As you leave our lab and take a narrow walkway down to one of the main streets in Durham, you pass through a small parking lot and a few chain restaurants. Yesterday afternoon, that parking lot was packed tightly with a long line of patrons waiting to buy a $1 sub for Jimmy John’s “Customer Appreciation Day.”

If the crowd was any indication, the promotion was a success (although it’s hard to tell how “appreciated” the customers felt without distributing some surveys—maybe next time…). It was clear, however, that they were willing to wait an incredibly long time to get a cheap sub. And that might very well change where they get lunch in the future.

In standard economics, the way we decide to spend our money reflects how useful or enjoyable we expect a product or service to be. We pay five dollars for a sub because we expect to get five dollars of value from eating it, and so on. But findings in psychology and behavioral economics suggest that the choices we make can do more than simply reveal our preferences—they shape them, too.

One classic study by Leon Festinger and James Carlsmith showed the effect that actions can have on our preferences. Participants in their experiment performed a mind-numbing task and were asked to describe it to another person while pretending to have enjoyed it. But there was one crucial difference between two groups: They were paid either a low or high amount of money to do this. Compared to those who were well compensated, the participants who were paid a small amount of money enjoyed the experiment more and reported a higher likelihood of returning to perform a similar experiment.

Festinger and Carlsmith concluded that their low-paid participants experienced a dissonance between the amount of money they were paid and their own willingness to perform the task. And since they couldn’t take back their efforts, they justified their behavior by increasing their enjoyment of the task. Here, we could say quite a bit about what Festinger and Carlsmith called “cognitive dissonance,” but let’s instead focus on how this affected their participants’ later behavior.

When we look back on our past actions, we tend to ignore situational factors and assume instead that we made that decision for good reasons. This actually changes how we feel about those decisions later, and that can change our future behavior. This process, where we look to our past behaviors to guide our future decisions, is called self-herding. To provide a simple example, imagine that you got a particularly flattering evaluation last Friday at work. You were feeling pretty happy about this and decided to celebrate by inviting some co-workers to a bar for a drink. The next Friday, as you’re considering what to do that evening, you might look back on your past excursion and decide to do it again. You look to the past behavior (going out for drinks) rather than the situational factors (the glowing report) that led you to the behavior.

So the people waiting in a long line for a cheap sub that everyone seems excited about might look back tomorrow and like Jimmy John’s more than they otherwise would have. Though they might look herded to one another, standing in a line that stretches out the door and into the parking lot, it’s how they’re herded to themselves that matters in the long run.

~Vlad Chituc~

Read more:
Chapter 2 in Predictably Irrational and Chapter 10 in the Upside of Irrationality
Dan Ariely and Michael Norton (2007), “How Actions Create—Not Just Reveal—Preferences.” TRENDS in Cognitive Sciences. Vol. 12, No. 1: 13 – 16.

Here’s my Q&A column from the WSJ this week — and if you have any questions for me, you can tweet them to @danariely with the hashtag #askariely, post a comment on my Ask Ariely Facebook page, or email them to AskAriely@wsj.com.

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Dear Dan,

As you creep along in a traffic jam, someone inevitably tries to enter your lane from the side. Now here is the issue: If I let the car in, I feel good about it. But when I see others in front of me let someone in, I feel cheated, because I’ve been waiting longer than the car entering the lane, and I am upset with the driver who acted kindly at my expense. Any idea why I feel so different about these two situations?

—Walt

The issues here are control and credit. When you let someone into your lane, you’re the one making the decision—and you’re the one getting the nod or the hand-wave as an expression of gratitude. In contrast, if someone else is letting the needy car in, you have no control over the decision, and you’re not getting the credit—you only see the downside of the increased delay.

Consider a more moderate version of this case, one where you simply keep a large distance between you and the car in front of you. By doing this, you’re allowing the cars from the merging lane to come into your lane at will, but it doesn’t require a separate act of generosity on your part (you aren’t slowing down to let them in).

My guess is that this version of accommodating other drivers also would not feel very good for you, not to mention that you’re not going to get any credit for your kindness.

