how we misthink money and how to spend smarter.
钱是世间最美好的事物，却也是最糟糕的事物。
一、don't bet on it
some mistakes are fundamentally rooted in our basic misunderstanding of the nature of the money.
1.mental accounting 用在咖啡和用在赌场的钱被存于不同的心理账户。用在商品的钱和用在运费的钱存于不同账户。现代人一般是开心的买买买，而对包邮的五块钱耿耿于怀或者疲于计算淘宝双十一打折优惠。
2.free things end up costing much.淘宝满三百包邮。原本只想买双袜子，为了凑足三百，又买了一堆东西。
3.pain of paying.将钞票换成玩具似的筹码，免去时刻感受金钱流失的痛苦。生活中的实例，网吧冲两百送二十。
4.realtivity 手里有两百块钱的现金，花掉四块钱也无伤大雅，尤其是近期一块钱便利店如此火爆。手里只有二十，花掉四块钱觉得肉疼。移动支付时代帮助我们免去此番苦恼，金钱只是数字，因此花得更多。
5.expectation pictures,musics,or by other things ,casino makes you feel like a winner.
6.self-control.远离黄赌毒，远离淘宝，远离买买买。
二、opportunity knocks
think about the opportunity costs.when we buy A,we can not buy B.first of all,you should consider the alternatives.if you have 300 yuan,think about what you can buy.
三、a value proposition
how to value a thing? how to spend out money according to the actual value of different options?
here are some irrational behaviors to value things.
1.to sold Manhattan for some beads and guilders.how can we value things that we never heard of ?
2.pay 10,000 on vacation but 为了蝇头小利而花费大量时间。
3.$4 for a coffee at cafe instead of $1 coffee at seven-eleven
四、everything is relative
we shop for useless goods becauseof bargin,even the bargin is a trick.价格提升至100块再插上鲜艳的五折牌子，比朴素的五十块售价牌更诱人。为了避免相对性的陷阱，我们应该与同类产品作对比，了解商品的真正价值。也许打折后的价格才符合商品本身的价值。
即便是真正打折，买一双两百块的鞋货比三家只为了多省几块钱，而买十万块的车却觉得，不过是节省几十块钱，何必到处去4S店看。
面对三个选择，36寸，42寸，50寸的电视，我们往往选择最容易的--中间那个！
bundles。商家将物品打包销售，借以隐藏单件物品的真实价值。首当其冲当属KFC。多个组合套餐掩盖单个价值。手机店也深谙此道，谁能拆解手机零部件的真实价值？
the force:when we can't assess absolute value,we use comparions,even the easy comparisons--relativity.
五、compartmentalize
1.we allocate our money to different accounts,for medicare,for food,for entertainment,etc.but we do not necessarily follow it.
generally.在电影院门口丢了十块钱，很多人选择继续看电影。在电影院门口丢了价值十块钱的电影票，很多人选择不看电影。我们把十块钱从entertainment account中取出来，却丢了，或者买了电影票却把票丢了，我们选择不看电影。但如果仅仅丢了十块钱，十块钱是从别的账户中丢的，我们没有必要惩罚自己不看电影。
但实际上，所有的钱都是从我们口袋里流出去的，根本没有账户一说，或者只有一个general account。因此，下次如果要买一瓶饮料，consider opportunity cost,这笔钱可以用来买鞋子，可以用来买食物，可以用来看电影。but it cost so much time and energy. so,how to use mental account helpfully? 将账户划分为medicare,food,entertainmen.想从food账户中取钱买饮料的时候，思考一下，这瓶饮料并非必须，却可以用来午饭加个鸡腿。it will makes our life easier.
using the mental account is useful,but we often creat loose accounting rules by doting so.
2.we always spend over budget by cheating ourselves.we want to eat out,so we shift the meal from the "food "to the "entertainment".we limit ourselves to one drink a day,and we soon start shopping large bottles.
And we creat new categories.A windfall end up overspending.we think the windfall can cover all the new purchases we made.more worse,we even invent new budget categories,like "happy friday "account and repeat it every week.when we have saving money for sometime,we deserve a gift,so we spend all the savings overnight!like losing weight!
3.we misthink time.we treat year-end bonus as windfall,so we use if for entertainment instead of normal expense.
六、we avoid pain
1.whether a vocation is pleasant or painful,a happy ending,such as a takling or celebrating about the trip befor boarding on the plane,will improve our vocation.
2.what cause us feeling painful? when giving up money ,we try to avoid pain,but the behavior take our eyes off value of the goods,and we may ignore the more important factors.the pain equals time between pay and consume plus attention to payment.some wrong behavior to help get rid of the pain,such as paying by credit card,e-wallet.
3.Three models of paying. As the experient show,prepayment cost us much and give more enjoyments（we consume more than usual becauseof "free" and think little about money since we have paied it）,pay-as-we-go cost us litte and so much pain（we consume less and always think about money）.such prepaying behaviors are like gift-card,train tickets.while afterpayment costs us middle.But it seperate time and consuem.when we sigh our name at the credit card bill,we feel like we are going to pay later(help us avoid pain of giving up money).but when we finally pay the bill,we feel like we already paied it.but we maybe filled with thoughts like "is it worth it?",which will diminish our enjoyments.
