152 comments

Predictably Irrational

Author Dan Ariely

Author Dan Ariely

As an Economic Unit in a Capitalist Economy, you probably spend most of your time scurrying about Maximizing your Utility. You buy things which give you pleasure, or sell them when the cash you’d receive is greater than the pleasure of keeping them. You choose the job that offers the best tradeoff between things like pay, stress, and time consumed, in an industry you chose based on the same criteria. Even your leisure time is rationally allocated, optimized to get the most happiness from a finite amount of time, with cost factored in and weighed against the amount of extra work required to pay for leisure spending.

Although you’re probably having a good laugh at my deliberately optimistic oversimplification, this is the basis of free-market capitalism itself, and to a certain extent it works. In fact, most of the good aspects of our great leaps forward since the industrial revolution are byproducts this free enterprise and trade. Neat inventions in food production, medicine, clothing, and everything else that brings us long lives and comfort, are byproducts of the incredible ingenuity unleashed by setting smart and hard-working people free to run.

If that were the whole story, we could just shut down the government and sign an Ayn Rand novel into law and be done with it. But anyone with more than a cursory understanding of the market system is probably waiting to point out the other side of it: most of the bad aspects of modern society are brought about by the failure of humans to properly maximize their utility. We make some incredibly stupid decisions, and the byproduct is pain, untimely death, and inefficiency.

The standard opinion on this inefficiency is that it’s just a few bad apples in an otherwise good system. Most of us do well at running our lives, don’t we? We know what we want, and our system is good at delivering it to us. But I’d say there is more to the story.

Most Americans, for example, are deep in unnecessary debt, overweight and poorly nourished, inactive and stressed out, and self-sentenced to a mandatory career of unsatisfying work just to stay afloat. We constantly buy things we can’t afford and don’t need, and the majority of the trading we do does not increase our net happiness. And all of this is done with virtually no awareness of how we are affecting our own ecosystem – the tiny veneer of air and plants that is the only thing between us and the lifeless vacuum of space. In fact, it would be difficult to imagine a less efficient way to maximize “Utility” than what the modern consumer does.

Given all this freedom, why do we screw things up so royally? Is there a way to maintain the power of the market while getting around the general idiocy of our own species?

Fortunately, the answer is built right into you, in the form of the genetic program you received at birth. The reason we suck at running our own lives is that we are evolved and programmed for a completely different set of surroundings. But this handicap can be overcome: by learning about our own weaknesses, we can compensate for them and lead much more productive, powerful and happy lives.

This is where the title of this article comes in. I recently read the book Predictably Irrational by Dan Ariely at the recommendation of some readers.  It’s not often that I find a book that crystallizes so many interesting concepts in one swipe, but this book does it.  Everything the author proposes just makes so much sense. But as an MIT behavioral economist with 3 books and over 75 published papers on his resume,  these are not just the blowhard opinions of a financial blogger – the man actually does his own research and has an uncanny way of sharing it with the world with perfect accessibility.

There were a few key lessons that stuck with me after finishing this book. They are useful not just as curiosities of human nature, but as practical tools for overriding our innate ridiculousness and learning to live life more sensibly.

Relativity

 Humans make decisions in relative terms, rather than absolute ones. Given a restaurant menu with varying prices, people tend to avoid the most expensive item, but are very comfortable choosing the second one on the list. Restaurants have learned this, so they will often insert a “decoy” expensive dish (which may cost no more to prepare than the others), which allows them to raise the price of everything else, making all alternatives look like comparative bargains. The same thing happens when shopping for clothes, cars, or television sets. Rationally, we should be comparing list prices to all other ways of meeting the same needs, and to our own income. But our genetic wiring wants us to make quick decisions and move on, and in prehistoric times, comparing in relative terms was the way to get this done.

But this built-in flaw has implications on much bigger things than restaurant choices. We design our entire lifestyles by looking around us to see what everyone else is doing. Most of us position ourselves in the middle of the herd, and start feeling deprived if we sense we are near the bottom. The problem arises when the herd is comprised mostly of sheep, responding blindly to their own irrational instincts. So as a society we have a tendency to automatically run ourselves straight off of the nearest cliff.

Market Norms vs. Social Norms

Most of us know that it is socially inappropriate to ask our friends to cough up money when we invite them over for dinner, or to offer money to a romantic partner in exchange for sex. But it is normal to pay for a meal at a restaurant and the world’s oldest profession continues to thrive. This is the core of the distinction between “market” and “social” norms. As it turns out, humans obey different rules when operating in a business environment, than they do when they perceive they are among friends and family. We are more generous when we are reading from the Social Norms playbook, and we enjoy our lives more when doing it. This is why countries and cultures with stronger family and friendship bonds tend to be happier than the cold and impersonal market-driven ones – even if their incomes are lower.

You can use this to your advantage. By bringing social exchanges back into your life, you can live more happily and build a safety net that protects you from the sharpest edges of the market system. I saw a nice example of this about a year ago, when a close friend stopped by and saved my house from flooding as part of a routine visit to water the plants. Invite your neighbors over for dinner, share children back and forth for babysitting, and loan out your tools, lawnmower, and weekend labor as much as you can. And if you run a company, bring some social norms into the way you treat customers and employees. Instead of dinging people with every conceivable fee or squeezing employees with the lowest legal level of vacation allowance, expand your trust and generosity towards them. Watch as their dedication to you grows and provides benefits much greater than the costs.

 Loss Aversion and Overvaluing What We Have

When I wrote the opening story about ‘losing’ $12,000 in the article about Strength, I took some heat in the comments about it: “You did’t lose the twelve grand, Mustache, you just didn’t get it! Totally different.”

But that choice of words was deliberate. I work hard to remind myself that although it feels different to have a brand-new $12,000 car roll off a cliff because I forgot to set the parking brake, or have an expected $12,000 deal fail to materialize after doing all the work, the financial effect is exactly the same, and thus I should not worry about either of them.

In everyday life, loss aversion messes with us more than we realize. We hesitate to sell things we are no longer using, because we become attached to them.

“I can’t sell my pickup truck for $12,000 – I paid $30,000 for it just a few years ago!”
“I don’t want to invest in stocks, because there might be a big crash which causes me to “lose” money. I prefer to keep the money in savings where it is guaranteed not to fluctuate.”
“I am afraid to seek out a new job or find myself a new home closer to work, because I might lose some of the comforts that I have grown accustomed to in the current situation”
 The way to get around this is to recognize and work to compensate for your own irrational loss aversion. For example, I keep a Craigslist app on my phone and fairly ruthlessly fire out ads to sell unused things when I stumble across them in the storage area of our house. I try to replace emotion with the more rational friend of statistics when deciding whether I should invest money, buy a more full-coverage type of  insurance, or take any other form of risk.  And in our upcoming move where we are “losing” over 1000 square feet of living space, I remind myself that there is no fundamental rule of humanity that dictates three people will be any more happy with 2600 square feet of interior space than they will be with 1532 square feet. I program myself to feel the “ChaChing!” instinct, which creates immediate gratification in the event of good monetary decisions, to compensate for my natural tendency to want shiny things NOW instead of investing for later.

Marketing and How it Plays Your Ass Like a Puppet

The thing about all of these cognitive biases is that even if you don’t round them up and get control of them, somebody else will. For over a century, the field of Psychology has been unearthing these things and studying them rigorously, discovering the joys and hilarious downfalls of the human animal. And for almost as long, marketers have been picking up the research and honing it for their own advantage. I recently read a quote from the head of one of the country’s largest ad agencies, which went something like this,

“It is generally understood in our industry that we aren’t fulfilling wants and needs – we are creating them. A new product first needs to create a market for itself, before it can be sold into it.”

Isn’t that revealing? I still admire many of the funny and creative people of the advertising industry and my own Dad worked most of his career in it, running his own one-man agency for much of my childhood.  In fact, some of the lessons of that industry have surely soaked into my own approach, and you could view this blog as an ongoing Anti-Advertisement which aims to apply some of those principles in reverse.

But by golly, if you are going to be out there trying to kick ass in life and as an Economic Unit, you’d better go to battle with proper armor. And that means understanding your evolutionary weaknesses so you can avoid their tendency to turn you into a Consumer Sucka. We are all idiots at heart, but the more successful among us learn to compensate for our idiocy.

So I’d like to give my thanks to Dan Ariely for writing this book and his amazing contributions to society so far – I’m off to read the rest of what he has written.

  • Quinn November 21, 2013, 10:52 am

    Dan Ariely’s books are great. My wife and I have read all of them.

    Dan’s studies are very insightful into our current society’s decision making.

    Reply
  • Mom November 21, 2013, 10:56 am

    If you get the chance, Dan gave a course on Coursera – Intro to Behavioral Economics. There has been talk about it running again, but it was pretty awesome the first time through.

    Reply
    • Mark November 21, 2013, 2:05 pm

      Seconded. I did that course – was very good.

      Reply
      • Holly November 21, 2013, 3:24 pm

        Wholeheartedly recommend. Here is the link if anyone needs it. It really is free:

        https://www.coursera.org/course/behavioralecon

        It looks like they don’t have next year’s session scheduled yet but you can sign up for an alert if you want to know when it becomes available.

        Reply
        • Mr. Money Mustache November 21, 2013, 4:14 pm

          Looks like a great course, but I have a question : why does it only run at a fixed time rather than on demand? Are those video lectures from the first run saved anywhere?

          I’m kind of done with quizzes and exams, but I still love taking courses and learning.

          Reply
          • Holly November 21, 2013, 6:17 pm

            Probably because of the quizzes and writing assignments that make some Coursera courses interactive. There are a ton of youtube videos with his talks though!!!

            His Ted Talk is also on Courseworld:
            http://www.courseworld.org/home/view_home_vid/1/39/55/4278

            Reply
          • Hilary November 21, 2013, 6:37 pm

            I think it’s organized that way in order to keep some element of the communal learning experience you typically get in a university environment. Lectures and materials are released week by week so that students access them at the same time and can discuss them together in the forums. The interactive element would be seriously diminished if students weren’t herded into cohorts.

            Maybe also to prevent info bingeing and thus encourage retention. That’s just a guess though.

            Reply
          • bogart November 22, 2013, 9:10 am

            Coursera’s a commercial firm, and this is how it manages things. Dan Ariely’s now at Duke, and Duke is using Coursera to make some courses available online, and this is how it works.

