Although not technically a “personal finance” book, Influence: The Psychology of Persuasion by Robert Cialdini should be required reading if they ever create a standardized curriculum for personal finance. In addition to being a professor of psychology, the author was hired into several jobs where sales professionals have carefully honed the ability to use your own psychological tendencies for their benefit:

For nearly three years, then, I combined my experimental studies with a decidedly more entertaining program of systematic immersion into the world of compliance professionals—sales operators, fund-raisers, recruiters, advertisers, and others.

While a NYT Bestseller and on Warren Buffet’s reading list, I put it off as it seemed a little bit stuffy and dry, and besides I’d probably read about all the things discussed already, right? I was wrong! This book contained enough new and valuable information that I plan on making my kids read it as soon as they can. The amount of carefully-targeted marketing being thrown at them is only increasing.

These six psychological principles (mental shortcuts) have been used recently to influence your purchases, donations, and votes. I’ll still do my own brief summary below to help me remember the highlights, and there are many other summaries of the book online, but I recommend reading the entire thing in the original form. The book is older, so there are lots of copies at my library.

1. Reciprocation. If I do a favor for you, then you will feel the urge to repay me by doing me a favor in return. This tendency helps us work together in positive ways, but it can also be exploited.

• Free in-home trials with “no obligation”.
• Free samples at Costco.
• Free custom mailing labels or even a nickel/dime in charity mailer.
• “Free rewards” if you leave an Amazon product review.
• “Free” steak dinners when selling expensive insurance products.
• Upfront sign-up bonuses for trying out a credit card. (Ahem)

As a marketing technique, the free sample has a long and effective history. In most instances, a small amount of the relevant product is provided to potential customers for the stated purpose of allowing them to try it to see if they like it. And certainly this is a legitimate desire of the manufacturer—to expose the public to the qualities of the product. The beauty of the free sample, however, is that it is also a gift and, as such, can engage the reciprocity rule.

The confidential Amway Career Manual then instructs the salesperson to leave the BUG with the customer “for 24, 48, or 72 hours, at no cost or obligation to her. Just tell her you would like her to try the products…. That’s an offer no one can refuse.” At the end of the trial period, the Amway representative returns and picks up orders for those of the products the customer wishes to purchase.

For instance, the Disabled American Veterans organization reports that its simple mail appeal for donations produces a response rate of about 18 percent. But when the mailing also includes an unsolicited gift (gummed, individualized address labels), the success rate nearly doubles to 35 percent.

Defense? Mentally, you must redefine any “trial” or “gift” as a sales device. It is not a gift, and thus you owe them nothing in return. Choose to use a product or service on its own merits only.

2. Consistency. We are strongly wired to be (and to appear) consistent with what we have already done.

If you must leave your laptop in a library or valuables on the beach temporarily, your best bet would be to ask a single person directly “Will you please watch my things?”. Once that person has committed to that responsibility, your stuff becomes pretty safe, as indicated by experiment:

In these incidents, before taking his stroll, the accomplice would simply ask the subject to please “watch my things,” which each of them agreed to do. Now, propelled by the rule for consistency, nineteen of the twenty subjects became virtual vigilantes, running after and stopping the thief, demanding an explanation, and often restraining the thief physically or snatching the radio away.

Once you state something publicly, it becomes very hard for you to back down from it, even if later you realize your statement is wrong and refuted by nearly all evidence. Even worse, small wrong commitments can also open the door to larger wrong commitments. Answering “yes” to something as innocuous as “Are you a spontaneous person?” can get you do later do some stupid and dangerous things. “Why not do [dangerous thing]? You said you were spontaneous!”

What the Freedman and Fraser findings tell us, then, is to be very careful about agreeing to trivial requests. Such an agreement can not only increase our compliance with very similar, much larger requests, it can also make us more willing to perform a variety of larger favors that are only remotely connected to the little one we did earlier. It’s this second, general kind of influence concealed within small commitments that scares me.

Defense? Be very careful before agreeing to anything (even if it is small), especially publicly (like on social media). Don’t let a small commitment automatically lead you to more extreme commitments.

3. Social Proof. We tend to look to and follow the behavior of others, especially if we are unsure and/or they seem similar to us.

• Infomercials will always have someone else come up and show an enthusiastic response.
• During a sales presentation, there will usually be “plants” in an audience with a rehearsed response.
• Immediately after a high-profile suicide, overall suicide rates will rise.

Bartenders often “salt” their tip jars with a few dollar bills at the beginning of the evening to simulate tips left by prior customers and thereby to give the impression that tipping with folding money is proper barroom behavior.

