Ever wondered why you buy items that you later realized you didn't need? A professor from MIT wonders too, but says he's found a way to predict who will purchase big-ticket items and who won't.
Drazen Prelec, from the MIT Sloan School of Management, calls his area of expertise neuroeconomics: a combination of economics and psychology, and studies why consumers behave as they do.
He says the neuroscience is confirming something we've suspected all along: that decisions to purchase involve not only reason, but plenty of emotion.
"What's most interesting is that these feelings often are associated with pain," Prelec told Canada AM. "So people feel guilt when they overspend or people feel something like physical pain when they actually make a transaction."
Prelec recently completed a study that used Functional MRI technology to determine what parts of the brain are active when people consider whether to buy a product.
His team had 26 participants, each of whom was given $20 to spend on products from a catalogue. The products and their prices appeared on a computer screen that the participants viewed while lying in an fMRI scanner.
The researchers found that when the participants were presented with the products, a brain region that is associated with the anticipation of pleasure was activated.
When the subjects were presented with prices that were excessive, two things happened: the brain region that is associated with emotional pain or fear, the insula, was activated. What's more, a part of the brain associated with balancing gains versus losses -- the medial prefrontal cortex -- was deactivated.
"When we consider a purchase, we are balancing the pleasures of getting the object and then -- what's really interesting -- there seem to be areas that register the pain of anticipating paying. And by measuring brain activity in these areas, we're able, to some extent, to predict whether a person will purchase a product."
The study appears in the journal Neuron and was co-authored by scientists at Carnegie Mellon University, Stanford University and the MIT Sloan School of Management.
Prelec has also looked at how consumers shop when they have a credit card versus when they have to use cash
"We found that people are willing to spend about twice as much for the same thing if they are paying for it with a credit card," he says.
"We don't know why this is happening, but there two possibilities: one is that that when you're paying with a credit card, you simply don't feel the sting of payment, so the credit card acts like a little aspirin and you don't feel that pain that would otherwise hold you back.
"The other possibility -- which is very strange but there is some evidence for it -- is that credit cards actually create a craving, that when you actually touch the plastic, it's like smelling cookies baking when you're hungry. You have to satisfy that craving.
"These are possibilities, but we hope neuroscience will figure out the full story here."
