TIME health

3 Reasons Why Your Relationship With Food is Crazy

mom's cookies
Getty Images

1) You ignore the importance of context

You ate more because you were hungry? Maybe, but you’re probably not giving nearly enough credit to how context affects you. I’ve posted many times about how context is far more influential than you think.
From Paul Bloom’s How Pleasure Works:

  1. Protein bars taste worse if they are described as “soy protein”
  2. Orange juice tastes better if it is bright orange.
  3. Yogurt and ice cream are more flavorful if described as “full fat” or “high fat.”
  4. Children think milk and apples taste better if they’re taken out from McDonald’s bags.
  5. Coke is rated higher when drunk from a cup with a brand logo.

How much you eat is strongly affected by how much those around you eat, but you rarely realize it. Dining with friends? You’ll probably eat twice as much.

Via The Social Animal: The Hidden Sources of Love, Character, and Achievement:

At restaurants, people eat more depending on how many people they are dining with. People eating alone eat least. People eating with one other person eat 35 percent more than they do at home. People dining in a party of four eat 75 percent more, and people dining with seven or more eat 96 percent more.

Eating with overweight friends? You’ll eat more. Is your waitress overweight? You’ll eat more. Are you a woman eating with a man? You’ll eat less. Wide variety of food? You’ll eat more.

Smaller serving sizes make you eat less overall. The order of items on a menuaffects what you eat. The color of plates can affect how sweet dessert tastes.

Brian Wansink, author of Mindless Eating: Why We Eat More Than We Think, instructs us to tell the guests that wine is from California, not North Dakota:

It was all the same $2 cabernet. And we found that if people thought it was from California, they rated the wine as better, they rated the food as better, they stayed at the restaurant about 10 minutes longer, and many of them made reservations to come back.

When we served them the North Dakota wine, it poisoned the entire meal. They didn’t rate the food as good, they left 10 minutes earlier, and they didn’t make reservations to come back.

When you serve dessert, put it on some fancy china, not a napkin:

If they ate it on the napkin, they’d say, “Wow, this is really good.” On a paper plate, they said, “This is really, really good.” If they ate it off of Wedgwood china, they would say, “This is the greatest brownie I’ve eaten in my entire life.” And the amount they were willing to pay for it tripled.

And give them silverware, not plasticware:

Consumers’ quality and liking judgments concerning identical yoghurt samples differed significantly when tasted either with a metallic plastic spoon or else with a stainless steel spoon, the latter resulting in significantly higher scores.

Don’t feel guilty – even dieticians are inaccurate about how much they eat. (And only 7% of shoppers obey the “10 items or less” rule at the supermarket.)

2) You forget that so much of what makes food good or bad is in your head

Comfort food really does comfort you. Grandmom’s cookies do taste better than other cookies. You can’t tell pate from dog food. Coffee junkie? When you haven’t had your joe anything with caffeine tastes better. Dieting actually makes food look bigger.

Eating organic food might turn you into a jerk. Anything that affirms your feelings about your own morality (“I eat organic, therefore I’m a good person.”) your brain may subconsciously use to justify doing something immoral. (“I’m generally a very good person so it’s okay if every now and then I…”)

Why do people order a cheeseburger, fries, dessert and a *Diet* Coke?

It’s called a “health halo effect.” As long as we have the feeling we’re doing something healthy, we extend it to everything during that meal. Due to this, most people surveyed estimated that a cheeseburger with a salad had fewer calories than the cheeseburger alone.

Via The Willpower Instinct:

We feel so good about ordering something healthy, our next indulgence doesn’t feel sinful at all. We also see virtuous choices as negating indulgences— literally, in some cases. Researchers have found that if you pair a cheeseburger with a green salad, diners estimate that the meal has fewer calories than the same cheeseburger served by itself. This makes no sense, unless you believe that putting lettuce on a plate can magically make calories disappear.

(And, no, those fortune cookies aren’t very Chinese.)

3) Food and hunger affect your judgment whether you realize it or not

Hungry judges give harsher sentences. Lemonade can reduce racism. Eating something disgusting can make you feel morally disgusted. Hungry men prefer heavier women and Playboy playmates are thicker during economic recessions.

Kids who skip breakfast misbehave more than kids who eat their Wheaties. After given a snack, all the children are little angels again.

Via Willpower: Resdiscovering the Greatest Human Strength

All the children in a class were told to skip breakfast one morning, and then, by random assignment, half of the children were given a good breakfast at school. The others got nothing. During the first part of the morning, the children who got breakfast learned more and misbehaved less (as judged by monitors who didn’t know which children had eaten). Then, after all the students were given a healthy snack in the middle of the morning, the differences disappeared as if by magic.

People who have low blood sugar are far more prone to criminal and violent behavior:

…hypoglycemics were more likely than the average person to have trouble concentrating and controlling their negative emotions when provoked. Overall, they tended to be more anxious and less happy than average. Hypoglycemia was also reported to be unusually prevalent among criminals and other violent persons, and some creative defense attorneys brought the low-blood-sugar research into court.

Across the board, yeah, food puts you in a better mood. To be more exact, research has shown that 2 cheeseburgers = one orgasm. Smiling gives the brain as much pleasure as 2000 bars of chocolate.