4.besides of how we pay,how easily we pay also influence our consuming behavior.using e-pay,e-wallets,e-pass,paypal,even retinal scan, will make you less likely to remmember the amount of money you paied.which means,less attention to the payment. it even make us to focus only the positive aspects of goods rather than the upsides and also the downsides of the goods by using cash.
5.some payment toos,restricted use payment methods like frequent-flyer miles or discount coupon,remove the painful burden of decision making.however we spend money according to the limitation of the tools instead of the value of goods or service.
6.free offerings vs. little charger.we always choose the free things even it may not be the better choice.
七、we trust ourselves
anchor number comes from the first price we see or the price we have paid before.
1.even arbitrary number be a anchor.after seeing a irrelevent number,maybe our Social Security numbers,as a start point for the perception of value,we then evaluate goods according to this number without awareness.eg.if my SS number is 75 while yours 45,I will bid for a same wine for 60 but you 30.
2.self-herding.the selling price influence our evaluation of the goods.the higher the price is ,the higher value we think the products is of.if we buy it,the price become the start point for our future purchases of the same category of goods.It is the second effect of anchor,self-herding.we decide upon ourselves's past similar spending decision.
3.confirmation bias.we look for date supporting our previous financial decision and reinforce it and follow suit.
4.the less we knowe about something ,the more we depend on anchors.
5.examples.the expensive dishes are alwasy on the front page of the menu.a app/game used to charge for free,now it cost 13.5.Rationnally speaking 13.5 can be spent only for 14 episonds,where we may have less fun than at app/game.not a bad deal.but most of us focus on zero anchor.
八、we overvalue what we have
1.endownment effect-love what you have.investing efforts casue us to increase our sense of ownership,which causes us to overvalue things and believe that potential buyers will see the extra value,but they do not.
2.VIRSUAL OWNERSHIP.even we don't own it,for example a mug/cloth/shoes/car,just hold the mug for 30s.Then we value it much higher and willing to buy it.
3.segregationg gains.sellers high each features,but ask one price.or highlighting several uses but one low price.eg.the CMCC provides data,calls,text,but charge one bundle.
3.reason:we only see the positive aspects of the goods in presonal perspective.
Loss Aversion.whether we own it or visually own it,we hate to lost it.
how they play tricks on us?A TV-internet-phone bundle for free or lower-cost.but three monthes later,it raises to 30 a month and we can cancel it at any time.but we don't.we overvalue it and willing to pay more to keep it.Is is familier to you?like CMCC？
九、fairness and effort
At rainy day a umbrelle costs 10 rather than 5 at sunny day. it's totally reasonable but we think is a robber behavior and unfair.A more efficient lockersmith spends 2 minutes while a freshman spends 10 minutes but charge the same.we think the later is more fair. but the former is a more great deal!
more psycological example.the sender-receiver game.the sender is given 10.He can give any amount of money to the receiver.if the receiver accept the money,the sender can keep the rest of it.if not,none of them will get anything.
Reason:
1.we focus on the part we are not getting.and we feel unfair if others profit form it even though its a win-win strategy.!insane!
2.why we feel unfair?Assessing the fairness of price by assessing the effort that went into it.selling umbrellas does not get harder because raining.Driving for Uber during a snowstrom mighg require a little extra effort,but not worth eight times as much.but we miss that the added value--getting home safe and dry---deserve it.it's harder to pay for someone who performs effortlessly,even through he is efficient because of his expertise.(SO,work slower!)
3.transparent effort.not jus fullfill the client's need,but also creating a presentaion to demonstrate how hard you worked.But if you show us the the great pain to produce nothing,you worth nothing.
Consequence:
If a price seems unfair,we try to punish the price setter but end up punishing ourselves by passing up an otherwise good value.so,let's no caught up in by something is priced fairly,instead ,by consider what it is worth to us.
十、we believe in the magic of laguage and rituals
we can live on 80 percent of current income but can not retire on 20 percent less than current income.we are willing to pay much by vivid description even through the language does not change the product.
Reason:
Language make us pay extra attention to what we consume and direct our attention to the specific part of the story of the goods.
1.consumption vocabulary--special terms to describe the products.Receiving the special terms from the waiter,the advertisement,like civet-coffe,bonquet of a wine,handcraft,we immerse ourselves into the story,think,focus and appreciate an experience in a different way.
2.description of the process production(fairness and effort) enhance the quality of the comsumption experience.
3.sophisiticated terms--often obsecur and intangible--means expertise,adding extra value.
4.Rituals.swirling his wine,pursing his lips,and raising a toast make the wine more taste.He consume a chocolatebar by first breaking it and unwrapping it in a paricular way then eating it instead of eating it straightforwardly.
when we use them,repeat them,they will adding extra meaning to the past and future experience.then increase value,enjoyment,pleasure.
