I have “a friend” who will head over to a coffee shop to get work done. Not because she’s unable to work at her desk or because she needs the presence of other people, but rather because it lets her get away from the Internet and all its distractions.

True, she could easily stay put by just keeping her browser closed. But that requires self-control, and as we all know, keeping ourselves in check is easier said than done. Whatever the resolution (start dieting, start saving, stop procrastinating, etc.) we routinely stick to it for a bit and then cave. We make the resolution in one state of mind – a cool, rational state – and then break it when temptation strikes.

That’s the reason for my friend’s coffeeshop strategy: precommitments allow us to commit upfront to our preferred course of action. In her cool, rational state, my friend can decide not to surf the web and make a point to leave the wireless behind; later, when temptation strikes, she’ll be out of luck. Access denied.

On the whole, I like my friend’s strategy. But there’s a potential problem: what if she needs the Internet to do her work? What then?

Not to worry – there’s an app to the rescue: SelfControl, a free Mac-only software program that blocks access to incoming/outgoing mail servers and websites and was thought up by artist Steve Lambert. (As the son of an ex-monk and an ex-nun, he’s well-versed in self-control.) The app only takes seconds to install and comes with all the flexibility that my friend’s coffeeshop strategy lacks.

Instead of taking leave of the Internet all-together, you can pick and choose what you can and can’t access, and for how long. If Facebook is your particular time-suck, then add its URL to SelfControl’s blacklist and the program will block Facebook and nothing else. If Twitter is another danger zone, then by all means, throw its URL into the mix. Next, figure out how long you want to block them for – anywhere from one minute to twelve hours – and move the slider accordingly. Then press start and you’re good to go.

But here’s the key part: once you click start, there’s no going back. (No wonder the app has a skull and crossbones symbol as its icon.) Switching browsers won’t help you, and neither will restarting your computer or even deleting the app. You won’t get those websites back until the timer runs out. As such, it’s as effective of a precommitment as seeking out a wireless-free zone.

Though temptation routinely deflects us from our long-term goals, our struggle with self-control isn’t a lost cause. Once we realize and admit our weakness, we can do something about it by taking on clever precommitments that save us from ourselves. In an ideal world we wouldn’t need the SelfControl app, but in this world it sure is useful.

Irrationally Yours,

Dan

P.S. For more on precommitments, check out this post on self-control and sex.

A few months ago I posted four short stories that undergraduate students in my class wrote.

In response to these stories, some readers proposed their own short stories, and today I am posting the fist of these:

Here is “Five Sundays,” By Jamey Stegmaier

We have lots of discussions about how to get people to save more, which is clearly important.

But today I want to ask a question about spending money: Assume you had $20,000 to spend (and that you could not save it), what would be the ideal way to spend it?  In other words, what would be the way to spend this sum if your goal was to get the most joy and happiness out of this amount?

I am not asking because I have an answer, or even an idea of how to do research on this — I am asking because I really don’t know.

So — any input will be welcomed…

Irrationally yours

Dan

A few days ago we looked at some telling search suggestions by Google when it came to what boyfriends and girlfriends searched for in their relationships. On the heels of this insight, I wanted to see what changes when we get older and get married…:

What we find, both sides seem to care more about love, but in general the it seems that not much has changed since the days of dating for married couples. According to Google, these gender differences that we found earlier tend to persist…

For a very elegant tool that lets you play with such searches, see:  http://hint.fm/seer/

What do Williams Gehris, America’s most decorated war hero, and Walter Williams, our last Civil War veteran to pass away, have in common?

Both were frauds: they spun tales of military heroism, duped the public, and then – whoops – someone discovered that they hadn’t actually achieved the purported feats. Gehris professed to have racked up 54 decorations, when really he just had one. And Williams claimed to have fought in the Civil War, but records prove he couldn’t have – he was only five at the time!

I came across these and other military fish tales in the article “Fake War Stories Exposed,” in which Anne Morse covers frauds from all walks of life (journalists, actors, politicians, clergymen) who had all kinds of motives (money, glory, self-esteem). That so many “veterans” could pull the wool over our eyes is remarkable, but what’s even more striking is that many of them seem to have convinced even themselves.

