It happens to everybody, to some extent. You circle that 80-inch flat-panel television in the Best Buy catalogue, set a goal and save your money. And then you actually get there and buy the bleeding thing. A few months later you look at the wall and wonder why you ever thought that hunk of plastic was worth a month’s salary.
Here’s why: Consider the idea that the person you are when you feel guilty is not the same as the person you were when you initially made this purchase. This is a deep idea in psychology that has been around for quite a while: our present and future selves are almost like two separate people, with distinct motivations and desires, and different notions of what makes us happy versus guilty.
Nobel prize winning psychologist Daniel Kahneman distinguishes between two types of well-being corresponding to our two selves. There is our experienced well-being, the sum of subjective feelings of happiness and emotions felt in each passing moment. And then there is evaluated well-being, the amount of happiness you remember when you look back upon a specific period of time.
When you are spending money on something you really want, you are thinking about the purchase from the point of view of your experiencing self — how much it hurts to fork over your hard-earned cash and perhaps the anticipated pleasure of the thing you’re buying. Later, you might look back on this purchase and feel good about it or you might feel guilty, but you do so from the viewpoint of your evaluative self, which psychologists know is rife with hidden biases. For instance, your evaluative memory tends to pay special attention to the last moment of a given experience as well as the most intense moment.
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It largely ignores the rest of the experience. This is called the peak-end rule, and it’s why we tend to forget that one bad meal at a resort but remember our last night at the swim-up bar (well, parts of it anyway). It can also lead to some bizarre, counter-productive choices. For example, your evaluation of the purchase of a new TV will be skewed by things that stand out in your memory (e.g. that one time your TV shut down during the Superbowl), and by things that happened very recently (e.g. your neighbor just bought a bigger, better TV for half the price). You will tend to ignore all the countless hours of enjoyment you got out of the purchase in-between.
Another possibility is that you are simply wrong about what you “want,” and your future guilt is a signal that you could be spending your money more wisely. Recent psychological research offers a few lessons for how money really can buy more happiness, if you spend it on the right things. Mike Norton from Harvard Business School and Liz Dunn from the University of British Columbia found that people spend too much of their discretionary income on tangible “things” and not enough on experiences. People who spend more money on experiences tend to be happier and feel less regret in the long-run. In the same vein, Ashley Whillans, also at the University of British Columbia, has a series of studies showing that people would be happier if they used their money to buy more time. Simply put, most people don’t outsource enough, even when they have the discretionary income to do so. That includes getting your groceries delivered to your door for an extra 10% fee or paying someone to clean your gutter instead of spending your Saturday afternoon doing it yourself. Unless you really like that kind of thing.
Colin West is one of three resident Behavioural Economists working at Evree. He’s also a PhD candidate at UCLA Anderson School of Management. Got a sticky life + money situation and don’t know where to turn? Just ask us! We’d love to help. Send your questions to [email protected]
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