158 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 of this free enterprise and trade. Neat inventions in food production, medicine, clothing, and everything else that brings us long lives and comfort, are side effects 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. When applied to personal finance, this equates to easily amassing way more money than everyone else.

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 the money in the first place! 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.

  • 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
  • tlars699 January 22, 2015, 8:35 am

    “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.”

    To challenge that assumption- we just moved our 5 person family last year to a house with 920 sq ft, up from a 3 bedroom apt sq ft of 850. We also have next door neighbors with the same square footage.
    And we have too much junk as it is- yet enough space to live relatively comfortably. I’d like the kitchen to be bigger, but it works.
    I can only imagine how much stuff you have lurking in that extra 600 sq ft…o_O lol

    Reply
  • Joe T March 15, 2015, 8:21 am

    I want to challenge a couple of the things you said in this article. You certainly don’t sound like Randian fundamentalist (you poke fun of the idea), but you do tend to settle on the “free market” side of the “free market” vs “regulation” (or whatever you want to call it) issue.

    1. “. . . most of the good aspects of our great leaps forward since the industrial revolution are byproducts this free enterprise and trade.”

    What would those good aspects be? And what are the “great leaps” you had in mind? If by “free” you mean leaving industrial capitalists to do whatever they wanted, then this is certainly not true (see: labor history: overtime, workplace safety, equal pay laws, anti-discrimination laws; the great depression/New Deal; the Glass-Steagall Act and the effects of repealing it; examples go on and on).

    On the other hand, if by “great leaps forward” you mean the invention of new profitable consumer widgets, or the ability to offer a cheaper hammer or screwdriver, then yes, a “free market” can be wonderful (of course, to be in favor of this, you have to favor the outsourcing of labor to “freer” labor markets–countries where people don’t have any rights–so therefore it is cheaper to make a smartphone, toy, widget, etc.).

    2. “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.”

    I know these aren’t your words, but it demonstrates the confusion I often see in your posts about economics. I couldn’t think of a better manifesto for capitalism than those two sentences. If capitalism means a system for PRIVATE PROFIT, then this is ideal. It is also ideally inefficient. So under this understanding, not only do you not have to fulfill the wants and needs of society, you can invent wants and needs artificially, so that you can sell whatever makes you the most profit. This is maximally, optimally wasteful (very un-Mustachian), but maximally capitalistic.

    (1) is demonstrable by just looking at the facts of industrial-labor history. (2) is probably just my opinion, but it’s probably correct.

    I don’t know if you see these comments on older posts, but if you do, I hope you don’t take my comments in a too negative light. They’re certainly not meant that way. I love your blog. But from what I’ve read so far, on these occasional posts about economics, you tend to settle with (forgive me) naive conclusions on “free market” vs whatever is opposed to it. In fact, the terms “free market,” “free enterprise,” “capitalism,” etc., when used today in the context of our very complex and highly regulated global economy, are just vacuous propaganda terms used by political and corporate interests to beat people over the head with when they get out of line and demand rights.

    Again, I love your blog. I hope this didn’t come out sounding too negative.

    Reply
    • Joe T March 16, 2015, 8:56 am

      Hmm . . . my comment sounds awfully pompous now that I’ve reread it. I should have stopped at “I love your blog.” That’s what i meant to say.

      Reply
  • chris jones March 31, 2015, 7:49 pm

    I have been reading your blog. The question I have is when I pay off my home loan(this year) and I start stashing the cash and cranking down on the budget do we gather the money we need for early retirement first or start investing and stashing cash. What does this part look like? Example $500k cash collected then start saving cash for the investment part? Thank you for your time.

    Reply
    • Mr. Money Mustache March 31, 2015, 7:59 pm

      Hi Chris – you should check out more of the investing posts. Investing IS saving – I do all my saving in the form of just buying more and more index funds, and never hold any cash. The funds will generate dividends and capital gains, and there is your retirement income.

      Reply

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