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Dollars and Sense: How We Misthink Money and How to Spend Smarter Hardcover – November 7, 2017
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“[A] valuable guide... Engaging and funny, rife with anecdotes and advice, the book defangs a difficult topic while teaching a lot.” (Publishers Weekly)
“A lively look at how even the wisest among us are too often fools eager to part with our money...A user-friendly and often entertaining treatise on how to be a more discerning, vastly more aware handler of money.” (Kirkus Reviews)
“[An] engaging guide to decision-making about money...Highly recommended.” (Library Journal (starred review))
“If you want to get better at making good financial decisions, read Dollars and Sense.…What the two authors do brilliantly is take behavioral economics and make it accessible.” (Washington Post)
“[A] surprisingly breezy exploration of the most common mental blocks to building wealth...It’s the rare kind of book that makes you feel a lot smarter, while simultaneously giving you actionable tips for improving your daily life.”
(Business Insider’s Best Business Books of 2017)
From the Back Cover
Why is paying for things painful?
Why are we comfortable overpaying for something in the present just because we’ve overpaid for it in the past?
Why is it easy to pay $4 for a soda on vacation, when we wouldn’t spend more than $1 on that same soda at our local grocery store?
We think of money as numbers, values, and amounts, but when it comes down to it, when we actually use our money, we engage our hearts more than our heads. Emotions play a powerful role in shaping our financial behavior, often making us our own worst enemies as we try to save, access value, and spend responsibly. In Dollars and Sense, bestselling author and behavioral economist Dan Ariely teams up with financial comedian and writer Jeff Kreisler to challenge many of our most basic assumptions about the precarious relationship between our brains and our money. In doing so, they undermine many of personal finance’s most sacred beliefs and explain how we can override some of our own instincts to make better financial choices.
Exploring a wide range of everyday topics—from the lure of pain-free spending with credit cards to the pitfalls of house-hold budgeting to the seductive power of holiday sales—Ariely and Kreisler demonstrate how our misplaced confidence in our spending habits frequently leads us astray, costing us more than we realize, whether it’s the real value of the time we spend driving forty-five minutes to save $10 or our inability to properly assess what the things we buy are actually worth. Together Ariely and Kreisler reveal the emotional forces working against us and how we can counteract them. Mixing case studies and anecdotes with concrete advice and lessons, they cut through the unconscious fears and desires driving our worst financial instincts and teach us how to improve our money habits.
The result not only reveals the rationale behind our most head-scratching financial choices but also offers clear guidance for navigating the treacherous financial landscape of the brain. Fascinating, engaging, funny, and essential, Dollars and Sense provides the practical tools we need to understand and improve our financial choices, save and spend smarter, and ultimately live better.
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Here are my two take-aways from this book:
#1. I’ve been misthinking about money. Yikes. This book has immediately changed the way I think about how I spend money—and I’m not a spender.
#2. Besides being well-researched and very practical, this book is hilarious!
Fifty pages in, I started marking the funny lines with an exclamation point. No joke: my well-underlined pages include more than 100 exclamation points. (LOL!)
THE BIG IDEA: “…this book is about the odd, wild, and yes, completely irrational ways we approach spending decisions and about the forces that cause us to overvalue some things and undervalue others.”
After laying out a very convincing case, Dan Ariely (the professor) and Jeff Kreisler (the funny guy) invest their final five chapters on how to “build on the shoulders of flawed thinking.” Insightful ideas.
Examples of flawed thinking:
--“Some people go on a $10,000 vacation but spend twenty minutes each day looking for free parking.”
--JCPenney’s short-lived CEO, Ron Johnson, “paid a high price for failing to understand the psychology of pricing,” when he instituted “fair and square” pricing and eliminated “sales, bargains, coupons, or discounts.”
-- “Had Albert Einstein been an economist rather than a physicist, he might have changed his famous theory of relativity from E = MC2 to $100>Half Off of $200.”
--According to “loss aversion” research, when doctors frame survival options as “there’s a 20 percent chance of survival,” you’ll go for the remedy. But more people decline the option when framed as “there’s an 80 percent chance of death.” Flawed thinking!
--On “investing effort,” Ariely and two other researchers dubbed one money phenomenon, “The IKEA Effect—so named after the meatball restaurant/umlaut factory/children’s playland that moonlights as a furniture store.”
The chapter, “We Lose Control,” begins, “Rob Mansfield will be able to retire shortly after pigs fly.” With little or no retirement savings—many are thinking they must work until they’re 80 (“even though our life expectancy is 78”). Why the flawed thinking? Making sense of the IRS and IRAs and 401(k)s and 403(b)s, “can be intimidating and confusing. It’s like trying to think of another word for ‘synonym’ or what the best thing was before sliced bread.”