Take for example our decorated war hero from above, Williams Gehris: when a reporter confronted him about his lies, Gehris responded with the incredible “There are people who don’t believe 6 million Jews were killed, either.”

Or how about former military chaplain and purported Vietnam veteran Gary Probst? Morse writes that when Probst was confronted about his lies, he “claimed he’d lied for the Lord: His phony heroics, he explained, allowed him to gain the trust of his flock – which made his fibs a good and helpful thing.”

And then there’s my personal favorite, former Connecticut state representative (and yet another Vietnam faker) Robert Sorensen, who came up with this exquisite response to the disclosure: “For the first time ever, the American public had before them a war in their living rooms… Every single person in this United States fought in that war in Vietnam. We all felt the anguish that those people felt. So in a sense I was there.”

It’s possible, of course, that these conmen fully realized all along what they were doing and they only gave their feeble excuses out of a last-ditch effort to save themselves. But given what we know about the power of the mind to self-deceive – how it can rationalize anything and rework all kinds of memories – I suspect that many of these men had actually come to view their fibs as truth.

Maybe Lenin was correct when he said:  “A lie told often enough becomes the truth.”

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One of our readers, Ms. Justine Chiu, has sent me two fantastic pictures of her Predictably Irrational outfit. If anybody else has fun ideas for how to dress Irrationally, please email them to me and I’ll put some more pictures up on my blog.

You know how Google sometimes “predicts” what you might be searching for by giving you a little drop down menu of suggested search queries? These suggestions, of course, are based on what other users frequently search. So I tried teasing out some gender differences. Look at the pictures below.

This shows Google’s remarkable power as a source of data on a range of human behaviors, emotions, and opinions. It gives us insights into what people might care the most about concerning a given topic. When people search a particular political leader, what are their main concerns? What are people secretly guilty about? For better or for worse, Google’s obsession with collecting and refining data has given us a window into each other’s fascinating and telling curiosities.

A few weeks ago Reebok unveiled a walking shoe purported to tone muscles to a greater extent than your average sneaker. All you had to do was slip on a pair of EasyTone and the rest would take care of itself.

Exercise without exercise? Great!

Considering the abracadabra-like quality of the shoe, it’s no surprise that it’s been selling like hotcakes. The question of course is “ does it work”?

According to a recent New York Times article on the topic, Reebok has accumulated “15,000 hours’ worth of wear-test data from shoe users who say they notice the difference.” (The company also quotes a study as support, but it’s one they commissioned themselves and only carries a sample size of five.) The two women quoted in the article further echo this sentiment.

Reebok’s head of advanced innovation (and EasyTone mastermind), Bill McInnis, says the shoe works because it offers the kind of imbalance that you get with stability balls at the gym. Unlike other sneakers, which are made flat with comfort in mind, the EasyTone is purposely outfitted with air-filled toe-and-heal “balance pods” in order to simulate the muscle engagement required to walk through sand. With every step, air shifts from one pod to the other, causing the person’s foot to sink and forcing their leg and backside muscles into a workout.

But as the Times article proposes at the end (without explicitly using the term), the shoe’s success could instead come from the placebo effect. Thanks to Reebok’s marketing efforts, buyers pick up the shoes already convinced of their success, a mind frame that may then cause them to walk faster or harder or longer, thereby producing the expected workout – just not for the expected reason.

And there are some reasons to suspect this kind of placebo effect:  In a paper by Alia Crum and Ellen Langer. Titled “Mind-Set Matters: Exercise and the Placebo Effect.” In their research they told some maids working in hotels that the work they do (cleaning hotel rooms) is good exercise and satisfies the Surgeon General’s recommendations for an active lifestyle. Other maids were not given this information. 4 weeks later, the informed group perceived themselves to be getting significantly more exercise than before, their weight was lower and they even showed a decrease in blood pressure, body fat, waist-to-hip ratio, and body mass index.

So, maybe exercise affects health are part placebo?

Irrationally Yours

Dan

P.S. If you’ve had the opportunity to try the shoe, leave a comment and let us know what you thought.

