Well Spent Money

Money Well Spent
Money Well Spent

Experiential purchases are more likely to be seen as money well spent and experiential purchases generate less regret. As a general rule, experiences don’t lend themselves to comparison in the same way as material goods.

Do something fun, get something you enjoy

If you’re like me when you were young you got birthday cards from grandparents with a little bit of money inside along with some instructions: do something fun, get something you enjoy, but this advice was based on anecdotes and intuition and there was surprisingly little empirical evidence one way or another.

In the early 2000’s the psychologist Tom Gilovich and his colleagues, began to explore what generated the most happiness: experiences or material goods? In their first laboratory study they instructed half of their participants to describe the most recent material purchase that it cost them at least $100.

The remaining participants were instructed to describe their most recent experiential purchase of at least $100. The young adults in the study described the sorts of purchases you might expect: material purchases were things like clothing and jewelry experiential purchases things like concert tickets and trips to sporting events.

Then the participants answered a series of questions about that specific purchase including how happy it made him feel and whether the money seemed well spent. The results were simple and striking: experiential purchases led to more happiness, both when thinking back to the purchase and more generally in one’s life.

Experiential purchases make people happier

Experiential purchases were more likely to be seen as money well spent and experiential purchases generated less regret. A follow-up study was conducted in a large nationwide random sample: each person was asked to think about two recent purchases one material the other experiential that had been purchased in order to increase their personal happiness.

Then each person was asked which of those two actually makes them happier. Experiential purchases made people happier and that advantage held for every demographic group tested: young and old, employed and retired, male-female, Republican or Democrat and so forth. There was only one factor that made the advantage of experiential purchases go away: income.

People with incomes less than about $25,000 reported that material goods and experiences evoke the same relative happiness, but as income increased above that level. There was a greater and greater bias toward experiential purchases. Of people with incomes about $150,000 per year or more the highest category used about 70% reported that their recent experiential purchase made them happier.

Experiences make people happier than material goods. This result has been replicated in multiple studies and in many other psychologists and marketing scientists. What is more, when researchers ask people to evaluate others’ purchases of experiences and goods the effects get even stronger. That makes sense.

Why experiences evoke more happiness

Let me ask you this suppose that I tell you that I had just spent $1000 on a beach vacation and another thousand dollars on a new couch. Which one do you think made me happier? So, that’s the basic phenomena, the next step is to evaluate why experiences evoke more happiness.

To think about why will need to explore some other differences between experiential and material purchases. For now let’s contrast to prototypical purchases: say the experiential purchase of a weekend stay at a mountain lodge in the material purchase of a new television set.

Let’s first look at potential differences in the process of decision-making. When people make experiential purchases they are more likely to search for an option that is good enough rather than trying to find the best possible option. We try to find a good location for a vacation but we try to find the best television.

To use the term introduce in the article on bounded rationality people are more likely to satisfice when they make experiential purchases. Let’s next consider what happens after the purchase is made. After material purchases people still tend to be interested in other forgone options.

Feel like you made the best purchase

Suppose that you would purchase a television set two weeks later you learn that there was a new and better model coming on the market or you learn that the price in your set drop by 20%. You’d probably be much less satisfied with your decision. You want to feel like you made the best purchase and you didn’t.

But, after people have their experiences people are less likely to think about what could have been. After you walk in your vacation hotel you’re probably not going to spend much time thinking about the other hotels in the area and you’re not likely to be bothered if the price drops for other people.

It’s hard to know that in the first place and you can explain away their discounted price as luck. They just got a good deal. Finally let’s consider the effects of social comparison. Suppose you set up your new television and invite a friend over. You proudly show off the great features of the new set and your friend excitedly blurts out “that’s really great I just got a new television too”.

But, your friend pay less for his television or got a better television or worst of all pay less and got a better television. How would you feel? Most people find situations like this pretty frustrating. We are happy of our friends do well but we don’t want them to do better than us, that leads to jealousy.

On the contrary, we share stories

But replace television with vacation. Your friend blurts out I just went on vacation to. It’s not as frustrating if our friend goes on a really great vacation or gets a better deal on a vacation. That doesn’t evoke as much jealousy as shown in laboratory studies, on the contrary we share stories with which we connect with friends who go to similar places. There’s something common about all the effects that I just described.

For experiential purchases people don’t show the normal biases of comparison, they don’t do as much comparison before, they purchase they don’t need to justify the purchase afterward they are bothered if, they could’ve gotten a better deal and they are jealous if someone else gets a better deal. As a general rule experiences don’t lend themselves to comparison in the same way as material goods.

By successdotinc

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