            Reply
          • Ed November 26, 2013, 10:28 am

            The course runs at particular times (and may not run again) in part because very convincing research shows that students do a lot better at submitting coursework when deadlines are imposed. Also, for this particular course, there was coursework that was peer-graded. I took the course myself, based on having read a book or two of his and also having read Kahneman’s “Thinking – Fast and Slow” – where a nobel laureate explains his life’s work and gives you a really excellent window into your own thinking. He essentially founded Ariely’s field.

            I should mention that the “endowment effect” described by Kahneman and further investigated and explained by Ariely means that, having bought & read the books, and taken the course, I am likely to think well of the contents, regardless of their merits…

            Read, watch, you’ll enjoy it. Doesn’t stop you thinking in silly ways, but you do get a better chance of realising that you are thinking in silly ways.

            Reply
            • CincyCat November 26, 2013, 5:02 pm

              I have to agree on the imposed deadlines comment. I would most likely never have finished my online degree if there had not been hard deadlines for assignments multiple times a week. Humans tend to put off the unpleasant & uncomfortable for as long as possible.

              That said, I think another offering of “for audit” or on-demand pre-recorded courses (for a fee, of course) would be cool to offer for those of us who are not looking for the pressure of finishing a class or degree, but who are very interested in the subject matter.

              Reply
    • Emily A December 11, 2013, 4:26 pm

      I took it too and it was so good. Loved every second of it.

      Also, I love it when my various role models collide, like when MMM wrote about Mark Sisson. Just great.

      Reply
  • Miss Growing Green November 21, 2013, 11:03 am

    I especially relate to the section about “market norms” vs. “social norms”. It’s interesting to see the observation of “hey, people in these poor countries seem just as happy or happier than us” into an underlying psychological explanation for why that is.
    This is something that I could stand to improve in my life. It’s hard to balance increasing your “social market” with making sure you aren’t being taken advantage of. The problem is, if both parties are buying into the social market idea it’s a win-win, but if only one is, it can quickly turn into a win-lose. (i.e. I babysit my neighbors’ kids 3 nights a week and they rarely return the favor).

    Reply
    • Gypsy Queen November 21, 2013, 2:18 pm

      You can pay back at that instance, just keep the monetary value vague.
      I used to dog-sit for my neighbors in exchange for home-made Jam. They used to cat-sit for me in exchange for a bag of avocado.
      Same effect.

      Reply
    • markbrynn November 22, 2013, 3:47 am

      While I agree that it can become one-sided, I think worrying about everything being exactly equal and “fair” is one of the things that stops this from working in richer societies. Everyone is so caught up in getting fairly compensated that the social aspect gets lost. If you’re dealing with friends, then hopefully you’re happy to help them out and can discuss any issues with them if they seem to be lagging. If you actually like helping (e.g. babysitting their kids), then maybe it doesn’t need to be reciprocated anyway.

      Clear abuse of an agreement would be likely to jeopardise a friendship for me, not just the arrangement.

      Reply
      • Mr. Money Mustache November 22, 2013, 10:26 am

        I find that not everyone gets the whole “give” vs. “take/use” thing. But in my most successful sharing/bartering friendships, there is a constant competition to give more to the other person: “No, surely I owe you more than two hours for the help you gave me last week! Here, take this bottle of whisky to make up the difference.” “Oh, no, you didn’t need to do that. I snuck a six-pack of beer into your fridge to pay you back for the whisky”. etc.

        For people like the babysitting mooches, it might be best to gradually ease out of the arrangement if you don’t enjoy the way it works, and focus the sharing on other friends who get it better.

        Reply
        • FitStash November 25, 2013, 12:39 pm

          The image of this made my day :-). That’s exactly how it should be.

          Reply
        • markbrynn November 26, 2013, 5:00 am

          MMM – I agree with your general principle that giving a bit extra (or a lot extra) can feel good and help keep things positive. On the other hand, I would encourage people to accept that things aren’t always completely in balance and don’t need to be. My life is good, so why can’t I do someone a favour without expecting it returned?

          My wife is a bit like your description. Always pushing farther to give more than she receives. Which is cool if you’re giving happily/willingly, but can shift into being negative if you do it because you are desperately trying to avoid the possibility of ever being accused of not giving enough.

          Life’s too short to be keeping score all the time.

          Reply
      • Marcia November 22, 2013, 11:51 am

        It’s a fascinating topic, because I think about poorer and richer countries all the time.

        Denmark, for example “The Happiest Country” – the give/take thing is on a national scale, paid for mostly through high taxes. I have a lot of friends who live there (my MIL grew up there) and it’s fascinating that they have a “social contract” feeling that we just don’t have here. At least not to the same level.

        Reply
        • Børge November 23, 2013, 4:28 pm

          We also have a tax system that makes early retirement virtually _impossible_, and a level of forced redistribution that has undermined any sense of social responsibility. Why should I help others when the government will do that for me? Why should I not live on welfare when it’s my right?

          Reply
          • Mr. Money Mustache November 24, 2013, 10:50 am

            Oh man, I bet some other Denmarkers will have something to say about these claims. I know several early retirees there.

            Reply
            • Børge November 24, 2013, 11:32 am

              I’ve done some calculations and even with our high middle class earnings early retirement is out of the question for _at least_ 20 years (barring the easy option to quit our jobs and live off of the dole). The world’s highest income taxes, 25 % VAT, 41 % capital gains tax makes it pretty much impossible unless you are among the top ~1-5 % earners or win the lottery.

              If you know Danes who are early retirees I’d love to hear their stories. I’d LOVE to be corrected and learn form their experience.
              I believe ERE is Danish, but he’s in the US.

              Reply
              • Kenoryn November 24, 2013, 6:11 pm

                Presumably you get things for your high income taxes that other countries don’t get. Here in Canada, social programs make up only about 1/3 of government spending. Our biggest expenditures are on health care, which everyone benefits from, and which gives us a huge advantage vs. American early retirees who have to worry about health insurance. Even social assistance for others benefits you by creating a healthier, more stable society with fewer of the problems poverty creates in places like the U.S.

            • HealthyWealthyExpat November 25, 2013, 9:39 am

              No matter where you live in the world, there are options for “early retirement” or “alternative lifestyles”. I have a Danish friend who has been semi-retired for as long as I have known him (15 years). He is now about 50 and a nurse, and he works at a hospital in Copenhagen for the warmer half of the year and then takes off around the world for the other half or does work for the Red Cross or Medecins Sand Frontieres. I just got an email from him and he is on his way to Ethiopia, then Cuba, then back over the Atlantic to Morocco and Spain. Seems that he is enjoying life to the max.

              Reply
      • Giovanni November 22, 2013, 4:47 pm

        +1 Mark, nothing kills the pleasure of a shared meal out faster than trying to figure out down to the penny who owes what. For me the idea that karma works and that everything I put out into the universe will come back to me takes all the pressure off keeping score.

        Reply
    • Pura Vida Nick November 22, 2013, 8:51 am

      I agree. After college I moved to Costa Rica and lived in one of the poorest areas. I lived with a family. But when I looked all around me, it seemed most of the people were very happy. It took a while to understand – some of these people had dirt floors, no phones, and chickens running around their houses. But they had strong community and family ties, one of the reasons they were so content. Good stuff. I learned so much from them!

      Reply
      • thehungryegghead November 25, 2013, 5:16 pm

        If everyone around you lives similar lifestyle to you then there is no reason to be unhappy.

        Growing up in 1980′s communist China, my family was very poor. 6 adults and 1 child in a 600sq room. But since everyone around me was the same it was our normal. And I remember being extremely happy back then.

        Revisiting my childhood home as I grew older, I discovered that my old neighbors were very envious of the fact that I got to emigrate to the US, and the fact that all around them people are getting rich but not them. Never mind the fact that they now had refrigerators, flat screen tv’s, and whatnot. They want more because they see that everyone else has more.

        Reply
        • David November 30, 2013, 8:55 am

          I agree. When I was poor as a kid I didn’t know I was poor. Friends and family (but only if they are loving… some parents are evil) are what counted.

          Reply
  • FI Pilgrim November 21, 2013, 11:04 am

    Great review, and very interesting to think about loss aversion, especially when thinking about the small, every-day choices we make.

    Reply
  • JB November 21, 2013, 11:12 am

    “If that were the whole story, we could just shut down the government and sign an Ayn Rand novel into law and be done with it.”

    Great sentence. Knowing some people who would like nothing more than this, I literally laughed out loud. Thank you for that. :)

    Reply
  • Syed H November 21, 2013, 11:16 am

    Very interesting point about market norms vs social norms. Entering into year 2 of home ownership, I’m understanding the value of getting to know the neighbors and creating that “community” feeling. Will definitely have to pick this book up. Thanks for the great review.

    Reply
  • Clan McLeod November 21, 2013, 11:28 am

    Really, MMM? “Marketing and How it Plays Your Ass Like a Puppet”? You can do better than this shabby mixed metaphor!
    How about “How it plays your ass like an ass trumpet” or “how it controls your ass like a puppet”? You gotta get your metaphors straight.
    Like the article and you’ve got a great blog, but I’m just saying, you can definitely have some more fun with your metaphors.

    Reply
    • Mr. Money Mustache November 21, 2013, 1:14 pm

      Clan, you do know that “Plays” means “Controls” or “Manipulates” these days, right? Playing isn’t just for musicians any more.

      As in, “Damn, Annie came home from the dealership with a brand new leased BMW? Sista just got played!”

      or “Put a quarter in your ass, ’cause you played yourself”

      Reply
      • Glenn November 21, 2013, 8:09 pm

        I challenge anyone to find another blogger who can explain Dan Ariely in a thorough and entertaining manner and then turn around and drop Big Daddy Kane. Renaissance man.

        Reply
  • Joshua Sheats November 21, 2013, 11:28 am

    I love the fact that one of the fastest growing segments of academic study is behavioral economics.

    I enjoy hearing people explain the logic of their decisions after the fact and re-frame the entire discussion to make them feel good about their decision.

    Recent example: A newly employed 20-year old man. “I needed to lease this brand-new BMW for which my parents cosigned in order to build my credit so I can buy a house.”

    :)

    Reply
    • Pura Vida Nick November 22, 2013, 8:55 am

      Good point! My friend said something similar: “I leased this car since I can write it off on my taxes, due to my sales job.” or “I bought this house for the tax write off.” or, one of my personal favorites after anyone buys a brand new car: “I wasn’t planning on buying a new car that day, but when I went into the dealership, I got such a great deal, I couldn’t pass it up!”

