Nigel Latta on why humans are 'super-flawed' with money

by Michele Hewitson / 19 March, 2017

Nigel Latta.

Our brain plays tricks on us, Nigel Latta tells Michele Hewitson.

When you talk about our primal money brains – our caveman approach to money – what does that actually mean?

Humans have been around for about 70,000-ish years, and over that time our brains haven’t really changed at all because it’s just a blip in evolutionary terms. So that means our brains, which evolved to hunt and gather, are now being asked to do abstract financial things with money, which is itself an abstract and very recent invention. So where once some of the most complex decisions we made were things like, “Is that going to eat me?”, now we’re having to decide whether to fix or float our mortgages. We can make complex decisions and solve complex abstract problems, but we’re not naturally good at that. It doesn’t happen automatically; you have to deliberately set about thinking things through. People like the psychologist Daniel Kahneman have spent their entire careers looking at just how flawed human decision-making is, and it’s super- flawed when it comes to money.

And how does that primal money brain work, in practical terms, in today’s world?

We don’t have a special part of the brain for dealing with money, so when you see a sign in a store that says 50% off the price of something, your cave brain tells you you’ve saved money, when really all you’ve done is spend money. The reality is if you spend $50 on a fancy hat that was reduced from $100 on sale, you didn’t save any money. In real terms you spent $50. What we try to do in the series is show people all the hidden, weird, irrational things your brain tries to do to you when it comes to money, because if you understand the tricks your brain is playing on you, then you can play a few tricks back.

Is there a psychology of money? And if so, how might it be explained?

The series drew heavily on the discipline of behavioural economics, which is a very substantive body of knowledge about humans and money. For us it was like a dream come true: a huge pile of peer-reviewed knowledge that no one else had really got their teeth into. The beauty of behavioural economics is that instead of thinking of humans as rational decision makers, it describes us as we really are, with all our weird flaws and irrationality laid bare. It also meant that we had a way to make people feel better about some of things they do with money that may not make sense. The truth is, we all do.

Some generalisations: Do you think many New Zealanders hate thinking rationally about money?

It’s not so much that we hate thinking rationally about money, it’s just that it’s not natural to be rational. So, for example, our brains experience saving money pretty much like we’d chucked it in a hole and buried it. Saving money feels like losing money. The experience in our brains is one of loss.

Are many of us are wilfully ignorant about money?

Financial happiness is a pretty simple formula: spend less than you make. We all know that. The real mystery is: why don’t we do it? What we try to show people in the series is that there are a whole bunch of forces acting against you when it comes to money. Some of those are about how we think about things, and some of that is the world exploiting our flawed irrational natures to get our money out of us. For a long time, the only way you could spend money was to take it out of your pocket and hand it over to someone, but now you can spend it without doing anything. Uber is a perfect example of that, because I can get into the car, it takes me somewhere, and I get out, and I feel like I didn’t spend anything, when really the app is taking the money from me without me even having to push a button.

Are attitudes to money partly cultural?

Without doubt there are cultural differences in how we think about money, and there are huge and complex debates about why all of that is. One of the more interesting arguments I’ve heard is that language differences between, say, English and Mandarin explain the differences in savings performance between the Western countries and the Chinese. We save about 2%, while they save an impressive 30%. So clearly there are some fairly significant cultural differences that impact on what we do with money, but there is still a huge amount of debate about exactly why this is.

This article was first published in the February 18, 2017 issue of the New Zealand Listener. Follow the Listener on Twitter, Facebook and sign up to the weekly newsletter.

MostReadArticlesCollectionWidget - Most Read - Used in articles
AdvertModule - Advert - M-Rec / Halfpage

Latest

Cartoonist Tom Scott on the art of a good skewering
84198 2018-01-24 00:00:00Z Profiles

Cartoonist Tom Scott on the art of a good skewerin…

by Joanna Wane

Cartoonist and writer Tom Scott’s memoir is soaked in all the pathos and black humour of his Irish roots.

Read more
The Shape of Water – movie review
86244 2018-01-24 00:00:00Z Movies

The Shape of Water – movie review

by James Robins

It’s brilliantly directed and acted, but there’s something fishy about the romance.

Read more
When New Zealand shipped its criminals to Australia
86182 2018-01-24 00:00:00Z Books

When New Zealand shipped its criminals to Australi…

by Nicholas Reid

For 10 years, New Zealand “cleansed” the colony by transporting criminals to an Australian island.

Read more
Should mental health experts speak out about Donald Trump?
86030 2018-01-24 00:00:00Z Psychology

Should mental health experts speak out about Donal…

by Marc Wilson

Psychology professor Marc Wilson assesses whether mental-health experts have an ethical obligation to speak out about the Don.

Read more
The Midnight Line by Lee Child – book review
86240 2018-01-23 15:20:32Z Books

The Midnight Line by Lee Child – book review

by Peter Calder

Jack Reacher joins the war on drugs in a sloppy and sludgy new thriller by Lee Child.

Read more
Doing the sums for retirement brings on the uh-oh moment
85840 2018-01-23 00:00:00Z Social issues

Doing the sums for retirement brings on the uh-oh …

by Bill Ralston

I had always assumed my retirement would be something like I was doing then, lying in the sun, drinking beer and reading books, writes Bill Ralston.

Read more
What Jacinda's baby announcement has done for Kiwi working mums
86153 2018-01-23 00:00:00Z Social issues

What Jacinda's baby announcement has done for Kiwi…

by Genevieve O’Halloran

If the Prime Minister can’t make this full-time working motherhood gig work, frankly, what hope is there for the rest of us?

Read more
How Titanic Live became a near-religious experience for singer Clara Sanabras
86138 2018-01-23 00:00:00Z Music

How Titanic Live became a near-religious experienc…

by James Belfield

The titanic, Oscar-winning hit song gets another lease of life in a stage presentation.

Read more