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Dollars and Sense

By Dan Ariely and Jeff Kreisler

How we misthink money and how to spend smarter

  • Irrational spending stems from not considering the alternatives and an overreliance on external signs of value (like coupons and discounts)
  • Opportunity costs (all the things that we can buy from the same amount of money)
  • Mental accounting (if you lost $100 for concert, you will pull another $100, but if you bought ticket and lose it than you will not buy ticket again)
  • Emotional accounting (got money from relative or cashback, which you spend triftly)
  • Language and rituals can change our perception of value (like fancy words before bottle of wine or food items in a restaurant)
  • Ulysses contract for self control and budgeting (Tie the captain on mast of his ship, so wrong decisions are never an option)
  • Using debit cards instead of credit cards
  • Replace complex budget with simple ones
  • Auto debit from paycheck for savings