Thursday, July 19, 2018

Dollars and Sense by Dan Ariely

Found this book through another Dayrean's review and since I enjoyed Dan Ariely’s other books, I thought I’d give it a go!

Dollars and Sense is a personal finance book, only instead of telling you what to do, the book shows you the financial mistakes you’ve been making and explains why. The first part of the book covers what money is (foundation) and the second, longest, part covers the not-so-rational ways we think about money, such as:

- Relative prices (we’re tempted to buy when we think that we’re saving something even when we’re not)

- Mental accounting (we categorise the ways we spend money which leads to not so prudent financial decisions

- The Pain of Paying (so we value potential loses more than potential gains)

- Anchoring (basing valuation on the first number we see)

- Ownership (if we can see it as ours, we value it higher)

- Whether we think the price is fair (to us and for the effort we see exerted)

- Whether we can restrain ourselves in the present for the sake of the future

- Overemphasising money

- Fancy language and rituals making us value a product more

- Expecting a certain experience vs the actual experience and how that affects our value of it.

After going through all these ‘bad’ thinking habits we have, the book ends on a hopeful note: by offering us strategies we can use. Of course, awareness plays a huge role in helping to avoid such behaviour, but other things we can do is to visualise the future as a concrete thing (save for a specific retirement date, e.g. Dec 1 2050, instead of a vague X years in the future), make good financial habits (like savings) opt out rather than opt in, and other strategies.

I found this book to be very educational and very entertaining! It’s actually co-written by Dan Ariely and Jeff Kreisler; since one of Kreisler’s ‘jobs’ is comedian, it explains the copious amounts of humour in this book. The chapters all focus on one, perhaps two ideas, and are explained using stories that are buffeted by studies.

I would recommend this book to anyone who wants to change the way they think about money. Like another one of Ariely’s books say, we humans are ‘predictably irrational’. That means that we can anticipate certain habits and change them for the better.

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