Keeping Up With the Experiential Joneses

This just might be crazy enough to be correct:

Material riches fail the happy test, by Henry Tricks, Financial Times: Rich people are likely to find more happiness scuba-diving or going to a concert than buying that Ferrari, global investors were told on Friday. According to what many in financial circles will regard a heretical piece of research by Dresdner Kleinwort Wasserstein, materialistic goals may even cause dissatisfaction with life and mental disorders such as paranoia. The report by James Montier, DrKW global equity strategist, comes a year after he shocked clients with ... another jaw-dropping suggestion, that money and happiness shouldn't be equated. Building on the theme, he said on Friday that there was a mass of evidence to suggest that spending on experiences, such as walking the Machu Picchu trail in Peru, rather than possessions, such as “flash watches”, seemed to make people happier, provided their basic needs were satisfied. This notion applied to people once they were earning more than $25,000. “This doesn't mean you have to give your wordly possessions away, although there may be a lot to say for this,” he told clients. Explaining the benefits of experiences over possessions, he said they tended to be unique, whereas a house or car is likely to become the norm very quickly. He urged readers to avoid a keep-up-with-the-Joneses syndrome. However, other experts believe that is a pipe dream. “Human beings have to look over their shoulder before they decide how happy they feel,” said Andrew Oswald, professor of economics at Warwick University.

So, like he says, avoid those paranoia inducing materialistic goals. Instead, grab that new scuba gear made possible by the home equity loan, take advantage of those expensive diving lessons, and enjoy yourself! Just don't drive there in a Ferrari.

Comments

[anne]

Wherein money managers and financial advisers of questionable motivation and merit become sociologists and psychological advisers :) And, is there anything beyond their field that economists don't claim to know definitively?

[anne]

The "Freakonomics" crowd doesn't know close to half of what it thinks it knows.

[Barry Ritholtz]

I think the main point is being missed here:

The value of wealth isn't the THINGS you can acquire with it, it is the experiences and memories which you can "acquire."

Its the not the TOYS, its the PLAYING.

Instead of buying the Ferrari, take an advanced driving course at Skip Barber, where you learn HOW TO DRIVE high performance cars, and wring the most performance out of them.

Basic psychology suggests we do not have an innate need to accumulate "stuff" -- be how you enjoy spending your time will determine how "happy" your life is.

[calmo]

Just a stone's throw from that philosophical "But what is Happiness?". But who could touch that boulder?
Not me.

It's Donald's fault. And Berlusconi's. And Kowslowski's. They have taken the Happiness out of material goods.

I do know some of these people (not just family) for whom every action is a cost/benefit decision. Every possession has a price tag (and to even the insufferable ones, a depreciating/appreciating price tag.
Their minds certainly do not dwell on Katrina outside of possible business opportunities it might incur. Paris might be stricken off their vacation spots now and Pakistan might as well be located on Alpha Centuri.

Didn't I just put the Ferrari back in the toy box?
Here it is again, defying me. Craps.

This is easy to say if you already have the Rolex, the Ferrari, --the expensive junk:
"It's not the toys it's the playing."
The message is different for the Ellisons than it is for the Ellison-wannabes.

The fact that this idea (that material goods ain't what they used to be) is pitched now is interesting from the standpoint of increasing services and a declining segment that can afford the Bugati.

What's next? Rent a Rolex?

Can't imagine the reception this message would get in Pakistan. (Not a big hit with Marx either.)

[Mark Thoma]

Barry - must be a case of poor writing. I didn't miss the point at all, quite the opposite, that was the point I was trying to (light-heartedly) play off of in the title and in the post itself ... apparently unsuccessfully!

I was noting that scuba diving requires stuff, a race car is stuff, a walk in Peru requires a bit of stuff to support it. He didn't say to take a walk in the forest and get close to nature, you need to walk in an exotic, expensive, exclusive, foreign forest, preferably with a guide, fancy equipment, lunch and dinner delivered on the trail - then it will be an experience to remember!

