The Two Key Biases Behind Bad Purchase Decisions
We cannot always trust our present selves to act in the best interest of our future selves
It’s a sunny Saturday afternoon in Helsinki and I’m about to go thrift shopping. I bike to my favourite thrift store, the vintage UFF. Like all UFFs, it regularly hosts a sale where each item costs 7 Euros on the first day, 6 Euros on the second and so on until all items cost 1 Euro each. Today, all items are priced 4 Euros. I pop in, fumble through the endless clothing racks, try on several pieces and eventually pick out five: three colorful blouses, a long floral dress and black high-waisted pants with a relaxed 90s cut.
I have a tiny inkling that none of the pieces are quite right. The blouses are all made of polyester which is not very breathable, the dress is perhaps a size too big and the pants are a tad too long. Nevertheless, I decide to buy all five garments which adds up to 20 Euros. 5 pieces of clothing for the price of a fast fashion blouse! What a bargain!
It has been about two years since this thrift store haul of mine. Can you guess how many of the items I bought back then are still in my wardrobe? Three. The pants, the dress and one of the blouses.
And how many of them are in active use? One. The black pants. Right after buying them, I took out my sewing machine, mended them to a perfect ⅞ length and have been using them regularly ever since. I still love the dress, but I would need to put on a few kilos or get fake boobs so I wouldn’t need to pinch the neckline together with a safety pin (which I’ve actually done!). And the blouse that survived? It has a cute flower print and a ribbon you can tie into a bow at the neck. But whenever I put it on, I feel a little too preppy, so practically it’s just taking up space in my wardrobe.
What happened between the me who decided to buy the five items on that sunny Saturday afternoon and the me who decided to toss almost half of it away and use only a fraction of the remaining items?
Can we pause for a second? What happened between the me who decided to buy the five items on that sunny Saturday afternoon and the me who decided to toss almost half of it away and use only a fraction of the remaining items?
Time. Or more accurately, the inability of the present me to keep the future me in mind when making a decision.
In this blog post, I want to discuss some of the key drivers behind making bad purchase decisions: our tendency to prefer instant rewards and our inability to properly cater to the needs of our future selves.
This blog post is part of a series on becoming better at buying, a journey towards a long-lasting wardrobe of primarily favorite pieces. If you want to read about the motivation for this project, you can find the kick-off article here.
But now, let’s look at the drivers behind bad purchase decisions through the lens of psychology and behavioral economics.
Thinking fast (and slow) about style choices
Before we discuss the biases involved in less ideal purchase decisions, it’s good to understand some basic concepts behind how the mind works. The field of psychology distinguishes between two modes of thinking: System 1 and System 2.
System 1 is automatic, quick and operates without conscious effort. For example, while writing this article, I picked up a hot tea cup, instantly felt my fingers burning and decided to put it right back down. It was System 1 that instinctively told me what to do. I did not need to first reflect on whether or not the pain is dangerous.
System 2 is contemplative, rational and requires conscious effort to be activated. Say I wanted to reflect on the things I have learnt in 2021. I would need to recall the main events from the past year and try to derive some valuable insights from them. This not only requires me to sit down and do some journaling, but more importantly, to mentally strain myself in the attempt to parse together a sensible storyline from a collection of random events. While doing this kind of annual reflection, I would be engaging System 2.
I hope this gave you an idea of the key differences between the two systems. To make it easier to differentiate between them, I will call System 1 the Automatic System and System 2 the Reflective System as they are referred to in the book “Nudge” by Richard Thaler and Cass Sunstein.
Many times we think we are making a conscious decision, we’re actually being guided by the quick and instinctive Automatic System.
OK, we have these two systems, but how do they help us understand style choices?
I would love to tell you that we always use the Reflective System when making purchase decisions. Unfortunately, that’s not the case. Many times we think we are making a conscious decision, we’re actually being guided by the quick and instinctive Automatic System. However, since we like to believe we’re on top of our actions and choices, we can be blissfully unaware of what’s happening. As Kahneman describes in “Thinking, Fast and Slow”, the Reflective System is the “supporting character who believes to be the hero of the story”.
As you might have guessed by now, bad purchase decisions tend to occur when we are operating under the Automatic System. This can be a little tricky, because by definition, it’s acting beyond our conscious awareness. What’s more, the Automatic System can be guided by several different things: our mood, the environment, social influences, our habits and more.
Luckily there are a few ways in which we are predictably irrational, which gives us some hope in decoupling the drivers behind unsuccessful purchases. One of them is our tendency to prefer small rewards in the present moment to bigger rewards in the future. Let’s take a look at this bias next.
We prefer small rewards in the present moment to bigger rewards in the future
Shopping often presents a trade-off: To buy or not to buy? Go home with an exciting new garment or save money and prevent decluttering time? Academics call these kinds of decisions intertemporal choices. They are choices for which the benefits and the costs occur at different points in time. Either the benefits are right here and the costs are experienced sometime in the future (as in my thrift store haul). Or the costs are experienced in the present moment and the benefits appear distant or don’t even cross our minds (to workout or to watch TV?).
Humans have a clear preference for one of the two options in the choice set: whatever feels easier and more pleasurable right now. This tendency to prefer a small reward in the present moment to a bigger reward sometime in the future is often called the present bias.
You think you are “just buying this one top for the upcoming party” only to find yourself staring at a pile of clothing you rarely wear a year or two later.
In the context of style, the present bias may show up as the kind of impulsive shopping I described in the opening paragraph. It can also show up more deviously one purchase at a time. You think you are “just buying this one top for the upcoming party” only to find yourself staring at a pile of clothing you rarely wear a year or two later.
