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The Economics of Black Friday

Calling all shoppers! The time is nigh for your most awaited day of the year...Black Friday! Black Friday refers to the biggest shopping event of the year where retailers start to open stores very early the Friday after Thanksgiving (and in recent years stores, open even earlier!). During this time, prices of pretty much everything are so low that people go crazy over these huge sales. Such an odd name for an event, you might say? Well, some say the Black Friday refers to when retailers are “in the black”, meaning they become profitable as opposed to being “in the red,” i.e. losses. Long before the term was used this way, though, the name Black Friday was coined by overworked and stressed Philadelphia police officers to refer to the hordes of shoppers and visitors that visit the city. The city also hosted the Army-Navy football game that same weekend of Thanksgiving which attracted multitudes of fans as well as shoppers alike. The day after Thanksgiving, according to the Philly police, was then called the dreaded Black Friday.

Some things never change, including our universal love for deals. 1968 Philadelphia.

Economists, however, use Black Friday sales as a way to measure economic health, specifically consumer confidence. Because retail sales is the best manifestation of consumer confidence in the economy, the best way to observe this is during the biggest sale event of the year. This is more important in recent years, especially after the pandemic and in our current period of high inflation.

But why the obsession with sales, and how did Black Friday evolve to the event of crazy mayhem that it is known for today? Apparently, the answer is in the intersection between psychology and economics.

Black Friday sales can be mostly explained by the concept of loss aversion, which is the human tendency to prefer avoiding losses even if there is an equivalent gain possible. A more specific form is more popularly known as “Fear of Missing Out”, or FOMO. In other words, people would rather brave these sales because they don’t want to miss out on what could be a good deal. By offering short-term sales that are only available for a limited time, this fear is intensified. Additionally, offering doorbuster and Black Friday specials further magnify this fear.

Black Friday also tends to bring out our instinct to overbuy. Think about the sheer number of TVs sold on Black Friday! Behavioral economists call it the restraint bias: a human tendency to overestimate our ability to show restraint in the face of what we think is a good bargain, even if we really don’t need those things. Yep, the impulse to buy overtakes our self control.

We can’t get enough of these LCD Tvs. How many do we actually need?

Advertisements, marketing and social media posts feed this frenzy even further. This is explained by the framing effect. Weeks before the big event, we are constantly exposed to ads that show the biggest deals and as we move closer to Black Friday these continue to ramp up.

So what can we do to avoid the alluring trap that is Black Friday? Some suggest making a list of only the things you need to buy this season, keeping your credit cards tucked away and out of sight, and taking a break from the chaos and the constant stream of advertisements. All easier said than done, right? So savor that pumpkin pie for Thanksgiving, and go see a good movie. After all, Cyber Monday is just a few days away.

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