Using money for happiness has a placebo effect

If you could afford it, would you ever splurge $10,000 on a pair of headphones? What about some other indulgence? Would you?

A first class transatlantic flight, if I had ludicrous amounts of cash to spend. If I only exactly the same amount of disposal cash as the flight cost, but for some reason I was compelled to spend the money on luxuries, I'd go all-out on a massive hedonistic ground-based bender.

Of course, if I had serious money I'd buy myself a flight to the ISS and/or my own island.

In one study by The California Institute of Technology (Caltech) and Stanford University scholars, people not only rate the same wine more highly when they’re told it is more expensive, functional magnetic resonance imaging or functional MRI scans taken of their brains while they were drinking the wine suggest participants enjoyed the experience of drinking it more. In another study using placebo pain killers, participants who took a fake pain-killing drug that they were told cost $2.50 per pill experienced more pain reduction during a series of shocks than participants who were told the pill cost only 10 cents.

Interesting, but it would be good to compare the placebo effect by telling participants other falsehoods about the drugs : e.g. how strong is the price information compared to telling them which one is more effective ?

But how does price and perception play into our purchasing decisions outside the laboratory? If an item is twice as expensive, do buyers assume it’s twice as good? Michael Norton, a psychologist and professor of business administration at Harvard Business School says yes. In fact, we may consider the experience to be more than twice as good. We’re motivated to splurge because we’re seeking peak experiences, his research suggests.

The restaurant, or dessert or film that’s rated three stars by everyone is the safe choice while the one that’s rated with one and five stars could be terrible or could be amazing, he says. So “in this case, we find that people will gamble and pick the one- and five-star rated one, because they’re trying to get to that totally amazing experience, even at the risk of getting a really bad one... So, it’s possible that a $10,000 bottle of whiskey would be more than twice as pleasurable than a $5,000 bottle of whiskey because it’s such a peak experience way out in the extreme.”

I dunno... for reviews I tend to read what people are saying. Sometimes the reasons for poor ratings don't matter to me. It also (strangely) seems to depend on where the reviews are written and their subject matter. I tend to trust game reviews (by actual people, not magazines) but I view hotel and restaurant reviews much more skeptically.

“The feeling of happiness that you get when you accumulate material things is fleeting. Like other types of things, it’s less and less rewarding each time,” says Joshua Cartu.

Indeed !

“By buying Ferraris I get be to part of a community of very special, interesting people that have the same passion as I do.”

HEADDESK

While most of us will never be able to afford to fly a fighter jet or race a Ferrari, researchers suggest that desire to build ‘the experiential CV’ can account for more modest splurges, like staying at an ice hotel, or seeking out something strange to eat, like bacon-flavoured ice cream.

“Material goods are less of a signifier of social position today. The deluge of material goods means that they are not as rare or scarce or luxurious as in the past,” she says. “There is a greater value in experiences and the narrative around goods as justifying their cost and giving them status.

No argument there.

And here’s the simplest reason of all: people splurge on luxury goods because they think it will make them happy. Norton, who co-authored Happy Money: The Science of Happier Spending, says that the amount of happiness you get from spending money will depend on how you spend it and not necessarily how much... he suggests spending money on experiences rather than things. “Most of us seem to be maxed out on the happiness we can get from stuff alone."

But there might be an even better way to get your kicks. Norton’s research proves that giving to others can make us happier people. “It’s not that when you buy things for yourself they don’t make you happy in the moment. Of course they do. That’s why we buy them. It just doesn’t seem to add up to much happiness over time,” he says. “Giving to others seems to add up to happiness over time.”

I tend to the philosophy that, "you can't take it with you, but you can save it for later". Seek some measure of financial security first, but not to the extent of living in miserly squalor or boredom. Occasionally splurge on experiences; large one-off costs don't really matter much in the long term. Purchase products that you're likely to actually use and not gather dust. Take occasional risks, but spend most of the time watching Netflix with a nice cup of tea and if possible an adorable dog. And if anyone says, "one more drink ?", always say yes. Unless you're about to collapse, or worse. Then stop.

http://www.bbc.com/capital/story/20171006-the-psychology-behind-spending-big