Defense? This shortcut can makes sense at times (Yelp/TripAdvisor/Amazon reviews), but be aware that sometimes it may be artificially generated. Also, be aware of how this tendency will affect others around you:

I have been sufficiently affected by these statistics to begin to take note of front-page suicide stories and to change my behavior in the period after their appearance. I try to be especially cautious behind the wheel of my car. I am reluctant to take extended trips requiring a lot of air travel.

4. Liking. We tend to say “yes” to people we like. We tend to like physically attractive people, as well as people that appear similar and familiar to ourselves, even though those factors may have nothing to do with why you should vote for them or buy a car from them.

The clearest illustration I know of the professional exploitation of the liking rule is the Tupperware party, which I consider the quintessential American compliance setting. Anybody familiar with the workings of a Tupperware party will recognize the use of the various weapons of influence we have examined so far: reciprocity (to start, games are played and prizes won by the partygoers; anyone who doesn’t win a prize gets to reach into a grab bag for hers so that everyone has received a gift before the buying begins), commitment (each participant is urged to describe publicly the uses and benefits she has found in the Tupperware she already owns), and social proof (once the buying begins, each purchase builds the idea that other, similar people want the product; therefore, it must be good).

Defense? Acknowledge this tendency, and try to focus solely on the merits of the situation.

5. Authority. We tend to follow symbols of authority as a mental shortcut, for example titles, uniforms, business suits, and celebrities. The problem is we do this even in situations where it shouldn’t be applicable. Why should an athlete tell me what life insurance to buy? Think of the many instances of abuse and harassment performed by people in positions of authority.

Planes have crashed because the junior pilot didn’t want to question the senior pilot. In one study, nurses were convinced to administer a lethal dose of a drug by an unknown stranger that simply firmly and urgently claimed to be a doctor over the phone.

There were four excellent reasons for a nurse’s caution in response to this order: (1) The prescription was transmitted by phone, in direct violation of hospital policy. (2) The medication itself was unauthorized; Astrogen had not been cleared for use nor placed on the ward stock list. (3) The prescribed dosage was obviously and dangerously excessive. The medication containers clearly stated that the “maximum daily dose” was only ten milligrams, half of what had been ordered. (4) The directive was given by a man the nurse had never met, seen, or even talked with before on the phone. Yet, in 95 percent of the instances, the nurses went straightaway to the ward medicine cabinet, where they secured the ordered dosage of Astrogen and started for the patient’s room to administer it. It was at this point that they were stopped by a secret observer, who revealed the nature of the experiment.

Defense? Don’t shortcut your own thinking and power by allowing the authority figure to take over. Question authority. Sometimes, it is your duty to be a safety check and protect others.

6. Scarcity. Simply being scarce makes something more desirable. This may also be linked to loss aversion – we hate losing something more than we like gaining something. “While supplies last.” “Limited-time offer.” No matter what time you land on the website, the sale will always be “ending in only 23:54 hours!”

For similar reasons, department stores holding a bargain sale toss out a few especially good deals on prominently advertised items called loss leaders. If the bait, of either form, has done its job, a large and eager crowd forms to snap it up. Soon, in the rush to score, the group becomes agitated, nearly blinded, by the adversarial nature of the situation. Humans and fish alike lose perspective on what they want and begin striking at whatever is being contested.

Defense? Question the actual amount of scarcity, especially in high-pressure environments like a live auction, Black Friday, or car sales department. Buy now or lose it forever? In reality, another train may arrive shortly.

Final thoughts. An important point in the book is that these tactics won’t always work, but they will alter the odds of success. The tactics will often be used in combination with each other for added strength. Finally, we are more likely to fall back on these mental shortcuts without thinking when we are stressed, rushed, tired, or hungry. Hopefully, the ability to identify these tactics in action will help us avoid making poor decisions, including financial ones.

Financial independence means freedom with your time, as you no longer need to spend it working for money. But the ultimate goal is really satisfaction and happiness in our lives. What do we need to get there? Are humans happier now than when we were foragers or subsistence farmers? The bestselling book Sapiens: A Brief History of Humankind by Yuval Noah Harari weaves together various facts but also adds his own interpretations, resulting in an interesting story of how the human species has evolved from 100,000 years ago until today. There are three major events: the Cognitive Revolution, the Agricultural Revolution, and the Scientific Revolutions. Here are my notes.

