You may be familiar with Predictably Irrational, a best-selling book by a professor in behavorial economics that challenges the idea that humans behave rationally. In fact, says author Dan Ariely, humans are predictably irrational in many ways that may surprise you. I recently learned about his new book, The Upside of Irrationality, in this Yahoo article by Laura Rowley, which according to the description “exposes the surprising negative and positive effects irrationality can have on our lives.”
One of the more intriguing topics Ariely explores is the idea of hedonic adaption, also known as the hedonic treadmill. From Wikipedia:
Humans rapidly adapt to their current situation, becoming habituated to the good or the bad. We are more sensitive to our relative status: both that which we recently have and that which we perceive others to enjoy.
When things are awesome, we eventually get used to it (celebrities, lottery winners). When things are really awful, we get used to that as well (severely injured). This is why it’s hard for people to achieve a constantly higher level of happiness. We get a nicer car/house/toy, we get used it, and then soon we just want an even nicer car/house/toy, never getting anywhere as if we are walking on a treadmill.
So how does this relate to money and personal finance?
Stay Happy By Slowing Down Pleasure
Considering that we only experience transient pleasure with many improvements in our lives, we should take care and indulge very gradually. Savor each slight improvement! A good quote from Ariely:
Imagine a new college graduate, finally earning an income and eagerly anticipating a beautifully furnished apartment after years of dorm living. “The lesson here is to slow down pleasure,” Ariely writes. “A new couch may please you for a couple of months, but don’t buy your new television until the thrill of the couch has worn off.”
When Slashing Expenses, Make Big Cuts
On the other hand, we should take full advantage of our adaptability by cutting back as much as possible all at once when we have to. Don’t slow down the pain and drag it out with constant reminders.
“It will be really painful for a few months but you’ll get used to it,” says Ariely. “It might be good to cut down too much — and then increase back.” By contrast, making small lifestyle adjustments every month requires readapting over and over and prolongs the pain. (By the same token, it may be better to reduce a major expense in one fell swoop, such as moving to a smaller apartment, than to face the daily downer of skipping your favorite gourmet coffee, Ariely suggests.)
I think the apartment idea is very good application of this theory, and look forward to reading the rest of this book.
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This makes me think of an old Calvin and Hobbes strip where the family goes on their yearly miserable camping excursion. The father remarks that their week long “vacation” make the rest of the year seem like a real vacation in comparison.
This would be a lesson that parents would do well to understand. If you give your child everything they want when they are young, then they’ll never be satisfied. It’s better to start the bar low, so that you are able to slowly raise it throughout their childhood without it ever getting too high for you to manage. I believe children generally deal better with change than adults do, but intense cutting back can be harder for them than it is for adults since their long term perspective is less developed.
who buys a couch before a TV? I would not have guessed from that excerpt that the book was written by a guy!
I’ve been upgrading my beer a little bit recently, does that count? 🙂
Sure beer counts but it’s so cheap why not get the ‘expensive’ stuff and enjoy it? There are so many different kinds all for the same price there is no reason to try to start at keystone and move up through Budweiser to New Belgium (or better yet the real Belgians like Chimay) 😉
I figured out this principle out on my own… that’s why I bought a Corvette before the Viper!
Cheers!
you can cut back in a smart way and still enjoy lifes pleasures
This is sort of a self-directed take on Machiavelli’s advice to the prince. If I recall correctly, Machiavelli gives the prince the following advice on how to deal with his subjects. When dolling out punishments or taxes or other such negative things, Machiavelli tells him to do it all at once. Make them swallow one, big pill, as it were, and be done with it. Their sadness passes with time. But when giving out rewards or congratulations or the like, the prince should spread them out as much as possible, so that the subjects are constantly pleased with him by successive benefits arriving just as the memory of old ones wears out.
Funny – I just returned from a fourth of July weekend backpacking trip and I’m sooo happy. I’ve got a hot water shower, clean clothes, a flush toilet and I don’t have to carry the backpack anymore.
The key is making the change once we are prepared to stick with it… it’s like with diets. People who try to cut all their unhealthy habits at once don’t have lasting results, whilst changing and letting yourself time to adapt to that change and live with it, might make it a longer lasting effort. The same applies for finance and, as long as we have the ability to adapt, we’ll make it!!!