Watch out:there is no reason to pay for the propaganda.
十一、we overvalue experctations
1.with higher expectation,we judge something more valueable---an it does change our perception and experience---and be willing to pay more.
we will expect the same wine drunk from fine crystal to taste better than from a cracked mug.we will expect the same food from gorgeous restuarant to taste better.
while lower expecting decrease the pleasure of an experience.Imaging a journey with a heavy rain。worsely,you are what you expect.
2.how expectation work alter the value of our experiences? By two ways.
first,anticipitation period.we hate the uncertain future.so our brain will figure out the details for us with expectations.so the anticipation adds extra pleasure.eg.
Even buying a lottory tickets give us a few days of pleasure imaging what we will do with winnings.
second,during experience.becaused of hightened expectation,we pay more attention,savoring moments more fully.
Thired.it even change our behavior.Expect a song is moving,and you are moved.when teaches expects a group of students work well and the other do worse,and then they do so.
4.where do expectation comes from?
From the brand.a famious-brand name product is expected to work better than the unkonwn-brand name product.but they do work better.
from the reputation.with a scientific report(maybe fictionnal report),a medecine is thought to be medicable.they do medicable.
from the past experience.But we may disappointed if the new experience doesn't fill the gap of expectation.
from the presentation and settings.a wine in a fancy crystal flute creating higher expectation than the same liquid in a mug,and tasting better,and more valueable.
from language and ritual.
Concequencely,expect more leading to enjoy more,finnally willing to pay more.But the goods is the same.so,you only need to pay for the real value of products.but use it to enhance your pleasure.
十二、we lose control
Present time is fulled of temptation,what we can't resist by willpower.Then we imagine our future selves will be entirely different,being rational,brave.so we leave savings to tomorrow.To save requires us to value the distant,uncertain future and plan accordingly,which is so hard.Acctually,tomorrow won't be better.
Some ways to influence our self-control.painful paying help to arouse self-control while a cheating mental account weaken it by relieve our paying pain.
moreworse,we often trust our past-day selves,who always make bad choice.Even our present-day selves is wise,lacking self-control always leads to irrational behaviors.
十三、we overemphasize money
the more expensive,the better.
Drinks at discount taste worse than full-priced beverages.The pill costing more many,seems more medicable.
But why?
1.considered with different properties,like flavor,style,desirability,the number is much more measurable and we make decisions more easily through it.In job,moeny is the most specific,precise and quantify.buying a phone,we considering sevreal factors- screen size,speed,weight,security,but finally coming to the only factor,the price.
2.we have troublein comparing one type of products with another total different one.
can we compare a iphone with a seven-day vocation?I mean,opportunity costs.learn to do it!a cell phone cost 5000 while a vocation cost 2000.if I prefer the vocation,I will give uo a new phone.S
and the consequence?
1.Addtionally,we overemphasize the easy factors---price,the cover of a book,the feature of a car--when make decisions.
but the most measurable ting is not the most important part of the decision.
2.we are eager to pursing anything measurable to guage our process.like playing games,we strive to increase the grades.when reading this book,i am hurry to reach the final page.
consequence:besides money,consider other factors criteria,even they are hard to measure.
十四、put your money where your mind is.
considering the opportunity costs,comparing the benefit you can get form this product and other products.
we need to be informed of our financial mistakes and other knowledge,especially in car dealer.
十五、free is a price
even free is a price,costing our time.
十六、control yourself
we lost control is due to discounting the future---a perfect futureself,and the willpower's failure to overcome the tempatation fo the present.
THE SOLUTION
1.reconnecting to our futureself.e.g.a imaginary conversation with our old "us".a letter to our futureself.thinging about hte rosy,vivid,detailed,defined future.we can decorate our house with widgets remingding us of old age and long term thinking like granma mugs.
2.ulyness contract--set barrier for money using.Preset limit on credit card or even only using cash.Enroll a autimatic,forceful saving plan,like automatic investment plan,or set aside a portion of all futrue salary increase.Earmarking account--a specific mental account--used only for a purpose,like children's education,parent's medicare.
3.reward subtitution.make present sacrifice for future gains in a rather clear way.e.g.every time you save a money,treat youself,a candy,a movie,anything that spend little money or are free.
十七、its us against them
a environment to make us spend more,like digital wallet、financial default settings(指纹支付，小额免密支付).but there are solutions.
SOLUTION
1、raising spending awareness to increase our pain of paying.the most effect way--physical presentation:receiving a text reminding saving every week,plus a conspicous golden coin numbered 1-48.every week you fullfill your saving plan,you scratch the coin with a knife.
2.a direct reward.like Alipay,every time you walk,you will receive a energy ball.
3.put less money on our checking account.Or make a automatic deposit plan.even leave your money along and foget it.
4.a long-term view for consume.a coffe for 4 a day is cheap,but a coffe for 1460 is expensive.diffrerently,a salary 12,000 is a large bonus,but a income 1000 for a month seems less and will make you save more.