So, if you’re cashed up, why aren’t you happy?

Pig-with-too-much-money-iStock_000002551071SmallResearch has suggested that the relationship between money and happiness is surprisingly weak, which may stem in part from the way people spend it. In a review of the literature in 2011 around happiness and money, Elizabeth Dunn, Dan Gilbert and Timothy Wilson proposed eight principles that they argued would help consumers get more happiness for their money.


One of their recommendations was to pay close attention to the happiness of others. Their argument was that we are more likely to enjoy something if we first observe others enjoying that something.

This may well make you feel like you’re not an individual, and just a sheep following the pack, but the reality is that we already do this a lot. We look at what our “tribe” is doing to help us to make decisions. If you’re like me, you might use TripAdvisor for travel and meta-rating sites like Rotten Tomatoes for movies to help you to make choices. Alternatively, you might use David and Margaret for your movie recommendations (or maybe travel… if your only place of interest is Cannes), or perhaps your closest friend, but we all need to rely on others to help us make decisions.

Some of the time, however, our use of others for recommendations may not be intentional. Research by Alan McConnell and his colleagues found that even stranger’s facial responses to something as banal as the food that they were eating, influenced the enjoyment that participants in their research got out of the food that they were eating. So, without being aware of it, when participants saw someone else screw up their face in disgust at what they were eating, it made the participant enjoy their own food less.

Elizabeth Dunn and her colleagues also suggested that we should avoid buying those extended warranties that every electrical shop is now trying to sell to us. There are good legal reasons why you probably don’t need to do this, and Scott Abbot did a greatstory about this in the first series of The Checkout.

But there are good psychological reasons why we are drawn to them, and surprisingly (to me, anyway) these aren’t mentioned in the Australian Consumer Law, 2011. It seems that we buy extended warranties partly because of the endowment effect, which tells us that once we “own” something, we actually value it more than when we didn’t own it (stay with me).


The idea that we might lose that “something” becomes harder to bear once we own something or have committed to buy it (even saying to ourselves that we are ready to buy has been shown to be a form of commitment). That’s why we overvalue our car when we are trying to sell it, and we hold on to that shirt we bought three years ago, even though we know it will never fit us.


So, it becomes very easy for us to think that if the toaster we are about to buy stops working, we will be very sad, and extended warranty insurance seems to have the effect of reducing that perception of future pain. In a way, extended warranties give us a sense of both financial and emotional protection. The reality, however, is a little different.

We have a tendency to over-predict how vulnerable we are to negative outcomes and events. Most of us are not as emotionally fragile as our ego would lead us to believe. We are actually very good at adapting when bad stuff happens, at least in the medium to long term and we tend to cope quite well with trauma and tragedy, even when the toaster dies.

This entry was posted in Advertising, Consumer Behavior, Human Behavior, Social Psychology, Tribal and tagged , , , . Bookmark the permalink.

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