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A Few Notes on Happy Money

June 14, 2013 • Posted in Aesthetic Investments, Individual Investing

In the prologue of their 2013 book entitled Happy Money: The Science of Smarter Spending, authors Elizabeth Dunn and Michael Norton state: “When it comes to increasing the amount of money they have, most people recognize that relying on their own intuition is insufficient, spawning an entire industry of financial advisors. But when it comes to spending that money, people are often content to rely on their hunches about what will make them happy. And yet, if human happiness is even half as complicated as the stock market, there is little reason to assume that intuition provides a sufficient guide. …trying to uncover the causes of your own happiness through introspection is like trying to perform your own heart transplant. You have some idea of what needs to be done, but a surgical expert would come in handy. Consider us your surgical experts.” Making liberal use of anecdotes to illustrate findings from an array of happiness research projects, they conclude that:

From Chapter 1, “Buy Experiences” (Pages 24-25): “We don’t wish to deny that material things can provide immediate delight. …But this material rush will likely fade, whereas the experiential high lasts much longer. …don’t let the lure of the material induce you to forego all the happiness benefits of the experiential.”

From Chapter 2, “Make It a Treat” (Pages 36, 42): “While there is no convincing research that reducing consumption provides a panacea for increasing happiness, a growing body of research suggests that altering consumption patterns can provide a route to getting more happiness for less money. …Limiting your access…helps you reset your cheerometer. That is, knowing you can’t have access to something all the time may help you appreciate it more when you do.”

From Chapter 3, “Buy Time” (Pages 74-75): “We view our choices about how to spend time as being deeply connected to our sense of self. In contrast, choices about money often lead us to think in a relatively cold, rational manner. Focusing on time frees people to prioritize happiness and social relationships.”

From Chapter 4, “Pay Now, Consume Later” (Pages 80, 89): “While convenient, this widespread pattern–consuming now and paying later–can be counterproductive for happiness. Instead, you’ll get more happiness for your money by following a different principle: pay now, and consume later. …when is delaying consumption most beneficial in getting the biggest happiness bang for your buck? When the delay provides an opportunity to seek out enticing details that will promote positive expectations about the consumption experience… When anticipating the purchase makes you drool, increasing the pleasure of eventual consumption. When the consumption experience itself will be fairly fleeting.”

From Chapter 5, “Invest in Others” (Pages 109, 123): “In a representative sample of more than six hundred Americans, personal spending accounted for the lion’s share of most people’s budgets. The average ratio of personal to prosocial spending was more than 10 to 1. But the amount of money individuals devoted to themselves was unrelated to their overall happiness. What did predict happiness? The amount of money they gave away. The more they invested in others, the happier they were. …when prosocial spending is done right–when it feels like a choice, when it connects us with others, and when it makes a clear impact–even small gifts can increase happiness…”

From the Epilogue, “Zooming Out” (Pages 138-139): “The ways in which governments both collect and spend taxpayers’ money, and encourage those taxpayers to spend their own money, can exert an enormous impact on happiness. …interest in the capacity of governments to measure and promote the well-being of citizens has increased in recent years. …And policy makers…are assessing and attempting to increase the happiness of us regular folks.”

In summary, readers may find Happy Money an interesting perspective on allocation of income/wealth to spending.

Cautions regarding conclusions include:

  • The authors do not explicitly distinguish between very different, sometimes conflicting “experiencing selves” and “remembering selves” in the measurement of happiness, as addressed by Daniel Kahneman in “The Riddle of Experience vs. Memory”. In the introductory comments of this talk, Daniel Kahneman states that “the word happiness is just not a useful word any more.”
  • Economic/financial research is arguably more advanced and precise than happiness research. Given the (lack of) success in developing predictive models of the economy and financial markets, the authors seem overconfident in the power of their findings to prescribe happiness.
  • Given the performance of governments in (for example) economic/fiscal management, the authors seem overly optimistic in the epilogue about the motivation/ability of governments to foster the happiness of constituents.
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