In both cases, the tradeoff is the same - drive fifteen minutes to save twenty bucks - but people were much more willing to do it for the cheap item, because $20 was a higher percentage of its total cost. With the $2000 TV, the $20 vanishes into the total cost like a drop in the ocean and seems insignificant.
Evaluating cost savings as a percentage actually makes a certain amount of sense when evaluating policies rather than acts. Cheaper purchases tend to be much more frequent: you probably buy many more shirts than you do big-screen TVs, so expending the effort to find the cheapest source of shirts and evaluate whether it's worthwhile to go out of your way to buy them will save you several times $20 over the lifetime of the policy, whereas the TV is effectively a one-time decision which will only save you $20 total. True, the 15 minute drive time is per-purchase rather than per-policy, but 1) the cost is not just the drive time, but also the effort to research options and the cognitive load of picking and option, which are one-time costs, and 2) a general policy of thriftiness for small, frequent purchases can have a substantial effect on your overall financial situation, but i...
Another failure of rationality is failing to understand the difference between investment goods and consumption goods. A $745,000 house may cost more to buy than a $710,000 house but you're also likely to be able to sell it for more as well. The "true" cost is not $35K, instead, it's a complex calculation of marginal mortgage payments, expected rise or fall of housing prices and cash flow considerations.
I never thought to write a post about it, but I use similar criteria when looking for an apartment. It's easier to switch apartments than houses, but it's harder to modify an apartment. This means that many of the criteria for apartments are more specific. Here are some criteria I use that Yvain didn't mention:
This list has slowly grown as I've moved to different places and been plagued by different annoyances. My current place fulfills most of the criteria, although it's a little too close to a major street. Firetruck sirens are louder than most emergency vehicles; enough that they break my concentration if I'm not wearing headphones. On the other hand, the Internet connection is particularly fast: symmetrical 100Mbit.
it costs $20 at a nearby store, and it costs $40 at a store that's fifteen minutes away ... which costs $2000 at a nearby store, and $2020 at a store that's fifteen minutes
Shouldn't these numbers be the other way around? I.e $40,$20 and $2020 and $2000? Why would you drive fifteen minutes to pay an extra $20?
The second house, or the first house plus a brand new Lexus?
Houses keep their value better than Lexuses. (Lexi. Lexoi. Lexūs. Whatever.) Eventually, you (or your heir(s)) will presumably sell the house, and then you will get more for the second house. Buying the first house gets you more liquidity than buying the second; it doesn't get you any more wealth. (If the housing market is performing well, which it did once upon a time, it may get you rather more in the long run.)
Though, from an investment perspective, unless you believe the neighborhood you're going to live in will change for the better (more than the rest of the area), you're probably better putting that 35k into stocks. So, it's not 35k going down a black hole- but it might be $700 a year (presuming 4% returns on stocks and 2% returns on houses).
Since a house is inevitably both a place to live and an investment, it would seem to be appropriate to treat it as both. (Unless doing so spoils your enjoyment of it as a place to live, or something. For what it's worth, I've always thought of houses both ways, have never noticed such a negative effect, and have always been happy with the results on both counts. But I've been pretty fortunate.)
[EDITED to add: I agree that the extra mortgage interest you'll pay is a genuine extra cost -- and that, not the $35k price difference or whatever, is what you should be weighing against whatever you're paying the extra for. How the two figures relate to one another depends a lot on the mortgage interest rate, how quickly you repay, etc.]
Possibly commutes are surprisingly wearing because, in addition to the obvious (time taken, polluted air), if I'm a fair sample, the shortest route to anger is a belief that things can and should be different. There you are, in a car on a road, and if there weren't so many people on it, you could just go. If my theory is correct, then commuting in traffic is significantly worse than commuting without much traffic. On the other hand, driving in traffic is more work even without an anger factor. I'm not sure how you'd distinguish the two.
There you are, in a car on a road, and if there weren't so many people on it, you could just go.
In another forum, I once saw someone complaining that their commute should take 10 minutes, but usually took 20 because of the traffic. Someone else pointed out to them that what they really had was a 20 minute commute that they were occasionally fortunate enough to do in 10.
a neighborhood ... where you'll be relatively high on the social ladder.
