The Relative-Dollar-Bias

I believe people sometimes need an accountant with a whip next to them.

Wuh-PSSSH!  Whapshhh!


Although for some of you, that may sound like a great idea (“yeah, give it to me!”), my take is that the majority of you would be somewhat worried about the potential pain inflicted by that nice accountant’s whip, whenever you make a dumb money mistake.

Don’t worry.  Awareness is the first step to pain prevention.

Have you noticed that your bank account contains absolute dollars and not “percentages off”? 


Perhaps an example could illustrate what I mean:

Most of us would be willing to drive across town to save $100 on the purchase of a $300 radio, but not on the purchase of a $100,000 car, coming with an optional car radio priced at the same $300 because $100 seems like a fortune when we are buying radios, but a pittance when we are buying cars (“I would be nuts to schlep across town just to get this car for one tenth of a percent less?”).

Sounds familiar?

From a homo economicus’s perspective, if it is worth driving across town to save $100, then it doesn’t matter which item you’re saving it on because when you spend these dollars on gas and groceries, the dollars won’t know where they came from.

Due to our trusted brain’s preference to detect changes and differences but not absolute dimensions, wehuman beingsdon’t think in absolute dollars; instead, we think in relative dollars.

So, what do I learn from this?

Firstly, for higher effectiveness, I should change the picture in my mind of the accountant with a whip to this:  whip_decal__85442

Secondly, I need to know my limitations when it comes to my ability to think and reason.  I also need to doubt my intuitions.  Because if I learn to question myself and test my beliefs, I might actually discover when, and how I am wrong, and then improve the ways I live, love, work, innovate, and manage money.

From a rational perspective, we should only make decisions that are in our best interest (“should” being the operative word).  It sounds so easy.

Nevertheless, why do people risk their own, and the lives of others, writing text messages while they’re driving?

You go and figure that one out.

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