Dollars and Sense

Our hope is that the future of money will not just be about reducing the pain of paying, but that it will also offer us the opportunity to choose more deliberative, thoughtful, and painful payment methods.

Free is a strange price, and yes, it is a price. When something is free, we tend not to apply a cost-benefit analysis to it. That is, we choose something free over something that’s not, and that may not always be the best choice.

There is useful research that suggests that people consume more when everyone knows that the bill will be split, taking some advantage of their unsuspecting dinner partners,

Taking the pain of paying into account, the recommended method for splitting the bill with friends is credit card roulette. When the server drops off the check at the end of a meal, every one puts down their credit card. The server picks one, and that one person pays the entire bill. A similar, less luck-reliant version of the same thing is to have payment rotate among friends.

We do not feel four times more distraught if we pay for ourselves and three friends. In fact, we feel significantly less than four times as badly.

We should also consider the increased collective pleasure from rotating the bill, because our friends get a good feeling when we pay for them, and we, too, feel good about treating our friends to something special.

But even if we end up paying a bit more in the long run for engaging in this practice, we are likely to experience less pain of paying and have more fun dining out.

In other words, the listing price changed how everyone valued the property, but most of them had absolutely no idea it was happening.

ANCHORING occurs when we are drawn to a conclusion by something that should not have any relevance to our decision. It is when we let irrelevant information pollute the decision-making process.

According to the law of supply and demand, when we set our reservation price we should consider only what the item is worth to us, and our other spending options.

when we don’t know the value of something—how many dollars for a house, how many CD changers for a sunroof, how many African nations in the UN—we’re especially susceptible to suggestion, be it from random numbers, intentional manipulation, or the foolishness of our own minds.

can’t just be wrong, either, because we’re brilliant. We certainly never willingly admit that we’re wrong, to ourselves or anyone. Ask anyone who’s been in any kind of relationship: Is it easy to admit being wrong? Noooooo. It’s one of the hardest things in the world.

Self-herding is the same fundamental idea as herding, except that we base our decisions not on those of other people, but on similar decisions we ourselves have made in the past. We assume something has high value because we valued it highly before.

because we trust ourselves with our own behaviors. We remember that we’ve made a specific value decision over and over, so, without spending the time and energy to evaluate that decision over and over, we assume it was a good one.

Herding is the idea that we will go with the crowd, that we assume something is good or bad based upon other people’s behavior

Confirmation bias pops its head up when we interpret new information in a way that confirms our own preconceptions and expectations.

When we’ve made a particular financial decision in the past, we tend to assume that we made the best decision possible. We look for data that supports our opinion, feeling even better about the quality of our decision.

They say we only get one chance to make a first impression. This may be just as true with our financial decisions as with relationships.

Think about sitting at a fancy restaurant looking at a well-designed menu. What do we see first? The luxurious lobster and truffle-encrusted, grass-fed, hand-massaged Kobe beef delight for $125. That’s not what we want, or what we get, but it serves to anchor our perspective on the value of other items on the menu, and to make everything else seem affordable by comparison.

When Steve Jobs introduced the iPad, no one had ever seen such a thing. He put the figure “$999” on the screen and told everyone that all the experts had said it should cost $999. He talked for a while longer, keeping that price up there, then finally revealed an iPad price of . . . $499! Woo-hoo! What a great value! Heads exploding! Children weeping with joy! Electronic pandemonium!