The present bias is more prominent when the choice and its consequences are far apart from each other. When it comes to buying clothes, the consequences can seem very distant. When we are at the store, we rarely think of the other similar pieces we already own. We can’t remember the exact colors or patterns in our fall wardrobe. We also forget about the effort of decluttering, trying to sell our clothes on Facebook or walking to the closest charity to donate the garments that don’t spark joy. The benefits of not buying are masked under the costs of decluttering.
But why do we have such a hard time catering to the needs of our future selves? This question leads us to the second bias I want to discuss in the context of shopping.
We underestimate the degree to which our preferences may change over time
Consider the thrift store haul from the opening paragraph. On the one hand, it’s clear that I ended up buying lots of clothes that I didn’t like. On the other hand, it would be foolish to claim that I didn’t like them upon purchase. So did I or didn’t I like the clothes I bought?
I did. And I didn’t. When trying on the garments at the thrift store my mind was telling me: “This looks great! Go for it!” But what my mind was not telling me was that the tiny flaws I had identified might become deal breakers when trying to put together outfits I would actually wear on a daily basis.
The projection bias is probably one of the key drivers behind unsuccessful fashion-related purchases: It acknowledges that the consumer often isn’t entirely naive and may have a few doubts about her purchase, but decides to buy nevertheless.
My unfortunate trip to the thrift store exemplifies our tendency to underestimate how much our preferences may change over time — even when we’re sophisticated enough to understand that our preferences may in fact change. This is called the projection bias. The projection bias is probably one of the key drivers behind unsuccessful fashion-related purchases: It acknowledges that the consumer often isn’t entirely naive and may have a few doubts about her purchase, but decides to buy nevertheless.
But why do we have such a hard time evaluating which decisions our future selves would be happy with? Inspired by an academic article on the topic (Loewenstein, O’Donoghue & Rabin, 2003), I listed some of the potential reasons:
- We underestimate the effect of our mood and internal state on purchase decisions. Instead of buying something because it’s lovely, we might be acting on an impulse triggered by our hunger, stress or anxiety.
- We underestimate the level of temptation we will feel when we are at the store — whether it’s a physical or a digital one. It’s easier not to buy something when we’re watching Netflix than when we’re browsing through the Black Friday offers on the website of our favourite sports brand.
- We underestimate the degree to which the people and imagery around us influence what we like. Perhaps we have recently seen several people rock a gorgeous pair of high-waisted white jeans and now find ourselves trying on a similar pair at the mall.
- We underestimate the role of habits in our buying behavior. We may have simply gotten used to popping into a second hand store every Friday after work because it’s right around the corner from our office.
- We underestimate the sense of magic a garment will exude after wearing it for a few weeks. New clothes tend to feel super exciting, like they’re going to completely transform the way you look. However, this feeling dissolves fairly quickly. Of course there are those all-time favourites that stand out even years later, but the majority of the magic wears off. Every time.
- We underestimate the amount of work that goes into going through our wardrobe and selling or donating the unwanted clothes. We also forget about the inertia that keeps us from doing it and the agony we feel when our wardrobe is becoming increasingly cluttered.
The present me might come to a different conclusion if it had a better understanding of its true preferences, not the one’s shaped by mood, the environment or other people.
As you can see, there are several reasons why the present me might come to a different conclusion about a purchase decision if it had access to the preferences of the future me. Or approached a little differently: The present me might come to a different conclusion if it had a better understanding of its true preferences, not the one’s shaped by mood, the environment or other people.
Conclusion: Our present selves cannot always be trusted to act in the best interest of our future selves
The present bias and the projection bias clearly play a role in shaping our style choices. But how do they inform us on our journey towards a sustainable wardrobe?
Understanding human psychology and biases reveals that our present selves cannot always be trusted to act in line with our future selves’ interests. That’s exactly the reason why so many of us are stuck in a never-ending cycle of shopping and decluttering. However, this also presents a paradox: Although our present selves cannot always be trusted, the present moment is the only place where we can make decisions that affect our future.
For us to change our behavior, we need to either learn to engage the Reflective System in the moment or design rules and incentives that allow us to control the Automatic System when it’s just happily going about its day.
This brings us to a key insight. For us to change our behavior, we need to either learn to engage the Reflective System in the moment or design rules and incentives that allow us to control the Automatic System when it’s just happily going about its day. In other words, we need to become more rational or prepare in advance for the moments when we are not quite so rational.
Sometimes I wonder if fighting the Automatic System is an entirely futile pursuit. As Kahnemann describes in “Thinking, Fast and Slow”, engaging the Reflective System requires conscious effort and feels effortful. In essence, when trying to become better at buying we are embarking on a journey to strain ourselves in moments in which we haven’t previously had the capacity to do so.
I guess I never promised this would be easy. But perhaps I’ll make a better choice next time.
Bibliography
Frederick, S., Loewenstein, G., & O’Donoghue, T. (2002). Time Discounting and Time Preference: A Critical Review. Journal of Economic Literature, 40(2), 351–401.
Kahneman, D. (2011). Thinking, Fast and Slow. Penguin Books.
Loewenstein, G., O’Donoghue, T., & Rabin, M. (2003). Projection Bias in Predicting Future Utility. The Quarterly Journal of Economics, 118(4), 1209–1248.
O’Donoghue, T., & Rabin, M. (1999). Doing It Now or Later. American Economic Review, 89(1), 103–124.
Soman, D. (2015). The Last Mile: Creating Social and Economic Value from Behavioral Insights. University of Toronto Press.
Thaler, R. H., & Shefrin, H. M. (1981). An Economic Theory of Self-Control. Journal of Political Economy, 89(2), 392–406.
Thaler, R. H., & Sunstein, C. R. (2008). Nudge: Improving Decisions About Health, Wealth, and Happiness. Penguin Books.
