Barking Up The Wrong Tree

Michael Norton

Michael Norton is an associate professor of marketing at Harvard Business School. He is co-author of the new book, Happy Money: The Science of Smarter Spending, which explains how the latest social science research can help you spend your money in ways that improve your happiness. (More on the book here.)

Mike and I spoke about how time affects happiness, why money is so motivating and how Netflix might just be making us less happy.

My conversation with Mike was over an hour long, so for brevity’s sake I’m only going to post edited highlights here.

If you want the extended interview I’ll be sending it out with my weekly newsletter on Sunday.

Join here.

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Why are we so obsessed with money?

Mike:

It’s one of the most fascinating things that humans do: we can know something and yet it doesn’t influence our behavior at all. It’s amazing how good we are at that. I know I should exercise and I don’t. I know I should eat healthy and I don’t. I know I should spend time with my kids and I don’t. I know that, yes, money isn’t going to make me happy and I still keep trying to make money. It’s an amazing thing about humans that we have these mistakes that we make all the time and it’s not lack of information.

So, one of the things that we want to feel about ourselves is that we’re getting better over time. My life is getting better or I’m making progress or I’m growing or learning. It would stink if you felt every year was worse than the year before.

Eric:

So money is a metric?

Mike:

Yes. Exactly. We’re looking around for, “Am I better off than I was last year?” Some things are hard to measure. So, “Am I a better dad than I was last year?” Well, there’s no objective scale where I can look back and someone says, “Last year you were a 71 dad. This year, you’re a 74 dad.” Or spouse or whatever it might be, it’s very, very hard to know. The things that we can know are things we can count, and one thing that is really, really easy to count is money. So, if I want to know if I’m better off this year than last year, one of the first things I can do is say, “Do I have more money?” I think that alone makes it very, very motivating.

It works with things like the size of your TV, the square footage in your house, all of these things that we can . . . The number of cars you have. “Am I better than I was five years ago? Well, I have five cars. I had no cars. I guess I’m better.” We’re just unable to correct for it because the other things that are important are hard to count and counting is great. It feels like math and math feels like science and we feel like we’re better off because there’s a confidence that I’m doing better, and it also works better with other people: “Am I better off than you? I don’t know, but if I have a bigger house than you, I beat you.“

 

“Is life nasty, brutish and short?”

Eric:

So, in a very Hobbesian turn, you did a study on “Is life nasty, brutish and short?” Can you talk about that?

Mike:

We started with the Hobbesian “Is life nasty, brutish and short?” and we tested it in a very simple way, which is we just asked people two questions and you can answer them yourself. One is, “Is life short or long?” The second question is, “Is life easy or hard?” Of course Hobbes said life is “nasty, brutish and short.”

It turns out that a massive majority of people agree with him that life is short and hard, something usually 50, 60, 70% of people agree, life is short and hard. Only 5% think the opposite, long and easy. So, very, very few people, if we ask them, say, “Life is long and easy,” including people for whom life is long and easy.

If we ask, for example, MBAs, who are a group of people who have extraordinary life outcomes. In human history, very few classes of people in the world have better average outcomes than people getting their MBA, because they all end up doing something interesting and they have enough money and things like that. Even they say life is short and hard. So, it’s not about, really, your life experience. It’s about what you bring to the table, and people seem to mainly have this theory that life is going to be short and hard. What’s sad about it is, is that’s associated with being unhappy, with being not civically engaged, with not volunteering, that when you have this view of life as short and hard, you tend to sort of ogre down and be sad. And this little tiny group of people, the 5% to say “Life is long and easy,” are incredibly happy people, totally engaged, tons of friends. There’s huge fascinating differences on the basis of whether you think life is short and hard or long and easy.

 

Stop counting

Mike:

We talked earlier about the curse of counting things, which is fundamental, I think, to what we’re trying to say in the book, which is, “Knock it off. Knock off counting how much money you have and start thinking about what you’re doing with it. What you’re doing with your money and time is a lot more important than how much money and time you have,” and that has really changed my life.

“Knock it off, because it’s not good for your happiness and you’re probably focusing on the wrong dimensions for what will really make you happy.” It’s very hard to apply, but that’s something that I actually try to apply in my life, really, every day.

 

Which books do you recommend?

