The Impulsive Deciders

Are some people hard-wired to make bad choices? A new study looks at the neurological reasons so many consumers may have fallen into risky financial traps like adjustable mortgages.

Newsweek Web Exclusive
May 27, 2009 | Updated: 11:43  a.m. ET May 27, 2009

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  • Posted By: louise story @ 05/30/2009 2:16:59 PM

    What a great story! Thanks bringing this to the world's attention, Nikhil.

  • Posted By: cmarsh @ 05/29/2009 2:36:15 AM

    Some of us introverted, pessimistic Aspies are a predatory lender's worst nightmare. A couple of years ago I was paying $800 something a month in rent and my mortgage on a $200,000 condo would have been $1,200 something a month (not counting the fees to cut the grass). Yeah sure there is a mortgage rate interest deduction but how long does that last? You got a 30 year responsibility to fix the damn place and you're committed to the area?

    I kept renting. I don't know. Rent is now $1,100.

    I'd ask myself a few questions before I'd commit to homeownership

    1. Am I going to live here for 30 years?
    2. What if I marry a woman who has her own place?
    3. This might hurt my ability to relocate to take jobs. My brother values extreme freedom. I think he has month to month, and though he does not exercise the right, he could be in Seattle, San Francisco, or Charlotte in two months.

    4. What do I get out of it if I do buy?
    a. interest deduction
    b. price trajectory
    c. HELOC option

    5. What am I responsible for
    a. the mortgage, nitwit!
    b. the fees
    c. the property taxes
    d. the mortgage insurance
    e. property insurance
    f. consider flood insurance

  • Posted By: dbb10001 @ 05/28/2009 1:01:54 AM

    Nikhil, great article; I had never considered the financial crisis through the lens of human cognitive function in relation to risk taking. I did want to respond, however, to your brief discussion of consumer safeguards by mentioning that I work for Validas, a truly independent wireless auditing company that slashes the average cell bill by 28 percent through our website, http://www.fixmycellbill.com. Unlike the competition, we do not work on a carrier commission-based business model. Instead, we charge five bucks per cell audit (although we'll analyze your bill first for free with no obligation to buy the service, just to let you know how much we could save you). This speaks to the key difference here: We fight for you rather than work with the cell companies. That's why you pay us.

    You can see Validas in the national news media, most recently on Good Morning America at http://www.abcnews.go.com/GMA/MakeMoney/story?id=7640149&page=1.

    Good luck to everyone reading on achieving the best possible wireless rates.

    Dylan

  • Posted By: dbb10001 @ 05/28/2009 12:53:35 AM

    Nikhil, great article; I had never considered the financial crisis through the lens of human cognitive function in relation to risk taking. I did want to respond, however, to your brief discussion of consumer safeguards by mentioning that I work for Validas, a truly independent wireless auditing company that slashes the average cell bill by 28 percent through our website, http://www.fixmycellbill.com. Unlike the competition, we do not work on a carrier commission-based business model. Instead, we charge five bucks per cell audit (although we'll analyze your bill first for free with no obligation to buy the service, just to let you know how much we could save you). This speaks to the key difference here: We fight for you rather than work with the cell companies. That's why you pay us.

    You can see Validas in the national news media, most recently on Good Morning America at http://www.abcnews.go.com/GMA/MakeMoney/story?id=7640149&page=1.

    Good luck to everyone reading on achieving the best possible wireless rates.

    Dylan

  • Posted By: Iconoblaster @ 05/27/2009 5:52:42 PM

    I am suspicious of "Big Mother" government (which seeks to decrease all risks to zero..and inevitably diminishes liberty in direct proportion). My first instinct is to prefer leaving everyone to follow their own lights, and assume the risk of their own bad choices... but when it comes to dealing with large corporations (credit card companies, mortgage companies) that can (and do) intentionally complicate their "standard" contracts for the express purpose of taking advantage of ordinary consumers, I reluctantly agree that some regulation of the industry is probably necessary. A caveat: it is the case in our society that these financial behemoths have the ear of our legislatures (state and federal) in ways that ordinary citizens do not....$$$! Too often, regulations purporting to protect the "little guy" are carefully and deceptively crafted by the major players, sold to legislators who often don't really know what they are voting for (can you say "Patriot Act"?) and sometimes don't even care, and enacted into law, motivated more by the influence of "K" Street than by the public good. There are bona fide "consumer protection" non-profits around...when it comes to financial regulations, Joe Sixpack is going to have to learn to pay attention to what these groups say about proposed legislation. Congress and the State House won't do this for us, without adult supervision.

  • Posted By: Old Joe @ 05/27/2009 4:58:46 PM

    It's called "being stupid".

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