Price complexity leads to consumer overspending
The Consumer Financial Protection Bureau (CFPB) issued a new report that suggests consumers tend to pay more for products that have more complex pricing structures. Here are the highlights:
Higher total prices
Sellers' total asking prices were 60% higher in markets with more price complexity than in those with one price.
Comparing prices was more difficult
Buyers were 15 times more likely to select a higher-priced option in markets with more price complexity than in those with one price.
Consumers paid more overall
Transaction prices were 70% higher in markets with more price complexity than in those with one price.
Someone else’s fine print is not our friend, neither is any added price complexity or a limited amount of time.
The harder it is to understand the price, the more likely you are to overspend. Don’t invest your time trying to compare prices if the price is hard to figure out or you’re tired. Walk away.
Decision fatigue is exhausting, and expensive
Decision fatigue describes how our decision-making gets increasingly difficult as we make more choices and our cognitive abilities wear out. Decision fatigue is the reason we feel overwhelmed when we have too many choices to make.
Decision fatigue can make it particularly hard to comparison shop when it's hard to figure out the price.
A barrage of choices can tire our cognitive abilities, just like a muscle. Mullainathan and Shafir, the authors of Scarcity, study how decision fatigue can impair financial decision making, causing impulsive choices or avoiding decisions altogether.
Individuals faced with numerous decisions throughout the day may experience decision fatigue, sometimes called cognitive fatigue. Research has found that cognitive fatigue leads to poor financial decisions, impacting your mind in the same way as if you have lost 13 I.Q. points.
The more decisions you are forced to make throughout the day, the more likely you are to make bad financial decisions at the end of the day. Once again, don’t invest your time trying to compare prices if the price is hard to figure out or you’re tired. Walk away.
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