      Reply
  • rjack November 21, 2013, 11:30 am

    This is destined to be an MMM classic post. I particularly liked:

    “…I try to replace emotion with the more rational friend of statistics when deciding whether I should invest money, buy a more full-coverage type of insurance, or take any other form of risk….”

    This is key. It means that you need to be comfortable with being a contrarian in a society that values consumerist conformity. Any aspiring Mustachian would do well to study principles of statistics because it alters your perception of reality and decision making in a good way!

    Reply
  • Andrew November 21, 2013, 11:31 am

    When I’m FI, one of my goals is to rewrite macroeconomic theory using some of these insights. Wish me luck!

    Reply
  • Joe November 21, 2013, 11:31 am

    I’ll put Predictably Irrational on my reading list. Sounds interesting.
    We are human and we have our faults. That’s why I try to avoid advertising as much as possible. I know I’d fall for at least some of the what they are selling.
    The good thing about being human is we can learn and improve ourselves. It’s too bad so many consumers are trapped, but they are helping the economy…

    Reply
  • Mrs PoP November 21, 2013, 11:38 am

    Can’t remember if I was one of the readers that recommended Ariely, but I am constantly recommending him to many folks. Glad you finally got around to reading him! =)

    For the next one you tackle can I recommend The Upside to Irrationality? My favorite section is when he explores the effects of outsized bonuses on business results and discusses his findings with Wall Street bankers. I’ll let you guess how they felt about his research findings…

    Reply
  • SavvyFinancialLatina November 21, 2013, 11:40 am

    It’s really hard to avoid advertising. It’s everywhere. I think the biggest advertising campaign has been around diamonds. They are so entrenched in our mindsets that they are forever. When it’s really a plot by the DeBeers family.

    Reply
    • Mr. Money Mustache November 21, 2013, 1:08 pm

      Yeah, I’ve always found the diamonds tradition to be especially funny, because I missed all of that advertising and perceived value. So to me, diamonds are only useful in industrial form, because they allow you to make a mean masonry cutting saw blade. And this kind is extremely cheap.

      But for jewelry? Meh – I’d rather have something cool made by a stoned guy at the Burning Man festival, over a processed bit of artificial value.

      Reply
    • Queen of Fifty Cents November 21, 2013, 2:10 pm

      That low-information diet you talked about a while back is just dandy for avoiding advertising. I don’t own a television (we watch movies in our home theatre) and don’t listen to commercial radio. I can barely avoid feeling smug about all the ads I’ve never been exposed to. Okay, I admit it – I do feel smug about it! Of course I’m still exposed to ads, but it’s easier to let your eye glide over a print ad than close your ears to an aural one. Plus, I shop on driveways for the most part and not in stores. I can still come up with stuff I’d like to buy, but they’re usually based on my life and interests, not Mad Ave’s.

      Reply
      • HealthyWealthyExpat November 22, 2013, 6:09 am

        Like the MMM family, we also don’t have cable. I think I first realized how liberating it was to minimize the advertising in your life when I first moved to Vietnam 15 years ago. I had no TV, no phone, and no internet in my house, and I didn’t understand the few advertisements that I did see on the street. I was truly free of advertising for the first time in my life. Ever since, I have been acutely aware of the advertising around me and always work to reduce it. When I do see an ad, I work at mentally ripping apart the message so that it disintegrates before in has an impact!

        Reply
    • Matthew Pence November 22, 2013, 10:19 am

      I don’t sweat over advertising exposure. It’s not carcinogenic or toxic, assuming you have the right PPE. That is to say after you get your mind wrapped around the concept that more money spent does not equal more happiness, advertising becomes ineffective. At that point, you start to recognize the marketing gimmicks that are being used. I find them hilarious. I like to chuckle at them while repeating the old “Fool me once…” adage.

      Reply
    • Marcia November 22, 2013, 11:59 am

      Very true. I of course got suckered into the diamond thing (so sue me, got married in my mid-20′s) but later sobered up.

      So, I used to work for a company that made moissanite (which looks a lot like diamond). I bought a stone for cost and made it into a necklace. Pretty and shiny, but only $25 for the stone.

      Long story short, at some point I must have talked about it with a coworker of my husband. I was recently at his housewarming party and he told me that based on our talk, that’s what his fiance chose for her ring – moissanite instead of diamond. (For those of you who like the sparkly stuff but without the crazy price.)

      Reply
      • Christine November 22, 2013, 12:04 pm

        That’s a good idea! I inherited a diamond ring through family. I couldn’t justify getting a new ring when I had a perfectly nice one I already owned! People love it too because it doesn’t look like all the rest. But if I want any new jewellery I will look into moissanite. Thanks.

        Reply
        • Sandy November 27, 2013, 10:56 am

          My jewelry comes from “lost” pieces found on the sidewalks and gutter during our walks. A single earring can easily be altered to make a lovely pendant and worn with a chain that I picked up from a gas station pavement years ago. DH picked up a 14K gold wedding band out of the gutter while walking across a bridge downtown to a hockey game. (Free tickets and we walk about a half mile from free parking instead of pricey arena parking.) I waited until I found an offer from a jeweler for free polishing where they also appraised it at $500-700. Can’t beat our price for us.

          Comfortably living below the poverty level off this wasteful culture..

          Reply
    • Rolo November 23, 2013, 2:14 pm

      You say advertising is everywhere, I say, “Advertising? They still have that?”
      You may wish to reconsider where you spend your time.
      Broadcast TV? Why? Netflix/Hulu/et. al. (most TV is garbage anyway)
      DVDs? Rip it to your PC sans promos.
      Broadcast radio? Why? Streaming/mp3/CDs/etc.
      Print media? (again, they still have that?)
      Internet? They have add-on utilities to fix that.
      Smartphone apps? Same thing: utilities
      Billboards? You should be watching the road anyway.
      Ads in your dreams?–Oh, wait, that was some movie…

      I honestly can’t remember when or what was the last advertisement I’ve seen many years ago. My time (and my not being annoyed) is important to me.

      Reply
  • Stephen November 21, 2013, 11:44 am

    Hey, what do you know- a post about economics. I must say, the analysis is spot on. Ariely does a fantastic job bringing the basic tenants of behavioral economics into practicality. He also does a lot of TED talks for those who don’t have time to make it all the way through his novels. His other two books also give a little more insight on how to leverage irrationality.

    Another founder of behavioral economics (and Nobel prize winner), Kahneman, also wrote about prospect theory (making decision involving risk) that also explains a lot of perceived economic irrationality- including investment decisions.

    Finally, I also enjoy seeing so many engineers use the same fundamental concepts of analysis to enjoy economics. I suppose I might be one of the few economist that may retire to be an engineer.

    Reply
    • Mattp November 22, 2013, 3:28 am

      Great post. Had me worried in the first paragraph and was thinking you’d jumped the shark before you pulled us back in with some common sense. Anyway want to second the Kahneman reference. “Thinking, Fast and Slow” is the book to read. Packed with insights into behavioural economics and great research examples. Relevant to this post, there’s a chapter on how ill-equipped our minds are to perform reliable statistical thinking (without significant conscious effort).

      Reply
  • Gary D. Burleson MBA November 21, 2013, 11:50 am

    Pride is one of the main reasons people avoid selling at a loss. Every investment involves an emotional as well as financial commitment that makes it hard to evaluate objectively. You feel good selling stocks at a small gain, but feel bad when you take any type of loss. Often referred to as “get-even-itis” has caused more destruction to portfolios than any other mistake. This is also known as prospect theory which predicts that you lose on a stock so you increase your position, and consequently your risk, in an attempt to get even. Natural Human Psychology, but here at MMM we educate each other to make sure we are self-aware of the facts to avoid such natural tendencies.

    Reply
  • This Life On Purpose November 21, 2013, 11:52 am

    The idea of relativity is a great concept that explains a lot of our consumer behaviour. It is much easier to avoid creating “wants” when you live in an underdeveloped country where something basic such as running water is not available to everyone. There, if you have running water, you are doing better than most. In America, you need to have a 3-car garage, a boat and take two international vacations a year to feel like you are doing better than average. We need to remind ourselves that just by having a roof over our heads, clean water, food and warmth, we are better off than the vast majority of the global population.

    Reply
    • Self-Employed-Swami November 24, 2013, 3:47 am

      Whenever I feel slightly bad about something I don’t have, or a goal I haven’t exactly met, I think about exactly how much better my life is (and how many more opportunities I’ve had) than most of the rest of the planet, and it helps me put it into perspective. Really, most of what we are doing, is just icing on a an already fantastic cake~

      Reply
  • Marianne Jacob November 21, 2013, 11:53 am

    I forget who said this; “all advertising is, is convincing people to buy things they don’t need, with money they don’t have”.

    I’m all about financial common sense. I recently unloaded my house, paid off all my debts, paid cash for a decent used Honda and banked the rest for my retirement which isn’t getting here fast enough. I now stick with the philosophy that if you can’t pay cash for something, you don’t need it that bad. Nothing is worth going into debt over except maybe a house and even that is iffy.

    Reply
    • LennStar November 21, 2013, 2:41 pm

      And a similar saying is:
      The modern goal in life is to buy things we dont need with money we dont have to impress people we dont like.

      Or to put it in other words: He who has the most stuff when he is dead, has won.

      Reply
      • Mrs PoP November 21, 2013, 2:54 pm

        “buy things we dont need with money we dont have to impress people we dont like.”

        Isn’t this from Fight Club?

        Reply
      • Marcia November 22, 2013, 12:05 pm

        “Normal is getting dressed in clothes that you buy for work and driving through traffic in a car that you are still paying for – in order to get to the job you need to pay for the clothes and the car, and the house you leave vacant all day so you can afford to live in it.”
        ― Ellen Goodman

        Reply
  • DrFood November 21, 2013, 12:05 pm

    I’ve taught my daughters that the job of a tv commerical is to 1) make you feel bad about yourself and then 2) present the purchase of “X” as a way to make that bad feeling go away. Thus, the more television ads you view, the less happy you will be.

    Our solution is to banish the television to the garage (our new house is way too tiny for a flat screen TV) and not get cable. When we had (accidentally free) basic cable at our old house, we only let the girls watch PBS Kids and the Disney Channel, because Disney’s ads are all for Disney and PBS doesn’t have them. We try to satisfy the screen-watching urge with Netflix and some YouTube.

