Shopping Addiction—Thinking it Can Change Your Life!

People who overuse credit have different beliefs about products from those who spend within their means. Professor Marsha Richins says many people buy products thinking that the items will make them happier and transform their lives. Simultaneously such consumer materialism induces in them a disregard for debt. These two forces work together to increase credit abuse and overuse.

Wanting to buy products becomes a problem when people expect unreasonable degrees of change in their lives from their purchases. Some people tend to ascribe almost magical properties to goods—that buying things will make them happier, cause them to have more fun, improve their relationships—in short, transform their lives. These beliefs are fallacious for the most part, but nonetheless can be powerful motivators for people to spend.

Materialistic types hope for four kinds of changes when making purchases, but earlier research shows that these expectations are often not fulfilled. The four kinds of transformations expected are:

1. Transformation of the self—the belief that a purchase will change who you are and how people perceive you. This is commonly held by young people and people in new roles. Example—a woman wanted cosmetic dental surgery to improve her appearance and self-confidence.
2. Transformation of relationships—the expectation that a purchase will give someone more or better relationships with others. Example, a woman wanted to buy a new home because she thought it would enable her to entertain more often and make more friends.
3. Hedonic transformation—a purchase will make life more fun. Example, a man wanted a mountain bike because he thought it would give him more incentive to get out and go on “an adventure”.
4. Efficacy transformation—the expectation that purchases will make people more effective in their lives. Example, some people wanted to buy a vehicle because they thought it would make them more independent and self-reliant.

In proportion, none of these are a problem. They can be for people who have strong and unrealistic transformational beliefs, for then they are more likely than others to overuse credit and take on excessive debt. Other research by Fang and Mowen, 2009, and Netemeyer, et al, 1998 has also shown a relationship between materialism and gambling, and yet more by Mowen and Spears, 1999, and Ridgway, Kukar-Kinney, and Monroe, 2008, between materialism and compulsive consumption.

It is further evidence that our economic system is damaging to us, and professor Ritchins seems to agree. She thinks finance and credit counseling should be revised to help people understand their motivations for purchasing goods better, and recognize that products are not a quick fix for improving their lives:

Many financial literacy programs seek to prevent people from getting into financial problems by presenting the facts about interests rate and loans, but few seek to influence behavior directly, or focus on why people purchase things they cannot afford, and go into debt.

How Incentives Destroy Co-operation and Will Destroy Society

Human societies depend upon each of us helping our neighbors, and not exploiting them, and about 80 percent of us are willing to participate fairly in joint projects of mutual benefit. The other 20 percent are skivers, people who will try to get the benefits with as little effort as they can get away with. The skiving free loaders are not popular with the others who pull their weight, and usually sanctions or punishments are applied to those who try to exploit other people’s mutual effort for their own gain. It is called norm enforcement, the norm being that everyone should pull their weight, and those who do not are deviants from the norm.

Data like these are not difficult to get by testing in controlled situations. If my neighbor and I could each build a house on our acre plot in six months, but by co-operating we could do a better job making use of our complementary skills and finish the two houses in eight months, then we have a clear benefit from co-operating. If the houses still took six months each and were no better, we might as well build our own, and we only have ourselves to blame for anything that goes wrong. The act of co-operating must itself have a benefit or there is no point in it. So setting up a test in which people can share a sum of money they have been given with other participants to get a benefit from the pooled resource mimics my neighbor and I helping each other build a house, as long as it is likely that by sharing we can all be better off.

In such tests, Professor Stephan Meier, Assistant Professor in Management at Columbia Business School, and co-worker, Andreas Fuster, PhD candidate, Harvard University Department of Economics, discovered that when people were given private incentives, norm enforcement became less effective. The incentives seemed to take the edge off the hard feeling towards the skivers.

1. Participants were asked to contribute to a common pool of cash to be divided equally among them all at the end of each of six rounds, whether or not all participants contributed. No kind of norm enforcement was used. People gave only small amounts to begin with, and gave less in each round.
   
2. By adding an incentive to contribute (a lottery ticket), with no opportunity to enforce norms, people contributed more gladly, including free riders.
   
3. Norm enforcement was introduced to the first test, in the shape of a fine on free riders at the end of each round. Those who were fined, most of them, increased their contributions in subsequent rounds.
   
4. Adding the lottery ticket incentive made contributors scale back their punishment of free riders by almost half, and free riders were less likely to make larger contributions in subsequent rounds whether or not they were punished. The result tended towards the previous test without incentives.
   

Fuster says:

Individual incentives can really change the structure of how we deal with one another, what the norms are, and how we enforce norms. If social forces in an organization are important, managers need to be attuned to norm enforcement and peer effects. They should understand that adding monetary incentives can dramatically change this dynamic and lead to a net negative effect.