What‘s the conclusion? First, to feel good about the good fortune of someone else, we need to feel that the positive outcome is a result of our own actions. Second, we want other people to recognize how wonderful and helpful we are.

Still, given how many other people are stuck in traffic ahead of you and that they’ll keep on letting other cars merge, maybe you should start thinking that real altruism consists of allowing good things to happen both directly and indirectly—and even when other people are getting the credit for it. Taking this attitude won’t be easy, but if you manage it, good things will follow.

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Dear Dan,

I’m reading your book “The Upside of Irrationality.” As I read your description of the burn injuries you suffered as a teenager, I wondered the following: If you and I were ever to meet, and we shook hands, would it hurt you? My own hand was injured many years ago, and people can cause me pain by squeezing it when shaking. Basically, I worry when shaking hands with a new person. Do you have a similar worry? How would you like people to shake your hand? 

—Donni 

For me, the question of shaking hands is a mix of potential pain and the feeling that I am not part of normal society. If people shake my hand too strongly, it is painful, and if they shake too loosely, it reminds me of my injury and how I am still perceived by the outside world as someone who looks different. With this trade-off in mind, I prefer that people shake my hand, even if it causes me some pain. It may be irrational, but I like being able to share in this ritual of greeting. It lets me feel that I am part of the wider society.

Taking a different approach, I have started to switch from handshaking to hugs, which are not only less painful on my hands but more personal, more enjoyable and maybe even less likely than handshakes to transmit germs—so maybe this is a good direction for society as a whole.

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Dear Dan,

Are the stock markets manipulated or are they truly a mathematical outcome of buyers and sellers?

—Dave

Markets are a mathematical outcome of the interaction between buyers and sellers—some of whom successfully manipulate the prices.

See the original article in the Wall Street Journal here.

Here’s my Q&A column from the WSJ this week — and if you have any questions for me, you can tweet them to @danariely with the hashtag #askariely, post a comment on my Ask Ariely Facebook page, or email them to AskAriely@wsj.com.

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Dear Dan,

I work as a waiter in Waikiki, and sometimes to pass the time I conduct mini-experiments with customers, altering my behavior and attitude from day to day and seeing if it increases tips (in case you were wondering, seeming sad nets the most tips).

I have noticed that those paying with credit cards leave bigger tips, but it varies by card: American Express users tip the most, those with Visas a little less. Discover card users are by far the worst. I can’t quite figure this out.

—V 

One possibility is that wealthier people get American Express cards, the less affluent Visa, and the least well-off Discover—and they tip accordingly. You should be able to test this hypothesis by looking at their spending patterns—for example, how much they spend on wine.

Another possibility is that credit cards have a priming influence. If a person takes out an American Express card and looks at it, its reputation as a premium card might make the owner feel richer and therefore more generous. These feelings would diminish with a Visa card and be present even less with a Discover card (which generally is of more modest repute).

My guess is that both of these hypotheses play a role in what you’ve observed. To be sure, we would need to experiment by having a group of people with multiple kinds of credit cards pay in similar situations using different cards. Then we’d see if and how they change their spending.

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Dear Dan,

I work with many entrepreneurs in their early innovation stage and am always intrigued by the strong (irrational) attachment they develop to their idea, often leading to their being blind to reality and to wasting time and money. How quickly do we get irrationally attached to our ideas? Is it based on elapsed time or on specific actions we take (such as presenting the idea to others)? What can be done to cure this?

—Omer 

The problem, of course, is not just with entrepreneurs. From time to time we all experience someone in a meeting who says something random, and not particularly smart, but then insists that we follow up on his or her brilliant suggestion.

A few years ago, Daniel Mochon, Mike Norton and I conducted experiments about what we called “the IKEA effect”: As the instructions to build something become more challenging and complex, we love even more what we have created. We also showed that this effect takes place rather quickly. In perhaps the most interesting and irrational part of the whole story, we found out that we also mistakenly think other people will share in our excitement over our inferior creations.