The power of cooperation. As Scott Galloway says often, the superpower of the human species is cooperation. We are different from other animals because we are able to work together across a large number of individuals, families, and groups. Bees cooperate, but only between other bees from the same hive. Being able to maintain mutual trust between complete strangers is special. Without it, we wouldn’t have trade, art, science, medicine, corporations, and so on.

Population growth. This cooperation also helped humans take control over their environment through their immense population growth. When we were all foraging for food in small tight-knit groups, we needed a ton of space and our population size was self-limiting. We had to make some big changes in order to create this level of population density. An important observation is that we had to change how we lived in order to support our current population. We can’t go back to foraging, and we can’t go back to all farming all of our own food.

But are we actually any happier? A human forager probably worked less hours per day on average than the modern US citizen. On the other hand, infant mortality was incredibly high and what we consider a minor injury today could quickly lead to death. If a medieval worker couldn’t pay back their debts, they or their children would be sold into servitude. Today, we have low infant mortality and no debtor’s prisons, but we still find ourselves “busy” as ever and filled with anxiety about the future.

The book contains many insights into the psychology of happiness that have been pointed out elsewhere, but it is interesting to view it from the perspective of a nomadic forager (30,000 years ago), a peasant farmer, or early factory worker.

Hedonic treadmill. This quote hits close to home for many seeking financial independence:

It happens to us today. How many young college graduates have taken demanding jobs in high-powered firms, vowing that they will work hard to earn money that will enable them to retire and pursue their real interests when they are thirty-five? […] But by the time they reach that age, they have large mortgages, children to school, houses in the suburbs that necessitate at least two cars per family, and a sense that life is not worth living without really good wine and expensive holidays abroad.

We thought we were saving time; instead we revved up the treadmill of life to ten times its former speed and made our days more anxious and agitated.

Money and happiness. More money does makes you happier, but only up to a certain point where you are safely out of poverty (roughly $75k a year in the US).

One interesting conclusion is that money does indeed bring happiness. […] But only up to a point, and beyond that point it has little significance.

Health and happiness. We actually get used to most physical disabilities.

Another interesting finding is that illness decreases happiness in the short term, but is a source of long-term distress only if a person’s condition is constantly deteriorating or if the disease involves on-going and debilitating pain. […] People who are diagnosed with chronic illness such as diabetes are usually depressed for a while, but if the illness does not get worse they adjust to their new condition and rate their happiness as highly as healthy people do.

Relationships and happiness. Good interpersonal relationships make you happier.

Family and community seem to have more impact on our happiness than money and health. […] An impecunious invalid surrounded by a loving spouse, a devoted family and a warm community may well feel better than an alienated billionaire, provided that the invalid’s poverty is not too severe and that his illness is not degenerative or painful.

Pleasure vs. meaning. Meaning makes you happier.

Another [option] is that the findings demonstrate that happiness is not the surplus of pleasant over unpleasant moments. Rather, happiness consists in seeing one’s life in its entirety as meaningful and worthwhile. […]

A meaningful life can be extremely satisfying even in the midst of hardship, whereas a meaningless life is a terrible ordeal no matter how comfortable it is.

Happiness = Reality – Expectations. Keeping your expectations modest makes you happier. A peasant farmer rarely bathed, but that was their expectation and it is unlikely they dreamt of hot showers and fruit-scented shampoo.

Prophets, poets and philosophers realised thousands of years ago that being satisfied with what you already have is far more important than getting more of what you want. […] Still, it’s nice when modern research – bolstered by lots of numbers and charts – reaches the same conclusions the ancients did.

Mass media raises your expectations, and thus lowers your happiness. Consuming less advertising and unrealistic social media makes you happier.

If happiness is determined by expectations, then two pillars of our society – mass media and the advertising industry – may unwittingly be depleting the globe’s reservoirs of contentment.

Nature vs. nurture. How much of happiness is genetic (as opposed to environmental)? Accept that at least part of it is genetic, but not all of it. We each seem to have a “thermostat set point” for happiness that can change, but we tend to go back our set point.

Unfortunately for all hopes of creating heaven on earth, our internal biochemical system seems to be programmed to keep happiness levels relatively constant.

Evolution does not seem to have optimized humans for happiness. Perhaps we need to be a bit dissatisfied to keep reproducing. However, by understanding our natural tendencies, we can work with and/or around them to create a more content life. We need to find “enough” in terms of consumption, focus on participating in meaningful activities, and maintain good personal relationships. Financial independence isn’t necessary for any of these items, but it can allow you more to time to develop it. Finally, the book warns that given our burgeoning ability to tinker with genetics, the near future may be much different.