According to a recent SmartMoney article, as many as 48% of U.S. dentists have seen their profits plummet thanks to the recession.

In and of itself, this isn’t a particularly remarkable statistic – after all, most of our wallets have taken a hit this past year – but what follows is an interesting discussion:  how are dentists coping with this drop in income? Angie C. Marek reports a variety of tactics in her article (including lowered rates, freebies, eliminated IOUs, etc.), most of which benefit the patient – but they don’t all. Rather, some dentists are softening the financial blow by upselling and overtreating patients.

One example is a woman who, upon switching cities and dentists, was surprised to learn that her hitherto problem-free mouth was suddenly a danger zone: several cavities required coatings, and two veneers needed replacement. Or so her dentist told her. In fact, though, this turned out to be just another case of overtreatment.

The problem here is conflicts of interests (COIs).  These are instances when professionals are pulled in two directions, torn between personal gain and the good of the patient. And the sad news is that when faced with COIs dentists (or physicians or cardiologists or other MD) often ends up going the self-interest route, and this can have undesirable consequences for the patient.

Not just a product of the recession, COIs have been a problem for some time now, and are actually very pervasive; you’ll find them everywhere in medicine. There’s the doctor who at once accepts consulting fees from a drug company and studies their drug, and the doctor who prescribes what a drug rep pushed on him the week before over a free lunch, and even the doctor who urges a treatment on a patient mostly so that he can use his costly new medical equipment.

But this isn’t to say that these are dishonorable people who only see dollar signs and say to hell with the patient. Rather, COIs can deeply color the person’s perception, and thereby end up influencing even the most upstanding citizens astray, and this happens often.

So, next time you are at the dentist – think about your dentist’s conflicts of interests.

Would you pay $76 for a shot glass? What about $52 for an oven mitt? And $50 for a jar of marbles?

You may shake your head and say no way, but in a recent series of eBay auctions, the consumers did just that: they shelled out considerable cash for objects that to all appearances should never have fetched more than a couple bucks.

So what made the difference? Each item came with a unique tale.

The auctions were part of the Significant Objects Project, an experiment designed to test the hypothesis that “narrative transforms the insignificant into the significant.” Or, put differently, the goal was to determine whether you could take an object worth very little and make it worth much more by giving it a story, by endowing it with meaning.

To that end, the project’s originators – NY Times columnist Rob Walker and author Josh Glenn – bought up 100 unremarkable garage sale knickknacks for no more than a few dollars each, and then had volunteer writers whip up fictional back stories for them. This, they thought, would up the trinkets’ objective value.

They were right. Whereas the objects had cost Walker and Glenn a total of $128.74 to buy, the same trinkets netted a whopping $3,612.51 on eBay when paired with stories. This Russian figurine, for example, came with the original price tag of $3 but sold for $193.50. And this kitschy toy horse made the leap from $1 to $104.50. (See also:$76 shot glass, $52 oven mitt, $50 jar of marbles)

The results may seem surprising, but this is actually something we see all the time. It’s the basic idea behind the endowment effect, the theory that once we own something, its value increases in our eyes. (In one study, Kahneman, Knetsch and Thaler (1990) randomly divvyed up participants into mug owners and buyers, and found that whereas owners requested around $7 for their mugs, the buyers would only pay an average of $3.)

But ownership isn’t the only way to endow an object or service with meaning. You can also create value by investing time and effort into something (hence why we cherish those scraggly scarves we knit ourselves) or by knowing that someone else has (gifts fall under this category).

And then there’s the power of stories: spend a fantastic weekend somewhere, and no matter what you bring back – whether it’s an upper-case souvenir or a shell off the beach – you’ll value it immensely, simply because of its associations. This explains the findings of the Significant Objects Project, and also how other things like branding works

Irrationally yours

Dan

Here it is again: holiday gift-giving season – the best win-win of the year for some, and a time to regret having so many relatives for other

Whatever your gift philosophy, you may be thinking that you would be happier if you could just spend the money on yourself – but according to a three-part study by Elizabeth Dunn, Lara Aknin, and Michael Norton, givers can get more happiness than people who send the money on themselves.

