Monday Memo
A Byte of Knowledge
Humans are obsessed with measuring ourselves against others.
For example, let's put two people in separate rooms doing the same task.
Person A earns $50 but learns everyone else only made $25.
Person B earns $100 but finds out others made $200.
Guess who's happier?
Person A... even though they made less money.
Why?
Because they were doing BETTER than others.
You see, people don't just want success...
They want to be more successful than others.
So don't just say "Our course helped students make $10,000"...
Say "Our students make 3x more than the industry average."
Same result.
Way more powerful.
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Something to Ponder
Host of the Modern Wisdom podcast, Chris Williamson, talks about a fascinating concept he calls...
"The Anxiety Cost of Unmade Decisions."
Basically, every time you put off an important decision...
That client proposal you need to send...
The vendor you need to fire...
That marketing strategy you keep "thinking about"...
Your brain pays a tax.
Like a browser with too many open tabs, each unmade decision drains your mental bandwidth.
The real cost isn't just time...
It's your peace of mind lost to mental spin.
So ponder this...
Which decision, if made right now, would instantly free up mental real estate for what actually matters?
We Asked – AI Answered
Our Question:
"Why do gift cards feel more thoughtful even though they are equivalent to cash? Specifically in terms of mental accounting?"
AI's Answer:
Mental accounting is a concept in behavioral economics introduced by Nobel Laureate Richard H. Thaler. It describes the cognitive process by which individuals categorize, evaluate, and keep track of financial activities.
This mental framework influences how people perceive and spend money, often leading to irrational financial decisions that deviate from classical economic theory.
Understanding Mental Accounting
- Categorization of Funds:
- People mentally segregate money into various "accounts" based on subjective criteria like the source of the money or its intended use.
- Examples of Mental Accounts:
- Income Account: Regular earnings used for everyday expenses.
- Windfall Gains Account: Unexpected money like bonuses or gifts, often spent on indulgences.
- Gift Account: Funds received as gifts, perceived differently from earned income.
- Examples of Mental Accounts:
- People mentally segregate money into various "accounts" based on subjective criteria like the source of the money or its intended use.
- Perceived Value and Spending Behavior:
- Money in different mental accounts is not treated equally; individuals assign different levels of importance and willingness to spend based on the account.
- Study Insight: A study in the Journal of Economic Psychology (Shefrin & Thaler, 1988) found that people are more likely to spend a tax refund (seen as a windfall) on luxuries than regular income.
- Money in different mental accounts is not treated equally; individuals assign different levels of importance and willingness to spend based on the account.
Gift Cards in the Context of Mental Accounting
- Segregation from Regular Income:
- Gift cards are mentally categorized separately from cash or income, often in a "gift" or "found money" account.
- Impact on Spending: Recipients feel justified in using gift cards for non-essential or luxury items they might avoid purchasing with their own money.
- Gift cards are mentally categorized separately from cash or income, often in a "gift" or "found money" account.
- Reduced Psychological Barriers:
- Spending cash can trigger the "pain of paying," a term coined by behavioral economist Drazen Prelec. Gift cards mitigate this pain by distancing the transaction from actual cash expenditure.
- Research Finding: A 2014 study in Management Science (Soster, Gershoff, & Bearden) demonstrated that consumers using gift cards experienced less spending guilt and higher purchase satisfaction.
- Spending cash can trigger the "pain of paying," a term coined by behavioral economist Drazen Prelec. Gift cards mitigate this pain by distancing the transaction from actual cash expenditure.
The Illusion of Monopoly Money
- Perception of Gift Cards as Less Real:
- Gift cards can create a monopoly money effect, where the funds are perceived as less "real" than cash.
- Behavioral Outcome: This perception leads to more liberal spending behavior, often resulting in purchases that exceed the gift card's value.
- Gift cards can create a monopoly money effect, where the funds are perceived as less "real" than cash.
- Encouraging Experiential Purchases:
- Gift cards are more likely to be spent on experiences or indulgent items, aligning with the giver's intent to provide enjoyment.
- Statistic: According to a study by Cynthia Cryder and George Loewenstein (2008), recipients are 70% more likely to spend gift cards on hedonic purchases compared to cash gifts.
- Gift cards are more likely to be spent on experiences or indulgent items, aligning with the giver's intent to provide enjoyment.
GOT 15 SECONDS?
Thanks for reading the Monday Memo.
Until next time!
The AI Marketers