    Reply
  • Insourcelife November 21, 2013, 12:24 pm

    Relativity explanation sounds like Anchoring, a well-known cognitive bias that can be used by someone who understands it to their advantage. This book sounds interesting and I’m adding it to the list to check out from the library.

    Reply
  • Christine November 21, 2013, 12:26 pm

    Love this book :) I can’t imagine 2600 sq feet of house! My gosh. Around Toronto that is hard to get. 1500 sq feet sounds a good size to me. Articles like this help keep me on track, thanks :)

    Reply
    • KruidigMeisje November 22, 2013, 2:27 am

      Here in NL a standard house for a family (2 parents, 2 kids and a dog) is 1300 sqare feet. And as this is indeed what the average family is living in, quite a lot of families are happily living in smaller houses/apartments, think 900 square foot.
      And I present this case, because I deem NL to be a civilized,developed and rich country. And we score decently on happiness and wellness lists (like UN).
      But on second thought I must add: most of these have an additional small shed somewhere (like 70 sqare feet) to house their bikes. That is mandatory in the building code.
      So I can envision a family being quite happy in 1500 square feet. Especially having a large garden and being next to a park. We call that a McMansion here.
      Wonder how other countries compare (in average familyhouse size and happiness).

      Reply
  • Leslie November 21, 2013, 12:52 pm

    Comparisons to the other members of the herd leads to unexpected choices by consumers. In a scientific study people were asked if they preferred world A; where they would live in a 4,000 sq. foot house and everyone else lives in a 6,000 sq. ft. house or world B; where they live in a 3,000 sq. ft. house and everyone else lives in a 2,000 sq. foot house. Interestingly, most people chose world B even though the house is smaller in absolute terms. http://tinyurl.com/mx8ww7v

    Reply
    • Mr. Money Mustache November 21, 2013, 1:34 pm

      I love those prove-the-world-is-irrational surveys…

      But you can reverse the trend totally: if people learn to think that living a less wasteful life is MORE prestigious (which quite rationally it should be), then you get people preferring to live in a SMALLER house than those around them.

      This is exactly why we have made Frugality the new Fanciness:
      http://www.mrmoneymustache.com/2012/03/07/frugality-the-new-fanciness/

      Reply
      • LRS November 21, 2013, 4:37 pm

        Yeah, I think I’d prefer 3,000 to 4,000 even in the land of 6,000s. What would I even do with 4,000 square feet? Pay to heat it in the winter? Feel compelled to buy things to fill it? I suppose that if I had a litter of kids, a bigger house would appeal to me, but even 2,000 would be enough for just me and the lady.

        Reply
      • Ann Stanley November 21, 2013, 10:55 pm

        The key is to keep communicating with others who have the same values. I find it almost impossible to go it alone. I’m not strong enough on my own to beat the social forces that lead to irrational beliefs.

        Reply
    • Ann Stanley November 21, 2013, 10:49 pm

      I read about a study once where apes or monkeys (can’t remember) who were at the bottom of the social hierarchy showed symptoms of depression. That’s how ‘primal’ these feelings are. We have to work with them and avoid putting ourselves in situations where there’s a lot to envy or work against them by thinking globally, or both. Both is better because we’re only human (or only apes).

      Reply
    • Walt November 22, 2013, 8:27 am

      Boy, you’d have to pay me to live in anything bigger than what we have now, which is a needlessly large 2,200 square feet plus partially finished basement.

      Dining room? Used maybe 6 times a year.

      3rd bedroom? Stepson sleeps in it maybe once a month, although it’s full of his stuff. (He’s 23.)

      4th bedroom? Only the cleaners ever go in there. (Yes, we have a cleaning crew through once a month. I know, I know.)

      Basement? I walk through the finished area to get to my little workshop or the furnace room.

      Reply
  • Done by Forty November 21, 2013, 12:52 pm

    The quote on advertising is particularly telling. If the need for a product is created first, then it follows that most of our perceived consumer needs might be artificial. A few months ago I commented to another blogger that a cellphone was a luxury, on par with any other luxury good. The response I got was hilarious, along the lines of phones being a legitimate need in this day and age. We couldn’t operate as a society or as individuals without the magic phone devices!

    More to the point though, it’s probably worthwhile for us all to seriously question the things we really think we need to live a full life. Thanks for the book recommendation…it’s on the reading list.

    Reply
    • Lina November 21, 2013, 1:24 pm

      Do you also think a landline phone is luxury? I would not consider a cellphone luxury. It has basically been my only phone the last 16 years because it is cheaper then a landline.

      Reply
      • Marianne Jacob November 21, 2013, 6:24 pm

        When I was growing up, most people had a phone. It was just this thing that sat in one room of the house, it rang occasionally but wasn’t terribly important. Then cell phones became the rage, and now people don’t think they can live without them. I think they’re great to carry around in case of an emergency and you need to call someone. Otherwise, I think they’re silly and find that most people that can’t get it off their ear, are chatting about non important things. I have no idea what it costs to have phone service back in the 50′s and 60′s. We didn’t have cable either. I know my land line is bundled with my internet and TV, and it only costs $6 a month. The cell phone costs more. I think a land line is acceptable, cell phones really are a luxury.

        Reply
        • Jamesqf November 21, 2013, 7:54 pm

          So the question here might be why you have both a landline AND a cell phone. Certainly a phone of some sort is, if not precisely a necessity, at least a great convenience, and my land line got traded for a (dumb, pay-as-you go) cell phone when the land line went to about $30/month, while the cell runs about $7.

          Reply
          • Insourcelife November 22, 2013, 10:55 am

            Agreed. Back in the day we used to pay $40 or so plus taxes/fees for a land line (not adjusted for inflation) and now my cell phone is $10 per month flat. I can do a lot more with my smart phone than I could ever do with the land line and pay less. To me a phone is not a luxury (land or cell) and I will take my smart phone (bought used, no contract) over anything else. NO need for a land line, more features, less money – a win.

            Reply
      • Done by Forty November 22, 2013, 3:37 am

        Well, yeah, I clearly consider it a luxury. That was the point of the comment.

        I don’t expect everyone else to consider it a luxury though: that was also my point. That companies and marketers have successfully created an artificial need, that is now perceived as a real need.

        Reply
        • Mable November 22, 2013, 6:20 pm

          THANK YOU! I refuse to have a cell phone and am always being ridiculed by coworkers who do not believe it is a luxury. If it is your only phone, people still tart it up and pay more by adding games, internet and on and on…We’ve even convinced ourselves kids need them.

          Reply
          • Marianne Jacob November 23, 2013, 6:30 am

            I never understood and still do not understand this need people have, to always be fooling around with their cell phones. I can sit at a traffic light and look around and guarantee at least 9 out of 10 people have one up to their ear. People seem incapable of living in silence with their thoughts anymore. Not having thoughtful down time destroys all hope of thoughtful conversation and/or creativity.

            Reply
        • Jimmy Joe November 22, 2013, 9:51 pm

          I disagree. Communication is fundamental need of human society, and cell phones are just the latest tool for the purpose. Civilizations have for thousands of years expended great efforts to communicate across long distances: Roman roads, ambassadors, the telegraph, the Pony Express, ticker tape, telephone, submarine cables, and communications satellites for example. It is amazing that cell phones are so powerful, so convenient, and so affordable. Nokia (RIP) has sold over a billion phones, and in many places a cell phone is the first piece of high tech that someone is likely to own.

          Think of all the phone booths you no longer see; cell phones are cheaper and better.

          Yes, the telcos are trying to sell us stuff we don’t need (ringtones!), but there is real job that we hire cell phones to do.

          Reply
  • JonathanH November 21, 2013, 1:02 pm

    I appreciate this post because I love the market economy – but wonder what’s the right balance of government and market that will let people prosper and be free, have meaningful prices that coordinate supply and demand, yet keep people from doing stupid stuff?

    Reply
  • Bob November 21, 2013, 1:04 pm

    1) I think a better name for “loss aversion” is “the psychology of previous investment.” Being scared to lose something is in no way irrational.

    2) I don’t think people make stupid financial decisions and bad career moves out of irrationality. People have values, and they usually make rational decisions to attain those values. You may not like their values but that doesn’t make them irrational. For example, you could say that people irrationally buy large SUVs because they don’t need that much horsepower and it costs too much. I don’t view SUV drivers as being irrational — I view them as valuing status and short-term pleasure. And they are attaining those results in a rational, direct way. So in short, people aren’t irrational they just have shitty values.

    3) The Market Norms vs Social Norms section seems very Malcolm Gladwell-esque of pointing out the obvious. The message was: “People use a different set of norms when eating at home with friends than they do when eating at restaurants. Also, humans get happiness from social connections so try to get more of them.” That’s good advice, but why do I need an MIT behavioral economist to tell me this in a TED talk?

    Reply
    • Mr. Money Mustache November 21, 2013, 1:41 pm

      I’d say your point 2 might splitting hairs a bit – OK, their VALUES are irrational. But it’s still something that is counterproductive to the rational way to run a life (to live in the way that produces the most net happiness). Even if your goal is status and pleasure, you get MUCH more of that by not buying an SUV on credit – much more rational to become wealthy first, so you can flaunt it properly and get REAL status – with private jets and the like.

      Reply
      • Mark November 22, 2013, 2:25 am

        I think with both of these points, it comes down to emotion. We like to think that we are rational beings and that all our decisions are rationally made, but actually, emotion plays a bigger part that we would care to admit.

        So, with loss aversion – emotionally we hate losing so much, we irrationally choose not to try.

        And with the SUV – rationally, it makes no sense. But emotionally, perhaps for the people who buy them they’re just fun to have.

        Reply
      • Emma November 26, 2013, 10:00 am

        I think disproving point #2 is pretty much the point of this book, and the whole field of behavioral economics.

        You could ‘rationally’ value the status of an SUV at $50k. But you need need to be consistent in those values. If it wasn’t worth $50k to you before you saw an advertisement on TV, rationally, it shouldn’t be afterwards either.

        Those sorts of inconsistencies are what this book does a really good job of showing. It gives a lot of examples of choices people make that are logically inconsistent, regardless of their value system.

        Reply
    • Gerard November 21, 2013, 2:09 pm

      Bob:
      1) What’s claimed to be irrational is not the fear of loss, it’s the way that fear makes us see the downside as larger than it really is. In a mustachian framework, the problem is even clearer: past a certain stage, we’re capable of dealing with even the unlikely worst-case scenario.
      2) You don’t get a mulligan on irrational choices by saying they’re your values. Your values come from somewhere and are not absolute, unless maybe you’re cognitively impaired in some way. (I mean “you” in the sense of “one” in this sentence, not in the sense of “Bob”) :-)
      3) Okay, yeah, but just because we already know something doesn’t mean that we optimally apply that knowledge to all relevant areas of our lives!