Mike:

Dan Ariely’s Predictably Irrational

Danny Kahneman’s Thinking Fast and Slow

Adam Grant’s Give and Take

The books of Malcolm Gladwell

Don Campbell’s Unobtrusive Measures

 

Think about time

Mike:

One of the chapters in Happy Money is all about buying time. So, everything you buy, think about how it’s going to affect your time. Not the product itself, but what you’re going to do with it later and that massively changes your decision-making. So, not to come back to TVs, but buying a TV, you think, “Oh. This is going to be great. I’m going to have friends over and we’re going to watch TV and the kids will be there. We’ll have family movie night.” It turns out, when you buy a TV, what you do is you watch it by yourself in a dark room. It’s not good for you. If you think about, “Wait. How am I actually going to use this TV? How will it actually change my time?” you might say, “Maybe I don’t want to get a TV.“

Those kinds of decisions, alone, are very important to think about, not your fantasy of what it’s going to do, but “How will this actually change the time I spend in the weeks going forward?” and a TV commits you to thousands of hours by yourself, and that is not good for our happiness. I use this in my own life.

Really think about everything you buy. If you want to buy a huge house, that’s great. If it’s adding a two-hour commute, that’s not great, and think about not just, “Oh. Commute’s fine. I can do a commute.“ Think about two hours every day for the rest of your life. Do you really want to add that to your time or do you want to stay in the house that you’re in? It’s really an important thing to think about.

 

“Make it a treat”

Mike:

The idea is that the things that you really like a lot, stop. Stop it. So, if you love, every day, having the same coffee, don’t have it for a few days and, when you wait, and then you have it again, it’s going to be way more amazing than all of the ones that you would have had in the meantime.

The problem with that is, on any given day, it’s better to have a coffee than not, but if you wait three days and don’t have it, it’s going to be way better once you finally do. Interrupting our consumption is free. It actually saves you money and gets you more happiness out of the money spent. It’s like the best of all worlds, but we’re completely unable to do it, because we always want to watch the thing or eat the thing right now. It’s not “give it up forever.” It’s “give it up for short periods of time, and I promise you you’re going to love it even more when you come back to it.”

Eric:

Damnit, Netflix, stop giving me the whole season in one drop. You’re reducing my happiness.

Mike:

Exactly.

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If you want the extended interview (where Mike discusses how to increase free time, as well as a simple trick that can boost the enjoyment you get from life’s little pleasures) I’ll be sending it out with my weekly newsletter on Sunday.

Join here.

Join 45K+ readers. Get a free weekly update via email here.

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Being delusional is bad 

Which person does everyone think is going to get into heaven?

“Me.”

Via Sidetracked: Why Our Decisions Get Derailed, and How We Can Stick to the Plan:

One of my favorite examples of this human tendency comes from a survey conducted by U.S. News and World Report in 1997. The survey asked one thousand Americans the following question: “Who do you think is most likely to get into heaven?” Respondents indicated a 52 percent likelihood for then president Bill Clinton; they gave Michael Jordan a 65 percent chance (maybe partly because the Bulls had won the NBA championship that year); and they gave a 79 percent chance to Mother Teresa. But guess who received the highest likelihood for getting into heaven? It was the person completing the survey, with a score of 87 percent! Apparently, most of the respondents taking the survey thought, “Mother Teresa has a pretty good chance of getting into heaven. In fact, there is only one person I can think of who has a better chance than she does, and that’s me.”

David Brooks, author of The Social Animal: The Hidden Sources of Love, Character, and Achievement, explains just how extreme our delusion can be:

Via The New Yorker:

Human beings are overconfidence machines. Paul J. H. Schoemaker and J. Edward Russo gave questionnaires to more than two thousand executives in order to measure how much they knew about their industries. Managers in the advertising industry gave answers that they were ninety-per-cent confident were correct. In fact, their answers were wrong sixty-one per cent of the time. People in the computer industry gave answers they thought had a ninety-five per cent chance of being right; in fact, eighty per cent of them were wrong. Ninety-nine per cent of the respondents overestimated their success.

You might be better off asking your friends to evaluate you than doing it yourself:

In general, people’s self-views hold only a tenuous to modest relationship with their actual behavior and performance. The correlation between self-ratings of skill and actual performance in many domains is moderate to meager—indeed, at times, other people’s predictions of a person’s outcomes prove more accurate than that person’s self-predictions. In addition, people overrate themselves. On average, people say that they are ‘‘above average’’ in skill (a conclusion that defies statistical possibility), over-estimate the likelihood that they will engage in desirable behaviors and achieve favorable outcomes, furnish overly optimistic estimates of when they will complete future projects, and reach judgments with too much confidence. Several psychological processes conspire to produce flawed self-assessments.

Malcolm Gladwell, author of Blink, Outliers and The Tipping Point, gives an excellent talk about how the overconfidence of smart people can be far more dangerous than the incompetence of dumb people.

But if there are all these reasons why delusion and overconfidence are bad, why in the world would this be our default state in so many situations?

 

Being delusional can be good

Overconfident, deluded people are better at work.

…moderate overconfidence is both pervasive and advantageous and that people maintain such beliefs by underweighting new information about their ability.

