On a daily basis, consumers make in-the-moment decisions that interfere with long-term best interests. These decisions range from choosing an unhealthy meal, to texting and driving, to financial decisions. Dan Ariely, a professor of psychology and behavioral economics who is interested in why consumers choose to act against their own long-term goals, has announced a new research center called the “CommonCents Lab,” funded with a $7.9 million grant from the MetLife Foundation. These studies will be devoted to helping America’s low- and moderate-income families, who are often faced with difficult everyday financial choices.
Ariely stresses the temptation surrounding consumers, such as mall advertisements and apps, which urge consumers to make a commitment of time, money and attention right now. Ariely concludes that the solution is to teach consumers about money and implementing ways for consumers to save in the long term (such as 401Ks).
“For example we did a study on how people decide which loans to pay first what we found out was that people follow the rule of ‘Let’s pay the smaller loans first.’ That’s inefficient because the loans you want to pay are the loans with the higher interest rate. If you have five loans people really want to move to having four loans. But moving to paying less interest is not motivating in the same way. This is an example of something we found where people are wrong. Now the question is: how do we fix it?”
The collaboration with MetLife will lead to applied direction and real life situation analysis in order to find insights surrounding a consumer’s mindset when thinking long term financially.