Dollars and Sense

Just by including the clearly inferior print-only option—which no one chose—the Economist nearly tripled sales of its $125 Web-and-print version. Why? Because that print-only option was a decoy employing relativity to push us toward the combo deal.

How we spend money depends upon how we feel about the money.

People are likely to spend something like their salary on “responsible” things like paying bills, because it feels like “serious money.” On the other hand, money that feels fun—like $300 million in casino winnings—is likely to be spent on fun things,

if we inherit money from a beloved relative, the money feels good and we are ready to spend it. But if we receive it from a source we don’t like—in their experiment, it was the tobacco company Philip Morris—the money feels bad. So, to clean it of the negative feelings, we first spend some of it in positive ways, like buying textbooks or donating to charity,

we’re rewarding good behavior with bad behavior that directly undermines the good. Saving an extra $100 one week is a good start, but celebrating the saving by spending $50 on something we wouldn’t have purchased otherwise—like a dinner or a gift—doesn’t help our overall finances.

Trading $15 for four hours of exhausting work is a bad decision,

depending on the timing of the purchase and the time gap between the purchase and the consumption, we think about the cost very differently.

We think wedding planning should be a mandatory first-date activity: If a couple makes it through that, then they can go see a movie. Otherwise, it won’t work out. We are willing to bet that if starting with wedding plans was the standard courting process, there would be fewer incompatible couples. Marriage is hard! Note: Not all of our ideas are good.

The end of an experience is very important. Think of closing prayers at religious services, dessert at the end of a meal, or goodbye songs at the end of summer camp. Ending on a high note is important because the end of an experience informs and shapes how we reflect back on, remember, and value the entire experience.

We often end vacations on a low note, with things we hate most: paying the hotel bill, shuttles, airports, taxis, suitcases, laundry, alarm clocks, and returning to work. Those ending activities can color how we view the vacation as a whole and paint it in a less positive way.

Avoiding pain is a powerful motivator and a sly enemy: It causes us to take our eyes off value. We make faulty decisions because we’re focused on the pain we experience in the process of buying, rather than the value of the purchase itself.

The fact that we had to invent the helmet. Now why did we invent the helmet? Well, because we were participating in many activities that were cracking our heads. We looked at the situation. We chose not to avoid these activities, but to just make little plastic hats so that we can continue our head-cracking lifestyles.

we can increase or decrease the pain of paying that we feel at any time, for any transaction. But we should do so deliberately, based upon how much we want to enjoy or limit our spending, rather than just letting it increase or decrease without our knowledge or control.

In short, because of the pain of paying, we’re willing to pay more before, less after, and even less during consumption of the very same product. The timing of payment truly matters.

When paying as we go, we may now find it challenging to balance the pain of paying against the pleasure of consumption.

If we pay for something before consuming it, the actual consumption of it feels almost painless

Because if we paid for it on the last day, the last few days of the safari would be filled with thoughts like “Is this worth it?” and “How much am I enjoying this?” By having these thoughts constantly rattling around in our heads, our enjoyment of the entire experience would be vastly diminished.

Dan once brought pizza into his class and charged the students 25 cents per bite. What was the effect? Huge bites. His students, trying to avoid the pain of paying, thought they found a workaround by taking extra-large bites. Of course, they suffered while they ate, with clogged throats and messy faces, so it wasn’t much of a bargain and it certainly wasn’t a pleasure.

we value money in the future less than we value it right now.

credit cards allow us to pay for things in the future (when exactly is our payment due?), they make our financial horizons less clear and our opportunity costs more blurry, and they lessen our current pain of paying.