That seems to be the reverse of what the research you cited indicates (rich people in rich neighbourhoors of poor counties in America are happy). Don't you want to be in a rich neighbourhood (so you're surrounded by nice things and reminders of your high status) in a poorer region (so you have something worse to compare against) of a rich country (for all the infrastructural benefits that brings)?
OMG!
I feel really good about myself and my wife, now.
Fifteen years ago, we bought a house with a yard in which we planted lots of greenery (check); not stretching our budget (check); no pool or other frippery (check); we left the construction to the oversight of others rather than obsessing over every fireplace and window (check); and it is in a middle-class neighborhood in an otherwise working-class village (check). The commute is not short, however (fail).
My life should be bliss!
Seriously, does rationality training include congratulating yourself for lack of certain biases? Thanks for the post!
Seriously, does rationality training include congratulating yourself for lack of certain biases?
If you never congratulate yourself for thinking correctly, but you sometimes punish yourself for thinking incorrectly, you are effectively conditioning yourself against thinking. Which would be a bad thing.
(Something similar to this was mentioned at the Rationality Minicamp.)
You don't have to live in the Amazon to get a benefit: even children in a concrete building with a tiny "green island" boasting a single tree did better than their peers in a building without such an island.
The citation seems to be missing for this one.
Another commuting study:
...I analyze cross-sectional data from the American Time Use Survey (2003-2008) to quantify decreases in health-related activity participation due to commuting and labor time. I examine the data for associations between commute length and time spent in exercising, food preparation, eating, and sleeping behaviors. I augment the data with activity strenuousness scores to test whether physically-draining commutes induce lower-intensity activity substitutions. I find small but highly significant associations consistent with the conjectur
For example, a house with a pool may bring to mind the opportunity to hold pool parties. But most such plans will probably fall victim to akrasia, and even if they don't, how often can one person throw pool parties without exhausting their friends' interest? Pool parties may be fun to imagine, but they'll probably only affect a few hours every couple of months.
I told my family exactly this when they wanted to get an above-ground pool. Sure enough... eventually it just got damaged enough that we threw it out.
I find purchasing decisions easier when I think about them like this: which would you rather have, the second house, or the first house plus a two-week luxury vacation
House is probably a poor example here, since it's generally paid over the length of a mortgage. $35,000 overall, divided by 12 payments per month, divided by say 20 years = $145/month. So would I rather $145/month, or the small amount of joy that the slightly nicer house will bring me in that same time frame? I could see that joy being the best deal for one's dollar. I've spent $200/month ...
a classic example here is the "extra bedroom for Grandma" - visits from Grandma are easy to imagine, but if she only comes a couple of days a year, spending tens of thousands more dollars for a house with an extra bedroom and bathroom for her is probably pretty stupid. You'd save money - and make her happier - by putting her up in the local five star hotel.
I'm going to buy a house with a room for "grandma", and here's why: While it might cost me less to put guests in luxury hotels, it's going to cost me every time I have a guest over...
For example, most people will assert, when asked, that there are more English words ending with "-ing" than with "-g".
Is it possible that at least some of those people think (at least subconsciously) about words ending with the phoneme /g/ rather than the orthographic letter G? A famous experiment in which most people consistently skip “of” when counting the number of times the letter F occurs in a sentence (presumably because in “of” it stands for a /v/ sound) suggests to me that that might be not that unlikely.
I smell a business opportunity; maybe a webapp? A sequence of good-enough homes by price range and location sorted by whatever reliable inputs can be discovered.
Great article.
In a telling experiment under the same protocol as the ones listed above, people asked to reflect upon their choices were more likely to choose the house with the extra room for Grandma than the house with the shorter commute times, because the extra reflection gave more opportunity for the availability heuristic to come into play.
I am curious about the part after "because". Did the experiment you're referring to actually distinguish that explanation (availability heuristic) from other possible ones (such as signalling value, gr...
Does the "paradox of choice" (too many choices result in less satisfaction) apply to big decision as well as small ones? (It could be that too many choices imposes a psychological cost that's independent of the value of the decision, while the material benefit of having more choices scales with the value.) I couldn't find a clear answer from Barry Schwartz's book, but the advice he gives in the last chapter:
...To manage the problem of excessive choice, we must decide which choices in our lives really matter and focus our time and energy there, let
As a request for elaboration: what is a good strategy to move to another city?
The current strategies I am aware of are: 1 .spend 2-5 days house hunting, contract it and move and live there for years. 2. get any temporary place that is reasonably close to the work location. Spend a few month house hunting, and then move to the new permanent home.
