for writing arcane theories with highfalutin words to impress their fellow academics. Dead wrong. Nobel laureates are brilliant women and men who, either discover amazing things or who explore common real-life situations and find exceptional meaning in them.

Prof Thaler challenged common belief (that humans make rational decisions) in the world of economics by incorporating how human psychology plays a role in economic decisions. Thus, was born the field of ‘Behavioral Economics’.


Because of our human-ness, we are governed by various behavioral, neural, and emotional factors and don’t always act rationally when making economic decisions.

Irrational is what we are. Humans, not Econs.

The point of this article is for us to be aware of this irrationality. While it’s hard to combat this irrationality and work against our ingrained tendencies, the awareness of economic theories can help us step away from potential financial mishaps. For instance, just acknowledging we are not rational can help us pause when making life-changing economic decisions to avoid buyer’s remorse.

We know money should be fungible. But we act in ways that question our knowledge of fungibility.

Concept 2: JND - Just Noticeable Difference

You’re stuck, working from home, during the pandemic. In reorganizing your office space, you put away your weighing scale, to make space for ‘essentials’. But the fitness tracker remains on your wrist, thanks to your spouse’s insistence.

When your fitness tracker signals it’s time to stand, you decide to take a walk – to the pantry. This has become your new routine. The number of pantry visits has risen in proportion to the number of work-related Zoom calls you take.

Obviously, with each pantry visit, cells are being added to your midsection that neither you nor your spouse notice. Normally, you’d observe this increased, because your clothes would fit tighter. But in these revised circumstances, how would you know? You haven’t worn anything other than very forgiving PJs for many months now.

A few months into the routine, you head to the grocery store to supplement your pantry stock.  There, you run into a coworker. Now, this coworker notices that you are more rounded than you were before but says nothing. Because, polite!

Then, you overhear her conversation with someone on the phone. She mentions running into you and how you’ve gotten stockier. What?!

Back home, you ask your spouse if you’ve gotten chubbier. He says he hadn’t noticed. You badger him to tell you the truth because you know he’s trained to say what you want to hear. A great poker player, who never shows his hand. He insists you’re not chubbier.

Then you ask your child. Same response.

You just got Weber-Fechnered! The What?

Weber-Fechner Law

Definition/Nerd speak: The intensity of a sensation is proportional to the logarithm of the intensity of the stimulus causing it.

In other words, to notice or perceive a change, the intensity of the change should be significant in comparison to the original. Small changes over some time are not noticeable but significant changes are.

Your weight may have slowly crept up and may not be noticeable to people who see you day in and day out, but someone seeing you after a long time, may notice this difference.

Here are some other examples of Webner-Fechner law.

Assume your wallet has $100 in $5 bills. If someone removes two $5 bills from your wallet you probably won’t notice it. Now assume your wallet only has $10 to start with (2 $5 bills). If these $5 bills were removed, it would be VERY noticeable.

In both cases, you ‘lose’ $10. The first loss doesn’t register but the second one does feel like a loss.

Here’s another example.

Let’s say you eye an Instant Pot (the ‘It’ appliance of today). You see it listed on sale, marked down from $99 to $59 – a $40 price drop at your local store. Of course, you are elated. You instantly drive to the store to buy your Instapot.

Let’s say you were also in the market for a new television. The model you’ve been eyeing has also dropped in price, marked down from $1,251 to $1,211. But this time you’re not excited by that price drop. It seems not significant enough, even though you’d, in theory, be ‘saving’ the same $40 as you did on in the Instant pot.


Prof Thaler describes this phenomenon as ‘JND’ – a just noticeable difference.

JND is not an absolute amount but is proportional to the original value. When people find the JND, they are compelled to respond or act.

In the examples above:

  • The $40 drop was a JND that compelled you to drive to the store to purchase the InstantPot.
  • The $10 loss was a JND in a wallet that only had $10 to start with, causing you to wonder what happened to the money.
  • Your weight gain was a JND to the person who saw you at the grocery store such that she felt compelled to gossip about it right away.

Why you need to worry about JND

Marketing geniuses have used JND quite cleverly. Unfortunately, if you’re not careful, you foot the bill for their genius. That's because they understand they're marketing to humans, not econs.

Here’s what JND means in the marketplace. A seller can potentially increase the price of a product without you noticing it, as long as the price increase is under the radar of a JND.

If you’re committed to buying a Tesla Model 3 and the price changes from $31,208 to $31,601, it probably is not going to be a JND. Therefore, your buying decision is likely to not change, although the price difference is almost $400.

