The human brain's tendency to make rapid decisions based on cognitive biases can lead to significant financial mistakes, as these biases often encourage irrational behaviors.
Cognitive biases are systematic patterns that mislead our judgments; for instance, buying decisions can be heavily influenced by perceived 'anchor' prices, leading to overspending.
Anchoring illustrates how our ability to determine a fair price is compromised by 'anchor' prices, compelling us to choose products we may not actually want.
This 'anchor' effect is manipulative; restaurants often use high-priced items to deceive consumers into perceiving lower-priced options as more appealing, resulting in overspending.
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