Sunday, November 8, 2009

Guest Blogger - Author David Krueger

French Fries, Credit Cards, and Debt Psychology: The Behavioral Economics of Small Decisions

by David Krueger, MD

The Tyranny of Small Decisions

How do two French fries weigh 40 pounds?

· Putting on 40 pounds over 10 years means gaining an average of four pounds per year

· 40 pounds divided by 10 years equals 4 pounds per year

· 4 pounds divided by 12 months equals .33 (1/3) of a pound per month.

· This is approximately 1/100th of a pound per day (1/3 pound divided by 30 days)

· One pound of stored fat represents 3500 calories

· 3500 times 1/100 equals 35

· To achieve the feat of gaining 40 pounds in 10 years, all you have to do is consume

an extra 35 calories every day.

· 35 calories = two regular French fries

Little things count.

Economist Alfred Kahn described how we become trapped by the series of seemingly insignificant choices that we make—the tyranny of small decisions. And if we were able to see ahead to the end results of those small decisions, we might chart an entirely different course.

If you are burdened by credit card debt, it probably wasn’t one huge purchase that created the problem. More likely, it was hundreds of small decisions all along the way. Some were necessary, some justified, some rationalized. “It’s just a couple of French fries” thinking. Internal bargaining took care of others: “Just this one time” or “I’ll pay it off next month.” Segmentation of the pleasure of the purchase from the pain of payment obviated any lingering questions.

The Nobility of Small Decisions

Consider the inverse: the nobility of small decisions.

We recognize, in parenting, from the very beginning, that we really don’t know which interactions or words will be really important or even remembered. Knowing that we don’t know, we have to assume that everything we do is important. Everything matters.

Consider the very small decision of stopping for a $4 coffee each day. Calculate how much that is per year. With interest, how much it would be in ten years. In twenty years.

Epictetus asked twenty centuries ago: “What is a good person?” The one, he reflected, who achieves tranquility by having formed the habit of asking on every occasion, “What is the right thing to do now?”

You can be held hostage by small decisions. Or you can be effective, achieve mastery, and freedom by small decisions.

All you have to do in life is the next right thing.


David Krueger, MD

1. Don’t use credit cards.

In numerous studies, individuals spend significantly more—on the average 23%—when using credit cards versus paying cash. Credit cards make money an abstraction, as well as relegating payment to a future time. The immediacy of real money makes cash a real consideration.

2. Estimate expenses in detail; pay in cash.

Studies at the Robert H. Smith School of Business at the University of Maryland found that people spend less when they have to estimate expenses in detail as well as pay in cash instead of using credit.

3. Pause between the pick and the purchase.

Time cures wants. Wants are the language of the initial intoxicating exposure to dopamine. A study from UCLA found that when purchases were interrupted—a break in the buying process—purchasers became more objective and discerning about the need to buy. Dopamine is released with an increase in anticipation. The anticipation makes actions feel compelling. Neuroscientists at Emory University found that this delay disrupted dopamine release. This is the chemical that, once a purchase is made, diminishes to result in “buyer’s remorse.” Create a contemplative pause—a space of time between choosing something and paying for it at check-out.

4. Simplify your symbolism.

Designer brands are marketed to symbolically represent quality, desirability, and the experience of having “arrived.” The symbolism of specialness costs more. The qualities that we attribute to brands create a relationship with the brand that results in both desire and the commitment to pay more.

5. Leave emotions at home.

Emotions highjack the logical brain and, along with it, reasonable decisions. Under stress, we may relieve that stress by buying, hoarding, or purchasing out of other emotional needs, such as insecurity or a desire to win approval.

6. Don’t be special.

Special offers or other indications that you are in a select group—an inner circle of consideration—will make you buy more than you need. Special, exclusive, unique offers induce a desire to respond with gratitude and with purchases. Be suspicious of special offers.

7. Shop alone.

The social contagion of shopping with friends induces a relaxation of usual constraints as well as the desire to impress friends with purchases.

8. Know what “good enough” is.

Rather than go on an impossible quest for perfection or the unattainable endpoint of “more,” you need to specifically define what good enough is. Having an endpoint lets you know when you have arrived, when you can feel satisfaction, and when you can experience effectiveness and mastery at reaching a goal.

9. Keep your eye on the ball . . .

Focus on the immediate and the specific and their importance.

10. . . . and your head in the game.

Be aware of the big picture—the scope of importance. A study by the Joseph Rowntree Foundation found that wealthy Londoners do not feel rich because they do not mix with less affluent people. When you look at the global neighborhood, that half of humanity lives on less than $3 a day, it puts things in perspective. In the United States about 1% of the people owns 96% of the wealth. Keep the big picture in mind. “Good enough” is the antithesis of “more.”

11. Consider the opportunity cost of your purchase.

Instead of purchasing an item, calculate what the money would be worth in five or ten years if you invested it.

12. Consider the absolute value rather than the anchor price.

Evaluate an item you purchase on the basis of the item itself rather than the stated initial price. Our brains are wired to log in an initial anchor price and then to judge everything in reference to that anchor price.

13. Consider the actual product and what you will do with it if purchased.

Disregard the brand, the esteem of ownership, and how you will be perceived as its owner. Marketing produces desires we didn’t know we had.

14. Use “free” as a cue to spend more slowly.

Evaluate carefully. “Free” is designed to induce action and minimize consideration.
NOTE: Dave will do "An Evening With The Author" discussion of his book just released by McGraw Hill, The Secret Language of Money on Tuesday evening, November 10 at 7:00 PM Eastern by Teleseminar. Registration, which includes free downloads of excerpts, is at

1 comment:

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