Neuroeconomics: Explaining irrational financial decisions

People will go against their own self-interest…even if the reaction cannot change the behaviour…It really vexes economists.

The classical economic model that consumers are rational beings, equipped with a steely logic to further their best interests is increasingly being questioned.

I have found the hybrid fields of behavioral finance, law and economics, social psychology, and others to offer tremendous, though little understood, insight into why many franchise investors makes decisions that are predictably against their best interests.

This article I believe is a useful introduction:

Your Brain on Gucci
Economists used to think consumers made rational purchasing decisions. But a new field of research is revealing neural forces that leave classical theorists scratching their heads.

Mounting evidence suggests financial choices are the product of an unpredictable interplay between two internal brain systems

• ancient or lizard limbic system and
• rational, executive or cerebral cortex system.

But neuroeconomics upends the traditional thinking, shedding light on economists' surprisingly slow-burn realization that people often make bad money decisions: We splurge instead of saving for retirement. We sock our savings away instead of paying down debt. We toss coins into slot machines never expecting to win.

Behavior Decision Research
Are you what the Carnegie-Mellon researchers term a tightwad or a spendthrift?

Find out here .