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Purchasing Patterns, Credit Cards, and Investor Psychology
Yes, What "They" Know CAN Hurt You
“If you show us what you buy, we can tell you who you are, maybe even better than you know yourself.”
This warning comes from the man who pioneered data mining in the credit card industry. Mind you, "warning" is my description of his remark, while to him it was just stating facts -- albeit facts he'd rather keep to himself.
The study of purchasing patterns among credit card users goes back nearly two decades, but insights into the psychology which drives those patterns is more recent: "The exploration into cardholders’ minds hit a breakthrough in 2002," according to a weekend article in The New York Times. An executive at a large Canadian retailer "decided to analyze almost every piece of information his company had collected from credit-card transactions the previous year." This analysis was revealing indeed.
"[He] could often see precisely what cardholders were purchasing, and he discovered that the brands we buy are the windows into our souls — or at least into our willingness to make good on our debts. His data indicated, for instance, that people who bought cheap, generic automotive oil were much more likely to miss a credit-card payment than someone who got the expensive, name-brand stuff. People who bought carbon-monoxide monitors for their homes or those little felt pads that stop chair legs from scratching the floor almost never missed payments. Anyone who purchased a chrome-skull car accessory or a 'Mega Thruster Exhaust System' was pretty likely to miss paying his bill eventually."
Wait, there's more. The data revealed that patrons of a certain Montreal bar missed an average of four credit cards payments during the year, while individuals who purchased premium birdseed paid their bills flawlessly.
If it's true that behavior reveals psychology, then it's more true that collective behavior reveals collective psychology. And once you have enough data to see the patterns for what they are, collective behavior becomes predictable.
Now, my purpose is not to comment on profiling, or on the credit card industry. Instead I hope that you'll see just how true it is that collective behavior is patterned. This truth applies to macroeconomics, politics, fashion and, yes, to financial markets. The same social mood drives them all.
Put another way, "Social mood is the engine of social action." If you understand this, you'll be uniquely equipped to understand today's unfolding financial crisis. It's what allowed Bob Prechter to forecast the crisis years before it happened. His latest analysis and forecasts are in the just-published May issue of
The Elliott Wave Theorist.
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