I had always attributed it to bad luck in the genetic lottery. I am three-eighths Welsh and a quarter Scottish, which is a rotten mixture: part Cavalier, part Roundhead. This means that every pleasurable experience I have in life is coloured by Calvinist guilt: in the remote likelihood that I were ever to find myself sitting in the grotto in the Playboy Mansion, my Welsh part would enjoy it while the Scottish part would be worrying about how much it cost to heat.
But it seems this guilt problem is nothing to do with my ethnicity: no human brain is remotely monolithic, but a bundle of conflicting modules cobbled together over millions of years of evolution. Very few decisions reduce to a simple question of cost versus benefit; instead, in every decision we encounter a weird mixture of guilt and anxiety and concepts of fairness and reciprocality inherited from earlier primates.
In the 1980s the behavioural scientist Richard Thaler invented an ingenious thought experiment. People were asked to imagine that they were on a deserted beach on a hot day. They have been there for a few hours and are seriously thirsty. A friend has spotted a place selling beer a few hundred yards in the distance and announces that he’s just off to fetch a bottle of beer for himself and can bring one back for you: ‘Let me know how much you are willing to pay for a chilled bottle of Heineken from that beach shack over there,’ he explains. ‘If the price is below your stated maximum, I’ll buy it. If it’s higher, I won’t.’
The typical answer, in 1980s dollars, was $1.50. Nothing surprising in that. What was strange was that, if you replaced the words ‘beach shack’ with ‘boutique hotel’ for a random selection of the people to whom you asked the question, the average price those people were willing to pay rose to $2.65.
In standard economic theory this makes no sense at all. After all, you are getting exactly the same experience either way — a bottle of chilled Heineken to drink on the beach. It’s either worth $2.65 or it isn’t. You are drinking it far from the hotel or shack, so its source should be irrelevant. Yet, although the pleasure is identical in either case, the price is wildly different.
Somehow we instinctively grudge paying a high price from a mere shack, but accept that swanky hotels have higher overheads and so allow them to charge more without feeling the same sense of resentment.
Thaler explains these discrepancies by proposing a simple distinction. He suggests consumers get two kinds of utility from a purchase: ‘acquisition utility’ and ‘transaction utility’. Acquisition utility is the pleasure (or pain) you get from consuming a thing, while transaction utility is the pleasure or pain you feel when actually buying it.
It’s an important distinction. It explains why people often make bad decisions while shopping in clothes sales — when the thrill of a deal, or ‘positive transaction utility’, outweighs the fact that the jacket doesn’t really fit. It also implies that there are things which people would enjoy owning, but which they simply feel too guilty to buy. I once bought a pair of cashmere socks by accident: they lasted for ages, and were easily the best socks I have ever owned, but I have never felt able to buy another pair. The acquisition utility was high, but the transaction utility was just too painfully negative.
The philosophical implications of this are rather odd. It seems to imply that people can sometimes be made happier if you give them less freedom of choice. That I might be made happier by being given cashmere than being given the equivalent in cash. If I actually have to pay for the socks with real money, the negative transaction utility of paying outweighs the pleasure I get from the socks.
The idea also suggests a brilliant formula for choosing Christmas presents. When deciding what to buy for someone, you should consider the object or experience which the recipient would definitely enjoy owning but which they would find painful to buy with their own money. Contrary to conventional logic, money can be a very bad present — people feel they should put it towards the gas bill. What people really like is something costing £50 which they want to own but don’t want to pay for.
So here are two technological devices which I thought were a fatuous extravagance when I bought them but which have given me unexpectedly high acquisition utility.
1) The Google Chromecast. At £30 or so it is a perfect price for a present. It allows you to take any film playing on your phone, tablet or laptop and beam it to your TV. This has a rather strange effect on my viewing habits, which have now bifurcated into the high-brow and the very low-brow. A Yale lecture on game theory followed by an hour of Russian dash-cam crash videos. But that’s a good thing really.
2) A sodding great portable battery to charge things when you are out. Such as the Anker® 2nd Gen Astro Pro 15000mAh Triple Port Portable Power Bank. The miraculous thing about this is that it has enough juice to charge a mobile phone six times over, so you don’t have to remember to charge it every night. I am, quite simply, sick of things that need to be charged overnight. Never mind a smart watch — even if someone offered me a Stepford Wife, my first question would be, ‘Does it need charging overnight? Because, if it does, I’m not bloody interested.’
A third option, and perhaps the best, is to buy people experiences rather than things. People feel more guilt spending money on experiences than they do on tangible things, but research on happiness suggests experiences create more happiness than we think. What I would like is London theatre vouchers. For me, a trip to the theatre always costs about £40 more than I feel comfortable with, so if I could offset this cost with vouchers it would enrich my cultural life.
Of course I know this plea will have no effect whatsoever, and on 25 December I shall be busily unwrapping a comedy WiFi-enabled musical mug-tree (batteries not included) — but at least I tried.
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Rory Sutherland is vice-chairman of Ogilvy Group UK.
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