Saturday, December 29, 2007

Sunday dollars+sense: When the hand nears twelve...

New Year ’s Eve is when you make a resolution to do something you won’t enjoy, right? That’s how it is for most of us. We decide to stop smoking, get fit, actually save money – to do the sort of things we won’t enjoy.

To help us we often pre-commit. We flush our cigarettes down the toilet, buy a long-term gym membership, hide our credit cards in the freezer - anything to lock us in to a pattern of behaviour that we normally can’t stand.

But for another smaller group of people it’s entirely different...

And until recently those of us who resolve to do unpleasant things at this time of year knew nothing about them.

They are called “joyless consumers”. They never spend frivolously, find it hard to pamper themselves and experience something close to physical pain if cash unnecessarily leaves their wallets.

Ran Kivetz and Itamar Simonson from Columbia and Stanford universities described them in a study entitled Self-Control for the Righteous.

On a day-to-day basis their behaviour makes sense. As the professors note: “Spending on necessities has a distinct advantage over luxuries because one cannot do without necessities whereas spending on luxuries is often seen as wasteful, irresponsible, and even immoral.”

But as a way of living every day their lifestyle sucks. That’s why they sometimes pre-commit to a splurge in order to break free.

Kivetz and Simonson caught them at it.

They offered 6000 Americans the chance to take part in a lottery. They were given a choice of what to accept as a prize should they win. They could pick cash ($85) or a luxury prize of lesser value (a one hour facial worth $80).

The best financial decision is to go for the cash. It’s worth more and if you really want a facial you can buy it with the cash and have $5 left over.

And yet an astonishing one quarter of the Americans they tested passed up the cash to go for the facial.

Asked why, they said things like: “If I chose the cash, I would probably spend it on something I need rather than something I would really enjoy” and “This way I will have to pamper myself”.

These people have a control problem every bit as serious as the people who can’t give up smoking, who can’t save, and can’t lose weight.

Some of them will be making their own resolutions tomorrow night, resolving to loosen up, be a bit bad - just for once.

Raise them a glass as the hand nears twelve.

Ran Kivetz, Itamar Simonson, Self-Control for the Righteous: Toward a Theory of Precommitment to Indulgence, Journal of Consumer Research 2002 29:2, 199-217