Add for people that have to move families is the decision between moving everyone right away and moving alone first and having everyone else follow later. Possibly in alignment with holiday times, end of school year and such.
The linked articles on commutes are long and I'm not sure how to search for my specific question: what were the typical happiness-costs of, say, a half hour commute on a subway, vs a two hours commute in car vs a two hour commute on a train.
I used to commute 1.5 hours on a train to my job in NYC. It was definitely stressful - I had a hard time maintaining any social life. Now I have a half hour subway commute which is definitely better, but I wonder if it'd be worth the money to move a more expensive place closer to my job.
This seems like it would be very useful, I'm going to bookmark this.
Side note: Could a feature be added to allow people to favorite articles for easy access?
Whether you find this explanation plausible or not, the research generally agrees: too many choices result in less satisfaction with whatever you finally buy.
I've meant to comment on this research before...not as a critique of your point but just as a stream of consciousness:
The problem I have with using this to consciously decide not to do as much comparison shopping/research/whatever, is that, while I may be more satisfied with my purchase, I'm less satisfied with the way in which I made my decision. My gut feeling is that in terms of overall satisfa...
I've been thinking about alternative reasons why people living in rich neighborhoods of poor counties are happier.
Maybe the happiness-promoting physical qualities of neighborhoods (green space, lack of noise, feeling safe) correlate with income when they vary between counties, but not when they vary within counties.
I'd expect the poorest part of Pittsburgh to be about equal to the poorest part of northern New Jersey, and the same for the richest parts. (Perhaps less fancy, but I suspect granite doesn't affect happiness that much.) The New Jersey county is ...
Replies to the comment you are now reading accurately describe my ideas so the original post has been replaced by this disclaimer to spare your time :)
that's the kind of organisation we're looking for, one that kind of finds the problems and talks about them publically, rather than the ones who hide them or don't even know they're there.
- transcribed from GiveWell_June_2015_SF_Research_Event_Top_Chariti
Re: Commuting time: as others have noted, there may be a big difference between driving vs. public transit. I take a bus and train to work, and when I moved from a 40 minute each way trip to a 1 hr 10 minute each way trip I noticed very little difference because I spend the time reading the newspaper and playing games, or sometimes napping. On really crowded days sometimes I will even take the train the wrong way one stop to the end of the line and get back on so I can have a seat. Though, I also work from home 2 days/wk, which helps a lot too.
Re: Guest ...
I pointed this out in a Newcomb's Problem discussion, but being willing to pay $X in time and expenses to save less than $X on an item can be thought of as a variation on Newcomb's problem. If you precommit to drive long distances to save money on the sticker price, stores will predict your behavior. Those stores will then realize that they must compete in price against stores that are long distances away. This greater competition will lead the stores to lower their prices more than they would otherwise and you will see lower sticker prices, both far aw...
A related question is whether buying a home is rational at all, when compared to renting. Obviously it depends on how long you plan to live in the same place, but I've seen a lot of people buy and be tied down by houses even when in expectation they'd only be living in the same town for a few years. Can anyone point to a good discussion of the calculations involved here? (I imagine the end results will vary country by country - for example, by impression is that in parts of the UK, where I live, houses cost more relative to rent than in other places.)
In a telling experiment under the same protocol as the ones listed above, people asked to reflect upon their choices were more likely to choose the house with the extra room for Grandma than the house with the shorter commute times, because the extra reflection gave more opportunity for the availability heuristic to come into play.
In this experiment, did they control fro the availability heuristic in any way? Like having a list where they are asked whether they prefer short commute times to several low-probability things and so that they compete with on...
Cool, i had all these things instinctively right when buying my house.
Unfortunately out of the 6 people living here i have the biggest commute :(
I live in one of the best-lit houses i've ever been in. The neighbours who miss 2 windows compared to our house, but are otherwise exactly the same looks like a dark crypt. The colors you use and the way you place your furniture also plays a big role in lightness.
Psychologists aren't entirely sure why people so consistently under-count the pain of commuting.
Maybe because people aren't aware of the damage being done to their health by long-term exposure to the extremely high levels of toxic gases found on any major road.
My parents are considering moving house. I've had a front-seat window to their decision process as they compare alternatives, and sometimes it isn't pretty.