Liz, Lara and Mike approached the study from the perspective that happiness is less dependent on stable circumstances (income) and more on the day-to-day activities in which a person chooses to engage (gift-giving vs. personal purchases).

To that end, they surveyed a representative sample of 632 Americans on their spending choices and happiness levels and found that while the amount of personal spending (bills included) was unrelated to reported happiness, prosocial spending was associated with significantly higher happiness.

Next, they took a longitudinal approach to the topic: they gave out work bonuses to employees at a company and later checked who was happier – those who spent the money on themselves, or those who put it toward gifts or charity. Again they found that prosocial spending was the only significant predictor of happiness.

But because correlation doesn’t imply causation, they next took one more, experimental, look at the topic. Here, they randomly assigned participants to “you must spend the money on other people” and “spend the money on yourself” conditions — and gave them either $5 or $20 to spend by the day’s end. They then had participants rate their happiness levels both before and just after the experiment.

The results here were once more in favor of prosocial spending: though the amount of money  ($5 vs $20) played no significant role on happiness, the type of spending did.

Surprised by the outcome? You’re not the only one: the researchers later asked other participants to predict the results and learned that 63% of them mistakenly thought that personal spending would bring more job than prosocial purchases.

Happy holidays

Dan

The New York Times Magazine publishes once a year the “years in ideas.”

This is the third year in a row that they are picking one of my papers, which is very nice of them.

It is also particularity nice of them that this year they picked two papers I am a part of.

One of the papers they picked this year is: The Counterfeit Self

Her is their report:
Wearing imitation designer clothing or accessories can fool others — but no matter how convincing the knockoff, you never, of course, fool yourself. It’s a small but undeniable act of duplicity. Which led a trio of researchers to suspect that wearing counterfeits might quietly take a psychological toll on the wearer.

To test their hunch, the psychologists Francesca Gino, Michael Norton and Dan Ariely asked two groups of young women to wear sunglasses taken from a box labeled either “authentic” or “counterfeit.” (In truth, all the eyewear was authentic, donated by a brand-name designer interested in curtailing counterfeiting.) Then the researchers put the participants in situations in which it was both easy and tempting to cheat.

In one situation, which was ostensibly part of a product evaluation, the women wore the shades while answering a set of very simple math problems — under heavy time pressure.

Afterward, given ample time to check their work, they reported how many problems they were able to answer correctly. They had been told they’d be paid for each answer they reported getting right, thus creating an incentive to inflate their scores. Unbeknown to the participants, the researchers knew each person’s actual score. Math performance was the same for the two groups — but whereas 30 percent of those in the “authentic” condition inflated their scores, a whopping 71 percent of the counterfeit-wearing participants did so.
Why did this happen? As Gino puts it, “When one feels like a fake, he or she is likely to behave like a fake.” It was notable that the participants were oblivious to this and other similar effects the researchers discovered: the psychological costs of cheap knockoffs are hidden. The study is currently in press at the journal Psychological Science.

Could other types of fakery also lead to ethical lapses? “It’s a fascinating research question,” says Gino, who studies organizational behavior at the University of North Carolina. “There are lots of situations on the job where we’re not true to ourselves, and we might not realize there might be unintended consequences.”

The second paper they picked this year is: The Drunken Ultimatum

Her is their report:

The so-called ultimatum game contains a world of psychological and economic mysteries. In a laboratory setting, one person is given an allotment of money (say, $100) and instructed to offer a second person a portion. If the second player says yes to the offer, both keep the cash. If the second player says no, both walk away with nothing.

The rational move in any single game is for the second person to take whatever is offered. (It’s more than he came in with.) But in fact, most people reject offers of less than 30 percent of the total, punishing offers they perceive as unfair. Why?

The academic debate boils down to two competing explanations. On one hand, players might be strategically suppressing their self-interest, turning down cash now in the hope that if there are future games, the “proposer” will make better offers. On the other hand, players might simply be lashing out in anger.

The researchers Carey Morewedge and Tamar Krishnamurti, of Carnegie Mellon University, and Dan Ariely, of Duke, recently tested the competing explanations — by exploring how drunken people played the game.

