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What You Can Learn from the New Science of Smarter Spending
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What You Can Learn from the New Science of Smarter Spending Yes, money can make you happy

By Photo: Kevork Djansezian/Getty Images News/Getty Images

Suppose that you find yourself with an unexpected windfall of $25,000. You are neither rich nor poor. You are deciding among three options for using the money:

1) Buy a new car

2) Renovate your home

3) Have a dream vacation with your family

You might think that 1 would be best, especially if your current car is not exactly a joy, and if you anticipate that a new one would give you a daily burst of pleasure. Or maybe you are tempted by 2, especially if your house really needs an upgrade. After all, you spend much of your life in it, and it might as well be as nice as possible. You might be inclined to dismiss 3, on the ground that however wonderful, any vacation is likely to be pretty short, and a short vacation cannot possibly compete with a new car or a renovated home.

If that is what you are thinking, think again. If your goal is to use the windfall to promote your own happiness, there is a strong argument for 3, especially if you plan to have the vacation a few months from now. Experiences can have a much bigger impact on people’s happiness than things, and a big part of that happiness lies in looking forward to the experience that you are going to have.

This is one of the central arguments made by Elizabeth Dunn and Michael Norton, who have studied happiness for many years. Their book is filled with surprising, counterintuitive findings that also produce a spark of recognition. Don’t we all know that anticipating a wonderful experience can be as good as the experience itself, and maybe even better? True, there is something disquieting about the idea that, in deciding how to spend their money, people should focus on a single question, which is what would make them happy (and I will return to some sources of that disquiet). But the question is sometimes highly relevant, and for those who ask it, Dunn and Norton have some instructive answers.

Dunn and Norton offer five general principles. Of these, the preference for experiences over commodities may be the most important. Strikingly, people who move to new homes do not show even small increases in overall happiness. Harvard students care a lot about getting into the most beautiful and well-located of Harvard’s houses, but the evidence suggests that the students’ happiness is utterly unaffected by where they end up. By contrast, trips, movies, and sporting events can have a real impact on people’s subjective experience.

One reason for the difference is that people tend to adapt to commodities. After a while, they do not much think about them, treating them instead as part of life’s furniture. A nice car or a nice house may be wonderful at first, but after a relatively short period it is simply a background fact. (Consider in this light the striking finding that, while both men and women experience a remarkably large increase in happiness during and immediately after the time of marrying, their happiness returns to its pre-marital state after a year or two.) Novel experiences, by contrast, provide the basis for valuable memories that endure, and that can help to define the texture of a life. It is tempting to think that a two-week trip to Paris is pretty short, but if the vacation is terrific it will have a lifelong effect. In your mind, you will keep coming back to it.

Dunn and Norton also emphasize that “in general, the more we’re exposed to something, the more its impact diminishes.” If people get what they want whenever they want it, the relevant “it” stops giving them pleasure. The idea was nicely captured by a memorable episode of “The Twilight Zone,” in which the main character, a criminal named Rocky Valentine, is shot and killed by the police, only to end up in a place where he can get immediate access to whatever he likes, with the help of his guide Pip. After a while the absence of any delays or obstacles makes Rocky quite miserable, and he exclaims to Pip, “If I gotta stay here another day, I’m gonna go nuts! I don’t belong in Heaven, see? I want to go to the other place.” Pip’s response: “Heaven? Whatever gave you the idea that you were in Heaven, Mr. Valentine? This is the other place!”

The power of adaptation leads Dunn and Norton to their second suggestion, which is to “make it a treat,” perhaps by deferring and scheduling gratification. Their central claim, and probably their most important one, is that, for experiences that tend to be uniform, the effect of interruptions is to “help to ‘re-virginize’ us, wiping our pleasure slates clean.” Smart businesses exploit this idea, making desirable products available “for a limited time only.” (As parents know, the Star Wars movies are periodically re-released for limited times.) Surprisingly, commercial interruptions have been found to improve people’s enjoyment of television, by disrupting the experience of viewing.