The point is that the lottery ticket became the aim of participating, there being nothing to be gained by sharing through the common pool. Free riding therefore became irrelevant. Everyone would give just enough to get a lottery ticket, whether a free rider or not.

On the face of it the experiments are flawed. There is no co-operative gain to be made by contributing to the common fund. The pool needs to be enhanced in some way to make it more like human co-operation. Even so, it is easy to see that a separate incentive can draw attention from the whole point of a co-operative venture—the advantages of co-operating—by distracting attention from the primary objective.

It is the reason, for example, why sports can be so easily disrupted by gambling. Whatever is to be gained from illegal betting can make sportsmen actually want to sabotage the supposedly co-operative team objective, and lose for their personal gain.

The same is true of senior managers and board members who begin to give themselves bonuses from the company’s earnings. The drive to maximize bonuses distract from the corporate aims, and when shareholders will not sack managers and board members who are lining their own pockets at the expense of the shareholder, then the managers can run amuck.

That is what happened in our banks. Barclays’ shares for example sank by a half over several years when top managers in most banks lifted their own compensation, including bonuses, by obscene amounts, and shareholders let them get away with it. Needless to say, the holders of large blocks of shares, able to sway any shareholders’ meeting, are often themselves large banks and city institutions, so effectively they are in a scam to rob the ordinary small shareholder and the customers.

Politicians are the same. Their objective is supposed to be to represent the interests of the people who vote for them, but they are all too easily distracted by the wads of maney waved at them from corporate bosses. Tony Blair is getting his compensastion now for his sacrifice of pretending to be a Labour Party Prime Minister, when he was a Republican Quisling. The incentives of the rich soon make most career politics forget what they are there for.

Our societies used to take an extremely dim view of bribery, but no longer. Bribes are today incentives, and the law enforcers themselves are too ready to accept them. A cabal of superrich people have corrupted the western world beyond redemption. Western society is decadent and immoral. Democracy is superficial. We are run by this megarich class, which controls every party with its incentives, incentives to do as they want, and not what is good for society.

The often despised Arabs are showing more courage and awareness now than the once militant workers of the UK and France. Workers in the US have always been too easily fooled by their betters. Even after thirty years of declining real wages, longer hours and poorer conditions for those in work, and a labor pool of twenty or thirty million unemployed or part time workers, while the top thousand or so people have trebled their wealth, the average American is still beguiled by the moribund American dream, Republican crooks and pastors, and their own inability to comprehend what is going on. They are the ones without the incentives, but rather are offered carrots.

Carrots might be incentives for donkeys, but Americans ought to be more sophisticated than those famously uncomplaining beasts of burden. Its time they started to do what the Arabs have already begun. Get out in mass on to the streets, trash a few corporate HQs and banks, and threaten revolution. Social instability is one thing the rich do not like, and can do little about, except getting national guards to shoot citizens.

Then everyone will realize that the state is not theirs, and democracy is an illusion.

Getting Conned by Bogus Investment Schemes—and Real Ones!

University at Buffalo sociologist, Lionel S Lewis, author of four articles in the journal Society about Madoff investors, explains how the Ponzi scheme works. He says:

To understand how confused thinking is, you need to understand how a con game works and the fact that it requires a “mark” willing to suspend his or her judgment.

First, the “roper”, who could be a brother-in-law, approaches the “mark” and says, “Listen, Bernie can make you a lot of money—a 16 or 20 percent return”. Now this is a far greater return than the standard investment produces, but the “mark” is greedy, like many people, and suspends reason in pursuit of easy cash. Remember, the “mark” is always a willing participant in pursuit of an unlikely outcome.

The con man—Madoff in this case—takes the “mark”’s money and spends it. He doesn’t invest it. He doesn’t realize a “return” on an investment. He just pays millions of dollars in finder’s fees to the “ropers”, gets them to pull in more “marks”, and uses that cash to pay off any of the “marks” who pull out of the scheme early, and spends the rest on estates, cars, vacations and yachts until the money is used up. Eventually the scheme collapses. The “marks” lose their money. In con terms, they’re “trimmed”. At this point, it is the job of the roper and other inside men in the con to “cool the mark out”—calm the waters to protect those perpetrating the con.

They do this, Lewis says, by pointing out to the mark that “he knew he was taking a risk (‘16 percent return? What were you thinking?’) and could have lost more, then sends him off, embarrassed, with his tail between his legs, but with a little cash, glad he’s not living on the street in a refrigerator carton”. The well cooled mark, according to Lewis, recognizes his part in the con. He’s not happy but he doesn’t call the cops, grouse about his losses on TV or blow up Madoff’s house.

