We might like to think we act rationally when it comes to money, but as behavioural economics shows us, the way people ascribe value to goods and services is anything but objective.
It is often advised not to go grocery shopping on an empty stomach, for example, because our propensity for rationality becomes skewed when our bodies need nourishment, in the same way that there believed to be a connection between a trader's appetite for risk and testosterone levels.
As Daniel Kahneman wrote in Thinking, Fast and Slow, "cognition is embodied": the way we think about something owes much to physiology and psychology, and this is no different when it comes to consumption.
How we feel about products is at least as important, if not more so, than their objective characteristics, says Ogilvy's Rory Sutherland, which explains why advertising has become one of the most influential communication media in our time.
And yet our financial services often seem to be designed for idealised humans, rational beings who make informed and sensible choices, when we are in fact largely unconscious of our decision-making processes and incredibly driven by intuition.
A hypothetical institute imagines bank managers who more closely resemble therapists or personal trainers
This could become ever more important as we move towards a cashless society (one report suggests that in Scandinavia cashless payments already amount to 94 per cent of all spending), and whatever remnant of physical attachment to money we may have had disappears. It is believed consumers are likely to spend between 12-18 per cent more on products when paying by card instead of cash. This phenomenon, known to psychologists as 'decoupling', is caused because the experience of consuming something is detached from the experience of paying for it.
Findings by the Journal of Consumer Research show that consumers using credit cards pay more attention to the benefits of the product they are buying, and less to the price. As economist George Loewenstein explains, this decoupling drives a wedge between the objective and the subjective, increasing the likelihood of patterns like impulse spending. What's more, the effect could become even more pronounced as mobile wallets are adopted by a broader base of consumers.
As the path to purchase continues to shorten step by step, it becomes easier for consumers to disassociate from the money they are spending.
Just as behavioural economics enables us to understand how this process came about, it may also hold the key to controlling it and keeping our finances in check.
Inspired by the growing quantified self movement – using technology to track all aspects of daily life – and curious to investigate what kind of role financial services will come to play in the coming decades, experiential design agency Method created the Bank of Physiology. This "hypothetical institute at the convergence of healthcare and personal finance" imagines bank managers who more closely resemble therapists or personal trainers than the clerks we know today.
In the same way that wearable devices like FitBit and Jawbone give us a detailed insight into our performance data, Method speculate what it might be like if our banks also had access to this physiological information. With a greater understanding of our hormonal data, for example, financial services might be better placed to advise their clients on how to manage their physiology to encourage financial stability.
For now there are no such devices, but according to Method's creative director Philip O'Dwyer the technology for hormonal analysis is already here – it is only a matter of time before we use it.
From literal ‘chip and pin’ devices which could take a small blood sample, or connected toothbrushes in the home which can monitor hormone levels from saliva, Method explored devices that "build on daily routines" to create a detailed picture of the physiological reasons behind our spending patterns.
This service, explains O’Dwyer, would necessitate a new hybrid breed of healthcare and financial worker, from a Bank General Practitioner to assess clients and recommend treatment, to a Wellbeing Financial Mentor to plan exercises and activities targeted at balancing the endocrinological levels of the body and, in turn, financial stability.
"This year in the UK there are four or five challenger banks applying for licences from financial regulations, who are going to completely rethink the whole delivery of financial services," says O'Dwyer. "Banks are really going to have to compete on customer service and experience and there is a huge creative opportunity in how banks deliver services."
The banking doctor will see you now.