As described in a working paper now under peer review, Morewedge and Krishnamurti took a “data truck” to a strip of bars on the South Side of Pittsburgh (where participants were “often at a level of intoxication that is greater than is ethical to induce”) and also did controlled testing, in labs, of people randomly selected to get drunk.
The scholars were interested in drunkenness because intoxication, as other social-science experiments have shown, doesn’t fuzz up judgment so much as cause the drinker to overly focus on the most prominent cue in his environment. If the long-term-strategy hypothesis were true, drunken players would be more inclined to accept any amount of cash. (Money on the table generates more-visceral responses than long-term goals do.) If the anger/revenge theory were true, however, drunken players would become less likely to accept low offers: raw anger would trump money-lust.

In both setups, drunken players were less likely than their sober peers to accept offers of less than 50 percent of the total. The finding suggests, the authors said, that the principal impulse driving subjects was a wish for revenge.

Lets see if this trend continues….

Consider some of illusion at the bottom of the demo page (click here to see it).

The two middle color patches look as if they are different, but in fact they are exactly the same. What is gong on here? How can it be that we see wrong? How can it be that eve after we are shown that these two patches are identical we still can’t see them accurately?

It is because our brain is wired in a particular ways and this wiring, while very good for some things, is not perfect — and it makes us susceptible to certain errors and mistakes. Moreover, because these mistakes are a part of us, we are fooled by them in predictable and consistent ways over and over.

Now, vision is our best system. We have lots of practice with it (we see many hours in the day and for many years) and more of our brain is dedicated to vision than to any other activities. So consider this — if we make mistakes in vision, what is the chance that we would not make mistakes in other domains? Particularly in domains which are more complex (dealing with insurance, money, etc.), and ones in which we have less practice? Domains such as decision making and economic reasoning?

Not very high I think — and this is why we have lots of decision illusions. The predictable, repeated mistakes we all make in our financial, medical, and other daily decisions.

Irrationally yours

Dan

Here are a few suggestions I gave for eating less on thanksgiving:
1) “Move to chopsticks!” Or, barring that, smaller plates and utensils.

2) Place the food “far away,” so people have to work (i.e., walk to the kitchen) to get another serving.

3) Start with a soup course, and serve other foods that are filling but low in calories.

4) Limit the number of courses.

Variety stimulates appetite. As evidence, consider a study conducted on mice. A male mouse and a female mouse will soon tire of mating with each other. But put new partners into the cage, and it turns out they weren’t tired at all. They were just bored. So, too, with food. “Imagine you only had one dish,” he says. “How much could you eat?”
5) Make the food yourself. That way you know what’s in it.

6) “Wear a very tight shirt.”

Enjoy

This advice also appeared here

Some quick reflections on the ways money is useful and difficult to deal with — and some ways we can fight back.

Direct my steps by Your word, and let no iniquity have dominion over me.

Redeem me from the oppression of man, that I may keep Your precepts.

Make Your face shine upon Your servant, and teach me Your statutes.

Rivers of water run down from my eyes, because men do no keep Your law.

-Psalm 119: 133-136

If you remember from Predictably Irrational, at some point we carried out a cheating study that assessed the value of moral reminders. In the experiment, we asked participants to complete a test, told them they’d receive cash for every correct answer, and made sure they knew they had ample room to cheat. Now here’s the kicker: prior to starting, we had half the participants list ten books off their high-school reading list, and the other half recall the Ten Commandments, a manipulation that turned out to have a marked effect on the results: While many in the first group deceitfully reported a higher number of correct answers, no one in the second group cheated.

How do we explain the findings? A tempting conclusion to draw would be to equate the religious with a higher morality; however, this argument doesn’t hold, since in a follow-up study with atheist participants, the Ten Commandments had the exact same effect. Rather, what was at play here was the power of a moral reminder: Prime a person to think about ethics right before they have an opportunity to cheat, and they’ll avoid immoral behavior.

This experiment also suggests to me that religion can be a good source of ideas for social science research. If you think about religion as a social mechanism that has evolved over time, then you can ask what purpose its many rules serve and how they can help us to better understand human nature.

