11 Economic Lessons to Make You a Smarter Shopper This Black Friday

When you hit the stores this weekend, remember that shopping is a sport, this is its Super Bowl, and retail corporations are better at playing than you.
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The first and last rule of prices is that nobody knows what anything is really worth. Shoppers are guided by shallow clues ("this is cheaper than that") and latent emotions ("it just feels like a good deal") rather than knowledge and deliberate thinking.

The discounts you'll see Friday are equal parts economics and theater co-produced by retail stores and suppliers. A red cardigan sweater on sale for more than 40 percent off looks pretty appealing at $39.99. But 40 percent off of what, exactly? "It was [probably] never meant to sell at its $68," the Wall Street Journal reported in its wonderful investigation of the black magic of Black Friday. The discount game works for everybody: We get our discount dopamine hit, and the stores get their profit.

Smart shopping might be an oxymoron. But smarter shopping? It is, at least, a noble goal. Here are 11 tips from microeconomics, behavioral economics, and social psychology to guide you to successful and as-smart-as-possible Black Friday.

(1) Remember Why It's Called "Black Friday." No, not because it starts at 3 am. It's called Black Friday because it's the beginning of the season when many stores go from being in the red to being in the black. That doesn't sound like much of an economic lesson for you, but that's the point. Black Friday isn't for you. It's for the stores.

The biggest mistake that people make on Black Friday is that they assume that the most popular day of the year to shop is the best day of the year to buy anything. If you're walking into a store at 5 AM Thursday morning, you're expecting floor-kissing prices in every corner. But store-wide discounts aren't in the best interest of the store. It's more common that a few tantalizing items will be sold at a loss to lure shoppers while smart floor design guides them toward more profitable (even full-priced) items. "Black Friday is about cheap stuff at cheap prices, and I mean cheap in every connotation of the word," Dan de Grandpre, a veteran deal expert, told the New York Times.

Stores know you're making this mistake, and they know how to manipulate floor traffic to their higher-margin stuff. As experts in "retail ergonomics" (it's a thing) have shown, counterclockwise traffic flows result in more spending; putting high-margin items at eye-level to the customers' right is most likely to motivate a purchase; and forcing you to walk around a display is an easy way to draw our attention to items the store wants us to throw in the cart.

(2) The Best Deals Aren't This Week (Probably). The two most common reasons for steep discounts are price discrimination and inventory pressure. Price discrimination is the store saying: "Hey you, cheapo, I know you won't buy this steel pot at $50, so we're selling it at $40. Buy it now!" Inventory pressure is the store saying: "You didn't buy our steel pot at $50, or $40, and now it's taking up space and costing us money, so, please, just take it, how about $38?"

It's in the stores' interest to make you think prices will go up after Black Friday. Otherwise, everybody will wait until Saturday. But as inventory piles up, prices will stay low or go lower in early December, as Stephanie Clifford has reported in the New York Times. In general, though, predicting exactly when prices on your single favorite item will be lowest is like trying to buy a plane ticket at its single lowest price. Even our smartest algorithms struggle to do it.

(3) The Full Price Is More Than What's on the ReceiptTo appreciate the net cost of your shopping trip, remember to include the gas you use commuting from mega-sale to mega-sale, the shipping and handling costs, and the warranties and rebates (much more on those later).

We tend to ignore net cost when we shop because we're focused on the bargain story. Shoppers love stories—"This skirt was 80% off, I am a discount ninja!"—because when it comes to prices, nobody knows anything, and stories are all we have. Narratives fill the space where knowledge should be. If you drive 40 minutes to a super-sale and sit in a parking-lot line for another 20 minutes, that's an hour of your time and gasoline. That hour might not be part of the story you tell yourself and your friends later. But those are real costs counting against that magnificent 80% discount you found inside.

(4) Make a List. Check it Twice. Shoppers understand that spending a little money makes it easier to spend a little more money. We get a dopamine rush from buying the perfect thing. But making decision after decision depletes our good judgment. This effect, called decision fatigue, exhausts our ability to resist items that feel cheap at the end of a shopping trip.

Keeping track of how much you've spent sounds like sage advice, especially if you're keeping a budget. But be aware that that number will also frame prices in a negative way. Economist Dan Ariely has called this the "problem of relativity." Imagine you see a fetching $150 chair. But you'll be more likely to buy it after a $500 spending spree than a $5 lunch. Expensive is a relative term.

The best way to overcome decision fatigue and the problem of relativity is to write a list and buy only what's on the list. That way you approach Black Friday not as an exploratory mission into the dark world of discounts and window shopping, but as a pure check-the-boxes trip.

(5) Beware of "Free." Something weird happens to our brains when the price for something goes from $1 to $0.01 to free. We stop thinking clearly. Getting things for free feels like such a good deal that we'll go out of our way to get it. Here's Dan Ariely in his book Predictably Irrational:

"A few years ago, Amazon.com started offering free shipping of orders over a certain amount. Someone who purchased a single book for $16.95 might pay an additional $3.95 for shipping, for instance. But if the customer bought another book, for a total of $31.90, they would get their shipping FREE! Some of the purchasers probably didn't want the second book (and I am talking here from personal experience) but the FREE! shipping was so tempting that to get it, they were willing to pay the cost of the extra book."

Free isn't bad. It's good. It's great. It's free! But we're often so enraptured by free that we overreact, tailoring our purchases around getting to FREE! shipping, or FREE! membership, or FREE! headphones, and wind up spending more in the process. Don't do it. Instead, just buy exactly what you want.

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Derek Thompson is a senior editor at The Atlantic, where he writes about economics, labor markets, and the entertainment business.

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