      Reply
  • Maggie November 21, 2013, 1:23 pm

    Sounds like a truly groovy book (economics fascinates me, and I loved Ariely’s book about dishonesty). And in true mustachian form, I’ve ordered it from the Library :) Thanks, MMM.

    Reply
    • Tallgirl1204 November 24, 2013, 8:46 pm

      I went to the library, got the book, and just finished it. I will have to look for his books on honesty as you mention, because the chapter about how an honor code helps to minimize cheating rang so true. I went to a college with an honor code, meticulously followed by both staff and students (we could self-schedule our final exams and take them anywhere except in our rooms– I guess that was seen as too much temptation.). I loved it, and thrived, and was not tempted to cheat.

      Later, I attended another university where no such code existed, and it was very hard to see others break the curve through dishonesty. And from time to time, when I saw no other way to hold my own, I joined in. I hated it.

      Today, I find myself remembering both circumstances when I read comments online. People feel free to be verbally abusive or at least terribly unkind. They say things that are probably quite untrue about themselves. There is no sense of honor among many participants, and I find myself wondering “what would your mother think of what you just said?”

      And of course, Ariely addresses something similar when he talks about codes of honor being implemented in some professions these days– something like “your mother has better things to do, so I will provide you with a reminder of the rules she would have for this situation.”

      What a great read. Thanks!

      Reply
  • jon November 21, 2013, 1:30 pm

    Great article overall, but a small but important correction. The idea that “free market” capitalism is responsible for so much innovation is just a myth. Capitalism has lead to much innovation, but not the free market variety. Computers, the internet, satellite communications, lasers, commercial aviation, automation, interstate roads, semiconductors. These are all the result of public expenditures. Free market capitalism is not about the long game. Computers took decades to develop to where they could be used by consumers. No investor is interested in that. That took non-free market capitalism.

    Or take all the great economic powerhouse countries. The US, S Korea, Japan, Great Britain, Germany. They all went from poverty to prosperity with heavy government intervention in the economy, not free markets. A great book on this is “Bad Samaritans: the Myth of Free Trade and Secret History of Capitalism” by Cambridge economist Ha Joon Chang. A real eye opener if you are interested.

    I would also suggest that the reason people buy so much stuff they don’t need and remain in debt is because of free market capitalism. Capitalism’s worst nightmare is self sufficient people that have no needs. Needs must be manufactured for profits to remain. This is why Ghandhi, who was anti-capitalist, emphasized self-sufficiency and simplicity so much. There’s a reason you see so many pictures of him at a spinning wheel. To have few needs and be able to meet them yourself is a sustainable and satisfying life, but capitalism must resist the concept. So naturally capitalism, through what is called “Public Relations” but previously was simply called “Propaganda,” makes every effort to condition people to think they have unmet needs that these purchases can satisfy. Billions are spent to achieve this aim yearly, and it’s no surprise that it is successful. MM, you do a good job of combating that at this blog. Helping others live sustainable lives could in the end be bad for your investment portfolio, but it’s urgent that we try for the sake of our environment.

    Reply
    • Mr. Money Mustache November 21, 2013, 2:04 pm

      Great points, Jon!

      Up in that early part of the article, I wanted to get in good with the libertarians and conservatives so they would have an open mind to receive the rest of the message. Mr. Money Mustache needs to maintain his Capitalist Chops in order to get respect in this conservative country, as I’m already accused regularly as being a “liberal nutjob” for even acknowledging that we HAVE a government.

      In reality, I’m with you in noting the accomplishments of people working together in a non-market-driven structure as well (including goverments), and believe they deliver irreplaceable value. After all, the most advanced countries in the current world (if you measure by things like happiness and health rather than RVs per person) are fairly socialized with strong governments like Finland/Norway/Denmark/Netherlands, etc.

      Reply
    • Chris Forbis November 22, 2013, 1:06 pm

      Along these lines, False Dawn by John Gray (not the Mars/Venus John Gray) is worth reading.

      Reply
  • writing2reality November 21, 2013, 2:00 pm

    Fantastic read MMM, and as with many behavioral economics books and studies, truly fascinating.

    “It is generally understood in our industry that we aren’t fulfilling wants and needs – we are creating them. A new product first needs to create a market for itself, before it can be sold into it.”

    ^^ This screams modern consumerism to the ‘t’. Who knew we needed tablet computers before the iPad? Create the product, make the market, and rake in the cash. Work for the last decade for companies like Apple, and many other as well.

    Necessities, if I recall, generally fall under the “food, water, shelter” category of life. Goes back the strength post about how a living with a little discomfort allows us to realize how great we have things.

    Reply
  • Alex November 21, 2013, 2:52 pm

    Thanks for the refresher MMM! I read Predictably Irrational a couple of years back but really appreciate the summary.

    When you’re ready to level up to an even larger tome I recommend Thinking Fast and Slow by Kahneman.

    Reply
  • Bill November 21, 2013, 2:57 pm

    I think it’s nuts to base a world-view, or a society, on economics. At its core, economics in concerned with maximizing economic output, which does not necessarily have anything to do with individual or societal well-being.

    Economics is a useful tool in helping us to figure out how to allocate quantifiable resources. However, as Einstein is quoted as noting, “Not everything that is countable counts, and not everything that counts is countable.”

    Reply
    • Mr. Money Mustache November 22, 2013, 10:29 am

      I think economics is more a study of human behavior in a market system. There’s no rule stating that it is concerned with maximizing output, although if you read the US financial headlines you would assume it is – because the news and policy of this country does talk of growth as the only good, without measuring it against anything else.

      Reply
  • Bob November 21, 2013, 3:07 pm

    Nice one!

    I find that reframing oneself is helpful. As opposed to being framed from an external source.

    For instance not buying into the core habit of believing that one is an “American,” “Canadian,” or “Australian” goes a long way into defining yourself and not being programed by propoganda. To that end, I find myself defining myself in the not universe often. “I’m not an American, I’m not a Christian, I’m not a consumer, I’m not promilitary, I’m not into watching sports on TV.” My guess would be that the pack instinct kicks in more so with people who define themselves in terms of social groupings.

    Ironically, those who are more social “belongers” are probably also least immune to propoganda and advertising. I would think that anyone who believes in “their” country would also believe in their country just as much if they were born in or chose to live in another country.

    So yeah, I’m an American, Democrat, Christian, Troop supporting, Pro Family, Rockin-Roller, Harley riding, Golfer, NPR head, Steelers fan, meat eating, tree hugging engineer, who defines myself by my social allegiances. (Hey, we’re all individuals, right?)

    So go ahead and sell me some toothpaste would ya? Just not the most expensive one.

    Reply
    • Mr. Money Mustache November 21, 2013, 4:19 pm

      Haha.. nice Bob.. don’t even get me started on the irrational nature of conforming to the McHarley brand of consumerism. “I am a tough and noisy nonconformist(r), and I have the overpriced bike and the standard costume, all financed at 1.9% APR, to prove it!”

      Reply
      • Michael Crosby November 21, 2013, 6:03 pm

        Now that is funny.

        God, I’ve thought the same thing about these Harley guys for a long time. How true.

        Or like many in California, striving so hard to be different, they become the same in their differentness.

        BTW MMM, are you off today (from building your house)? You’re sure spending some time on the comments.

        Reply
        • Mr. Money Mustache November 21, 2013, 9:22 pm

          Yup, snowstorm today in Colorado. Totally vegging out inside on the computers. Not for long though – I hope to spend the whole next week outdoors!

          Reply
          • Jamesqf November 22, 2013, 10:19 am

            Go out and play in the snow!

            And yes, we had an inch or two over the last couple of days. Decent hikes with the dogs both evenings, and (so far) half an hour of chasing around the yard this morning.

            Reply
  • Carl Milsted November 21, 2013, 3:46 pm

    Well, some of our overconsumption patterns stem from Keynesian economic policies the U.S. government has pursued since the Great Depression. Pull out an older edition of Samuelson’s classic econ textbook and you will learn the “horrors” of “unemployed resources.”

    Based on this bit of pseudoscience, the government has worked hard to reduce savings and ensure that what is saved is immediately invested, thereby preventing the economy from having any slack.

    GDP goes up, but we aren’t as happy as the number would indicate — because it is a crappy number.

    Home school your kid and your work doesn’t show up in GDP. Send your kid to a dysfunctional public school and the dollars spent show up in GDP whether the school is teaching anything or not. Self sufficiency and homemaking don’t show up in GDP. Go to work to pay for McFood and GDP goes up even if the quality of the food has gone down.

    Reply
    • Mr. Money Mustache November 21, 2013, 4:09 pm

      Hey Carl.. interesting website you have there. I read the introduction and it sounds decidedly non-insane, which is rare in politics. I will read some of your sidebar stuff to see more.

      Reply
      • Carl Milsted November 21, 2013, 8:40 pm

        Thanks! Do be warned that some of the older material is in dire need of a rewrite. As I am not early retired, it’s taking me a while to get to it. Time/money spent on doing insane politics in the past has put off my retirement date substantially. Let that be a warning to all who are tempted to dabble in politics before becoming financially independent — unless you are corrupt.

        Reply
  • George November 21, 2013, 4:03 pm

    Dear MMM,
    It is with mixed emotions that I am writing to tell you that after 17 days of reading I ran out of >>[Insert Blog Title] links at the end of articles.
    I’m sad because that means I won’t have another new piece of respect commanding badass literature available until you write a new 4 course literary masterpiece.
    However you cannot imagine my excitement as I begin to pull a Mustachian 180 in earnest. I look forward to checking the mirror daily to watch the bruises slowly fade from the monster face punches I earned with my previous behavior and watch my peach fuzz turn to full mustache as quickly as possible.
    Thank you for all the work and dedication you have put into this amazing blog! I admire your obvious consistency in most areas of life and am looking forward to emulating and incorporating your philosophy into my life.

    PS: You have my vote to replace the Dos Equis most interesting man in the world!

    Reply
  • Bonnie November 21, 2013, 5:19 pm

    What’s the Craigslist app you use? I found a bunch but would like to know what you chose.