[anne]

"Instead of buying the Ferrari, take an advanced driving course at Skip Barber, where you learn HOW TO DRIVE high performance cars, and wring the most performance out of them."

How dreay, how perfectly unimpressed I am.

[cm]

Barry: I'm not disagreeing, but that's the attitude of a person who has figured it out. Don't underestimate how many of your peers are still stuck at the stage of having to show off their new trophies to others before/instead of enjoying themselves.

[Bruce Webb]

Man am I glad I just bought those $160 Rolling Stones Tickets for two hours of entertainment. Because putting that money towards a car would just prove I was materialistic.

Unless there is a $13.95 Greyhound Bus Special to Machu Picchu somebody needs to do a cranial-anal extraction here.

[anne]

"According to what many in financial circles will regard a heretical piece of research by Dresdner Kleinwort Wasserstein, materialistic goals may even cause dissatisfaction with life and mental disorders such as paranoia."

What perfect rubbish, only showing a researcher who could not research a paper bag. Find another investment adviser and investment company, and a psychologist or priest or rabbi as needed.

[Mark Thoma]

Here's something that may help:

McFadden: Rationality for Economists
Economics has always been concerned with the motivations and behavior of consumers. Rational behavior, in the broad meaning of sensible, planned, and
consistent, is believed to govern most conduct in economic markets, because of self-interest and because of the tendency of markets to punish foolish behavior.
However, rationality has been given a much more specific meaning in the classical theory of consumer demand perfected by Hicks and Samuelson that forms the cornerstone of courses in economic theory. In Herb Simon’s words, ‘‘The rational man of economics is a maximizer, who will settle for nothing less than the
best.’’ While this model of consumer behavior dominates contemporary economic analysis, there is a long history among economists of questioning its behavioral validity
and seeking alternatives. ...
The rational consumer model is so deeply entwined in economic analysis, and in broad terms so plausible, that it is hard for many economists to imagine that failures of rationality could infect major economic decisions or survive market forces. Nevertheless, there is accumulating behavioral evidence against the rational
model. Choice behavior can be characterized by a decision process, which is informed by perceptions and beliefs based on available information, and influenced
by affect, attitudes, motives, and preferences. ... A few brief definitions are needed. Perceptions are the cognition of sensation. I will use ‘‘perceptions’’
broadly to include beliefs, which are mental models of the world, particularly probability judgments. Affect refers to the emotional state of the decision-maker, and its impact on cognition of the decision task. Attitudes are defined as
stable psychological tendencies to evaluate particular entities outcomes or activities with favor or disfavor. Technically, attitudes are often defined as latent factors that explain the variation in a battery of indicators most commonly semantic differentials . The
domain of attitudes may be very broad, including for example comparative judgments, but an attitude itself is a unitary valuation. Preferences are comparative
judgments between entities. Under certain technical conditions, including completeness and transitivity, preferences can be represented by a numerical scale, or
utility. Motives are drives directed toward perceived goals. The cognitive process for decision making is the mental mechanism that defines the cognitive task and the role of perceptions, beliefs, attitudes, preferences, and motives in performing this
task to produce a choice.