For example, though religious leaders may not have understood the exact psychology of moral reminders, they’ve certainly had enough of an intuitive sense of their importance to circulate the Ten Commandments and emphasize a whole score of other religious tenets, statutes, and regulations. Whether or not they could cite the causes for it, somewhere along the line they gathered that a good way to keep people in check was to present them with a moral benchmark to keep in mind.

Given religion’s role in society and the way it evolves over time, I think we could benefit from using its wisdom to direct social science research. The key is to zero in on a religious tenet and ask why it’s there and what it suggests about human behavior, and to then empirically test the hypothesis with the hopes of deriving science from religious texts.

God bless.

Sex, Shaving, and Bad Underwear
Or how to trick yourself into exerting self-control

Recently, I gave a lecture on the problem of self-control. You know the one: At time X you decide that you’re done acting a certain way (No more smoking! No more spending! No more unprotected sex!), but then when temptation strikes, you go back on your word.

As I mention in Predictably Irrational, this predicament has to do with our inherent Jekyll-Hyde nature: We just aren’t the same person all the time. In our cold, dispassionate state, we stick to our long-term goals (I will lose ten pounds); but when we become emotionally aroused, our short-term wants take the helm (Oh but I am hungry, so I’ll have that slice of cake). And what’s worse, we consistently fail to realize just how differently we’ll act and feel once aroused.

Fortunately, there’s a way around the problem: pre-commitments, or the preemptive actions we can take to keep ourselves in check. Worried you’ll spend too much money at the bar? No problem, bring just the cash you’re willing to part with. Afraid you’ll skip out on your next gym visit? All right, then make plans to meet a friend there. And so on. Pre-commitments can take many a form, and some get pretty creative.

For example, I surveyed my audience at the lecture hall for their pro-self-control tactics, and I received two noble suggestions. One woman reported that when she goes out on a date with someone she shouldn’t bed, she makes a point to wear her granniest pair of granny underwear. Similarly, another woman said that when faced with that kind of date, she just doesn’t shave.

Both are great ideas, I think, and are likely to work — well they’re certainly better than only relying on the strength of your self-control — but there is a risk. Let’s say the woman with the ugly underwear finds herself uncontrollably attracted to her date and decides that, you know what, ugly underwear be damned, there will be sex tonight! Chances are she will wake up in the morning wishing she had worn her silk lingerie after all.

Irrationally yours

Dan

p.s if you have any personal self control stories that you are willing to share — please send them my way

Remember our Ten Commandments cheating study? The one where we asked students to recall the commandments before an exam, and found that this moral reminder deterred them from cheating? Well, a professor at Middle Tennessee State University recently made practical use of the study – but in an extreme way.

Fed up with the low ethical standards in his MBA class, Professor Michael Tang passed out an honor pledge that not only listed the Ten Commandments, but also included the concluding flourish that those who cheated would “be sorry for the rest of [their] life and go to Hell.” In response, several students called the department chair to complain and a good deal of controversy ensued.

But what the article doesn’t address (perhaps because no one at the school had) are the merits of this extreme pledge. Is this an effective way of curbing dishonesty? I think yes, very much so.  I also suspect that even those who don’t believe in God would take this pledge seriously.

Still, though I don’t doubt its effectiveness, the question remains whether we want to invoke such stringent punishments (stringent for those who believe, that is) on an MBA exam. Judging from the reactions in this case, I’m guessing that for most people, the answer is “no.” But it also makes me wonder about the people who don’t want to sign this pledge….

Irrationally yours

Dan

Sad story out in the New York Times describing growing concerns about texting while driving. In Britain, a woman was sentenced to a 21-month sentence after it was found that she had been texting while driving, which resulted in the death of a 24-year old design student. In many ways, texting while driving illustrates a case in which tiny, individual irrational decisions can accumulate and cause widespread suffering, not only for the individuals who are texting, but their unsuspecting victims. Unlike cases of drunk driving, in which the driver’s decision making abilities are impaired, drivers who text are at their full wits to wait until they’ve pulled over to check their texts, and yet in the process they routinely underestimate the risk they impose to themselves and others.

