The Behavioral Economics of Black Friday

From NY magazine, via Ritholtz:

As Dan Ariely explains in his book, Predictably Irrational, "We all make the same types of mistakes over and over, because of the basic wiring of our brains."

This applies to shopping on the other 364 days of the year, too. But on Black Friday, our rational decision-making faculties are at their weakest, just as stores are trying their hardest to maximize your mistakes. Here are just a few of the behavioral traps you might fall into this Friday:

The doorbuster: The doorbuster is a big-ticket item (typically, a TV or other consumer electronics item) that retailers advertise at an extremely low cost. (At Best Buy this year, it's this $179.99 Toshiba TV.) We call these things "loss-leaders," but rarely are the items actually sold at a loss. More often, they're sold at or slightly above cost in order to get you in the store, where you'll buy more stuff that is priced at normal, high-margin levels.

That's the retailer's Black Friday secret: You never just buy the TV. You buy the gold-plated HDMI cables, the fancy wall-mount kit (with the installation fee), the expensive power strip, and the Xbox game that catches your eye across the aisle. And by the time you're checking out, any gains you might have made on the TV itself have vanished.

Implied scarcity: This is when a store attempts to drum up interest in an item by claiming "limited quantity" or "maximum two per customer," which makes us think we're getting something valuable when we may not be. It's a staple of deceptive marketing, and at no time in the calendar year is it in wider use than on Black Friday. (There is also actual scarcity on Black Friday — when stores carry only a 50 or 100 of an advertised doorbuster item — which also introduces a risk that you'll be 51st or 101th in line and waste your time entirety. Both are bad.)

I'll leave the Black Friday shopping to the professional fools.  See you in the stores the weekend before Christmas.