Dollars and Sense

endowment effect is that the current owner of an item overvalues it, and because of that will want to sell it at a price higher than the future owner will be willing to pay for it.1

This finding—that anchoring has a weaker effect when we have some rough idea of value versus when we have no idea—is important to keep in mind. When we start with an established value and price range in our minds, it’s harder for outsiders to use anchors to influence our valuations.

The cell phone approach is known as aggregating losses and SEGREGATING GAINS and it plays on loss aversion, giving us just one painful loss against many pleasurable gains.

When vacationing at a posh resort, we often don’t get upset when we’re charged $4 for a soda, even though it costs $1 elsewhere. In part, this is because we’re lazy and like to lounge around like beached royalty. But it’s also because, compared to the thousands of dollars we’re spending on the rest of our tropical getaway, $4 seems like relatively

When it comes to making financial decisions, what should matter are opportunity costs, the true benefit a purchase provides, and the real pleasure we receive from it compared to other ways we could spend our money.

we need to pause, think, and remind ourselves that it’s just money. Our money.

Expectations alter the value of our experiences during two different time periods: before we experience a purchase, or what we might call the anticipation period, and during the experience itself.

During the experience, expectations actually have the ability to change how we experience the world around us.

People often say they’d prefer being the highest-paid employee of a company rather than the lowest-paid one—even if it means making less money.