BehavioralEconomics

When we frantically acquire things we don’t need, especially under the temptation of “free,” it may seem irrational, but from the perspectives of microeconomics and psychology, we can find profound explanations. Analysis from the Perspective of Microeconomics: “Zero Price Effect”: This is a crucial concept in behavioral economics, specifically used to explain the magic of “free.” Traditional economics posits that price is merely a quantitative indicator; a price decrease increases demand, but a drop to zero is just a linear extension of that demand. However, behavioral economics points out that “free” is not just a zero price; it represents a qualitative leap, completely altering people’s decision-making patterns. Reducing Transaction Costs and Psychological Friction: Buying anything requires paying a cost, not just monetary; it includes decision costs, time costs, and even the psychological “pain of paying.” “Free” completely eliminates these costs and friction. People don’t need to weigh pros and cons or consider if it’s worth it; they simply “take” it, greatly lowering the difficulty and psychological threshold of the decision. Risk Aversion and Preference for Certainty: Even for a very small item, if it is “free,” it means “zero risk.” In contrast, buying anything that requires money carries potential risks, such as receiving something undesirable or of poor quality. Free items guarantee “at least no loss,” and this certainty of gain is highly attractive to risk-averse individuals. Value Perception Bias: When the price is zero, people’s perception of an item’s value becomes distorted. We tend to overestimate the value of free items, even if we don’t actually need them. This bias may be because “free” activates the areas in our brain associated with “gaining” and “reward,” making us feel like we got a bargain. Misjudgment of Opportunity Cost: Traditional economics emphasizes opportunity cost—the value of the highest opportunity forgone in order to obtain something. Rational people weigh the benefits of acquiring a free item against the opportunity cost incurred (such as the time spent queuing or the space occupied). However, under the temptation of “free,” we often underestimate or ignore the opportunity cost. Neglecting Time Value: To claim a free item, we might need to queue, run errands, or spend extra time. But the halo of “free” often makes us feel that this time expenditure is worthwhile, even ignoring the fact that this time could have been used for something more valuable. Space and Resource Occupation: Free items frantically acquired, if unnecessary, might occupy space in the home and even become trash. Yet, when claiming these free items, we often fail to fully consider these subsequent costs. The Psychology of “Getting a Bargain” and Transaction Utility: Richard Thaler’s theory of “Transaction Utility” suggests that when people purchase goods, they experience two types of utility simultaneously: Acquisition Utility (satisfaction derived from the item’s actual value) and Transaction Utility (the feeling derived from the difference between the actual price paid and the psychological reference price). Super High Transaction Utility from “Free”: When the price is zero, transaction utility reaches its maximum because the actual price paid is far below the psychological reference price (even if that reference price is low). This massive transaction utility makes us feel like we “won big,” even if the item’s actual value is low or even negative. The “Better Not Take It” Mentality: “Free” reinforces the mentality of “better not take it.” Even if we don’t need it, the thought that others are rushing to grab it, or that this opportunity might disappear, makes us more prone to impulsive acquisition. ...

Anchoring Effect Most people only know what they truly want when they reach a specific situation. We want to buy a sports bike, but don’t know which model, until we see a champion of the Tour de France advertising a certain model, and then we can clarify our desired purchase; We want to replace speakers, but don’t know what kind, until we hear a set that is better than the original, and then we are clear; We don’t even know how to live, until relatives or friends one day give us a sudden realization that the life they are living is exactly what we aspire to. Everything is relative; that is the key. ...

