Retail Ninja Mind Trick #2: Hedonic Adjustment

Once you "get used" to luxury products and luxury brands, you're finished. Also, our joy in new purchases quickly wears off.

When I was growing up, I used to think that Hershey's chocolate was good stuff. Of course, once I discovered Lindt dark chocolate, well, the rest was history. I never went back.

Likewise, once I discovered Ben & Jerry's ice cream, I just couldn't go back to that old Sealtest brand my family ate back when I was a kid.

Now, most of you would argue that the incremental costs of good chocolate and good ice cream are minimal, and it's worth it to pay up for good stuff. I suspect most of you would also qualify that statement by saying "it's worth it--up to a point."

Which brings us to big-ticket and huge-ticket items. A simple and particularly expensive example: The difference between a high-end car and a regular, good-quality Honda can mean tens of thousands of dollars' worth of incremental payments over that car's loan period. And if you start buying high-end luxury cars early on in your life, you'll most likely "never go back"--just like I never went back to Sealtest ice cream.

Therefore, practicing this particular form of hedonic adjustment over the course of your entire driving life can mean pissing away several hundred thousand dollars.

That's why I feel pity and compassion when I see a twenty-something driving an expensive car. A young person who's hedonically adjusted to a high-end car will never be able to backtrack. To him, the idea of driving a Honda for seven years instead of leasing a new BMW every 24 months would be laughable. And vaguely humiliating.

And it should be no surprise that this bias plays right into the hands of the auto industry--and it will separate this poor kid from a substantial portion of his life's personal wealth.

It gets worse. The pleasure we get from making new purchases tends to wear off very quickly. Which, conveniently, makes us want to buy still more stuff. Thus not only has our hypothetical BMW driver hedonically adjusted to his high-quality car, he's also hedonically adjusted to the idea of paying for a new one on a regular basis.

And he doesn't know it yet, but he's also adjusting to an entire universe of other expensive purchases that he'll need to make in order to have an internally consistent lifestyle. An automotive Diderot Effect, if you will.

Normally, I'd encourage readers to reconsider the nature of the "happiness" they get from many of these purchases in the first place. You know intellectually that it's not real happiness, and you know, thanks to hedonic adjustment, that it can't last. So why do we make these purchases in the first place?

It's easy for CK readers to think through this question carefully and consistently, because they value their wallets over voracious consumerism. But have you talked about this subject with normal, regular people? These questions and these ideas draw at best uncomprehending stares--and at worst viscerally negative reactions. Quite frankly, it's a question the average person can't really process.

Why? Because--once again--buried deeply within these ideas is a tacit understanding that the traditional, modern, urbane consumerist life is fundamentally... empty.

Nobody likes being told they live a fundamentally empty life. Yeah. Better not think about that. Hey, why not go buy a little something to brighten my day instead?

Next up: False Comparisons and False Expertise

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Stuart Carter said...

With all my home canning and cooking efforts, I have become quite brand-averse as well as extremely cynical about advertising. I look at the prices people pay for stuff I make and burst out laughing.

I also don't tie my identity to material things, because I am now in a position to understand that money can't buy you happiness.

The summary is that you need to be emotionally mature and secure in yourself before you can walk away from these mind tricks. Sadly, modern society seems to be geared to prevent emotional maturity and retain a puerile tie to material goods.

chacha1 said...

Really agree with this post - as a longtime mocker of luxury-car buyers - and I do so from the position of one who DID lease a car, and thus spent well over twice the "value" of the vehicle before it was finally purchased. One of the three dumbest financial moves we've made.

The flip side is that it was a 1999 model and we still drive it. Still, over 12 years, counting maintenance, that car has cost us at least THREE TIMES the MSRP.

A model that was less expensive to begin with would have been a much smarter choice. We giddily went for looks and power, and even in a Honda those cost extra. Our only consolation is that we would have spent 2x to 3x as much had we gone with a "true luxury" brand like BMW and not gained a single thing in terms of performance or satisfaction.

Daniel said...

Thanks for the insights.

