“If Money Doesn’t Make You Happy, Then You Probably Aren’t Spending it Right”: Part 2

In the earlier posting on this article, we looked at Dunn, Gilbert, and Wilson’s persuasive assertion that “examining the basic scientific facts about happiness” would enable people to significantly increase the happiness their money could bring them. We also looked at the authors’ first three (of eight) principles for doing so: buy experiences rather than things; help others rather than yourself; and buy many small pleasures instead of few large ones.

In this posting, we’ll consider the remaining principles. The fourth one, something of a surprise, is to buy less insurance. The authors note that people have a “psychological immune system,” a resilience and adaptability to changes in circumstance; but in general, we very much underestimate that resilience, imagining ourselves far more vulnerable than research in fact shows us to be. As a result, we buy too much insurance, diverting resources that could bring us a better happiness return. The authors cite extended warrantees inparticular—these are well-known to be significantly overpriced and a poor choice for the consumer—but their argument extends more generally. Ultimately, we’re likely to be happier if we allocate less of our money to insurance.

The next principle cited by Dunn, Gilbert, and Wilson is pay now, consume later. One need scarcely point out that this is the antithesis of our present, credit-card-based economy. But the authors offer two powerful arguments in support of this principle. First, and most obvious, today’s culture of instant gratification encourages overindulgence and leads to trouble: eventually, the piper must be paid, but by the time this realization forces itself upon overspenders, they may be ruinously over their heads. A second and far less obvious argument for pay now, consume later is that it adds the significant pleasure of anticipation to our lives.

The authors’ sixth principle is: think about what you’re not thinking about. Particularly before making an important purchase, Dunn, Gilbert, and Wilson remind us to look at things not only from a hazy, imaginative overview but also in terms of the details. Research shows that we overestimate the happiness that big purchases will bring us. The authors suggest that “consumers who expect a single purchase to have a lasting impact on their happiness might make more realistic predictions if they simply thought about a typical day in their life.”

The seventh principle, not at all intuitive, is: beware of comparison shopping. Recent research suggests that “comparison shopping may distract consumers from attributes of a product that will be important for their happiness, focusing their attention instead on attributes that distinguish the available options.” In short, comparison shopping, with its wealth of possibilities, may lead us to choose products that stand out from their competitors rather than products that will particularly suit us.

The eighth and final principle, also anti-intuitive, is: follow the herd instead of your head. That is, you can probably get a better idea of how happy something will make you by learning what others who’ve acquired it feel about it. The authors generalize from their specific example of choosing a movie. You could access information about the movie from databases—trailers, cast and crew, plot summary, critical reviews—or you could simply check to see what other people in your rough demographic have thought about it. Though most of us feel the first method would give us a better idea about how we’d like the film, the second method turns out to be fully 50% more accurate.

In “If Money Doesn’t Make You Happy, Then You Probably Aren’t Spending It Right,” Dunn, Gilbert, and Wilson offer a sort of mini-course in the economics of happiness. Their eight principles for spending money so as to maximize its hedonic impact—backed solidly by research that the authors cite—fully justify the mildly outrageous title of their article.

By Carrie Rattle

Carrie Rattle is a Principal at BehavioralCents.com, a website for women focused on mind and money behaviors. She has worked in the financial services industry for 20+ years and hopes to inspire women to better prepare themselves for financial independence. Read More