When receiving information, immediately activate the “Critical Thinking Radar”: “Sentence Integrity Check”: First, examine the structure of the sentence. Actively look for the subject: Who is making this statement? If the subject is missing, ask yourself: Who is performing this action? Who is the recipient of this state? Identify passive voice and generalization: Be wary of excessive use of passive voice (e.g., “The problem has been solved,” without specifying who solved it) and generalization (e.g., “People believe,” without specifying which people). This is often done to obscure responsibility or create the illusion of universal consensus. Rapid questioning to dig into the intent and impact behind the information: “Why am I seeing/hearing this?” (Tracing the information source): What channel delivered this information to me? (Advertisement, news, social media, friend recommendation, etc.) Does this channel itself have a bias or vested interest? Did I actively search for it, or was it passively delivered to me? “Why has it gained such high traction in the current information flood?” (Analyzing the propagation dynamics): Does this information cater to a specific social emotion or anxiety? Does it use narrative methods or emotional language that is easily relatable? Are there signs of artificial promotion (e.g., massive shares, bot comments)? “Who benefits from this?” (Stakeholder analysis): Who will benefit from me accepting this information? (e.g., the merchant selling the product, the institution promoting the view, the group seeking political support, etc.) Is this benefit a direct economic gain, or an indirect social or political influence? Is there a clear conflict of interest? “What is this information ignoring? / What is it hiding?” (Identifying information gaps): Does this information only present one side of the facts? Have important background information or counter-evidence been omitted? Is ambiguous or misleading language being used to conceal the truth? “What is the purpose of this information? What does it want me to do?” (Behavioral guidance analysis): Does it want me to purchase a certain product or service? Does it want me to accept a certain view or stance? Does it want me to take a specific action (e.g., vote, donate, share)? The significance of focusing on “specific people”: Trace the source: Instead of passively accepting “Studies show,” ask: Which research institution? Which researcher? What is their methodology? What is their past research record? Is there a conflict of interest? Evaluate expert qualifications and stance: When you hear “Experts believe,” ask: Which expert? What is their professional background and qualification in this field? Have they publicly declared their stance or vested interest? Be wary of anonymous “experts” and “studies”: “Experts” who are unwilling to disclose their specific identity, or “studies” from unknown sources, often have lower credibility. Slow down the reaction speed, avoid emotional decisions: Don’t immediately believe or share: Give yourself time to think and verify. Be wary of tactics that create urgency and moral coercion, such as “limited-time offers” or “If you don’t share, you’re not Chinese.” Control your emotions, preventing judgment from being swayed by fear, anger, anxiety, etc. Actively seek multiple information sources for cross-verification: Don’t rely on a single source. Look for sources from different backgrounds and perspectives to compare. Pay attention to the views of authoritative institutions and professionals, but maintain a critical eye. Cultivate the habit of questioning authority and “common sense”: Dare to challenge so-called “expert opinions” and “universal knowledge.” Use evidence and logic to test the truthfulness of information, rather than blindly trusting authority or what is habitually accepted. The debate between Einstein and Bohr fully illustrates the following points: Even in the most advanced fields, there are different viewpoints and interpretations: Science is not monolithic; even authoritative scientists may hold different understandings and explanations when facing complex problems. Scientific progress is often achieved through this debate and questioning. “Authority” does not mean absolute correctness: Both Einstein and Bohr are authorities, but their views are not entirely correct, or rather, they are exploring different facets of the truth. Their debate encourages people to think about and understand quantum mechanics more deeply. Selective citation can be misleading: As you mentioned, advertisers or anyone with a specific stance can completely selectively cite the views of Einstein or Bohr to support their own arguments while ignoring the other party’s voice. This creates the illusion of “authoritative support” for the audience, making them believe that a certain view is absolute truth. Common propaganda tricks: Seeking “favorable experts”: They will look for experts whose views align with their product or philosophy and heavily promote these experts’ “authoritative endorsement.” Ignoring or diminishing opposing views: For experts or studies with different opinions, they will selectively ignore them or use various means to diminish their credibility. Creating the illusion of “scientific proof”: They will use vague phrases like “Scientific research shows,” or “Certified by XX authoritative institution,” leading consumers to believe that their product or philosophy is fully supported by science, when in reality, it might just be taken out of context or citing a controversial study. ...

The Only Normal Source of Wealth Must Be Production The core reason why the vast majority of people fail is not because they don’t engage in production, nor is it because they never accumulate, but rather because they fail to accumulate for a sufficient period of time. Consequently, the amount of money is insufficient, and thus, they fail to acquire or master true wealth. Life should be centered around production. Everything else, no matter what it is, must be ranked after it. Nothing is more important than production—at least, until basic necessities are met. ...

The stock market is a powerful wealth-building tool and you should be investing in it. But realize the market and the value of your shares will sometimes drop dramatically. This is absolutely normal and to be expected. When it happens, ignore the drops and buy more shares. This will be much, much harder than you think. People all around you will panic. The news media will be screaming Sell, Sell, Sell!

I even believe that all ports must be allocated through price. In a commodity economy, equivalent exchange is the foundation for ensuring smooth transactions. The Difference Between Working and Investing Earning money by investing, rather than earning money by exchanging time, is the biggest difference between working and investing. Average Investment Level: Seeking Relative Victory In the field of investment, achieving absolute victory is not easy, but achieving relative victory is more realistic. Investors who achieve relative victory can become profitable, while those who achieve absolute victory may become masters. However, mastery is not achieved overnight, nor can everyone become a master. Therefore, for ordinary investors, becoming a relative victor should be the primary goal. ...

In a competitive market, when the wage level of a certain profession or industry is higher than the value deserved by the labor output or skills required for that job, it attracts more people to study that profession and enter that market. As supply increases, the number of workers in the market grows, which subsequently causes the wage level to decrease, eventually approaching the value deserved by the labor output. ...

When discussing economics, Producer Surplus is an important concept. It refers to the difference between the actual income received by a producer or supplier when selling goods in the market at a certain price, and the minimum income they expected when willing to sell those goods at that price. Simply put, Producer Surplus is the net gain for the producer in a transaction. Its calculation involves two key factors: Producer’s Supply Price: This refers to the price at which the producer is willing to sell the goods or services. Typically, the producer’s supply price is related to their marginal cost (the extra cost of producing one unit of goods), because they hope to at least cover the production cost. ...

