Abubakr Buleshov | 13.02.2026
Why Smart People Make Bad Financial Decisions
Imagine this, a straight-A student scrolling on their phone and seeing an artist coming to Almaty to perform a concert, the tickets going for 70,000₸, without any rationalized thought process they press buy letting the emotional desire take over. Or an economics major paying for three streaming services they barely use/watch, another example could be them pondering and weighing if they should order takeout again despite it being a toll on their budget.
Intelligence doesn’t necessarily protect a person and their bank account from financial mistakes, brains are wired for predictable errors, and profit seeking businesses exploit and capitalize on these predictable patterns. Even though traditional economics assumes rationality in consumers, with situations where they maximize their benefit, behavioral economics reveal.
The Present bias term is the tendency to focus more on the present situation than the future when making decisions, as we overvalue immediate rewards rather than future benefits. Showing how people spend now which delays savings. This is due to the human brain evolving in an ‘immediate survival’ rather than a long term planning way. A great example which depicts this in a comprehensible manner, the Marshmallow Stanford Test, an experiment conducted in the late 1960s by Watler Mischel, a psychology student in Stanford. A child had a choice of either 1 marshmallow immediately or 2 if they waited 15 minutes, with a ⅓ of them waiting the whole 15 minutes whilst the average waiting time was 6-7 minutes. Even though it seems different but this concept applies to adults and money, delayed gratification is the thing which allows people to save money and gain interest in the future. This experiment helps to render out how the previously mentioned assumption that people maximise utility rationally. Not only that but it shows one of the most basic terms and ideas in economics, opportunity cost, which represents the value of the next best alternative that is forgone, as eating the first one means giving up the second marshmallow.
Loss aversion, a cognitive bias found by psychologists which describes how losses hurt roughly twice as intensely as equivalent gains feel good. This explains why we consumers keep paying for gym memberships we never use, cancelling feels like admitting a loss. Marketers exploit this relentlessly. "Don't miss out!" triggers more urgency than "Get this bonus," even when the outcome is identical. Black Friday thrives on this: "Save £50!" feels far better than acknowledging you're spending £150. We're so focused on avoiding the pain of missing a deal that we ignore whether we actually need the item at all.
Sunk Cost fallacy is a phenomenon where people tend to continue doing something because they already heavily invested time, energy and money into it. Even when abandoning it would be more beneficial, therefore costs have already been sustained. To put it in perspective an example of it could be keeping a gym membership you don’t use, staying in a bad investment because of the ‘I’ve already put money into it’ mindset. This creates a problem as past costs are irrelevant but our brains don’t properly accept that even if from the outside it seems irrational. The counter act to this could be judging only present/future costs and benefits.
A very popular marketing strategy is using the anchoring effect, a cognitive bias where consumers rely on the first piece of information when making a decision. This impacts decision making as the initial number sets a baseline which could influence pricing and benefit assessment. A basic example in retail could be “Was 100,000₸ - now 50,000₸”, as the original price alters your perception, as the person judges the value relative to the anchoring pricing (in this example 100,000₸), not the actual worth. Trying to deem the spending justifiable. Try not to account for the ‘original price’ and only decide using the current price and if it's worth it.
These biases occur because of features of human psychology, not individual flaws. Understanding these biases won't make them disappear, but it gives you a better comprehension to make more rational financial decisions. Track your spending for one month, you'll spot patterns you never noticed. The trick is catching yourself before clicking 'buy now.'
Sources:
https://www.investopedia.com/
https://bingschool.stanford.edu/
https://en.wikipedia.org/wiki/Stanford_marshmallow_experiment
Intelligence doesn’t necessarily protect a person and their bank account from financial mistakes, brains are wired for predictable errors, and profit seeking businesses exploit and capitalize on these predictable patterns. Even though traditional economics assumes rationality in consumers, with situations where they maximize their benefit, behavioral economics reveal.
The Present bias term is the tendency to focus more on the present situation than the future when making decisions, as we overvalue immediate rewards rather than future benefits. Showing how people spend now which delays savings. This is due to the human brain evolving in an ‘immediate survival’ rather than a long term planning way. A great example which depicts this in a comprehensible manner, the Marshmallow Stanford Test, an experiment conducted in the late 1960s by Watler Mischel, a psychology student in Stanford. A child had a choice of either 1 marshmallow immediately or 2 if they waited 15 minutes, with a ⅓ of them waiting the whole 15 minutes whilst the average waiting time was 6-7 minutes. Even though it seems different but this concept applies to adults and money, delayed gratification is the thing which allows people to save money and gain interest in the future. This experiment helps to render out how the previously mentioned assumption that people maximise utility rationally. Not only that but it shows one of the most basic terms and ideas in economics, opportunity cost, which represents the value of the next best alternative that is forgone, as eating the first one means giving up the second marshmallow.
Loss aversion, a cognitive bias found by psychologists which describes how losses hurt roughly twice as intensely as equivalent gains feel good. This explains why we consumers keep paying for gym memberships we never use, cancelling feels like admitting a loss. Marketers exploit this relentlessly. "Don't miss out!" triggers more urgency than "Get this bonus," even when the outcome is identical. Black Friday thrives on this: "Save £50!" feels far better than acknowledging you're spending £150. We're so focused on avoiding the pain of missing a deal that we ignore whether we actually need the item at all.
Sunk Cost fallacy is a phenomenon where people tend to continue doing something because they already heavily invested time, energy and money into it. Even when abandoning it would be more beneficial, therefore costs have already been sustained. To put it in perspective an example of it could be keeping a gym membership you don’t use, staying in a bad investment because of the ‘I’ve already put money into it’ mindset. This creates a problem as past costs are irrelevant but our brains don’t properly accept that even if from the outside it seems irrational. The counter act to this could be judging only present/future costs and benefits.
A very popular marketing strategy is using the anchoring effect, a cognitive bias where consumers rely on the first piece of information when making a decision. This impacts decision making as the initial number sets a baseline which could influence pricing and benefit assessment. A basic example in retail could be “Was 100,000₸ - now 50,000₸”, as the original price alters your perception, as the person judges the value relative to the anchoring pricing (in this example 100,000₸), not the actual worth. Trying to deem the spending justifiable. Try not to account for the ‘original price’ and only decide using the current price and if it's worth it.
These biases occur because of features of human psychology, not individual flaws. Understanding these biases won't make them disappear, but it gives you a better comprehension to make more rational financial decisions. Track your spending for one month, you'll spot patterns you never noticed. The trick is catching yourself before clicking 'buy now.'
Sources:
https://www.investopedia.com/
https://bingschool.stanford.edu/
https://en.wikipedia.org/wiki/Stanford_marshmallow_experiment