    Reply
  • Marianne Jacob November 21, 2013, 5:22 pm

    Let me tell you, this damned advertising is incredibly clever and convincing. I never watch those infomercials or the one where they sell make up and jewelry. Well, I tuned in just to see what kind of stuff they were selling and before you know it…I was sucked in. I actually sat up in bed to find a piece of paper and a pencil to write down the name of this “how can I live without it!” product! Fortunately I slept on it. The next day I really, really thought about it and realized I’ve made it 56 years withOUT this thing, so I think I can finish out my life without it. I understand how people are hypnotized by the advertising and end up buying this stuff!!! My father always preached the “food, clothing and shelter, anything else is a luxury” philosophy and that is how I’ve lived my life. I have very few material possessions, I own like, I don’t know, maybe 5 things and two of them are cats. I rid myself of 90% of my material possessions when I sold my house. If I have something around that has no function and just takes up space, get it out of here! I don’t want “things” owning me.

    Reply
  • phred November 21, 2013, 5:46 pm

    Advertising creates needs. Shucks, even Ben Franklin knew that. Without all these new needs even more people would be out of work. There would be much fewer taxes coming in for public expenditures.

    Jefferson wanted us all to live as small farmers. This was the norm before 1860

    Reply
    • Jimmie Joe November 21, 2013, 8:46 pm

      Productivity has grown tremendously since the industrial revolution, to the point where we can easily produce enough necessities and luxuries to give everyone(*) a comfortable life. In fact, even with all the wasteful junk we produce, unemployment is a long-standing problem. In an ideal world, we’d just reduce the workweek and take early retirement to open enough jobs for those who want them. MMM has solved his corner of the puzzle, but we seem to be heading backwards as a society.

      (*) By everyone, i mean the developed economies and most emerging economies. The potential is also there, I believe, for the rest of the world, but with the likelihood of social upheaval as they transform from tradition to industrial cultures.

      Reply
      • phred November 22, 2013, 11:48 am

        Well, for the lower economic tier, the workweek has been reduced. That doesn’t seem to be working too well. They can’t afford early retirement or any other kind of retirement.
        If everyone receives luxuries and comforts, I foresee even faster rates of resource depletion & enviro contamination.
        Can recycling approach 100%? Doubtful! Most are too lazy and energy depleted to address that

        Reply
        • Mr. Money Mustache November 22, 2013, 1:50 pm

          Aha.. but the main reason most folks have trouble with shorter workweeks, is that they maintain lifestyles that are out of scale with the reduced income (using cars for transportation, eating out, living without roommates, etc).

          Of course, this doesn’t address the problem of real poverty due to physical illness, mental illness, or other misfortune. I’m just suggesting that IF we could share Mustachian-lifestyle knowledge with everyone in the $10,000-$40,000 income range, there would be a whole lot more happily-part-time people out there.

          Since you can live a very good life on $7k per person per year (see earlyretirementextreme.com), this would still allow for plenty of retirement savings as well.

          Reply
  • Izhak November 21, 2013, 6:18 pm

    You should try the bible of Behavioral Economics/Finance, Daniel Kahneman’s “Thinking, Fast and Slow.” I’m now reading it for the second time it is so incredible. Haven’t read this book of Ariely’s (have read others), but would expect he would be quoting extensively from Kahneman’s work (Kahneman won a Nobel Prize for his work in Behavioral Economics/Finance).

    Reply
    • Walter November 22, 2013, 1:47 pm

      I second reading this book.

      Reply
  • Jenny Chan November 21, 2013, 7:31 pm

    You got me at “behavioural economist”. I love these kinds of books and reading about what makes people tick.

    I’ve put the book on hold at the library. Can’t wait to read it!

    Reply
  • bdonney November 21, 2013, 7:56 pm

    I got an emotional attachments to my Buell motorcycle and my instruments. everything else can go. I think its healthy to have a few things your emotionally attached to as long as you can count them on one or two hands. A lot of advertising seems like sorcery. Selling absolute crap to idiots has to be magical.

    Reply
    • Ann Stanley November 21, 2013, 11:07 pm

      I’m attached to my beautiful leather handbag. There’s no doubt about it, we love things (little shiny things, big solid things, things that go fast). It’s how we’re wired.

      Reply
  • Jamesqf November 21, 2013, 8:03 pm

    One question: who exactly are you calling “we” when you write something such as “We constantly buy things we can’t afford and don’t need, and the majority of the trading we do does not increase our net happiness.”

    I’m sorry, but I don’t do a whole lot of that – certainly not “constantly”, and I don’t think most folks here do, either. Some of us were always that way, or found it long before you started this blog; others may have learned about not doing it from this blog. (But what was in their nature to cause them to pay attention to what you write?) So why are we different from the herd?

    Reply
    • Mr. Money Mustache November 21, 2013, 9:17 pm

      “We” means Americans in general and others coming in from other countries in a similar predicament. They, rather than already-frugal wood-choppin’ insight-drivin’ mountain men like Jamesqf, are the target audience of this blog. You are certainly still very welcome here, of course, but you gotta remember the few thousand new people who stop by each day for the first time, combined with the blog’s often-stated mission, when judging the content of each article.

      Reply
      • JJ November 22, 2013, 8:46 am

        Speaking of chopping wood… We have a small woods in back and recently had a large locust fall over in heavy wind. We don’t have a fireplace, so I had a choice… Let it sit there and rot in the woods. -OR- Cut it up and sell it for firewood. I chose to cut it up an sell it because…

        1) It gave me $40 that I didn’t have before.

        2) The guy I sold it to heats with wood. Rotting wood releases the same amount of carbon as burning wood such that burning wood is carbon neutral over time. It would seem then that replacing some of the need for coal with wood from a dead tree that would ultimately rot anyway is a net positive.

        3) I don’t have to stare at a rotting log in my woods.

        4) My 10 year old helped me cut it up and load it onto the guys trailer thereby learning about hard work, entrepreneurship, saving, investing, etc.

        Now I’m trying to decide whether it was truly enough of a net positive to call the guy the next time we have wood available. I’m kinda interested in other mustaschians’ thoughts on number 2 above. Is burning dead trees for heat preferable to coal? Knowing how mustachian’s carefully consider the most efficient option I bet there are strong opinions out there. Even if it’s carbon negative, I might do it again because of number 4.

        Reply
        • phred November 22, 2013, 12:01 pm

          wood good, coal bad. Wood is relatively clean burning, although your house will still seem like walking into a smokehouse.
          If you mean burning coal at home, everything in the house will soon be covered in a black soot. If you mean burning coal in a utility plant, the bad stuff can be caught in various filters, but only if everyone stays on top of things — otherwise lead, mercury, arsenic, radioactive particles, etc end up in the air
          Rotting wood provides food & shelter to several lifeforms

          Reply
          • Jamesqf November 22, 2013, 8:45 pm

            Unfortunately, the really bad stuff – CO2 – can’t be caught in filters.

            Reply
        • lurker November 22, 2013, 3:34 pm

          next time, particularly if it is a maple, seed it with mushrooms and make more than $40 while you have a rotting log in your backyard…and teach your kid a bit about permaculture…..

          Reply
        • RetiredAt63 November 23, 2013, 7:54 pm

          Wood is good – the Carbon is in a fast carbon cycle, the tree would have released most of its carbon within the next 15- 20 years anyway, the rest would take a few centuries since it would be locked into humic acids. Coal is fossil carbon, that carbon has been out of circulation for millions of years (most coal was formed in the Carboniferous period, which was from 359 million to 299 million years ago). Big difference.

          Coal also has sulfur, which creates acid precipitation unless the smokestack has good scrubbers.

          Any other ecology questions, just ask ;-)

          Back to our regularly scheduled programming . . . .

          Reply
  • Cyrus November 21, 2013, 9:13 pm

    Introspecting, the social exchange = happiness part leaves me skeptical. I have positive and negative social exchanges. These days they are more positive than not. There have been a couple seasons in my life when they were more negative than not, and during those times I found a great deal of satisfaction in my market work because there at least my efforts reliably produced their intended outcomes. Happiness comes from within. Sometimes others help you find it. Other times solitude or the work of one’s hands is key.

    Reply
  • John Duncan November 22, 2013, 6:08 am

    You might be interested in some reading related to this topic. First, I think people ought to read “The New Industrial State” by John Kenneth Galbraith. While the context is outdated, the basic reality argued in the book, that the “market system” represents only a small part of the economy and a “planning system” represents the rest, rings true. What people don’t realize is that the planning system is not like the Soviet planning system (which failed to create demand) but instead is run by corporations and advertisers and is designed to create demand to soak up the excessive production they are capable of.

    The other thing people should read is http://www.thelastpsychiatrist.com/

    The Last Psychiatrist has numerous articles deconstructing advertisements, which can be very useful in arming yourself against advertising. The creation of demand happens at deep levels in psychology.

    Reply
  • HealthyWealthyExpat November 22, 2013, 6:29 am

    Thank you very much for the book recommendation, MMM. I’ve been looking for something to read for the past couple of days, and now I have it. But I want to thank you even more for reminding us that we need to avoid that psychological pull of relativity (i.e. Keeping up with the Jones’). As I look out my home office window, I see my little 2003 Honda Civic sandwiched in by all the 4WD vehicles of my neighbours. Although I have been a very frugal person my whole life, a few months back I was constantly thinking that I needed a new 4WD to make my life here in the desert complete. Thankfully, I came across your blog just in time, and it (as well as my even more frugal wife) knocked some sense into me before I did something stupid. So thanks, and keep the great posts coming!

    Reply
    • Jamesqf November 22, 2013, 10:26 am

      Depending on which desert you live in, and how much time you spend (or want to spend) out in it, a 4WD can be quite useful. But you don’t need a new one: mid ’80s to early ’90s Toyotas can be had for a few thousand, and tend to run forever. (My ’88 pickup is still going strong, though I did have to replace the muffler the other day.)

      Reply
  • Phoebe November 22, 2013, 8:21 am

    I LOVE this!! The part about relativism really hit home with me. I sometimes find myself dreaming of a million dollar house like the ones where I grew up, and while I also dream of living in a little shack somewhere on the coast that dream seems more out of reach because it is out of the norm. It’s easier to stay with the sheep and remain somewhere in the middle of the herd, even if it is worse for our finances and our happiness. Thank you for snapping me out of it!