But doesn’t it turn people into intolerable cocky bastards? Nope, it improves teamwork:

…the presence of overconfident workers in teams is beneficial for firms since it raises effort provision and team output. We also find that overconfidence leads to a Pareto improvement in workers’ payoffs. In contrast, underconfidence is detrimental to firms as well as workers.

Deluded people are happier.

Via Jonathan Haidt’s The Happiness Hypothesis: Finding Modern Truth in Ancient Wisdom:

…evidence shows that people who hold pervasive positive illusions about themselves, their abilities, and their future prospects are mentally healthier, happier and better liked than people who lack such illusions.

And a little delusion is necessary for another important thing — love.

• Those with positive illusions about their relationship are more fulfilled, score higher on love and trust, and have fewer difficulties.

• “…people who were unrealistically idealistic about their partners when they got married were more satisfied with their marriage three years later than less idealistic people.”

When I interviewed Dan Ariely he talked about the “IKEA effect” — our irrational attachment to the things we create. What did he think was the best example of this?  How we love our children:

So this is a great example of something that is irrational but wonderful. And what we’ve basically found is that the moment that you invest something of yourself into something, you start overvaluing it… And I think this is because kids are an ideal example of the IKEA effect. We love our kids. I have two kids; I think they’re the most adorable kids in the world. We just went skiing and I couldn’t believe anybody wanted to do anything on the mountain besides watching my kids ski. How could they find anything else more adorable? If you want, I’ll send you the video. But the realization I think is we love them so much because they’re our kids. We think that IKEA furniture comes with better instructions. Kids really come with no instructions. Very tough to deal with, difficult, complex, but incredibly involving and time consuming and I think the love that comes out of it is an example of the effect of a tremendous investment.

Let yourself be a little delusional today.

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Should we try to be happy all the time?

 

Can Money Buy Happiness?

Yes. But you might be surprised by the ways you should spend it.

Harvard professor Michael Norton and co-author Elizabeth Dunn have a new book out, Happy Money: The Science of Smarter Spending, that details the research on the 5 best ways to turn your dollars into lasting smiles. What are they?

 

1) Buy Experiences

Via Happy Money: The Science of Smarter Spending:

“…57 percent of Americans reported that the experiential purchase made them happier than the material purchase, while only 34 percent reported the opposite. This difference was more pronounced among women, young people and those living in cities and suburbs. But the same basic pattern emerged even for men, the elderly, and country dwellers. In study after study, people are in a better mood when they reflect on their experiential purchases, which they describe as “money well spent.”

 

2) Make It A Treat

Via Happy Money: The Science of Smarter Spending:

“…knowing you can’t have access to something all the time may help you appreciate it more when you do… When you love a television show — say, The Office — you might think the best way to maximize your happiness is to buy the DVD set and watch all the episodes straight through. Getting rid of the commercials and eliminating the weeklong wait between episodes seems sensible. But research suggests that taking breaks between episodes can increase your enjoyment. Perhaps most amazingly, commercials can improve the experience of watching television. Even entertaining shows can start to drag after five to seven minutes, decreasing our enjoyment. Commercials disrupt that adaptation process, so when the show comes back on, we can fall in love with Jim and Pam all over again.”

 

3) Buy Time

Via Happy Money: The Science of Smarter Spending:

“People who feel they have plenty of free time are more likely to exercise, do volunteer work, and participate in other activities that are linked to increased happiness. Although money can be used to buy “free time,” in part by outsourcing the demands of daily life such as cooking, cleaning and even grocery shopping, wealthier individuals report elevated levels of time pressure… Wealthier individuals tend to spend more of their time on activities associated with relatively high levels of tension and stress, such as shopping, working and commuting.“

 

4) Pay Now, Consume Later

Via Happy Money: The Science of Smarter Spending:

“Delay can enhance the pleasure of consumption not only by providing an opportunity to develop positive expectations, but also by enhancing what we call the “drool factor.” The very best stimulus for studying the drool factor? Chocolate. In a recent experiment, college students chose whether they wanted a Hershey’s Kiss or a Hershey’s Hug. They either ate their chosen chocolate immediately or waited thirty minutes. When students had to wait for their candy, they enjoyed it more and expressed more interest in buying additional Hershey’s chocolates. Even though they didn’t learn anything new about the chocolates, the delay provided an opportunity to build visceral desire, to drool a bit.“

 

5) Invest In Others

Via Happy Money: The Science of Smarter Spending:

“By the end of the day, individuals who spent money on others were measurably happier than those who spent money on themselves — even though there were no differences between the groups at the beginning of the day. And it turns out that the amount of money people found in their envelopes — $5 or $20 — had no effect on their happiness at the end of the day. How people spent the money mattered much more than how much of it they got.”

More from Michael Norton’s TEDx talk here:

To learn more check out Happy Money: The Science of Smarter Spending.

Join 45K+ readers. Get a free weekly update via email here.

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