¢.R.€.A.M.: THE MONEY ISSUE
The week of April 19, 2015

Can technology make us better with money?

By Aaron Sankin

Classical economics rests on the belief that people are inherently rational. When presented with a choice, humans will thoughtfully weigh the options and pick the one of greatest benefit. Going back to Adam Smith, the entire discipline derives from the assumption that people will consistently act according to their own rational self-interests.

That may be true in the aggregate, at least sometimes, but it’s a much shakier assumption to make at the individual level.

Writing for the Harvard Business Review, Duke University economics professor Dan Ariely argues that subconscious biases cause people to behave in ways that don’t fit the models of classical economics.

This challenge to economic orthodoxy is called behavioral economics, and it incorporates psychological insight to better describe how people really behave. “We are finally beginning to understand that irrationality is the real invisible hand that drives human decision making,” Ariely insists.

If, as Ariely suggests, humans are fundamentally irrational when it comes to money, what hope do we have of making the right financial decisions, from the smallest to the largest? Should we be investing or paying down student loans? Saving for retirement or assuming we’ll never get to retire anyway? Should we hire a financial planner or go DIY? 401(k), Roth IRA, stocks, bonds, mutual funds, and REITs: How are we supposed to make sense of it all—especially when studies show an overwhelming majority of Americans are largely illiterate when it comes to financial issues.

Should we be investing or paying down student loans? Saving for retirement or assuming we’ll never get to retire anyway?

Today, our daily lives are mediated by technologies previously seen only in science fiction. We carry supercomputers in our pockets capable of doing mind-bogglingly complex calculations in the blink of an eye. We use these computers for everything from finding love to harassing complete strangers. Can those machines also help us make better choices in when it comes to managing our money?

In this week’s Kernel, we’re taking a deep dive into how the online world has, or hasn’t, altered our financial lives.

Allen Weiner takes a look at how millennials, not always known for being financially prudent, are using the Internet for advice on managing their money. In the wake of the financial crisis, Weiner argues, young people have lost trust in the august institutions of Wall Street and have turned for advice wilds of the Web.

“In a very real way, a lot of millennials are entirely on their own,” writes Weiner. “But that’s not all that different from people in …

generations.”

Ramon Ramirez delves into Reddit’s r/PersonalFinance community. The site’s infamous hive mind offers answers to everything from how to plan for retirement to how to deal with the crushing load of student debt. Redditors may feel more comfortable crowdsourcing financial questions rather than asking their friendly neighborhood megabank, but is it really such a good idea to base your retirement planning on information from someone who, for all you know, may just be a 13-year old with a profoundly weird sense of humor?

In this week’s Kernel, we’re taking a deep dive into how the online world has, or hasn’t, altered our financial lives.

While trust in Wall Street may be slipping, people haven’t lost faith in every single financial institution. Some, like Dylan Love, have put their faith in an app. Love tells the story of a virtual bank called Simple that’s dispensed with all the physical trappings we’ve come to associate with banks—from glass-enclosed teller windows to free, barely drinkable coffee—with a smartphone app. He explores how Simple has managed to create a banking experience people legitimately enjoy while helping them save money in the process, by making making banking as easy as liking a cat picture on Facebook.

The Internet hasn’t just disrupted how people bank; it’s also disrupted how professional investors set unimaginably large piles of money on fire at the feet of tech startups that sincerely use the word “disrupt” a hint of self-loathing. Joe Kukura argues this is a terrible, horrible, no good, very bad idea that’s inflating a second dotcom bubble already having seriously effects on the economy of the San Francisco Bay Area—and that’s before it inevitably pops.

As Selena Larson demonstrates in an in-depth interview with DonorsChoose.org founder and crowdfunding pioneer Charles Best, a much better investment is giving that money to public school classrooms filled with students who will undoubtedly have much better ideas than Fitbits for dogs.

Rounding out the issue are investigations into high-frequency trading, the most innovative underwear available for purchase on the Internet, and the weird world of men whose sexual fetish is giving money to women who yell at them.

And, no, it’s not just called marriage (jokes!). In that light, maybe the Internet has changed some aspects of how we think about money—at least a little.

Photo via Daniel Borman/Flickr (CC BY 2.0)