    Reply
  • Drew November 22, 2013, 9:06 am

    For another good (and funny) read on behavioral economics as applied to investments, see The Little Book of Behavioral Investing – How Not to be Your Own Worst Enemy by James Montier. Grudgingly admitting to my (many) past errors as I read it…

    Reply
  • Dan November 22, 2013, 9:46 am

    I am reminded of the description of Lord Peter Wimsey in the (excellent) book Murder Must Advertise…

    “Like all very rich men, he was immune to advertising.”

    Reply
  • phred November 22, 2013, 11:40 am

    Hmmm, I’m having trouble with editing, so I’ll just make a new comment. All these new needs need to be manufactured and produced. That means a lot of jobs will be created although nowadays they seem to be created overseas.

    If we just focused on needs, most would not have jobs.

    Reply
  • Money Saving November 22, 2013, 12:04 pm

    Interesting concept on the menu pricing. I guess I hadn’t really realized that before. I’ll have to pay even more attention to how I’m being brainwashed :-)

    Reply
    • Andy November 22, 2013, 1:52 pm

      I ran into this for my anniversary. Since this is a once a year thing, I got one of the most expensive things on the menu (not a super fancy restaurant). It ended up being something that I could have whipped up at home in 20 minutes easily, for 10 bucks max. Not really even that good. I kind of realized it was there to just make the other prices seem palatable. This gut feeling has just been confirmed!

      Reply
      • Money Saving November 25, 2013, 7:50 am

        Andy – haha, at least you were a good sport about it. My wife and I have started a new thing of just sharing a plate.

        Because the portions are so big nowadays, we can just get by drinking water and enjoying a $7-$10 plate between the two of us. $4 each seems reasonable, and we aren’t stuffed afterwards which is also a plus :-)

        Reply
  • Ryan November 22, 2013, 12:36 pm

    This was a good introduction to Dan Ariely, I will definitely have to check out his books (at Goodwill or the library or something). I’ve learned a lot about controlling my behavior and mainly spending by studying mental models, and my own cognitive baises, specifically the denomination effect and the endowment effect. The denomination effect basically says we will spend more money when it is in smaller denominations, and the endowment effect states that we attribute more value to an object if we own it. I try to keep that one in mind when I am side hustling things on eBay.

    Reply
  • Marianne Jacob November 22, 2013, 12:47 pm

    I live in Texas and there’s a builder here that builds tiny houses, like 300 foot and under, maybe a few feet bigger depending on what the client wants. The owner is all about reducing our carbon footprint but more importantly, using the resources we already have such as salvaged wood and vintage materials like old beautiful stained glass windows, glass doorknobs, stuff that is still in better condition than a lot of our mass produced building materials. He wastes nothing. He takes others waste and re-purposes it. Here’s his website if you want to take a peek. I have visited his facility and it is quite remarkable. The homes are beautiful and he is genius at utilizing every inch efficiently. You do not miss having another 1,000 square feet! Definitely not for a family of 5, but one or two could live comfortably.

    http://tinytexashouses.com/about/

    Reply
  • Walter November 22, 2013, 1:49 pm

    Finance for engineers with a discussion of irrationality pitfalls of investments.
    http://www.slideshare.net/mobile/adamnash/personal-finance-for-engineers-twitter-2013

    Reply
  • L November 22, 2013, 1:55 pm

    If the bible of Behavioral Economics is “Thinking, Fast and Slow” the cheat-sheet is “The art of thinking clearly” by Rolf Dobelli. Keep it on my desk whenever I need to check I am not letting any biases or thinking errors get the better of me.

    Reply
  • Rich Berger November 22, 2013, 2:48 pm

    “If that were the whole story, we could just shut down the government and sign an Ayn Rand novel into law and be done with it.”

    I searched the rest of your post for some defense of government, especially the leviathan that spends almost $4TN a year and which has racked up $17TN of debt (not counting all the other unfunded liabilities). I did not find any, but the implication is that because we are not totally rational, the free market must be overridden by a government. If people are not rational, what is the justification for putting other potential irrational people in positions of great power, where they can do great harm?

    The free market is what happens when you allow free individuals to interact and work together. Many of those transactions are not done for material gain, but rather reflect the innate desire of individuals to help and befriend others. Contrary to your insinuation, the number of people who take Ayn Rand for their moral guide is relatively small. Only free people can truly be moral, and truly reach out and help their fellow man.

    Reply
  • Giovanni November 22, 2013, 4:40 pm

    Great post MMM, as a follow up I highly recommend “Thinking, Fast and Slow” by Daniel Kahneman (http://amzn.to/MdUpjw on Amazon) to see a more detailed look at how our brains function and how to use them to rock our Utility.

    Reply
  • Sarat November 22, 2013, 8:07 pm

    Many people here have touched on the influence of advertising in our lives, so for those interested I would highly recommend checking out the Media Literacy Project. I used to work with the founders when I was in high school and I can say that to this day (and 15 years of education later) media literacy is the single most useful and important thing I have learned in understanding our modern world.

    http://medialiteracyproject.org/

    The beauty of becoming “media literate” is that it helps you to understand why people think certain things are normal and to question everything that is considered mainstream…very much like this blog does.

    Reply
  • Bruce November 23, 2013, 5:29 am

    Great post. Added both Ariely and Kahneman to my reading list (getting kind of long, need to retire).
    Really gives perspective to how we all jump on the Hamster wheel and do not really understand why unless we stand back and take a good hard look at the reasons.
    MMM, I think you should think about a short book for kids so we can catch them younger.

    Reply
  • Georgina November 23, 2013, 5:53 am

    Wow! What a timely read: just in time for preventing 2014 Janaury empty purse blues. This time of year marketing goes into turbo boost. Thank you very much and may you and all the readers enjoy the festive season.

    Reply
  • Roger H November 23, 2013, 2:45 pm

    Great blog and great advice. I wish that I had the determination to take more of it.

    I don’t understand the $12,000 loss. My understanding is that a broker gets paid for making the connection between someone who wants to buy an item and someone who wants to sell an item. It would seem that the key ingredient is missing – your friends made the connection on their own. Am I missing something?

    Reply
  • Fred November 23, 2013, 8:49 pm

    I heard Dan Ariely speak at the Commonwealth Club in San Francisco last month. If you ever get the chance to hear him in person, you should do so. Not only is he interesting and fascinating, he is also humorous.

    Reply
  • Karl November 24, 2013, 9:21 pm

    Brilliant write up. This book has been added to my list. Very soon I will have lots of time to read all these books that are on my to-read list!

    I am currently in a mustachianist grey area myself. I just bought a very large 4×4 van (Delica L400) over the weekend. It get’s the fuel economy you’d expect from a 15 year old, 2 ton, ‘brick on wheels’.

    I am going to be converting it into a campervan and go travelling (early test retirement) around the country for 8-12 months. Fuel and onroad costs will replace weekly rent.

    The vehicle and all the accessories/mods to make it a safe, reliable and comfortable offroad campervan will cost around $16,000 AUD all up. This includes dual batteries, roof rack, solar panels etc to be fully self sufficient so we can park up anywhere we want and camp for free. Because I negotiated a very good deal on the vehicle and will be installing everything myself and buying cheap/used, I should be able to sell the car after the trip for the same amount too. Effectively getting my money back apart from what I will spend on licensing and insurance.

    I have calculated ongoing living costs of fuel, food, park entrance fees, camp fees, insurance, maintenance etc to be around $1000 p/m per person on average. Not cheap, but this is full time travel and holidays, 24/7 for a year.

    When you think about it $12,000 for a full year of travelling and not working at all is pretty good. On that note I am working on monetising my website, so all going well that will start to bring in some additional cash. Plus with all the extra free time I’ll probably be writing more and create some more websites too, in addition to doing some labouring along the way for cash top ups on the road.

    I’ve still got another 10 years of working before I’ll be ready for full financial independence, but I figured that you’re only young once and I’d regret not making this sort of trip now while I am young, healthy and physically capable of it.

    Reply
    • Bobwerner November 25, 2013, 8:43 am

      Not being too critical (a little maybe) but $1,000 a month per person for camping seems mega extreme. I camp alot. Last year I camped 45 days.

      I can’t imagine spending $66 per day?

      My average amount spent is: Camping fees $7, (avg. sometimes free, sometimes $15, sometimes $7), Food – $6 (two people), (I don’t fish, but I could cut this in half if I did), Fuel – $2 (about 500 miles month), Insurance – $1.5, Mait – $2, Booze $2 (vodka is cheap, and boxed Merlot is too while neither requires cooling), Amusement park admissions $2, ($730 per year), Misc. $4.

      Total daily cost for two = $26.;5 or $375 per person per month or $4,500 per year per person..

      That is about 3 times cheaper than your figures?

      And really, if I cut out the luxuries and fished a little we could do it for half that price.

      So I guess I’m confused. Are you eating at restaurants every meal? Are you driving alot? Are you staying at hotels half the time?

      At my rate you could camp for 3 years with your $24,000 or better yet, if you have $50,000 in 10% investments, plus a little web site income you would be financially independent enough to camp the rest of your life.

      Me thinks you should consider economizing a bit more and challange yourself.

      Your camping rig is pretty much a luxury camper. I get that. But I also camp exclusively in a $100 – 7 year old tent. I considered the camper route, but we like to be very close to nature and far from other people. Parking and hiking less than a mile to a private campsite is often the ritual.

      But to tell you the truth I’m very jealous, as I’m currently teathered to a house, a job, and raising a public school 6 year old.

      My wife is the camping enthusiast, so maybe you have motivated me to make a 1 year plan to go on a 3 year camp out!

      Keep us posted!

      Reply
      • Karl November 25, 2013, 10:21 pm

        Hi Bob

        Thanks for your thoughts. I am very reserved when it comes to making cost estimates, so in all likelihood the actual costs will be below my calculations. It’s better to prepare for worst case scenario and be able to afford it, rather than assuming it will be super cheap and then getting caught out.

        I have created a expense chart (shared with my girlfriend on Dropbox) detailing the average weekly costs. My rough estimates for weekly costs worked out like this, keep in mind I am in Australia where almost everything is much more expensive (but we earn more, so it’s all relative):

        Groceries/food/misc supplies: $50
        Fuel (average price is $1.60 per litre of diesel): $100
        Camp fees (2 nights a week): $25
        National park fees (once per week): $5
        Phone and internet fees (high speed wireless 4G): $25
        Insurance (comprehensive): $25
        Emergency stash fund (breakdowns etc): $25
        $255 p/p p/w (so around $500-600 per week combined costs for 2 people)

        I am actively working to see how we can improve these costs further. I think the grocery bill will end up being a little less, maybe $80 per week (combined for two people).