What can we do about this? We could try to create an environment where ownership is less powerful or less associated with particular individuals. But if we manage to reduce or eliminate the feeling of ownership, are we also eliminating commitment and motivation? Maybe we should try to increase this sort of proprietary attachment. (And by the way, now that I have finished, I love my answer and think that it is very insightful.)

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Dear Dan,

After I’ve bought an expensive or limited-edition scotch, I worry about drinking the bottle too quickly or being unable to find more once it’s gone. So partly opened bottles in my closet keep accumulating. Any advice on how to enjoy my scotch rather than hoarding it?

—Jonathan 

The problem with hoarding (collecting) is thinking about it as one decision at a time. I would either try to think about such questions from a broader perspective (“Would I be interested in getting 24 more bottles?”) or set up a rule for the number of bottles that you can have in your house at one time (let’s say 10). Then you’d have to finish a bottle or give it away before you acquire another.

See the original article in the Wall Street Journal here.

Here’s my Q&A column from the WSJ this week — and if you have any questions for me, you can tweet them to @danariely with the hashtag #askariely, post a comment on my Ask Ariely Facebook page, or email them to AskAriely@wsj.com.

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Dear Dan,

I have worked very hard for most of my life, and I am getting to feel more secure and comfortable. But I don’t feel as happy as I expected, given all my achievements and financial success. I am not one of those hippies who think that money is not important, but it feels like something is missing. What am I doing wrong?

—Matt

Don’t worry. The fact that your financial achievements have not brought you contentment does not mean that you’re a hippie. Social scientists have long been troubled by the finding that people basically think money will bring them happiness but it does so less than they expect.

There are two possibilities: First, that money cannot buy happiness. Second, that money can buy some happiness, but people just don’t know how to use it that way. The good news is that this seems to be the correct answer.

In their fascinating book “Happy Money: The Science of Smarter Spending,” Elizabeth Dunn and Michael Norton say there are two ways to get more happiness out of our money. The first is to buy less stuff and more experiences. We buy a sofa instead of a ski trip, not taking into account that we will get used to the sofa very quickly and that it will stop being a source of happiness, while the vacation will likely stay in our minds for a long time.

Second, and more interesting, Drs. Dunn and Norton demonstrate that we just don’t give enough money away. Which of these would make you happier: buying a cup of fancy coffee for yourself, buying one for a stranger, or buying one for a good friend? Buying a cup of coffee for yourself is the worst. Buying for a stranger will linger in your mind and make you happier for a longer time, and buying for a friend is the best—it would also increase your social connection, friendship and long-run happiness.

So money can buy happiness—if we use it right.

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Dear Dan,

I’m going to an out-of-town concert next month with friends and, as usual, I ended up organizing everything, booking a hotel room and fronting the money. When I’ve done this with groups in the past, I always end up spending the most on shared expenses, because they are never divided up evenly.

Perhaps I’m afraid to ask for large amounts of money, even though these are the true expenses that should be shared by everybody. What can I do to make sure that the bill for this upcoming show is split fairly?

—Scott

This is a question, in part, of how much you care about splitting the expenses evenly and how much responsibility you’re willing to take to improve the situation. I assume you’re willing to take this responsibility, so I suggest that you collect money from everyone in advance and pay all bills from this pool of money (and add 20% just in case, because we often don’t take all contingencies into account).

This way, everyone will pay the same amount, and bill-splitting will never come up. If there’s extra money, keep it for next year, or buy everyone a small gift to better remember the vacation.

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Dear Dan,

I have sometimes found myself walking behind a woman at night in an unsafe place and going in the same direction. Even though there is some distance between us, I can feel the doubt and worry in her mind. How do I handle this situation? Should I stop or say something? I have places to be, too, but clearly I don’t want the woman to feel unsafe.

—Steve

Simply pick up your cell phone and call your mother. In the world of suspicion, nobody who calls his mother at night could be considered a negative individual.

See the original article in the Wall Street Journal here.

Here’s my Q&A column from the WSJ this week — and if you have any questions for me, you can tweet them to @danariely with the hashtag #askariely, post a comment on my Ask Ariely Facebook page, or email them to AskAriely@wsj.com.