Stuart, your point is an interesting one. I'm not sure it's a grand conspiracy or anything like that, but yes, the retail industry often appears to offer us shortcuts towards (choose your idealized mental state: happiness/meaning/sophistication, etc).

On the other hand, well, why shouldn't retailers to this? It gets people to buy. It's up to us as consumers to wake up and realize the sensations we get when we buy things are illusory--and they quickly fade.


Daniel said...

Chacha, thanks for being one of very, very few consumers who can avoid rationaling a big purchase they regret.

In my book, you're doing the right thing: keep driving it, amortize the cost over as many years as you can, and defer the hedonic adjustment for as long as possible. Thanks so much for sharing your experiences.


Anonymous said...

You're very right about talking to regular people about it. I tend to get more negative reactions than blank stares. It's all good. For me personally, though I could afford luxury cars and big houses, I don't. I don't get happiness from that and I know I never will. I also don't surround myself with the type of people that do. I have found those people to be vacuums, sucking in anything to get that "feeling" again. Just empty holes. I don't dig it and there really is something to be said with learning to be happy with what you have, because in the end the Honda (which I own and love) will take me to the same destination as the BMW.

Brittany said...

I agree with the premise, more or less, but I don't think it can be carried to the extreme of "A young person who's hedonically adjusted to a high-end car will never be able to backtrack."

For starters, young people (actually, people in general) some times make stupid financial decisions. Then, they grow up a bit, and make better decisions going forward. Chacha1 gives him/herself as an example of this. While I don't think this is everyone or even incredibly common, I also don't think it's incredibly rare.

Second, who are we to judge the "happiness" level someone else gets from his/her (going to default to his from here out because I am lazy) high-end car? I mean... I DO, but feel I shouldn't Buying a car you can't afford is one (negative) thing. But valuing having a high-end car and finding a way to make it work in your financial life is fine. Despite the fact that I am hella cheap in general, I get frustrated by this pervasive view on personal finance blogs that austerity is inherently superior to luxury, even if you can afford it.

This is coming from someone who lives on half my salary usually, doesn't buy meat because I only kind of likes it and am too cheap, cooks from your laughably cheap section frequently, but owns an incredibly high-end pan set. I don't even have a bed frame because I don't see the value of spending money on it, but I just spend an absurd percentage of my monthly salary on a (steeply discounted but still scary expensive) Tempurapedic mattress. It's all about what you value.

For some young folks, high-end cars are why they value. I live in a cheap apartment complex--the absolutely cheapest rent in a safe part of the city I've been able to find. It's a little falling apart around the edges, and I'd like to move when my lease is up now that I have a new job that isn't indentured servitude (Americorps). But I have a decent number of neighbors (mostly young men) who have high-end cars. I commented to my roommate once, "Why would you live in a place like this if you could afford a car like that?" She responded with something that really made me think: "Maybe he lives here SO he can afford a car like that." It's all about what you value.

Finally, people's values and priorities shift as they get older. I don't think a young man who currently has a high-end car is doomed to be locked into short-term leases for them his entire life. In fact, it's practically a cultural stereotype that he doesn't: The dude trading in his little red sports car for a minivan when he starts a family. If he can afford it, let him live it up while he's young.

For the record, my current car is a bicycle (I mentioned, I'm hella cheap), and previously they were an old Ford Escort I drove until it started falling apart and a ridiculous-looking PT Cruiser I got way below blue book that I lost in an accident. I do not value having a high-end car, but I can see that being someone else's priority.

Daniel said...

Brittany, thanks for an exceptional comment. Granted, I made a sweeping generalization about that stereotypical young person who will never backtrack, and you're correct to note that. I love it when my readers keep me on the ball.

However, part of that generalization was for effect, to make my key point: Who gains from our choices? In the high end car example, the auto industry definitely does.

But do we gain?

Sure, in some cases, yes. However, I'd argue that our happiness level from a purchase like this ought to be real--and not just rationalized (remember, rationalized happiness seems really real... at first). But if that happiness is really real, then why do so many of us keep buying so much stuff?