Lewis is saying that people are voluntarily conned. They take a silly risk with their own money, knowing it looks fishy, but are so greedy, they do not accept a quick profit themselves from the scam, and get out while they are in the black. Instead, they hang on and on, reaping in the ill-gotten gains, maybe investing some of it anew, until the scheme inevitably falls apart. It is a pyramid selling scheme. It is illegal, and no one is justifying Madoff. He is in jail where he belongs, but the victims are still beefing, though it was a case of caveat emptor. They were buying a share in the scam, and were getting paid as long as new “marks” were being found. Now, they say they are victims of an investment con, that there were proper investments and they did not get their proper share. But there never were any proper investments! Lewis says:

Despite the fact that Madoff never ran an investment fund, no money was “made” on their behalf and there are no profits to return to them.

The scheme got so big and collapsed so swiftly that the “marks” were never cooled out:

So we find them posturing loudly as enraged victims online and off—in the papers, on television and radio—demanding “profits” they apparently think actually exist—they do not—and are owed to them—which is not legally the case.

Lewis focused on 167 people who invested with Madoff. He collected oral and written testimony, including lengthy interviews, from 42 of them and used other written material. Some investors, however angry and ashamed they are, and regardless of how much money they lost, have not sued and made a fuss. A lot of those people won’t talk to anybody. Lewis says:

Some who lost a lot were grateful they hadn’t invested more or glad to get back even a tiny percentage of what they lost, while others who lost less want everything they were “promised”—the 16 or 20 percent profit. They won’t accept that the “promise”, along with their gullibility, was part of the con, that they never could have won at this game, and still can’t, no matter how many attorneys they hire or how often they get on television.

What is sad is that many of those “trimmed” in the scam had worked hard to put together some cash, then greed got the better of them, they thought they could join the ruling class, and make buckets of money, and opted for Bernie Madoff’s shortcut to riches. They were gambling with their life’s savings, and gamblers know that they should only play on their gains, and should cut their losses. Of course, any pyramid scheme ends up with far more losers than winners, but the few winners can make fortunes out of all the little steers who are roped in.

The answer with any gambling—investing, if you prefer to call it that—is not to invest more than you can afford to lose. The trouble these days, is that the ruling caste are forcing the small guy into risky investments because the return at interest has been cut to zero. We can leave our life savings in the banks earning nothing, but eroding away by inflation and bankers’ bonuses, so we have to put the cash into something riskier.

Stockmarket crashes suit banks and financial speculators because it is the small investor who loses by bad timing and their inability to swing markets with sheer volume of investment, or influence, by buying stocks, talking them up with rumours of takeovers and such like, then selling at a profit while the stock is high. Joe and Jane will read the rumours and buy in too late when the stock has started to rise, then find the stock crashing again when the big man sells out. They lose! These are not strictly scams because it is all legal since Reagan had his bonfire of the regulations, a reason for much closer new regulation of the money markets. But Republican propaganda has it that regulation is a bad thing. Yes, it is bad for the crooks at the top, but just fine for the rest of us.

Gambler’s Psychology among Bankers Demands Tight Regulations

Dr Paul Crosthwaite, an academic at Cardiff University, has found that the bankers who brought the global economy to its knees two years ago may have enjoyed the sensation of losing hundreds of billions of pounds and plunging the world into recession. He argues such catastrophic losses can give some people masochistic pleasure.

He thinks financial crises, such as the “Black Monday” crash of 19 October 1987, the bursting of the dotcom bubble in the spring of 2000, and the credit crunch that entered into its most intense phase in the autumn of 2008 with the nationalization of banks in the UK, US, and Europe, demonstrate the innate urge for self destruction that Sigmund Freud called the “death drive”. A full blown crash is a source of euphoria as much as despair. Dr Crosthwaite said:

Economists and financial policymakers must recognize that investor psychology is far more complex than their models have allowed up to now. They need to take much greater account of psychological factors such as emotion and desire, which affect how market actors behave in profound ways.

His research challenges the conventional economic thinking that investors are wholly rational, and always pursue whatever is most likely to increase their own wealth, a rarely questioned assumption that is the basis of the free, minimally regulated market of standard capitalist thinking. In fact, financial markets are disposed to crisis because participants seek excess for thrills as well as their assumed betterment. Bankers and financiers take risks not only for high returns, but to get a gambler’s high.

Dr Crosthwaite says this research strengthens the case for firm regulation of banks and other financial institutions:

To avoid a repeat of the great recession, it is vital that policy makers and regulators limit the capacity of financial professionals to engage in excessive practices by curbing the disproportionate levels of risk that we’ve seen in the financial sector in recent years.