A new house is one of the most important purchases most people will make. Because of the sums involved, the usual pitfalls of decision-making gain new importance, and it becomes especially important to make sure you're thinking rationally. Research in a couple of fields, most importantly positive psychology, offers some potentially helpful tips.
LOCATION, LOCATION, LOCATION
People so consistently under-count the pain of commuting when making choices that the problem has its own name: Commuter's Paradox. The paradox is that, although rational choice theory predicts people should balance commuting against other goods and costs, so that one person might have a longer commute but a nicer (or cheaper) house and so be just as happy overall, this doesn't happen: people who have long commutes are miserable, full stop. A separate survey by Kahneman and Krueger found that commuting was the least enjoyable of nineteen daily activities mentioned, and other studies have found relations between long commutes and poor social lives, poor health, high stress, and various other problems.
Psychologists aren't entirely sure why people so consistently under-count the pain of commuting. Maybe it's because it's viewed as "in-between" time rather than as an activity on its own; maybe it's because it comes in relatively short and individually bearable chunks repeated over many years, instead of as a single entity. In any case, unless you are mentally atypical you will probably have a tendency to undercount commute time when buying a new home, and may want to adjust for that tendency.
HOUSES COST A LOT OF MONEY
One of Kahneman and Tversky's famous bias experiments went like this: imagine you're buying a new shirt. It costs $40 at a nearby store, and it costs $20 at a store that's fifteen minutes away. Do you drive the fifteen minutes to save twenty bucks? Most people would.
Now imagine you're buying a new TV which costs $2020 at a nearby store, and $2000 at a store that's fifteen minutes away. Do you drive the fifteen minutes to save twenty bucks? Most people wouldn't.
In both cases, the tradeoff is the same - drive fifteen minutes to save twenty bucks - but people were much more willing to do it for the cheap item, because $20 was a higher percentage of its total cost. With the $2000 TV, the $20 vanishes into the total cost like a drop in the ocean and seems insignificant.
Nice homes can cost $500,000, $1,000,000, or even more. There doesn't seem to be a big difference in price between $710,000 and $745,000 houses; perhaps if the second home looked even a little nicer in an undefinable way you might be prepared to take it. But $35,000 is $35,000; if those minor advantages don't provide $35,000 worth of value, when measured on the same scale on which you measure the value of of movie tickets, shoes, and college funds, then you should buy the first house and keep the cash.
I find purchasing decisions easier when I think about them like this: which would you rather have, the second house, or the first house plus a two-week luxury vacation to anywhere in the world every summer for the next five years? The second house, or the first house plus a brand new Lexus? The second house and dining at home every week, or the first house and eating out at your favorite restaurant every weekend for the rest of your life? (EDIT: gjm points out that it's easier to resell houses than other types of good, so if you expect to resell your house you should really only be considering the extra money involved in the mortgage)
DON'T OVERCOUNT EASILY AVAILABLE DETAILS
The availability heuristic says that people overcount scenarios that are easy and vivid to imagine, and undercount scenarios that don't involve any readily available examples or mental images. For example, most people will assert, when asked, that there are more English words ending with "-ing" than with "-g". A moment's thought reveals this to be impossible - words ending in "-ing" are a subset of those ending in "-g" - but thinking specifically of "-ing" words makes it easier to bring examples to mind.
The real estate version of this fallacy involves exciting opportunities that you will rarely or never use. For example, a house with a pool may bring to mind the opportunity to hold pool parties. But most such plans will probably fall victim to akrasia, and even if they don't, how often can one person throw pool parties without exhausting their friends' interest? Pool parties may be fun to imagine, but they'll probably only affect a few hours every couple of months. Other factors, like the commuting distance and whether your children end up in a nice school, may affect several hours every day.
(a classic example here is the "extra bedroom for Grandma" - visits from Grandma are easy to imagine, but if she only comes a couple of days a year, spending tens of thousands more dollars for a house with an extra bedroom and bathroom for her is probably pretty stupid. You'd save money - and make her happier - by putting her up in the local five star hotel.)
LIGHT AND NATURE
Good illumination and a view of natural beauty aren't just pleasant luxuries, but can make important practical differences in your life.
Light, especially daylight, has a strong effect on mood. There are at least fifteen controlled studies showing that bright light reduces symptoms of seasonal and nonseasonal depression by about 10-20% over placebo. This is about equal benefit to some antidepressant drugs, and sufficient that light therapy is a recognized medical treatment for depression. Bright light leads to self-reported better mood even in subjects without a diagnosis of depression, and also leads to better sleep and more agreeable social interactions.
