Dan Ariely on the psychology of economic decisions

I really enjoy hearing this guy. He must be right in saying that how we spend money depends on how we obtain it. If you win $100 in a lottery you will probably spend it differently than if you get $100 as a tax rebate; if you get it in 10 monthly installments you will probably spend it in a different way than if you get it all at once. His suggestion that the government give tax rebates in the form of prepaid debit cards was very interesting. I especially like the idea that the card would be replenished periodically with small amounts, leading people to spend quickly in small amounts. Too bad it is too late to try this out.

Incidentally, the discussion of the EFA Global Monitoring Report this week spent a fair amount of time on conditional cash transfers, where poor families get transfers on the condition that they use them for schooling the kids and other social purposes. This approach seems to work in Latin American countries where they have been used.