Psychology Archives - Page 4 of 4 - Personal Finance Digest

How many credit cards can you apply for at once, part 2… Also, the Target coupon is back

December 13, 2012 By pfdigest

YOU’D BE SURPRISED–WE SURE WERE: Hats off to blogger Rapid Travel Chai, who just did 13 credit card applications and posted the results: 11 approved, 2 pending. To us, the remarkable thing is not that he did 13 apps, but that he did five from a single issuer, Barclays. The results? 4 approved, 1 pending. And another interesting fact: the credit line granted went up with each additional approval both for him and for a friend who also did five applications.

If his file gets looked at by a human, there’s a nontrivial chance one or more of his cards will be closed. But the key word there is if. Large banks are set up so that you can apply for a card, make your payments, and even get a credit line increase without a single human laying eyes on any of your information. Therein lies the source of our fun: any system has loopholes and any system can be hacked… and that is what Rapid Travel Chai has just demonstrated.

WHY YOU NEED TO READ THIS BLOG: An interesting article in Psychology Today on how too much data can impair your decision-making. Here’s the key excerpt:

Their experiment was simple. Participants were divided into two groups. Group 1 read the following:
Imagine that you are a loan officer at a bank reviewing the mortgage application of a recent college graduate with a stable, well-paying job and a solid credit history. The applicant seems qualified, but during the routine credit check you discover that for the last three months the applicant has not paid a $5,000 debt to his charge card account.

Do you approve or reject the mortgage application?

Group 2 saw the same paragraph with one crucial difference. Instead of learning the exact amount of the student’s debt, they were told there were conflicting reports and that the size of the debt was unclear. It was either $5,000 or $25,000. Participants could decide to approve or reject the applicant immediately, or they could delay their decision until more information was available, clarifying how much the student really owed. Not surprisingly, most Group 2 participants chose to wait until they knew the size of the debt.
Here’s where the study gets clever. The experimenters then revealed that the student’s debt was only $5,000. In other words, both groups ended up with the same exact information. Group 2 just had to go out of its way and seek it out.
The result? 71% of Group 1 participants rejected the applicant. But among Group 2 participants who asked for additional information? Only 21% rejected the applicant.

It’s not surprising that Group 1 was more likely to reject the applicant. Information overload is a well-known phenomenon; it’s why, for example, magicians use misdirection and pickpockets like to have an accomplice distract you. But the size of the effect is certainly striking, is it not?

Fortunately, there are plenty of websites out there that can help you sort through the clutter and focus on what is truly important. (H/T: TBP)

IPARADOX: We’re not stock market professionals, but we’ve been wondering about how the major markets could have diverged so sharply from Apple, the biggest publicly traded stock.

ZeroHedge has given what appears to be a sensible explanation: The S&P 500 is surging as Apple is falling because fund managers who were long Apple hedged with shorts against the broader market (the bet here was that Apple was stronger than the broader market). Now that Apple has shown weakness, they are unwinding their long positions on that stock, but at the same time they are unwinding their short positions on the broader market, thus applying upward pressure. As this Fortune article points out:

Ten years ago there wasn’t a single mutual fund that counted Apple as its largest holding, according to Morningstar. Today there are 683 — or one out of every eight funds. Some of the funds are just about as all-in on Apple as the IRS rules for mutual fund diversification allow. There are 12 funds with 20% or more of their assets in Apple. There’s now an Apple-only hedge fund — Bullish Cross Asset Management, which trades both AAPL shares and options

You might want to look at your mututal fund holdings and see if any of them are loaded up on Apple. Do you really want those mutual fund fees to pay someone to overweight you in Apple? We’re not saying the answer is no, we’re just saying it’s a question worth asking.

As for how to make money from all this: if we knew that, we’d be able to afford to hire people to do the blogging for us. Alas…

$10/$50 TARGET COUPON IS BACK: Okay, here it is. If you want some inspiration from last week, here you go.

It’s the end of the world as we know it (and we feel cynical)

December 10, 2012 By pfdigest

SERIOUSLY?: You always have to take articles like this with a grain of salt because the media has an interest in playing up the silliness, but apparently people are getting a little nutty about this Mayan apocalypse stuff. It’s a bunch of nonsense of course, but anytime you see people acting crazy, a good question to ask yourself is, “Can I make money from this?” Our favorite example is selling pet insurance to people who believe in the rapture, followed closely by the purchase of a whole bunch of insurance on subprime mortgages at the height of the real estate bubble. Neither activity is our cup of tea, but it’s helpful (and fun) to consider crowd psychology, make sure you’re not a member of said crowd, and look for opportunities.

HOW YOUR HOME PRICE IS AFFECTED BY FED POLICY: Most people don’t find macroeconomics as interesting as we do, but you have to find graphs like this from Iacono Research entertaining:

The fed has been keeping rates very low the past several years, and you can easily see on the graph how much a change in interest rates from 5.5% to 3.5% increases the amount of house you can buy. The big question is, what happens to home prices when rates start to go up again? Or, as some wonder, will rates start to go up again, or has the Fed boxed us into a Japan-style low-rate purgatory? Either way, rates don’t have too much farther to fall, which is why we think there’s more risk to falling home prices than on missing out on rising prices. (H/T: Barry Ritholz)

THE RISE AND FALL OF LENNY DYKSTRA: Remember several years ago when all of a sudden former baseball player Lenny Dykstra was some sort of financial whiz, and he even had a column on thestreet.com? Wasn’t that odd? It’s a sad story, but Newsday has a great feature on Dykstra’s rise and fall which explains how it all happened. Dykstra, incidentally, was sentenced to 6 1/2 months in federal prison a few days ago.