I absolutely cannot let people think I am stingy. So, I often invite friends to restaurants; I also need a luxury car to showcase my status; furthermore, I must pay some other expenses—taxes. Finally, I have to turn to this great invention: the credit card. With a credit card, I don’t have to pay myself; the people at the credit card company will pay for me, at least temporarily… After that, I hear someone say, “He is a winner in life; he is living a first-class life.” I was living a first-class life: not drinking sparkling wine—only champagne; not eating steak—only prime tenderloin. I wanted to live like a rich person in a futuristic world. And soon, the past began to constantly bother me in the form of bills, collection letters, and high loan interest rates. As a high-performing, high-income salesperson, I was always able to get a new credit card. So, I started making alternating payments, meaning I would get a new credit card and then use the new card to pay off the bill of the old credit card. Just like that, I spiraled into a downward financial state.

The harder you work, the greater the chance your boss has of upgrading to luxury cars and mansions. Your income today is the result of the decisions you made yesterday. If you don’t understand this, you can’t say, “Now I want to make a different choice.”

First, we must clarify an important principle: You must never “kill your goose.” You also cannot fragment it. You must absolutely never touch your principal. All your dreams can be fulfilled using the golden eggs. This also means that your golden eggs must be large enough to support your dreams. For example, let’s say you want to buy a house. If you have already achieved financial freedom, you can undoubtedly use your assets for the payment. However, doing so will cause your assets to diminish, which is naturally what you do not want. Therefore, you should opt for installment payments when acquiring all major items, because your monthly interest will be completely sufficient to cover the cost.

Achieving financial security requires that the most important standard—the accessibility of money—is met. You must have daily access to funds. Therefore, it is best to keep your money in a safe or invest it in a cash fund. You should not take any risks until you achieve financial security. Consequently, you should choose low-risk investment projects. However, even so, you must pay attention to managing potential risks. Never put all your money into a single investment project, even if “all your funds” only total 1,000 Euros. Remember, managing risk means increasing the opportunity for profit. Before achieving financial security, keep financial safety at the center of your focus. You should tolerate a low profit rate and keep some cash in a bank savings account. If you still want to invest, I recommend a deposit plan. ...

Why do some people insist that Zhang Guorong’s old records should be twice as expensive as Cai Yilin’s, but fail to say whether it should be 10 yuan or 1 mao?

The Foundation of Wealth Building Financial freedom is a goal that anyone today can achieve, of course, provided we have the courage to pursue the life we truly desire. As a famous saying goes: “It is not the difficulty that makes us give up, but rather that we give up, which makes it seem so difficult.” If we keep the laws of money in mind, we will find that our financial situation is steadily improving. Nothing can stop a mindset that aligns with the times. This applies to everyone’s life. Nothing can prevent us from enjoying the right we are born with—prosperity. A life of dignity and financial ease aligns with our natural laws. As long as we don’t give up, nothing can prevent us from reaching this goal. ...

I’ve figured out how to allocate my money. I’m going to dedicate 50% of my income to my ‘goose’, put 40% into my dream savings fund, and use the remaining 10% for spending.

“There are many reasons,” the old lady explained to me. “First, because sometimes I like to hold these things in my hands and appreciate them. I really like gold and banknotes.” I looked at her with slight disagreement, thinking that liking money in this way—I wonder if it’s normal—and yet she admitted it so frankly… But then I immediately recalled the scene that day, when Marcel and I looked at the things in the box and counted them one by one. How delightful it was when we touched each gold bar! Shouldn’t an old lady enjoy the same sense of happiness when opening the box? Besides, all these things belong to her. Mrs. Tao continued, “Second, this money is kept for emergencies. No matter what happens, the things I put in the box are enough for me to spend for several years.” “That might be too much!” I said with a laugh. “That depends on how much money you own in total,” Mrs. Tao explained, “If you keep cash at home that exceeds 10% of your total assets, it’s meaningless.” I whistled softly. This old lady must be very wealthy. “Third, I have invested a large portion of the money in stocks, which involves a certain risk. Therefore, it is wise to keep a portion of the money on hand. I will explain this point to you again when we have the chance.”

To live a happier and more satisfying life, one must change oneself. This has nothing to do with money; money itself neither makes one happy nor brings unhappiness. Money is neutral, neither good nor bad. Only when money belongs to a person will it exert a positive or negative influence on them. Money can be used for good purposes, or it can be used for bad purposes. A happy person will be happier when they have money; conversely, a pessimistic or anxious person will have more worries the more money they possess.

“You only incur a loss when you sell the stocks. If you keep these shares, someone might be willing to pay more for them in the future.” “So, during this time, I won’t get anything?” I wanted to know everything. “No, during this period, you participate in all the dividends.” The old lady immediately put my concerns to rest. “Whenever the company makes a profit, it distributes the profit to all the shareholders. This is called dividends.” “Meaning, Marcel has to regularly set aside a portion of his income and give it to us?” Monica asked excitedly. “The company calculates its profit once a year, and then decides what to do with that money. For example, it can use a portion of the money to buy new equipment, which makes the company run better, and the remaining portion is distributed to all the shareholders.”

When the stock market first plummeted, my reaction was exactly the same as yours. I hated myself for buying these stocks, and I was extremely worried that the market would continue to fall. At that time, newspapers were filled with pessimistic predictions, claiming it was the start of a global economic crisis—the eternal winter of the stock exchange.

Almost no profit