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Dear Dan,

My parents are about to put their house on the market in Scotland, where there’s a system of setting an asking price and having interested parties make sealed bids. Any advice on how to get the highest sale price?

—Moses 

In auctions there are usually two forces: what people think the starting price of a house should be and how intense the competition gets between the bidders over time. Establishing a starting price for the bidding, it turns out, has an opposite effect on these forces.

If you set a high starting price, there’s a good chance that people will start thinking about the house from that point and offer a higher bid. On the other hand, if you set a low starting price, more people will get into the auction, the competition will be fiercer—and the outcome is likely to be a higher final price. (By the way, have you noticed that in auctions—on eBay, for example—the person who pays for the item at the end of the auction is called “the winner”? This suggests that competition is indeed a very strong driver.)

So if you have a sealed-bid auction in which people can submit a bid only once, go with a high starting price. But if there are multiple rounds of bidding, think of the starting price as a lure for getting many bidders involved at the get-go.

Last week I met with a friend in San Francisco (let’s call him JC) who is house-hunting. He said that the houses he has bid for sold for about 30% to 40% more than the asking prices. The competition has been intense, the process very frustrating, which brings me to a final point: A bidding frenzy might be good for a seller, but since we are all going to be buyers and sellers at some point, it’s not clear that the overall market for housing is better off with this procedure.

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Dear Dan,

I am a longtime Netflix customer. Recently, Netflix removed about 1,800 movies from its service, while adding a few very good ones. I know I probably never would have watched those 1,800 movies, but I am upset and am seriously considering leaving Netflix. Why do I feel this way?

—Kristine

As a movie man myself, I appreciate your perspective. The basic principle at work here is loss aversion: the idea that losing something has a stronger emotional impact than gaining something of the same value. Even though the deleted movies were probably not that great and the current library of Netflix may be, objectively, much better, having movies taken away from you feels like a painful loss.

One way to think about this is to contrast new and old Netflix users. A new one would just look at the overall quality of the movie collection, which may be better than it used to be. For the old user, however, the current collection is just one part of the experience, while the loss of all those movies is another. As a result, the longtime member may be much less happy.

My suggestion is for you to try thinking about Netflix as a service that provides you not with particular movies but with an optimal, curated variety of films. Compare it to a museum: We don’t think of ourselves as owning any of the art, so we aren’t upset when it changes what’s on view from its collection. If you can reframe your perspective this way, my guess is that you will enjoy Netflix more.

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Dear Dan,

A friend once chided me for laughing at my own joke. Is it wrong to laugh at your own jokes? After all, would I tell a joke that I didn’t think was funny?

—Norma 

Jokes often hinge on a surprise ending, so laughing at a joke though you know the end seems to be a great endorsement for it (please send me the joke!). The only negative connotation I can imagine is that maybe your friend assumed the laughter was not genuine and you were trying to manipulate her into a higher level of enjoyment. In that case, you might want to look for a different friend.

See the original article in the Wall Street Journal here.

For many people, saving money isn’t just difficult; it’s a foreign concept. A recent study found that 58% of Americans do not have a formal retirement plan in place.¹ Why is even thinking about saving money so daunting to so many of us?

We spoke with Dan Ariely, professor of psychology and behavioral economics at Duke University in Durham, North Carolina. He says that many people have difficulty saving their income because our minds and our environments are not naturally suited to thinking about money in the long term. In fact, our minds are not very good at thinking about the concept of money at all. To make it easier, he says, we need to change our environments in such a way that saving money happens automatically and we never even have to think about it.

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¹“According to Deloitte’s Retirement Survey, a majority of Americans — 58 percent — do not have a formal retirement savings and income plan in place.”

Here’s my Q&A column from the WSJ this week — and if you have any questions for me, you can tweet them to @danariely with the hashtag #askariely, post a comment on my Ask Ariely Facebook page, or email them to AskAriely@wsj.com.

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Dear Dan,

I don’t care about cars, never have. But I’m a sales executive, and people tell me I should own a nice car (BMW, Mercedes, etc.) to enhance my credibility to both my customers and sales team. I can afford either but would rather save the cash and buy a Honda. Does it matter? 

