Hi, folks! It’s Tuesaday morning. After having a hetic Monday yesterday, are you all back to our normal mode of working/studying?
How was your weekend? Well, I went shopping and bought some warm clothes and a pair of boots for the upcoming winter. While shopping, it was pretty hard to stop myself from being a shopper-holic. When buying stuff, I assume that my choices are very rational. You would think the same when shopping.
However, I would like to talk about our ‘irrational behaviors’ as economic subjects. After briefly explaining this, let’s look at an index indicating how our mental states affect our spending patterns.
As mentioned above, we cannot be always rational and logical when making purchases. Does anyone know ‘ratchet effect’? It happens when incomes increase temporarily but fall back to the previous level after a while. Despite a fall in income, an individual hardly reduces spending. Indeed, it takes time for him/her to get used to the change. Isn’t it interesting?
Well, what else? Have you heard of the ‘cliff effect?’ It is another word referring to individuals’ psychological influences over investment and expenditure. It is said that people react more to expectation or their own rating rather than the real factors in the economy. That is, people respond in an intuitive manner, as often seen in stock markets.
Now, it is clear that, somehow, our mental state is an important driver for purchase and investment. Then, how can we measure it? It cannot be measured accurately, but there is an index called ESI portraying your reactions.