Consider in this regard the fact that people can be cranky and impatient with their own romantic partners, even when they are prepared to be quite friendly and cheerful with strangers. One of Dunn’s own studies (based on her own less-than-ideal experience with her longtime boyfriend!) shows that when members of a couple try to treat their partners the same way they would a stranger, everyone can end up having a better time. Dunn and Norton contend that, in multiple domains, it is best for people to “re-virginize” themselves by using money to create special times and spaces for desirable activities.

We tend to think that psychological distress is a product of large life events, but research suggests that minor and recurring hassles, such as troublesome neighbors and filling out forms (a true pathology of our era), can have a more serious adverse effect. This finding leads Dunn and Norton to their third suggestion, which is that people should use money to “buy time.” Too often we spend our time looking for ways to save moneyas, for example, by shopping for cheap gas and special dealswhen we would do better to spend our money to find ways to save time. In the same vein, Dunn and Norton suggest that it is a big mistake to commit to do something far in advance, unless you are pretty sure you will not regret it when the time comes around. (A rule of thumb: don’t commit to an activity in six months unless you would be willing to do it next week.)

A general implication is that in deciding where to live and what to do, the allocation of time is crucially important. Many of us should consider using our money to decrease the time we spend on commuting and to increase the time we spend with friends and family. People tend to hate commuting, and most of us “would be better off sticking with a job close to home, even if it pays less.” And if it is necessary to commute, it makes sense to consider paying for the train rather than driving yourself. Socializing, by contrast, has positive effects on well-being, and if people spend money for birthday parties and road trips to visit their friends and family, they are probably spending it well.

In an especially intriguing discussion, Dunn and Norton contend that it is a large mistake for people to take the increasingly popular path, facilitated by credit cards, of consuming now and paying later. Intuition strongly suggests this path is the right one, because enjoyment is best today and suffering seems less bad next week. On standard economic grounds, that thought makes a lot of sense; but Dunn and Norton argue that it is exactly backward. People often get a lot of pleasure from anticipating the future. The French even have a term for this phenomenon: se réjouir.

I have noted that people tend to be especially happy in the period before vacations, but the phenomenon is far more general. Many people think that Sunday is the happiest day of the week (because it is a day off from work), but there is good evidence that Friday is actually happier. On Sunday people are thinking about Monday, but on Friday they are thinking about the weekend. One reason for the immense appeal of the future is its ambiguity. With respect to both goods and services, people tend “to fill in the details as we would like them to be.” A coming trip, vacation, book, film, or romance may be especially appealing for that reason. Similarly, newly elected politicians are popular because people can “envision a rosy future absent the buzzkill of reality.” Uncertainty allows people to see the future in the most optimistic light, and it also keeps people’s attention focused on it, which increases its allure.

For this reason, it makes special sense for people to delay consumption when anticipation itself is fun or exciting, and when the delay gives them a chance to look for “enticing details that will promote positive expectations about the consumption experience.” Some people seem to know this, at least with respect to some activities. Given a chance to purchase a kiss from their favorite movie star, people would pay less to have the kiss immediately than to postpone it for three days. These points explain not only the potential advantages of deferred gratification but also the potential disadvantages of paying later, which can be a lot worse than it seems. The central problem is that debts create a psychological burden. That burden is corrosive, and it can have a serious adverse effect on happiness.

Dunn and Norton also contend that people benefit from spending on others, not on themselves. When people give money away, they experience a significant hedonic boost. In one study, the best prediction of people’s happiness was not how much they devoted to personal spending, but instead how much they gave to others. Even small children have been found to be happiest (as measured by their facial expressions) when they give their treats away. Indeed, giving has been found to be associated with improved health. Dunn and Norton urge that the benefits of giving are highest when givers feel that giving is their own free choice, when they feel personally connected with the recipients, and when they think that the gift will have a real impact. Clever charities are entirely aware of these facts and act accordingly.

Most of Dunn’s and Norton’s disparate claims are unified by two phenomena: attention and adaptation. Our affective states are greatly influenced by what we attend to, and we attend to what is new, not what is familiar (hence the idea of “re-virginizing”). Moreover, human beings have remarkable power to adapt both to bad and to good. After a year, lottery winners are not much happier than they were before they won the lottery, and paraplegics do not appear to be a lot less happy than they were before they lost the use of their legs. Many of the authors’ findings reflect a simple claim, which is that people should be spending money on items that will continue to claim their attention, and on goods and services to which they will not quickly adapt.