Neoclassical economics and psychology have radically different views of the decision-making process. First, the primary focus of psychologists is to understand the nature of these decision elements, how they are established and modified by experience, and how they determine values. The primary focus of economists is on the mapping from information inputs to choice. Preferences, or values, can be treated for most economic applications as primitives of the analysis, and the decision process as a black box. The aphorism ‘‘Economists know the price of everything and the value of nothing’’ correctly characterizes the discipline’s scientific priorities.Second, psychological views of the decision process are dominated by ideas that behavior is local, adaptive, learned, dependent on context, mutable, and influenced by complex interactions of perceptions, motives, attitudes, and affect. The standard model in economics is that consumers behave as if information is processed to form perceptions and beliefs using strict Bayesian statistical principles perception-rationality , preferences are primitive, consistent, and immutable preference-rationality , and the cognitive process is simply preference maximization, given market constraints process-rationality . George Anslie 1982 gives a psychologist’s view of these differences:Since ancient times people have tried to understand the nature of value, this is, how events motivate us. Two kinds of good have been described: what might be called visceral satisfactions, closely associated with the consumption of a concrete object and usually in the service of an obvious biological need; and more subtle satisfactions, such as acquisition of knowledge . . . . Quantitative description of the value of concrete objects became the science of economics. By restricting its attention to goods that trade in a cash market, this discipline has been able to describe striking regularities in how we value these goods. For all the usefulness that this may have had, it has tended to create a self-contained body of procedures without reference to the human motivational processes that actually determine value.Is the lack of attention to the process of decision making and formation of values a fundamental failing of economics? If the standard model were always successful in explaining market behavior, and economists confined their attention solely to market data, the answer would be no. Economists might be criticized for lack of scientific curiosity, but their discipline would nevertheless sit securely on its own bottom. However, accumulating behavioral evidence that the standard model fails under some market conditions, and accelerating interest by economists in nonmarket data obtained from surveys and experiments, makes this lack of attention much more critical. Consumers may be wired differently than economic rationality in the sense of the standard model requires. While the consumer’s wiring may produce patterns of market behavior that in many cases can be approximated well by the standard model, when we approach the consumer from a different angle, asking direct and unusual questions about beliefs or values, we find alarming variations from the standard economist’s story. All these apparently normal consumers are revealed to be shells filled with books of rules for handling specific cognitive tasks. Throw these people a curve ball, in the form of a question that fails to fit a standard heuristic for market response, and the essential ‘‘mindlessness’’ of the organism is revealed. For most economists, this is the plot line for a really terrifying horror movie, a heresy that cuts to the vitals of our profession. To many psychologists, this is a description of the people who walk into their laboratories each day. ...

[dilbert dogbert]

Anne,
Different folks different strokes. My wife and I have the occasional pleasure of driving old CHP cruisers on the Sheriffs Office pursuit course. It is a fun experience as you are not in danger(nothing to hit and no risk of a rollover) and you find out what a car can do. Most of our driving, thank god, is in the main a boring necessary experience of getting from here to there.
I was thinking about happiness by thinking about what makes for unhappiness. If your basic needs are satisfied, then, if your children are unsucessful, in my and my closest friends experience, that is a deeply distressful experience. You can experience momentary joy but that joy is always overlaid and modified by what is happening to your children.
YMMV

[Bruce Webb]

"The rational consumer model is so deeply entwined in economic analysis, and in broad terms so plausible, that it is hard for many economists to imagine that failures of rationality could infect major economic decisions or survive market forces."

To which argument I would undercut with two words: "Madison Avenue". Marketers spend billions of dollars to move "economic decisions" and the evidence is pretty good that it works. Are the Fruit Loops in the cardboard box really any better tasting than the generic version in the big bags on the bottom shelf? Do your kids bitch and moan about being fed "dog food" anyway?

If anyone can explain away why the addition of a "swoosh" and Michael Jordan's name suddenly turn an $8 pair of basketball shoes into a $120 pair of shoes then I will listen to people who imagine that the real world really moves in accordance to Adam Smith's "invisible hand". Because there are some pretty visible thumbs on the scales.

[anne]

Nice responses. McFadden is excellent. And, drive as we will, what was bothering was the prescriptive but isolated nature of the prescriptions. Dilbert, any which way you can make driving more pleasant has my support. If looking at a shiny fancy car just sitting is pleasing then why not, though I too would prefer even pretending to be a race driver which I am assuredly not :) The post article was actually interesting for the annoyance of the limited context moralizing and pretend sociological generalizing, but the subject of value is more interesting as the responses other than mine showed.

[Lord]

Don't buy a Ferrari, rent one, perhaps for your birthday.