FREE MUSEUMS, AN UNFORTUNATELY OBSCURE PERK: Miranda Marquit at Bargaineering has an article on five credit cards perks you probably didn’t know about, and to her credit she mentions our personal favorite, the Bank of America “Museums on Us” program. The first weekend of every month, B of A cardholders can get in free to a bunch of museums all around the country. It’s a great collection of museums, and you can use any Bank of America card, whether credit, debit, or ATM. Add authorized users for extra admission fun. Enjoy!

How to get a free one-way flight!

December 9, 2012 By pfdigest

FLY FOR FREE: Did you know that you can get a free one-way flight appended to your frequent flyer redemption? We didn’t. Courtesy of Point Me to the Plane, we found a presentation from Scott at milevalue.com which explains how this works and how you can make your redemptions 50% more awesome. Even if you don’t have miles to redeem, you should take a look–we are always inspired by clever way of exploiting loopholes.

TIME-LIFE OPERATORS ARE STANDING BY: Frugal Travel Guy discusses a question which probably isn’t discussed as much as it ought to be: is it worth it to take so much time to rack up frequent flyer miles, chase deals, cut coupons, track bank bonuses, and so on? One thing we like about his take is that he spends a good deal of time dicussing Pudding Guy. If you don’t know who he is–well, you really should, so please do pay attention. As FTG summarizes the story:

Once upon a time, while doing his routine grocery shopping, David noticed a promotion that Healthy Choice foods was running. For every ten UPC codes he mailed in, he’d receive 1,000 frequent flyer miles in the program of his choice. When he realized that an individual pudding cup actually had its own UPC code, and only cost 25 cents, he raced into action. He cleaned out his grocery store, then upped the ante by jumping in a van and emptying out every single Grocery Outlet in California’s Central Valley. If you lived in Sacramento or Modesto, and had a hankerin’ for some pudding on that May weekend, you were out of luck – David owned it all. He had cornered the pudding market, turned himself into a modern-day Pudding Rockefeller. With a little help, he cut off all the UPC codes from 12,150 individual pudding cups, and when the custard settled, David had earned a total of 1,253,000 miles, for about $3,150 in cost, not including his tax write-off for donating the pudding to charity. And thus, he was elevated into the Pantheon of Miles Godhood. The story made national news. It actually partially inspired an Adam Sandler movie.

In this case, it’s a no-brainer–a weekend spent hoarding pudding is definitely worth a million miles and lifetime gold status. But FTG makes the point that you have to consider not only the value of your time but the opportunity cost of it as well. We here at PFD see deals we’d like to go after but darn, there aren’t enough hours in a day. There’s a particular deal we passed up for time reasons involving cash for 20% off at Best Buy which has been eating at us–more on that in the future. Alas…

In a similar vein, Jim Wang at Bargaineering reminds you that time is your most valuable asset. If you have kids, you probably already know that, but it’s good to be reminded of it all the same.

HEALTHY, WEALTHY, AND SLEEPY: Honestly, this stuff bores the heck out of us, but we feel obligated to educate ourselves about healthcare costs because whereas in the past healthcare was expensive and complicated, it now stands to be expensive and more complicated. So let’s buckle down and eat our personal finance vegetables, shall we? Kristin Wong at Get Rich Slowly explains what’s the deal with Health Savings Accounts. If you’re young and healthy have a look, but if you have kids who get sick regularly, you might want to skip this one. Miranda Marquit at Bargaineering lays out the details of the new Medicare tax coming in 2013. It only affects The Rich, defined as: “modified adjusted gross income (MAGI) that exceeds $200,000 for those who are single, $125,000 for those who are married filing separately, and $250,000 for those married filing jointly.” (Does anybody else tend to get sleepy when they read the words ‘modified adjusted gross income’? Is that just us?)

AND STAY OFF MY LAWN TOO: Justin at Young and Thrifty would like to remind you youngsters that owning a house can be a drag on your career. He’s absolutely right as it’s important to be mobile when you’re younger–making a few strategic jumps can give you big boosts in salary and responsibility early on.

CONFIRMATION BIAS: It’s not, strictly speaking a financial topic, but it’s very relevant to your financial being. Seriously, if you only learn about one cognitive bias in your life, you should learn about this one. Trent at The Simple Dollar explains what it is and how it affects your decision making. The Wikipedia entry is pretty good too. Our own summary of what you should know about confirmation bias: you will make better decisions by trying to prove yourself wrong than by trying to prove yourself right.

How many credit cards can you apply for at once, part 2… Also, the Target coupon is back

It’s the end of the world as we know it (and we feel cynical)

How to get a free one-way flight!

Recent Comments

Disclosure

Disclaimer