But their discussion raises four sets of questions. What, exactly, do they mean by happiness? Is happiness, as they understand it, what we should care about? Do they have realistic and reliable measures of happiness? Assuming that they do, do they have realistic and reliable measures of the relationship between spending and happiness? Dunn and Norton are social scientists, not philosophers, and they do not have a lot to say about fundamental matters. But they take a lot for granted here, and it is hard to evaluate their claims without venturing some answers.

We are in the midst of an explosion of new efforts to measure and promote “happiness,” spurred in large part by the work of Daniel Kahneman. Dunn and Norton are significant contributors to those efforts. But some people have questioned the whole enterprise on the ground that it is not clear what those efforts are seeking to measure. Dunn and Norton are concerned with people’s subjective experiencesin other words, their hedonic states. Suppose that people do not much care about having a new car but that a terrific vacation really does lift their spirits. Or suppose that a long commute causes serious distress and that socializing with family and friends is joyful. If so, we probably know enough to embark on the basic enterprise of assessing which expenditures promote happiness, thus understood.

It is important to emphasize that happiness, as Dunn and Norton conceive of it, should be seen as plural rather than singular. It includes qualitatively diverse goods, ranging from the pleasure of chocolate to the wonder of nature to the comforts of home to the exhilaration of new experiences to the gratification associated with giving to others. (All languages have different terms for the diverse forms of “happiness.”) Pointing to qualitative differences, John Stuart Mill criticized Jeremy Bentham on exactly this ground, arguing that Bentham

but faintly recognizes, as a fact in human nature, the pursuit of any other ideal end for its own sake. The sense of honor and personal dignity,that feeling of personal exaltation and degradation which acts independently of other people’s opinion, or even in defiance of it; the love of beauty, the passion of the artist; the love of order, of congruity, of consistency in all things, and conformity to their end; the love of power, not in the limited form of power over other human beings, but abstract power, the power of making our volitions effectual; the love of action, the thirst for movement and activity, a principle scarcely of less influence in human life than its opposite, the love of ease.... Man, that most complex being, is a very simple one in his eyes.

Dunn and Norton can be read as unreconstructed Benthamites, in the sense that they do not explore the significant differences among the kinds of happiness associated with vacations, socializing, giving to others, and so forth. But I do not think that this point is fundamentally damaging to their project. They want to answer an important question, which is whether and when people’s expenditures produce positive or negative experiences. If their empirical findings are secure, their arguments have interest even if those experiences are qualitatively diverse.

It is natural, and correct, to insist that happiness, understood in this general sense, is hardly all that matters. If you give away money because you think that the gift will make you happier, we might applaud your action but ask you to rethink your motivation. (And if you give money away in order to become happier, your motivation might make your action self-defeating.) In one of their least fortunate passages, Dunn and Norton write: “Before you spend that $5 as you usually would, stop to ask yourself: Is this happy money? Am I spending this money in the way that will give me the biggest happiness bang for my buck?” But in deciding how to spend your money, is that really the question that you should be asking? What kind of person focuses only on that question?

In any case, happiness, taken as an umbrella concept, is often a byproduct of activities undertaken for reasons other than the production of happiness. Think again of Mill, and in particular of his autobiographical discussion of what is sometimes described as the Paradox of Hedonism:

But I now thought that this end [happiness] was only to be attained by not making it the direct end. Those only are happy (I thought) who have their minds fixed on some object other than their own happiness.... Aiming thus at something else, they find happiness along the way.... Ask yourself whether you are happy, and you cease to be so.

If you focus insistently on how you can use money to make yourself happy, you might make yourself crazy instead. (Jon Elster has generalized the point with a brilliant discussion of “states that are essentially by-products.”)

We could easily imagine different books, called Eudaemonistic Money, or Cash for Kantians, or Jesus Saves, that would focus their readers on quite different questions. But here as well I do not think that we have a fundamental objection to Dunn’s and Norton’s central claims. The reason is that it is unquestionably true, and perfectly legitimate, that at least some of the time people spend money in order to make their lives happier in some subjective sense. (The word “precious” might have been invented for those who disparage the importance of happiness in the sense that Dunn and Norton understand it.) If people are making serious mistakes in that endeavor, it is worthwhile to provide them with some help.

