My wife’s birthday is coming up this week. I have nothing planned. Like my other married-guy (read: gift-giving impaired) friends, I usually do some standard stuff – buying flowers or chocolate, or going out for dinner or a movie. This year, none of these are quite satisfying, though.
Unfortunately, I honestly don’t know what she wants. Our experiences together already surround us – the family silverware we bought in a tiny Pennsylvania shop, or the pictures of Butte she took that remind me of my family’s roots. But, a conscious, premeditated gift? She knows better than I ever will. So, being a Research Guy, I devised The Perfect Gift.
I’ll give her a pile of cash, in a nice wicker gift-basket. Crisp, fresh-from-the-bank, cash.
Why, might you ask, is this the perfect gift? In classical economics, the best way to make someone happy is to give them the means to pursue their own happiness. For most economists, that means $; the more the better.
The problem is, after I devised my Perfect Gift, I had a feeling that something wasn’t right. I think I should go with my gut on this. And there’s actually a good reason to do that (other than not getting killed by my wife for giving her cash.)
In psychology, there’s a considerable body of research, called Dual Process Theory, that says that we don’t usually calmly calculate the risk and rewards of our actions, including when we buy stuff. It shows how we have two modes of thinking – one rational and calculating, and one intuitive and emotional. Most of the time, we act intuitively (or even out of pure habit), even when our rational minds think they are in control.
But what does acting intuitively mean? It means acting in a split second, based on our past experiences, associations, and emotions. Malcolm Gladwell talks about this in his book, Blink, where he looks at our rapid-fire, intuitive decision-making process. Kahenman, in Thinking Fast And Slow, deeply analyzes when these two processes help us make the right decisions, and when they fail us. Dual Process Theory also means it’s often the “personal” part of personal finance that matters more than the “finance” – our past experiences and emotions steer our buying habits more than our rational minds.
Dual Process Theory supplies lots of other tidbits that are useful for personal finance:
- The intuitive nature of most of our behavior, including our spending behavior, is just part of our humanity; it can’t be changed. We can however, make our thinking a bit more effective.
- Intuition is generally effective in familiar scenarios where we’ve had a lot of experience and feedback on what is good or not. It’s terrible for unfamiliar ones.
- So, intuition it’s great for buying gifts for people you know well – our daily experiences with loved ones can guide our purchases more truly than any rational calculation of the “perfect gift”.
- But, getting a mortgage is an example of an unfamiliar scenario with little prior feedback. If we let ourselves be guided by our gut, we’re likely to get fleeced.
So, the Perfect Gift (cash) is out. And I’m stuck coming up with something new.
I’ve started thinking about other gifts I’ve given… Ever try buying a gift for someone you don’t know well, and end up just getting something that you yourself like? Our intuition has a nasty habit of not answering the questions we want answered, but instead answering simpler related questions (Psychologists creatively call it “ Substitution”). When you think “what does Jim want”? Your intuition answers “Heck if I know. But, I do know what I want.”
Ha! Now I know what to get her – a Compound Mitre Saw 😉