UBS Center Newsletter July 2018

8 Dan Ariely, the James B. Duke Professor of Psychol- ogy and Behavioral Economics at Duke University, came to Zurich to present his most recent book Dol- lars and Sense . He is a researcher, best-selling author, and an entrepreneur who wants more people to get excited about behavioral economics. He captivated the audience with his research findings and delved into the illogical world of personal finance and com- mon misconceptions of money. Why we misthink money When it comes to money, we consider ourselves ex- perts. Spending it every day, we think that we truly understand it. Using a few examples, Ariely illustrates that this is actually not the case. We misjudge money because of its omnipresent role in our society. When making financial decisions, a rational behavior would include analyzing the trade-off across time and prod- ucts involved. For instance, if I spend $90,000 on a new car, what is the trade-off? What could I buy instead of the car, or should I save or invest. In reality, it is very hard to think about these trade-offs. Ariely then focused on two basic misconceptions of money, which lead to irrational financial decisions that cost us more than we think. First, there is the tendency to think about money in relative terms, for instance, when comparing different goods while ignoring the absolute price difference. Imagine that you are about to buy a $15 pen, but the cashier tells you that another store down the street is selling the same pen for $7, which would save you $8. Most people would save the money, explained Ariely. But you probably would not do the same with a more Dollars and sense Why are our financial decisions often irrational, leading to bad choices? Behavioral economist Dan Ariely answered this question in a very entertaining and thought- provoking way. DIALOGUE & EVENTS Public lecture with Dan Ariely, misthinking money.