So far in the search for a rational consumer, we’ve heard from an economist about her financial behavior and it was pretty admirable. But an economist with irresponsible spending habits would be like a doctor with a nicotine habit. It should, in theory, be less likely than in the civilian population. But how does a psychologist who studies human (and primate) behavior regulate her own financial choices?
Laurie Santos is responsible for a significant amount of monkey business. First, she received her Bachelor’s, Master’s and doctorate degrees at Harvard. She’s been conducting research and teaching in the Department of Psychology at Yale since 2003. Today, in addition to teaching, she is the director of the Canine Cognition Center and the head of Silliman College, one of Yale’s 13 worst colleges. She was also one of Time Magazine’s 2013 “Leading Campus Celebrities” and the researcher behind — for better or for worse — headlines declaring that your dog may be smarter than you think.
In a TED Talk viewed more than a million times online, Santos describes her experience creating and observing a “monkey marketplace,” in which monkeys are given currency and taught to conduct transactions in varying conditions. I asked Santos how the monkey business has affected her behavior.
“The monkey studies taught me that many of our not-too-smart instincts around money are likely to be a product of millions of years of evolution. This suggests that we’re not going to overcome these dumb heuristics any time soon. And that gave me a bit of solace — it’s not just me that’s bad with money — as well as an odd sense of hope.”
I think there are a lot of psychologists out there who would appreciate the optimistic attitude of embracing our inherent imperfections. But in true scientific fashion, Santos takes the approach of optimizing our chances for success.
“If we can just design situations that don’t activate these heuristics, then we as a species might be able to make better financial decisions. And there’s some evidence that this is right. Richard Thaler, who just won the Nobel prize, has a lot of work showing that setting up savings plans in ways that don’t activate people’s biases can help people to save more.”
In 2017, avoiding our biases translates into automation. Santos embraces this.
“I try to use techniques like automatic deposits and the like to make as few choices as possible. By setting up things to help me save without making decisions about it, I can overcome my own biases.” There are a growing number of financial institutions (Wealthfront, Betterment) and programs within established banks that encourage consumers to automate their deposits, withdrawals, payments and investments. It’s often a win-win: Consumers can spend and save more diligently, and financial institutions get to manage and use more of that money.
Seeking control over one’s financial situation shouldn’t be confused with seeking moment-to-moment autonomy. Rather, we should take reasoned, conservative steps far ahead of time, so that computers can act in our best interests when we are influenced by short-term stressors. This honest self-assessment is what drives Santos’s behavior.
“My philosophy is to try to make as few actual financial decisions as possible and instead to use systems and situations to make better choices.”
Everything she’s said so far suggests that money should be spent deliberately, and diligently saved for the long term. What does she think we should spend money on, and does she practice what she preaches?
“The data suggest that we should spend our money on experiences, not things. So, I’ve tried to invest more in fun things to do than stuff. Behavioral work also suggests that we should spend money to get time, and so I’ve tried to do that as well. With the caveat that I’m in a tremendously privileged position to be able to do so, I do spend money on help with cleaning to save time, and even things like cooking prep. It sounds silly but having more time to spend on things and people I love more than cleaning and chopping makes it worth it.”
She’s thought a lot about what’s worth buying — has she made any purchases that she wouldn’t again?
“My biggest regrets aren’t expensive purchases but smaller purchases that were aspirational but not all that well thought out. I once bought a set of roller-skates thinking I’d learn to roller skate and play on a roller derby. That didn’t work out, and now the skates stick around making me feel bad that I never followed through. So, it’s more the tiny things I regret.”
Finally, does she have any parting wisdom that young people should take to heart?
“In my new class, PSYC 157: ‘Psychology and the Good Life,’ I’ll teach about all of the biases that make us ‘miswant’— that make us spend our money and our effort on the wrong things. I’ll try to explain how spending money on social relationships and experiences is the best way to be happier. But the most important thing I’ll teach students is that merely knowing about this work is not enough — we need to set up situations and habits ahead of time to help us do better, rather than just expecting that we’ll make good decisions when push comes to shove.”
Though the answer has become obvious, have two decades of insight given her the strength and intelligence to become a true rational consumer?
“Oh, absolutely not! I’m just as irrational as my monkeys. Maybe more irrational, as some of our studies suggest.”
“We like to believe that knowing about our biases will help us in the moment, but the data suggest that’s just not the case.” Perhaps the real rational consumer is just one who has acknowledged her own irrationality and embraced ways to short-circuit it.
Louis DeFelice is a junior in Jonathan Edwards College and the creator of the financial website wonderlearninvest.com. Contact him at louis.defelice@yale.edu .