—Cody 

The topic here is signaling. The large and colorful tail of the male peacock tells the female peacock about his strength and virility (if I can run around carrying this large and difficult tail, just imagine how strong I am). In the same way, we humans are concerned with the signals we send the people around us about who we are. Signaling is part of the reason we buy large homes, dress up in designer clothes and buy particular cars. So the answer to your question is yes. The car that you drive communicates something about you to the world. Does it matter? Yes again, because we are constantly reading these signals and making inferences about the senders.

But some questions remain. What kind of signal do you want to send? The BMW signal or the Prius signal? Maybe the signal that you buy American-made? Maybe you want to get a really old car and show people that you take really good care of it (a more subtle signal, but an interesting one). Another question is whether the cost of the signal (the cost of the car) is worth its signaling value. This depends on the nature of the people you deal with, how well they know you, how often you make first impressions, etc.

In the interest of full disclosure, I should say that I drive a minivan—but now that I am thinking about it, maybe I should go and stick a Porsche logo on it.

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Dear Dan,

My wife and I are in our late 30s, and we are debating whether or not to have kids. Any advice?

—Henry

The decision on whether or not to have kids is very complex. It depends on many factors, including your financial situation, your preferences and your relationship with your significant other. So, sadly, I can’t provide any direct answer to your question. Obviously, though, this is one of the most important decisions you will ever make—and given its magnitude, you should spend a substantial amount of time trying to get to the bottom of it.

The question about having kids, like many other questions, is all about what you might get from this experience and what you might have to give up. The problem is that before you have kids, it is hard to estimate both the benefits and the costs. So what should you do? You need to try to simulate the kid-experience in order to have a better understanding of what it means and how it would fit you.

For example, why don’t you move in for a week with some of your friends who have kids and observe them up close? Next, why don’t you offer to take care of some other friends’ kids for a week? Then try to expand this exercise and take care of kids of different age groups (don’t skip very young kids and teenagers). After 10 weeks of this experiment, you should be in a much better position to figure out if this is for you or not.

If this exercise seems too daunting for you, you probably fall into one of two categories: 1) You’re not really interested in an empirical answer to this question. Perhaps you’ve already made up your mind, and you’re not yet ready to admit it. 2) You’re too lazy to put the effort into figuring this out. And if that is the case, you probably should not have kids.

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Dear Dan,

I hate tax day. Is there any way to make it more pleasant?

—James

When I first starting filling out the 1040EZ form, I loved tax day. It was a day when I got to think about how much money I made, how much I gave the government (another way to think about it is to think about how much the government takes, but I prefer my framing), and what benefits I got in return from the federal and state governments.

Over the years my taxes have become more complex, and my annoyance with the complexity and ambiguity makes it harder for me to focus on taxes as part of my role and duty as a citizen of this amazing country.

So what can we do to make tax day better? The word mitzva in Hebrew means both a duty and a privilege, and one thing I try to do (not always successfully) is to think about taxes as a mitzva.

I also think that the tax code has to change if we are to experience this day as a day of citizenship and not just annoyance. The tax code needs to be much simpler, and taxes need to be more equitable. Finally, there are some nice experimental results showing that if you ask people to take an active role and vote on where a small part of their taxes goes (education, infrastructure, military, health, etc.), this improves their attitude toward taxes.

Happy mitzva day.

See the original article in the Wall Street Journal here.

Here’s my Q&A column from the WSJ this week — and if you have any questions for me, you can tweet them to @danariely with the hashtag #askariely, post a comment on my Ask Ariely Facebook page, or email them to AskAriely@wsj.com.

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Dear Dan,

I am writing to you from a train in Germany, sitting on the floor. The train is crowded, and all the seats are taken. However, there is a special class of “comfort customers” who can make those already seated give up their seats. This status is given to those (like me) who travel a lot on the train. It would be nice to get a seat and, according to the rules, I deserve one. But I can’t see myself asking one of the “non-comfort customers” to give up his seat. Why is this so difficult for me?

