How to Turn a Loss into a Win
I should have known. Shortly before the motorway exit in Bern, there’s a gray speed camera that lies in wait for unwary drivers. It’s been there for years. No idea what I was thinking. The flash jolted me out of my reverie, and a quick glance at the speedometer confirmed my fears: I was going at least 10 mph too fast, and there was no other car for far and wide, nobody else I could pin the flash on.
The next day in Zurich, I watched from a distance as a police officer tucked a ticket underneath the windscreen wiper of my car. Yes, I was parked illegally. The car park was full, I was in a rush, and finding a legal parking space in central Zurich is like finding a deckchair in the Antarctic. For a moment I considered running over. I pictured myself standing in front of the officer, gasping for breath, hair disheveled, trying to make him understand my dilemma. But I let it go: years of experience have taught me that such things only make you feel silly. You look small, and you end up losing sleep.
Parking tickets used to infuriate me. These days I pay them with a smile. I just debit the sum from the account I’ve earmarked for donations. Each year I set aside 10,000 francs for good causes, and I pay all my fines out of that. In the world of psychology, this simple trick is known as mental accounting. I borrowed it from Richard Thaler, one of the founding fathers of behavioral economics. Mental accounting is considered a classic logical fallacy. People treat money differently depending on where it’s coming from, so if you find money on the street, you treat it more casually and spend it more quickly and more frivolously than money you’ve actually earned. The parking-ticket example illustrates how you can turn this logical fallacy to your advantage. You’re deliberately tricking yourself—for the sake of your own peace of mind.
Say you’re traveling in an impoverished country, and your wallet disappears. Minutes later you find it again, and all that’s missing is the cash. Do you see this as theft, or as a donation to somebody who’s probably far worse off than you are? No amount of mental gymnastics will alter the fact that your money was stolen, but the significance of what happened, the interpretation of the event—that you can influence.
Living a good life has a lot to do with interpreting facts in a constructive way. I always mentally add 50 percent to prices in shops and restaurants. That’s the amount this pair of shoes or sole à la meunière will actually cost me—taking income tax into account. If a glass of wine costs 10 dollars, I’ll have to earn 15 in order to afford it. For me, that’s good mental accounting, because it helps me keep my expenditure in check.
I prefer to pay for hotels in advance. That way I won’t spoil a romantic weekend in Paris by being confronted with the bill at the end. The Nobel Laureate Daniel Kahneman calls this the peak–end rule: you remember the high point and the end point of your holiday, but the rest is forgotten. We’ll take a closer look at this effect in Chapter 20. If the end of the trip is a big fat bill, presented to you like marching orders by a snooty French receptionist and complete with mysterious extras he has probably added on purpose (to punish you for not speaking accent-less French), your memory of the romantic getaway will be forever tarnished. Precommitment, they call it in psychology: pay first, consume later. It’s a form of mental accounting that takes the sting out of payment.
I pay taxes with equal nonchalance. After all, I can’t upturn the taxation system single-handed. So I compare what I get in return for my money in the lovely city of Bern with cities like Kuwait, Riyadh, the jam-packed concrete wasteland of Monaco or the surface of the moon—all places without income tax. Conclusion? I’d rather stay in Bern. People who move to ugly cities for tax reasons make themselves seem petty and stubborn—not exactly solid bedrock for a good life. Interestingly, my transactions with such individuals have thus far all been bad.
That money can’t buy happiness is a truism, and I’d certainly advise you not to get worked into a lather over incremental differences in price. If a beer’s two dollars more expensive than usual or two dollars cheaper, it elicits no emotional response in me whatsoever. I save my energy rather than my money. After all, the value of my stock portfolio fluctuates every minute by significantly more than two dollars, and if the Dow Jones falls by a thousandth of a percent, that doesn’t faze me either. Try it for yourself. Come up with a similar number, a modest sum to which you’re completely indifferent—money you consider not so much money as white noise. You don’t lose anything by adopting that attitude, and certainly not your inner poise.
There was a period around the time I turned forty, after a long spell as an atheist, when I started doggedly trying to find God again. For several weeks the obliging Benedictine monks at Einsiedeln put me up as their guest. I have fond memories of this time, remote from worldly hustle and bustle—no TV, no internet and barely any phone signal, thanks to the thick medieval walls. Most of all I enjoyed the silence during meals—the monks were forbidden from speaking. I may not have found God, but I did learn another mental accounting trick, this time temporal rather than monetary. In the refectory, as they called the dining hall, the cutlery is placed in a small black casket about eight inches long. At the beginning of the meal, you open the lid and extract the neatly bundled fork, spoon and knife. The message? You’re basically already dead, and everything that follows is a gift. Mental accounting at its best. It taught me to value my time—and not to waste it getting into a tizzy.
Do you hate queuing at the supermarket till, waiting at the dentist’s, and sitting in traffic jams on the motorway? Your blood pressure reaches 150 in seconds, and you start frantically releasing stress hormones. But instead of getting upset, consider the following: without this unnecessary agitation eating away at your body and soul, you’d live a whole year longer. That extra year would more than make up for all the time you spent in queues. The upshot? You can’t nullify the loss of time and money, but you can reinterpret it. Open your box of mental accounting tricks and see for yourself: the more practiced you are at dodging fallacies, the more fun it is to occasionally commit one on purpose. Remember, it’s for your own good.