Psychology of happiness 2: If Money Doesn’t Make You Happy Then You Probably Aren’t Spending It Right

Continuing the research notes from the previous post, here is a summary If Money Doesn’t Make You Happy Then You Probably Aren’t Spending It Right by Elizabeth W. Dunn et al. The author re-published this research in the book Happy Money.

My main qualm about the paper is, that it does not differentiate between the remembering vs. experiencing self distinction, so the advises are a tangle of both.


  • you want to:
    1. extend anticipation before
    2. diminish adaptation during
      • by making events smaller but more frequent
      • by introducing some uncertainty
    3. Prefer experiences to material goods
      • more reminiscence after
      • less externalities/secondary costs
    4. Make everything social
      • spend prosocially
      • share experiences


(1) Buy more experiences and fewer material goods

  • Advantages:
    • more anticipation before event, less adaptation during, more reminiscing after
      • reasons:
        • material goods more prone to focalism: you actually don’t think about them very often and therefore don’t get that much utils/hedons
        • material goods usually have more secondary effects, externalities, upkeep costs
      • experiences DO suffer from focalism too: how often do you reminiscence about your vacations – not much, but more than about your fancy hardwood floor
    • negative experiences are easier to forget (or turn to humor)
    • experiences are more often social
  • note: remember the trade-off between remembering / experiencing self

(2) Use their money to benefit others rather than themselves

  • prosocial spending

(3) Buy many small pleasures rather than fewer large ones

  • less adaptation and diminishing marginal utility
  • due duration neglect, higher frequency > longer duration
  • splitting facilitates anticipation
  • Example: massage chair
    • customers got either 180s massage or 2x 80s
    • the split experience was rated higher
  • Exploiting uncertainty
    • having surprises / some uncertainty about the reward increases anticipation (you think about it more due to uncertainty)
    • also diminishes adaptation because you don’t know what’s next what’s

(4) Eschew extended warranties and other forms of overpriced insurance

  • exploit loss aversion and endowment effect

(5) Delay consumption

  • pay upfront to remove sting, delay consumption for anticipation

(6) Consider how peripheral features of their purchases may affect their day-to-day lives

  • especially material goods have upkeep costs, secondary effects & externalities

(7) Beware of comparison shopping

  • it focuses you of easily comparable features
  • e.g. picking a flat: lots of parameters on the web comparison, but you don’t e.g. how is the community, atmosphere etc.

(8) Follow the Herd Instead Of Your Head

  • general ranking is usually a good estimate of your enjoyment, no need to over think it

Few notes on crony beliefs

Kevin Simler at Melting Asphalt recently published a very nice summary post – Crony Beliefs. Building on the evo-psych work of Trivers, Haidt and Kurzban he distinguishes between two types of beliefs (“employees”):

  • Meritocratic Beliefs
    • beliefs that are entertained because of their epistemic value, i.e. beliefs that pay their rent in accurate predictions about the world
  • Crony Beliefs
    • beliefs that are not accurate representations of reality, but are kept around because of social value and signaling purposes

The important thing to understand is that Crony Beliefs pay rent too – but not in accurate predictions, but rather as entry and maintenance costs of social bonds.

This observation fits very well with the “bleeding-heart” approach to cognitive biases: while our reasoning is deeply flawed, most heuristics are understandable from the evolutionary point of view, actually work quite often (especially in the simpler ancestral environments) and, as Kevin adds, can even provide a lot of utility, albeit non-epistemic.

There are only few (minor) things I’d like to add to this picture.

Break-downs of meritocracy still exists

From Kevin:

I, for one, typically explain my own misbeliefs (as well as those I see in others) as rationality errors, breakdowns of the meritocracy. But what I’m arguing here is that most of these misbeliefs are features, not bugs. What looks like a market failure is actually crony capitalism. What looks like irrationality is actually streamlined epistemic corruption.

My feeling is that despite this, true meritocracy breakdowns are still more common than true crony beliefs. While there are a LOT of social biases (authority bias, bias from social desirability, conformity bias, groupthink etc.), I think still most of the biases are simply heuristics extrapolating too far & breaking down, i.e. providing neither epistemic nor social value.

Bounded-rationality, compartmenalization and reflective equilibrium

AND ON TOP of that we have a bunch of beliefs that don’t have any causal links leading outside of our skulls, and beliefs that we have, but kind-of-sort-of don’t really know if they are useful in any way, because the slow combine-harvester of System 2 (or some other possibly non-conscious process) didn’t yet mowed over the belief and “decided” to integrate it, throw it away, or leave around unattached.


I’d really like to learn more about how this bounded belief examination and integration works.

Mindsets vs. beliefs

Finally a point that Julia Galef raised: beliefs are possibly not quite stable and the same metaphor could be applied to mindsets instead.

Instead of crony/meritocratic employees (beliefs), you might have a crony/meritocratic HR & hiring process.

Julia’s metaphor of scout vs. soldier mindset roughly maps to meritocratic vs. crony beliefs too.

Kevin’s article is definitely worth reading in its entirety, because it gives a very vivid metaphor to understand the interplay of the two types of beliefs.