Aside from being another example of a common irrational behavior (and who among us did not text or checked their email while driving), this leads me to wonder, what is the best way to solve this problem? While presently the issue is being hotly debated here in the US on a state-by-state basis, England has taken a tough national stance on texting while driving, which includes hefty minimum point penalties on the offending party’s license, and fines upward of 60P. If you watch the video in the linked article, you’ll also find a very graphic video depicting the carnage of a texting accident–shocking and informative public service announcements are yet another option. Alternatively, we can hope that cell phone companies are continuing to explore voice activation technologies that can read text messages aloud and also transcribe them from voice — thereby by-passing the problem altogether.

We have lots of irrational problems to deal with, and the realization that tiny, seemingly innocent little ones, like 10-second text messages, can cause so much damage should make us look around for more such problems.  perhaps ones that are not as obvious (think health care), but are potentially just as damaging.

Irrationally yours

Dan

Money is an integral part of modern life. We constantly make decisions about whether we’re willing to pay for different products and, if so, how much we are willing to pay. In fact, we make decisions about money so often that we consider money to be a natural part of our environment.

However, money is a relatively recent invention, and despite its incredible economic usefulness it does come with its own set of problems. In particular, it turns out that decisions about money are often non-intuitive and, in fact, quite difficult. Consider the following situation as an example: You are thirsty, tired, and annoyed and just want a cup of coffee. You see two coffee shops across the street from each another. One is a specialty coffee shop that sells handcrafted, designer coffee and the other is Dunkin’ Donuts which sells standard, decent coffee. The price difference between the two options is $1.75 for your cup-a-joe. Now, how do you decide if the benefit of the handcrafted coffee drink is worth the additional $1.75?

What you should do (if you wanted to be rational about it) is consider all of the things that you could buy with that $1.75, now as well as in the future, and decide to buy the expensive coffee only if the difference between the two coffees is more valuable than all of those other possibilities. But of course this computation would take hours, it is incredibly complex, and who even knows all the possible options to consider?

So what do we do when we need to make decisions but making them “correctly” is too time consuming and difficult? We adopt simplifying rules, which academics call heuristics, and these heuristics provide us with actionable outcomes that might not be ideal but they help us to reach a decision. In the case of coffee and other, similar decisions, one of the heuristics we often use is to look at our own past behaviors and if we find evidence of relevant past decisions, we simply repeat those. In the case of coffee, for example, you might search your memory for other instances in which you visited regular fancy coffee shops. Assess which one of those two behaviors is more frequent and then you tell yourself “If I’ve done Action X more than Action Y in the past, this must mean that I prefer Action X to action Y” and as a consequence, you make your decision.

The strategy of looking at our past behaviors and repeating them, might seem at first glance to be very reasonable. However, it also suffers from at least two potential problems. First, it can make a few mediocre decisions into a long-term habit. For example, after we have gone to a fancy coffee shop three times in a row, we might reason that this is a great decision for us and continue with the same strategy for a long time. The second downfall is that when the conditions in the market change, we are unlikely to revise our strategy. For example, if the price difference between the fancy & standard coffee shop used to be 25¢ and over the years has increased to $1.75, we might stay with our original decision even though the conditions that supported it are no longer applicable.

In light of our current financial situation, many people these days are looking for places to cut financial spending. Once we understand how we use habits as a way to simplify our financial decision-making, we can also look more effectively into ways to save money. If we assume that our past decisions have always been sensible and reasonable then we should not scrutinize our long-term habits. After all, if we’ve done something for five years, it must be a great decision. But if we understand that long-term, repeated behaviors might reflect our habitual decision-making in the face of complex financial decisions more than they reflect what is truly best for us, we might first examine our old habits and carefully consider whether they indeed make sense or not. We can examine our subscription to the ESPN Sports Package, our annual subscription to the opera, our yearly Disneyland vacation, or our monthly visit to the hairdresser. By examining these habits, and quitting them when it makes sense to do so, we might actually discover ways in which we could reduce our spending on a long-term basis.

Yes, money is complex, and it is incredibly difficult for us to carefully examine every purchasing decision we make. But the advantage of examining our habits is that it might lead us to create good ones that will benefit us for a long time.