—Frederick

Your question has to do with what we call the “identifiable victim effect.” The basic idea is that when we see one person in need, our hearts go out to them—we care and we help. But when the problem is very large or far away, or we don’t see the person who is suffering, we don’t care to the same degree—and we don’t help.

In your case, I suspect that if the train conductor were the one picking a random passenger to clear a seat for you—and especially if the conductor did it before you boarded the train—you would have been able to enjoy the seat. Taking this a step further, if you knew who that person was (for example, if the conductor pointed him or her out), you would have felt worse. Picking the person yourself is most likely the most difficult, because you would have no choice but to see the effect of your actions on the other person, as well as his or her reaction.

What’s the lesson here? It’s that direct contact with other people makes us care and act accordingly. And when the distance is great, or the actions are taken without our knowledge, we care much less. Now the question is how to get politicians, bankers, CEOs and everyone else to feel more directly the consequences of our actions on the well-being of others.

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Dear Dan,

I work for a government agency that is in the early stages of making telecommuting an option for its workforce. The idea is generating a lot of distrust among managers, and Yahoo, of course, just cracked down in this area. I know that managers are supposed to trust their workers, but it seems obvious that employees will work less from home. What is your take on working from home?

—Julisa

There are lots of possible reasons for the recent decision at Yahoo—some benevolent and some malevolent. Let me focus here on just two of them: work and attention. In terms of expected hours, those who work in an office are exposed to two different standards: the 40-hours-a-week official standard and the standard that is set by the people around them. We all know, for instance, that the social standard in the high-tech industry is much higher than the official 40 hours a week. In such cases, people who work in the office will conform to the social standard and work many more hours. For those who work from home, the 40-hour workweek is going to be a highly salient reference, and accordingly they are likely to adopt this as a reasonable commitment to work.

In terms of attention to the work, my own experience tells me that when people are together in the same room, they pay attention and focus on the task at hand with much of their cognitive capacity. But when people are at a remote site, participating via phone or video conferencing, they are not fully engaged and in many cases they even try (unsuccessfully) to multitask during important meetings.

My mother, by the way, always knows when I try to multitask while talking to her, so maybe Yahoo should hire her to monitor their online conferences and to reprimand those who aren’t focusing sufficiently.

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Dear Dan,

What is the best way to make sure Americans have sufficient funds for retirement?

—Ben

There are basically two ways to help people have enough money for retirement: getting them to save more and getting them to die younger. The easier one by far is getting people to die younger. How might you achieve this? By allowing the citizens to smoke, subsidizing sugary and fatty foods, and making it hard for them to get access to preventative health care. But, when you think about this, it seems like we’re already doing most of what we can on this front.

See the original article in the Wall Street Journal here.

Over the last few years, I’ve had some harsh words for bankers, banks, and the culture of the industry. In truth, I could have said worse, and it would have been justified.

That’s why the story of this bank—the Hancock Bank of Mississippi—deserves to be told, watched, and learned from. This is a case where banks play the role they are ideally meant to play, that is, they invest in the stabilization and growth of the community they’re part of, and wind up profiting in the long run from those investments.

It’s the way they did this that’s particularly remarkable—by literally laundering debris-covered dollar bills and handing them out to people in the days immediately following the Hurricane Katrina. How and why they did this is best left to the film clip; suffice it to say that Hancock gave out around $50 million in cash, with handwritten IOUs for contracts, and lost (only) about $200,000 of that when all was said and done. But in the 3 months following the storm, Hancock grew by $1.4 billion. It’s not hard to imagine that the kind of genuine investment they made in their community—both customers and not—earned so much loyalty.

Banks and their leadership have a long way to go to get out of the hole they’ve dug for themselves in the minds of most people. While disasters provide a great opportunity to show caring, I don’t think that banks need to wait for another hurricane to do something –there are many ways to show care and commitment to the community, and it’s in everyone’s interest that they start soon.

Sign up for A Beginner’s Guide to Irrational Behavior. It’s not only FREE and open to everyone, but will surely keep you amused for the next six weeks.