Light and nature have positive effects on health. Some of the most compelling data comes from hospitals, which have long realized that their patients near windows do better than their more interior counterparts. In one study, surgical patients near windows recovered faster (7.9 vs. 8.7 days), received fewer negative comments from nurses (1.1 vs. 4 notes), and needed fewer strong painkillers (1 vs. 2.5 doses) than matched controls without a view. Other studies have compared recovery of physiological indicators of stress (for example, blood pressure) in subjects viewing natural or artificial scenes; the subjects with views of nature consistently have healthier stress reactions.
Nature may have special benefits for children. Experiments with subjects of all ages and levels of mental health have shown nature increases mental functioning and concentration, but some of the most cited work has been in children with Attention Deficit Hyperactivity Disorder. Children who live in greener settings also (independently of wealth) do better on schoolwork and show greater ability to delay gratification. Large studies find with high certainty that students who take standardized tests in better lighting do up to 25% better than their literally dimmer schoolmates, and progress through lessons 15-25% faster.
You don't have to live in the Amazon to get a benefit: even children in a concrete building with a tiny "green island" boasting a single tree did better than their peers in a building without such an island.
BETTER FIRST IN A VILLAGE THAN SECOND IN ROME
Brains generally encode variables not as absolute values but as differences from an appropriate reference frame. That means that to really appreciate your wealth, you've got to be surrounded by people who are poorer than you are.
This seems to be empirically the case: a US study found the happiest Americans were rich people living in poor counties. However, this was true only of rich people living in rich neighborhoods of poor counties. As the study puts it, "individuals in fact are happier when they live among the poor, as long as the poor do not live too close".
Of course, this doesn't mean that you should move to Somalia for eternal bliss. There are community-wide benefits to living in a wealthy neighborhood, like better schools, and you may be better able to socialize with people from a similar class background as yourself. But given the choice between a neighborhood at the top of your price range and one at the bottom, you may find yourself more satisfied living in an area where it's the Joneses who have to try to keep up with you.
DON'T OVERSHOP AND DON'T OVERTHINK
It's easy to confuse "rationality" with a tendency to turn all decision-making over to conscious general-purpose reasoning, and in turn to assume that whoever ruminates about a decision the most is most rational. But there are at least two reasons to think that within reason it may be better to worry less over important decisions.
One is the finding that "comparison shopping" usually leads to less happiness in whatever you buy. Imagine being pretty sure you're going to buy House X until you look at House Y and find out that this one has a granite fireplace, and a pond in the backyard. It may be you don't like House Y at all - but now every time you go back to House X, you're thinking about how it doesn't have a granite fireplace or a pond, two features which you never would have even considered before. Whether you find this explanation plausible or not, the research generally agrees: too many choices result in less satisfaction with whatever you finally buy.
The second is the discovery that attempts to make your reasoning explicit and verbal usually result in worse choices. This includes that favorite of guidance counselors: to write out a list of the pros and cons of all your choices - but it covers any attempt to explain choices in words. In one study, subjects were asked to rate the taste of various jams; an experimental group was also asked to give reasons for their ratings. Ratings from the group that didn't need reasons correlated more closely with the ratings of professional jam experts (which is totally a thing) than those who gave justifications. A similar study found students choosing posters were more likely to still like the poster a month later if they weren't asked to justify their choice (Lehrer, How We Decide, p. 144).
The most plausible explanation is that having to verbalize your choices shifts your attention to features that are easy to explain in words (or perhaps which make good signaling value), and these are not necessarily the same features that are really important. In a telling experiment under the same protocol as the ones listed above, people asked to reflect upon their choices were more likely to choose the house with the extra room for Grandma than the house with the shorter commute times, because the extra reflection gave more opportunity for the availability heuristic to come into play.
CONCLUSION
Buying a house is one of the biggest decisions a family faces, and so has extra opportunity to be improved by rational thinking. Try to buy a house with good illumination and nearby green space in an area close to your workplace where you'll be relatively high on the social ladder. Carefully consider whether special features have genuine utility or are just highly available small details, and justify the relative differences in cost in absolute, not just relative terms. And, um, try to do all of this while following your gut instincts and not overshopping.