Want to better understand what drives your spending and investing? Listen to Meir Statman, a professor at Santa Clara University, who suggests we are driven by much more than economic benefit. In a recent conversation, we discussed his latest book, Finance for Normal People, and three lessons that may help you comprehend your relationship with money.
Statman is a pioneer of behavioral finance, which combines psychological theory with conventional economics to provide explanations for why people make financial decisions that often seem irrational. For example, spending $10 to present your beloved with a single red rose is a romantic gesture that is likely to be appreciated. But, Statman notes, that purchase has no utilitarian benefits, such as something to eat, drink or wear. Presenting her with a crisp $10 bill to buy what she pleases would certainly maximize her utilitarian benefit. That option, however, fails to factor in what any partner knows: Economic pragmatism is no substitute for a romantic gesture.