Now, at the same time, if the espresso coffee machine you wanted to buy doubled in price from $300 to $600, you are likely to completely walk away from the sale. $300, in this case, is not just a JND, but an HND (Heck of a noticeable difference – this is my attempt at economic theory and my invented term, so please don’t google it).

In absolute terms, you may have been better off (by $100) in buying the coffee machine and holding off on the Tesla given the price changes. But that seems silly, doesn’t it?

We understand money is fungible. A dollar is a dollar is a dollar. But our actions belie our understanding of the fungibility principle. Because, we are humans, not econs.

Concept 3: Anchoring Effect

Another key theory that could spell doom for us is the ‘Anchoring’ effect.

Nobel Prize-winning psychologist Daniel Kahneman explains the Anchoring effect in his seminal book, ‘Thinking fast, thinking slow’.

The theory suggests that you can guide or nudge people’s response to a situation by providing ‘anchors’.

Mr. Smith and his house

For instance, I could ask you one of two open-ended questions.

  • Can you guess the number of years the recently deceased Mr. Smith, lived in this house?

Yes, I’m asking you this question assuming you don’t know Mr. Smith or that he recently passed away or that he even existed.

It is a weird question. Even by my standards. But, go ahead, answer the question. What’s your guess?

Now, let me rephrase this question.

  • The neighborhood Mr. Smith lived in has been around for a long time. Some of the homes were built 80 years ago. Can you guess the number of years the recently deceased Mr. Smith, lived in this house?

In theory, you still don’t know anything about Mr. Smith or the house. But I threw a vague fact in there and that distorted your thinking.

The age of the neighborhood, the fact that Mr. Smith died are all anchors – information simply thrown out there, that may or may not be relevant to the question posed. The anchors create the impression that Mr. Smith may have been an old person who probably lived in the house for a long time, say 50 years plus.

But the opposite may be true too. Mr. Smith could have been in his 20s, may have passed away in an accident. He could have bought the property a year ago to renovate and sell.

Your guess is as good as mine. Because I don’t know anything about Mr. Smith or the house either. Here’s the point though:

Our brains have trouble disregarding anchors in the decision-making process. Because we are humans, not econs.

Impact of Anchoring

Anchors interfere with the decision-making process even when we think they don’t.

Our brains are wired for us to consider these anchors, regardless of whether they are relevant or not, regardless of whether we think they’re taken into account in the decision-making process.

Take another example. Let’s say you are about to donate online and the donation form shows up.

Humans, not econs, donate

There are some suggested donation amounts, like in the example here.

Based on the above figure, you may assume that people start their donations closer to the suggested $50.

The above numbers may leave you second-guessing the $5 donation you were planning on. Therefore, after seeing the website, it is quite likely you may revise the number upwards to end up closer to $50 than $5. After all, you don’t want to be the schmuck that made a $5 contribution when all other donations started at $50.

This is anchoring in action. Aimed at us humans, not econs. An Econ would disregard the anchor. A human would indulge in self-loathing.

Unrelated Anchors

Anchors, by nature, don’t need to have any bearing or even resemblance to reality.

I can simply throw a completely random fact out there such as this: The average person falls asleep in 7 minutes.

Then, if I let that sit with you for a minute and ask you an unrelated question - what percentage of animals on earth, do you think, have six legs?

Your guess, believe it or not, will be influenced by the number 7 (from the random 7 min statistic above).

But if you search online, you’ll find that 80% of animals, actually do have six legs. Fascinating. Not. (Note: If you knew this statistic without Google’s assistance, let me just say, you are fascinating).

Availability Bias

Another theory plays a role in your guess here – ‘availability bias’. Your memories or personal experiences related to the question and how quickly you can recall such memories.

In this case, if you can only recall a few animals with six legs, then you are likely to guess that the % of animals in the world with six legs is low.

On the other hand, if you can quickly rattle out a list of more than 10 animals that have 6+ legs, you’re likely to assume six-legged animals are the norm in the world rather than the exception.

Anchors and Buyer’s remorse

The trouble with anchors and availability biases is that even extraordinarily arbitrary information such as phone and social security digits can sometimes act as anchors. Research has confirmed this.

Why does it matter?  Is this theory relevant to you?

Yes. Extremely, so. Especially because, I can assume the readers here are humans, not econs.

Marketers use the anchoring effect to nudge you towards their product and price.

