One of the benefits of watching TV is the ads that come with it. Whilst many ads are a plain waste of time, some can have deeper meanings. One of them is a surf act showing a kid and his grandmother. In this ad, the granny loses a Rs 10 note and the kid fetches this, all this while getting his shirt soiled. In the end the granny uses Rs 10 to buy a surf sachet to clean that shirt.(Watch the ad here)
So what do we learn from the ad?
- People tend to value and observe the tangible and not intangible. This is clear from the enthusiasm with which the kid extricates the note from the dirt. No matter the effort the subsequent effort which will be expended to clean his shirt.
- While this is just an ad showing the affordability of surf as a detergent, it shows an important fallacy many of us fall victim to. The boy while soiling his shirt for the note, effectively gives it away, as the rs 10 is spent and additional effort is spent to clean the shirt itself.
- This can be related to sunk cost fallacy where we throw in good money after bad. This happen when can’t accept a small direct loss, but instead try to recover it by spending more money (or efforts) into this activity than the reward it yields.
- A fine example is that of people being stuck in ULIP policy. These are very expensive insurance covers with a equity component. Once entered, the buyer is pressurised into continuing to pay premiums for this policy, never mind it may become a bottomless pit as an investment. A small loss earlier is thus suited than larger loss later, indeed.
- Mental accounting can be damaging to one’s finances. This is clear from the fact it is easier to spend money thru credit card than actually spend hard cash for the same purchase. It is such cognitive tricks that lower the value of money in one’s mind when in reality the virtual and real money are same to an economist or an accountant.
Our minds are indeed complex computing machine. Decision making can be flowed on some occasions.
Unfreeman 