        Also I am trying to find a way to reduce the internet and phone costs. Rather than having two phones and an internet device, I want to have one phone that has a high data plan and large call credit allowance (to call family etc) and use that to create a local wifi hotspot to share with the notebook PC and other phone to do work. The second phone will be on a basic pre-paid plan, maybe $50 a year. Just to use to send SMS and receive calls if we split up somewhere for any reason.

        Given the van will be pretty comfortable and self-sustainable (it will have a toilet, solar power, fridge, water supply, solar shower etc) we might also be able to reduce camp fees even further too. I do envision that we will be visiting a camp ground at least once every 5-6 days though simply to wash clothes, have a good shower (wash hair), clean and service the van, charge up appliances, go shopping and stock up etc.

        I’ve got a reasonable amount of money available, so the trip costs are fairly insignificant. But I do need to make those existing assets work for me harder than the current ROI of ~4.4% I am getting from a high interest savings account (calculated daily, paid monthly). That’s the next step for me in preparation to living on the road. Passive income I can earn from my savings, plus any extra from my websites will be combined with active income from occasional cash-in-hand jobs.

        My ideal situation, as you mentioned, is being able to maximise my income from existing assets and websites for the least amount of ongoing effort/work as possible, and then compliment this by minimising my weekly expenses to the point that it breaks even. I keep my nest egg and just live a simple and happy existence off the return until I am ready to start working again in the future. But before then I have many books to read, websites to setup, articles to write, festivals to attend, fish to catch and waves to surf!

        I’ll be detailing my adventure on a website, maybe not my main one (velophile.com.au) as that is cycling focussed. So I might create another one specifically to cover the trip and all the prep I have done to make it happen. The ‘vanlife’ subculture is a big thing in the US, so I’m sure there’d be a bit of interest even if I’m based in Australia.

        Lots to think about! Thanks for the advice.

        Reply
  • Brad November 25, 2013, 6:15 pm

    I am a 47 year old teacher. In four years, I’ll have the required minimum 30 years in my pension plan to retire at 4K per month. That figure tops out at about 6K per month if I were to continue teaching until I turn 58. Here’s the crux; I’m not really sure if I want to work past 30 years just boost my pension fund if I could retire earlier and backfill with my other funds. My wife is also a teacher, but is about 10 years away from reaching her 30 years. We have two children that will be nearing college age at the time I would like to retire.

    Recently converting to Mustachianism, I’ve been lowering monthly expenses. I recently switched to a cheaper phone plan, found lower car insurance, started biking to work on nice days, and have found other ways to cut back. Our only debt is $250,000 on our home that is worth about $550K. Our assets are nearing $800,000 including all retirement plans and the equity in our home. After all expenses, we have about an extra $2000 to pump into savings a month.

    Here’s my question. Should we put that $2000 into our current 403b tax-deferred plans or invest in Vanguard Index Funds or some other plan that is more flexible? In our two 403b accounts we currently have balances of 90K and 60K. Would it make sense to boost those accounts? Those accounts are not accessible without penalty for another 12 years or so.

    I would really like to retire from teaching in the next 4-5 years, even if it means part-time work following that. Any advice from my fellow Mustachians?

    Reply
  • Cassie November 27, 2013, 5:47 pm

    Having worked in public health, I can tell you that we humans definitely are not rational creatures generally. Like you said they smoke, they eat terribly, don’t exercise, don’t wear helmets, have unprotected sex, etc, etc. And why is that? Well, a lot of the time it comes down to some of the things you mentioned: social norms, marketing, relativity and loss aversion. Or in general, the subject of behavioral economics.

    Socially if it is unacceptable in your group of friends to smoke, you are much less likely. And vice versa, regardless of what your doctor says and what you know rationally to do.

    The most heavily advertised and marketed foods (and products in general) are the most often consumed giving one of the finest recommendations by food author Michael Pollen to avoid any food that is advertised on TV. It is very difficult to counteract the massive messages of McDonalds, Cheetos and Coke. And relativity -if you are just 20 lbs overweight and your friends are 50 lbs over, you are doing good…right?

    And loss aversion! Man this is still a hard one for me. We had to deal with loss aversion as well when my husband and I up and quit both our jobs, sold ALL our stuff (I mean we only had four suitcases and our cat on the airplane!) and moved from Colorado here to Puerto Rico. We went from a house in Greeley with 2200 sq ft to a small cabana with only about 400 sq ft. But like you, we have our techniques to trick our brain…or really it is just about putting it into perspective. So we don’t have the big house, but we have year-round nice weather and four acres to plant food. So we don’t have the 5 figure monthly incomes anymore but we have all the time in the world. And we have ENOUGH (what a concept).

    We are no longer just an Economic Unit in the system. We are a part of our community. We know our neighbors much more than we ever did before. Our work and play is one and the same. And living in an area that is mostly forgotten by the mainland US, we are learning that there is so much outside of the mass media and society.

    So it can be done…but we must make the best choices the easiest and sometimes that means tricking your own self and using our faulty wiring to OUR advantage instead of some impersonal market machine.

    Reply
  • Turbo November 29, 2013, 7:55 am

    I love the wolves in sheep clothing picture and the pure genius of this blog.

    Reply
  • Jessica November 30, 2013, 9:08 am

    I’ve been living in India for the past 5 months and have become thoroughly entrenched in a more ‘social norms’ kind of place. Even though fixed price markets are popping up all over the place, most of life’s daily transactions are still social-based.

    It’s been interesting learning the system, and, to my surprise, I’ve found myself both attracted and repelled by the system. Overall, I’d say that my American values of freedom and independence and a good deal of my cognitive space need to be sacrificed to succeed in this social place. I can’t just wave at my neighbors while we’re all out on our verandahs shaking the dirt out of our rugs; I have to have a relationship with them. That means giving up some time, some cognitive space, some privacy in order to receive the benefits of our social arrangements. I do get good benefits, no doubt. I provide my neighbors with transportation and a fun creative home for their children to enjoy, and my neighbors help me make doctor appointments, find things, translate and haggle with local business people (and make me delicious food and teach me how to cook it!!!). But my door has to be open 24/7, if I start pushing away, I’ll lose the trust of my social connections. In other words, maintaining a lot more relationships is a lot more work, and these are not skills I have developed well growing up in a cold market economy. I’ve had to work at it and it isn’t always easy.

    Another surprise has been how tight the social network is here and how tightly market prices are set among neighbors. For example, the neighbors and the maids have worked out a fair market price for hand-washing laundry. It’s something like $2 per person per month. I had to hire a laundry maid when I had thumb surgery and couldn’t do mine temporarily. I made the mistake of negotiating on my own, and got fleeced by the maid (I was paying twice market rate). Once everybody found out about it, the neighborhood was in an uproar, maids and all. By pressure, my only solution was to fire that maid and hire a new one who would work at the fair market price, other wise the maids would revolt and my neighbors might face a price increase that they didn’t want or might not be able to afford.

    My experience is pretty similar across the board. The psychology of it is conformity. If you try to get around it too much you can risk social repercussions, which can be severe in a social society. Even on a small level, people can be deeply hurt if you don’t ask them for a recommendation for a doctor, or if you don’t follow their advice. It’s complicated, much more than I expected. It’s colorful, indeed, but I feel a bit locked in sometimes when trying to make decisions about things. I have less ability to move around social and professional circles, less autonomy, less privacy. I know this is the opposite extreme to what we have back in the US, but I’m learning a lot about myself and my culture by having this experience. I don’t know if any of this makes any sense, but I guess I just wanted to add a bit to the discussion of market vs social norms.

    Reply
    • Christine November 30, 2013, 9:27 am

      Thanks for writing this! Very interesting to read the differences between India and the US when it comes to social relationships. I think I would have a difficult time getting around in Indian society, I’m a very private type of person!

      Reply
  • Steve November 30, 2013, 11:27 am

    Great article, I see a lot of posts here about the lack of community in the heterogeneous US. But listen to this story:

    One day, my new (white male) co-worker brought lunch from home. He opened it to reveal a Filipino feast of lumpia and other goodies. Yeah, he said, my Filipino neighbors make me lunch a lot.

    Later, I saw pictures on his facebook page of a barbeque with him and a group of folks of every color and age group. Yeah, he said, my neighbors and I get together a lot. We’re like family.

    Wow, I thought, how lucky! But how did all this community spirit come about?

    What happened was this: Houses are offered for sale, a block at a time, in the subdivision where they live. They’re available for about 10% under the market price, but it’s first come, first served. So the eventual owners all stood in line together, day and night, for a week, bringing each other food, saving places in line during bathroom breaks, etc. Lifelong bonds were formed. Too bad they don’t sell all houses this way.

    Reply
  • CrucialDebtCrusher December 4, 2013, 12:07 pm

    Mustachianism is in the vein of Anarcho-Primitivism

    Reply
  • Coach Belle June 3, 2014, 11:20 pm

    Hey Mr ‘Stache – been loving your articles for a few months now – they’re a topic of conversation in every chat I have with my brother and sister in law and we love finding new ways to implement your strategies in our lives. Thanks!

    I loved this book and wanted to suggest you (and anyone else interested of course!) check out Influence by Robert Cialdini if you’re looking for more reading material on this topic. I believe Dan refers to it briefly in Predictably Irrational, and between the two books I think most advertising techniques are unveiled, as well as the unconscious forces that drive our behaviours in day to day life. I certainly used the concepts from both books a lot in my role as a marketing mentor & manager (in another life) and use them now in my role as a coach to influence the behaviours of my clients.

    Looking forward to many more Mustachian moments!

    Reply

Leave a Reply

To keep things non-promotional, please use a real name or nickname
(not Blogger @ My Blog Name)

The most useful comments are those written with the goal of learning from or helping out other readers – after reading the whole article and all the earlier comments. Complaints and insults generally won’t make the cut here, but by all means write them on your own blog!

connect

welcome new readers

Take a look around. If you think you are hardcore enough to handle Maximum Mustache, feel free to start at the first article and read your way up to the present using the links at the bottom of each article.

For more casual sampling, have a look at this complete list of all posts since the beginning of time. Go ahead and click on any titles that intrigue you, and I hope to see you around here more often.

Love, Mr. Money Mustache

Ads

$25 Unlimited Smartphone
The Lending Club Experiment
A $500 Signing Bonus... WTF?
How to Start a Blog

latest tweets