You’ve done a lot of research about how our human nature affects decisions about how we manage our money. One line of enquiry is about how to get the biggest happiness bang for your buck. Can you tell us more?
Mike Norton [pictured, above]: My co-author Elizabeth Dunn on Happy Money: The Science of Happier Spending and I started studying money and happiness about 10 years ago. We ask how people spend their money and how happy they are. We looked to see what effect was producing what.
We are finding a few things about buying an experience and spending on other people, because people do become happier doing these things, as opposed to spending on themselves.
Have you done anything on buying experiences for other people (combining the two types of purchase)?
Norton: We haven’t, but there is an interesting paper that shows that is one of the better things we do. And often we get the giving thing and we get the experiential thing and the social community thing, all rolled into one.
Your current work is around the use of rituals. Why might that be important for people’s financial decisions?
Norton: Ritual might be important for financial education and designing innovations that help people accomplish their goals. That might be to become a happier person, saving more, experiencing more, being a better partner – whatever it might be.
We wanted to think about things that already exist in the world and act to engage people trying to accomplish their goals. This might be anything from giving a speech, playing a game, and all the other little rituals for ourselves. And we wondered if they help people psychologically.
For example, with self-control or with making more money. The act of performing a ritual may help people extend their self-discipline and they can transfer that to other things they might do. This can help people make better decisions.
How do you come up with ideas to research?
Norton: I started studying money and happiness because Liz Dunn was an expert on happiness and this really interested me. A lot came just from ourselves or the world, as well as what other people were doing. Why do I do the things I do? My future self is an amazing person – really nice to everybody – but my today self struggles with these things.
We think about our own behaviour, why it is so important to do things in a certain way and try to unpack that. This can play into interesting ideas about psychology.
We all make mistakes: what is the biggest money mistake you’ve made?
Norton: Perhaps buying a car I don’t use very much. When people, including myself, buy cars, they often think about taking amazing road trips on the open highway, exploring the world. And what you really use the car for is sitting in traffic.
When you make these big purchases, it’s often about why you think you want them, rather than the reality. That’s a financial mistake but it can also be a psychological mistake, because I thought I would get more than I did out of it for my happiness.
A ritual may help people extend their self-discipline and they can transfer that to other things.
If there were one product or service from a bank that might make your life better, what would it be?
Norton: My student Grant Donnelly has a cool project on how people pay off their credit cards and the idea is that the entries look like balloons, so as you pay them off they explode – making an impact on your debt.
So it feels good as you do it, and it is a way of showing you what you purchase, so when you look at it, maybe you might not spend so much. With all financial behaviour, any single thing you do doesn’t mean very much. So I think apps that can promote a good feeling, or small wins, can really help people.
What advice on managing money would you give your friends, based on your research?
Norton: I think they would stop talking to me if I talked about this stuff socially. I’ve done this and I know it from experience!
But I think that in the last few years I’ve started to focus much more on how people spend their time, because money can really be just a proxy for that. We can make more money, but we can’t make more time. So the question is how do you allocate your time, and how do you use your money to improve your time – or not? Take pet ownership: is one type of pet a better purchase? A goldfish is easier, but when you buy a dog, you have to take it for walks and you have to exercise a little bit.
Then the dog likes to talk to other dogs, so people with dogs tend to meet more dog owners, and talking to people is good for us. The dog actually may be a better use of your time.
If you could put money in the next big thing in behavioural science, what would it be?
Norton: I don’t know if it’s the next big thing but this is something we are starting to work on: communication – how to talk. We know little about how to communicate effectively and I think there will be a huge effort to understand how people communicate with each other and then design interventions.
Michael I Norton is Harold M Brierley professor of business administration at Harvard Business School, USA and a member of Harvard's behavioural insights group. He holds a Ph.D in psychology from Princeton University and was previously a Fellow of the MIT Media Lab and MIT's Sloan School of Management.
ARTICLE ORIGINALLY PUBLISHED ON WWW.EZONOMICS.COM (NOW DEFUNCT), a nine-year behavioural-science/economics focused project embedded as part of ING's Global Research Department in London, UK. Interview conducted by behavioural economist Nathalie Spencer with editor Fleur Doidge.