Penny-wise, pound-foolish decisionsAmerican scientists discovered why people make penny-wise, pound-foolish decisions. The reason lies in the way our brains operate when comparing one thing to another.

Penny-wise, pound-foolish decisions are dictated by excited neurons

Our brains are wired to compare objects similar in value, researchers of the Washington University School of Medicine discovered. Things that are highly different in value fall out of the equation when two or several low-value objects are compared.

For example, your brain knows how to pick a flavour of ice-cream when a choice is offered. But the same processing scheme cannot be utilized when you are deciding whether spending extra $5,000 is a good idea when buying a house. This is why we are pondering over 20 cents one moment and jumping in without thinking into an expensive decision in the next, Science Daily report explains.

The associate professor of neuroscience, biomedical engineering and economics Padoa-Schioppa, who co-authored the research, stated that “everybody recognizes this behaviour, because everybody does it.”

Our brains use the same neurological pathways to weight decisions to spend a couple of dollars or a couple of hundred thousand dollars. It is the orbitofrontal cortex that is active when people are weighing comparable options. When a choice of two is offered, two sets of neurons are fired up. Each set of neurons corresponds to one option. The speed at which neurons fire indicates how much the subject wants a particular option. The set of neurons that fires faster is indicative of the preferred choice.

When we are weighing options that cost much more than a couple of dollars, the same neuron pathways are in play. The neurons simply cannot fire 100 thousand times faster, because the house is worth much more.

In the experiment by scientists, the speed at which the neurons fired was the same when two less valuable options were compared as when two more valuable options were on offer.

Penny-wise may cause pound-foolish, but we don’t think about it

The scientists concluded that we lose the ability to consider smaller values, when higher values are at play.

This is why spending extra $500 may seem reasonable when you are choosing between staying in a hostel or Hilton hotel, while you believe that you can find the same quality woman on $129 Gold subscription as when you sign up as a Platinum member for $259.

You probably would not make this choice when picking between a 3-star and 5-star hotel to stay for a night, but you are choosing to save when the benefits of a higher level service are unknown. Your neurons are just as happy with a cheaper service as you don’t see any immediate difference and have no corresponding experience.

Even more profound are the choices when you believe something valuable is at stake. This is why men happily send money to a woman who they believe is in love with them, as $200 seems like a small amount. However, men often hesitate to become a paying member of a dating site, because they are unsure whether they are able to find what they seek.

Such choices may seem illogical when analysed, but it seems reasonable to the brain at the moment of making the decision.

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