Which leads us to the next question, which is whether Dunn and Norton have reliable measures of happiness, even as they understand it. In the pages of this magazine, Deirdre McCloskey not long ago raised a number of reasonable doubts about the approach used by Dunn and Norton (and many others), which is to ask people to report their level of happiness on some bounded numerical scale (say, 1 to 8). Skeptics might ask: Do such self-reports tell us anything at all? It is a legitimate question. And yet people’s answers do turn out to be associated with independent tests of hedonic state, including frequent smiling, smiling with the eyes, quality of sleep, happiness ratings by friends, self-reported health, frequent expressions of positive emotions, and being sociable and outgoing. Surprising but true: to date, no empirical work falsifies or even seriously undermines the suggestion that people’s self-reports, along a bounded scale, are in fact reflective of subjective mental states. At the same time, bounded numerical scales are not exactly sensitive measures, and if people who have moved to new homes do not show an increase from (say) 5 to 6, the reason may be the insensitivity of the scale, not the absence of an improvement in people’s lived experience.

In my view, however, the most serious questions for Dunn and Norton lie elsewhere. One of them involves causation. Are people happy because they give to others, or do people give to others because they are happy? Do people buy experiences because they are happy, or are they happy because they buy experiences? Are happy (and wealthy) people unusually likely to pay now and to consume later? Ideally, we would answer such questions with randomized controlled trials, involving similarly situated people who differ only along the relevant dimension. As good social scientists, Dunn and Norton are aware of this point, but some of their (plausible) conclusions go beyond what the evidence clearly demonstrates.

There is also the persistent fact of human diversity. Many people love their homes and hate to travel. Some people tire of socializing and don’t want to spend a ton of time with their friends (even if they really like them). Dunn and Norton think that a lot of people are making mistakes with the use of their money. They are undoubtedly right. But it is important to acknowledge that, in defying their principles, and in choosing to fix up a home, to pay later, or to consume immediately, people might not be mistaken, but might instead be responding to their own preferences and constraints. What seem to be errors may well be sensible judgments in light of the circumstances.

The deeper problem involves the sheer breadth of the categories that constitute the authors’ principles. Dunn and Norton argue that it is often best to spend money on experiences. But surely everything depends on the experience and the alternative. What concrete experience is being compared with what concrete commodity? Some vacations are awful; so are some concerts. By contrast, some commodities can have real effects on happiness. As possibilities, consider a cherished work of art, a new camera, a terrific (and light) laptop, even a rotary shaver (I speak from experience). Dunn and Norton must mean that an excellent experience is likely to have better hedonic effects than a comparably priced and apparently excellent commodity. But it is not clear that their evidence supports that conclusion, or even what it means.

The point is quite general. To decide whether people should decide to buy time, we need to know how much time costs, and how much time would be saved, and what, concretely, the time would be spent on, and what else might be done with the money. Often it makes sense to pay now and to consume later, but a delayed payment might make a lot of sense, especially if we can use the money for other things (such as education or food), and if immediate consumption is necessary or highly desirable (maybe your child needs a doctor right now). Sure, spending money on others can boost happiness, but if happiness is what matters, maybe a wonderful trip, or a new apartment right near work, would provide an even bigger boost. Dunn and Norton do not explore conflicts among their five principles, which arise every day.

Dunn and Norton have outlined a series of valuable and instructive findings, demonstrating that people tend to overlook the effects of attention and adaptation, and that they would do better if they were to make expenditure decisions with those effects in mind. But abstract principles in favor of experiences, treats, time, deferred consumption, and gifts provide imperfect guidance when people are deciding among concrete goods, including those that are fun, important, or necessary but do not fall within those categories at all.

Cass R. Sunstein is the Robert Walmsley University Professor at Harvard University and the author, most recently, of Simpler: The Future of Government (Simon & Schuster). He is a contributing editor at The New Republic.

 

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Happy Money: The Science of Smarter Spending by Elizabeth Dunn and Michael Norton
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