For example, let’s say you’re in the market for an online course on how to create and publish you-tube videos. It’s difficult to comparison shop based on price because the pricing could vary based on a lot of factors - the reputation of the content provider, the quality of the content, demand, etc.

Let’s say, you narrowed your search down and found a website. You are likely going to be subjected to verbiage like this on the website.

Normally, you’d pay $2000 for this content. But, here’s a limited-time special, JUST FOR YOU! Get this course for more than 50% off – just pay 999.99. And if you sign up in the next 2 hours, you’ll also get bonus material XYZ…

Sound familiar? If you, like me, have had one too many late afternoon coffees causing sleep issues at night, simply turn on late-night TV. You’ll be inundated with a barrage of teleshopping pitches, each one trying to outdo another in their use of anchoring strategies.

Or just walk into the clothing aisle of any department store. You’ll see shirts listed at 39.99; marked down to $22.99. And depending on the day, the shirt may be specially discounted to $12.99.

Any department store trying to sell shirts at $39.99 would probably not last the quarter. 39.99 is a meaningless number, in this case. But when you purchase the shirt for 12.99 eventually, you walk away happy, under the impression that you just landed the deal of the century

The problem is, once you see the 39.99, it’s hard for your brain to unsee it. So, unless you walk in knowing exactly how much you want to pay, you run the risk of being swayed by meaningless anchors.

Dealing with Anchors

Over and over again, we fall victim to this phenomenon.

When you’re negotiating, it’s important to remember this fact. Any marketer/seller worth their salt knows the first-mover advantage; in being the first one to throw out an anchor number. This then frames the negotiation. You end up negotiating with that anchor number.

This presents all sorts of problems if the gap between the anchor and your intended purchase price is very large. If the seller listing something for $1000 and you think it’s worth $100, it’s hard for both parties to negotiate in good faith.

The only reasonable option in such cases is, for you to walk away from the negotiation. Or ask the seller to take the anchor off the table and start all over again with a more reasonable number.

But, we are humans, not econs. Most times we don’t even know we’re being played. We find ourselves in the negotiation process without recognizing the presence of an anchor.

The solution to this issue: When large scale negotiations or high-stakes decisions are needed, go in knowing there could be an anchoring effect. Though you may not be able to modify your brain to disregard the anchor, you can acknowledge the effect of the anchor and request for a pause in the negotiations to allow you to contemplate a better strategy. You’ll save yourself from severe buyer’s remorse.

In Conclusion

Knowledge does not automatically translate into action. But knowledge can help guide action.

We are humans, not econs. We are never going to become robotic, rational decision-making machines. And that’s a good thing. It keeps our human-ness intact. By the same token, we don’t have to be gullible fools at the mercy of questionable marketing ploys.

Of course, there are many other factors such as stress, hunger, lack of sleep, etc. that could lead to poor decision-making.

However, knowing these three economic concepts – that money is fungible, understanding when there is or isn’t a JND, and being aware of anchors - can help prevent financial and economic mishaps.

Finally, an anecdote to illustrate this very point.

I remember reading a book to my daughter when she was very young. The book had a sprinkling of facts about the Gold rush in California in the 1850s. My daughter then asked me if I had managed to get my hands on any of that gold then, probably picturing me with a dustpan and broom. Uh-oh!

She hadn’t fully grasped concepts such as the human age, calendars, how centuries pass, etc. She had heard a story with an anchor and assumed I was part of that story.

I wasn’t offended to know my child thought I was close to 200 years old. Because I knew she was dealing with an anchor.

Knowledge is power.



  • Very informative read…thought about how many time I had to do the HND but still cave-in at the last minute shoppings ):

  • Aruna
    First let me congratulate you once again on a topic worth talking about and managing to make us feel like we’ll this is the area I want to focus on next for my self improvement. 🙂
    Second, for really calling out those bias/ human factor which sometimes the intelligent / self absorbed us completed forget about . One of the reasons Mary Kondo had to write her book is because we are all humans caught up in this JnD business and keep accumulating because hey it’s on sale etc

    Now question is how long will I remember it as I am starting it as my November ‘yeah giving myself two more days’ resolution to spend on Needs not wants
    And needs that are truly needs per common defn not my defn

    Thankyou for allowing us be part of your circle so may be one day we can be better us

    • Thank you for reading, Jaya. Very wise words, my friend. Life is short; so it’s okay to spend on wants as long as we choose to not ‘want’ everything. All good in the end.

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