But…I’m way ahead of myself. One of my favorite “Wall Street Journal” columns, several Saturdays each month, is “Ask Ariely,” a Q&A feature by Dan Ariely, professor of psychology and behavioral economics at Duke University, and founder of the Center for Advanced Hindsight (and he’s not the funny guy!). The questions are practical and his answers are research-based. So when this book was published in November, I bought it and it’s already on my hot list for Top 10 books of 2018.
What changed my thinking about money? Check out the chapter titles in the section, “How We Assess Value in Ways That Have Little to Do With Value.”
--We Forget That Everything Is Relative
--We Avoid Pain
--We Overvalue What We Have
--We Worry About Fairness and Effort
--We Believe in the Magic of Language and Rituals
--We Overvalue Expectations
I highlighted about a zillion one-liners and concepts:
-- “No one ever went broke underestimating the intelligence of the American people.” (H.L. Mencken)
-- “Don’t believe everything you think.”
-- “We stand on the shoulders of giants . . . even if those giants are the giant mistakes we ourselves have made.”
--In the commentary on confirmation bias, a restaurant consultant notes that the highest-priced items on a menu “actually generate revenue by getting people to buy the second-highest-priced items.”
By the way, don’t put too much stock into fairness and effort in your money calculations. Apparently, we’re willing to pay more when we see the effort someone has put into a product or service—but bristle when a locksmith unlocks a door for us in a minute—but charges $200. More flawed thinking!
And when asked how much work a husband and wife do around the house, researchers have found it adds up to over 100 percent! (The authors warn against borrowing the PowerPoint progress report from work to document progress on household chores.) “Or should we just make a lot of deep sighing sounds—so our spouses will value us more?”
Would you pay more for a cheeseburger described thusly: “Artisanal goat fromage graces hand-crafted grass-fed bovine composite, with heirloom vine-ripened ‘tomate,’ curated greens, and special reserve spice blend, parsed for variance by expertologists.” Most will.
-- “The leading practioners of language manipulation may be winemakers.”
--Copy writers: read Chapter 10 on the magic of language. (All together now, sing the Big Mac jingle: “Two all-beef patties, special sauce…”)
--What was the “Mona Lisa” painting worth before July 1911? “In August 1911, it was stolen from the Louvre. While the authorities tracked it down, there were suddenly huge lines of visitors waiting to view the empty space where the painting had hung.” What’s it worth today?
-- “About 16 percent of NFL players file for bankruptcy within 12 years of retirement, despite average career earnings of about $3.2 million.”
--Comparing apples to oranges—turns out—is very helpful. “What’s hard is comparing apples to money.” Flawed thinking twists how we value an apple.
--On the illusion of wealth: “In one set of experiments, when we gave people a salary of $70,000 but framed it as hourly earnings of $35 an hour, they saved less than when we defined it as a yearly sum of $70,000.”
-- “We react differently to ‘Oh, this coffee is $4 a day’ than to ‘Oh, this coffee is $1,460 per year.’”
--To save for the future, we should manage our money with our “future self” in mind. “Maybe our pay stubs or credit cards should have a picture of our face morphed to look older.”
Who should read this book? Parents, grandparents, students, co-workers, and anyone who buys or sells anything. Did you know that the first price you see (or previous prices you’ve paid) influences your future purchases (see the must-read section on anchoring—you won’t believe the research).
I hope you buy this. I can’t stop talking about this book, or dropping in the witty one-liners in almost every conversation!
It had the same examples, studies just coated in a "how to think about money with our irrational brain" vs "how to think with our irrational brain" form. Same message, different cover-title. This being said, maybe if I read this book first, I'd give this one a big five star and Predictably Irrational a 3 star. So bottom line, if this is your first book from Dan Ariely, go for it. Lots of aha moments, wisdom, funny stories...
If you read PI, maybe skip this book and choose a book from another author on the topic as I will.
His studies had helped me to make better decisions everyday, based on what is important for me, and not for the aceptance of others. This book is as good as the others, but with updated insights about purchasing behaviours and experiential investments. The stories shared increase the spicy tone of the teaches (I'm pretty sure these come from Jeff).
If you want to learn about your own traps everytime you purchase something, I recommend you to read this book and keep it next to you credit card, your purse, or your wallet.
Dan talks about a wide range of relevant research, not just his own. However, compared to his prior books, there is perhaps less detail on the research supporting his advice, and more of a focus on real world examples and lessons for daily life. Regardless, this book is a fun way to get highlights of what behavioral economics can teach us about money.
It is written in an engaging and entertaining manner. In fact, I found myself smiling and occasionally laughing as I listened (I had the audible version).
Also worth noting is that this book includes a very nice discussion of Mental Accounting, which is probably the most substantial research contribution of Richard Thaler, who won the Nobel Prize in Economics this year.
Most recent customer reviews
The content of this book is incredible! The book points out interesting flaws in the way we think about money.Read more