Monday, May 31, 2010

Not Up To The Task

An article in the The Star of Toronto about Canadian debt quotes CalTech behavioral economics researcher Colin Camerer on how we just aren't adapted to modern consumer credit and humans clearly can't handle it. Governments, also made up of humans, similarly can't handle debt rationally either.

How were consumers expected to fare in, if not a free-money environment, certainly an easy-money environment here at home? “The idea that you can walk into a store with a piece of plastic — you may even be a college student with no income — and buy $5,000 worth of stuff is unbelievable,” Camerer continues. “Thinking like a neuroscientist, nothing in our brain evolution has equipped us to make the right decision in that case.”

When we buy on credit the part of our brain that registers that we are acquiring some good experiences a stronger stimulus than the part of our brain that registers that we are taking on a debt or future obligation.

The brain, in other words, isn’t really up to the task.