Via Smile: The Astonishing Powers of a Simple Act (TED Books):

They discovered that smiling stimulates our brain’s reward mechanisms in very powerful and surprising ways. How did the power of a smile stack up against other “well-regarded” pleasure-inducing sensations? Depending on whose smile you see, the researchers found that one smile can be as pleasurable and stimulating as up to 2,000 bars of chocolate!

(Health-wise, a little starvation can be good for you, actually.)

So what can you do?

Use this info to help you:

  1. If you need to concentrate or something is going to require good judgment, make sure to eat something.
  2. Use your knowledge of the way certain foods make you feel to control and improve your mood.
  3. Use context to control your eating.

You probably utilize the first two points from time to time but maybe not often enough. The third is very powerful but you probably don’t put it into action.

From Mindless Eating author Brian Wansink:

The good news is that for every external cue that messes people up in our studies, you can solve the problem by doing the opposite. If going from a 10-inch to a 12-inch plate causes you to eat 22 percent more, use a 10-inch or 91/2-inch plate.

Use smaller bowls. Don’t rely on your willpower or the power of education. Don’t say, “Now I know that I’m three times more likely to eat the first thing I see in my cupboard than the fifth thing I see in my cupboard … but I won’t let that influence me.” It absolutely will!

The solution is to make sure that the first thing you see–the thing that’s front and center–is healthier than that chocolate-covered foie gras.

People eat food that’s on the table much more frequently than food that’s off the table, so just put the salad and vegetables on the table. Leave everything else on the counter or stove.

 

Related posts:

5 things you need to know about alcohol

5 things you need to know about that wonder-beverage, coffee

Will eating healthier make you sexier?

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This piece originally appeared on Barking Up the Wrong Tree.

MONEY Food & Drink

Sorry, Dude, You’ve Been Drinking the Wrong Beer for Years

Beer tasting
Daniel Grill—Getty Images

A blind taste test reveals that if you're loyal to a beer brand because of the taste, you just might be fooling yourself.

A new study from the American Association of Wine Economists explores the world of beer rather than wine, and the findings indicate that you could be buying a favorite brand of brew for no good reason whatsoever. While the experiments conducted were limited, the results show that when labels are removed from beer bottles, drinkers can’t tell different brands apart—sometimes even when one of those brands is the taster’s go-to drink of choice.

In the paper, the researchers first point to a classic 1964 study, in which a few hundred volunteer beer testers (probably wasn’t too hard to find folks willing to participate) were sent five different kinds of popular lager brands, each with noticeable taste differences according to the experts. But people who rated their preferred beer brands higher when the labels were on bottles “showed virtually no preferences for certain beers over others” when the labels were removed during tastings:

In the blind tasting condition, no beer was judged by its regular drinkers to be significantly better than the other samples. In fact, regular drinkers of two of the five beers scored other beers significantly higher than the brand that they stated was their favorite.

The new study takes a different, simpler path to judging the quality of beer drinkers’ taste buds. Researchers didn’t even bother with ratings data. Instead, the experiments consisted of blind taste tests with three European lagers—Czechvar (Czech Republic), Heineken (Netherlands), and Stella Artois (Belgium)—in order simply to find out if beer drinkers could tell them apart. The experiments involved a series of “triangle tests,” in which drinkers were given a trio of beers to taste, two of which were the same beer. Tasters were asked to name the “singleton” of the bunch, and generally speaking, they could not do so with any reliable degree of accuracy:

In two of three tastings, participants are no better than random at telling the lagers apart, and in the third tasting, they are only marginally better than random.

What these results tell researchers, then, is that beer drinkers who stick with a certain brand label may be buying the beer for just that reason—the label. As opposed to the taste and quality, which are the reasons that consumers would probably give for why they are brand loyalists.

As the researchers put it in the new study, “marketing and packaging cues may be generating brand loyalty and experiential differences between brands.” In other words, we buy not for taste but because of the beer’s image and reputation that’s been developed via advertising, logos, and other marketing efforts. Similar conclusions have been reached in studies about wine; one, for instance, found that wine drinkers will pay more for bottles with hard-to-pronounce names—because apparently we assume that a fancy name is a sign of better quality. We also buy beer, wine, and a wide range of other products due to force of habit, of course.

Drinkers who are loyal to a particular beer brand may hate to hear this—heck, so are consumers who are loyal to almost any product brand—but the research indicates we are heavily influenced by factors other than those we really should care about, such as quality and superior taste.

All that said, we must point out the study’s shortcomings. The beer tastings were very limited in scope. It’s not like tasters were asked to compare Bud Light and a hoppy craft IPA, and then failed to tell the difference. And just because some volunteers couldn’t differentiate between beers doesn’t mean that you, with your superior palate, would be just as clueless. You may very well buy your favorite beer brand because, to quote an old beer ad, it “tastes great.”

Just to be sure, though, it might be time to take the labels off and do some blind taste testing. Could make for a fun Saturday night.

MONEY consumer psychology

Hey, Impulse Spenders: Here’s a Solution to Your Bad Habit

shopping bags
Martin Barraud—Getty Images

If you make too many impulse purchases and later regret them, there is a simple cure: gratitude.

A study recently published in Psychological Science shows that an attitude of gratitude tempers impulsive urges. In the study, participants had the option of receiving $54 now or $80 in a month. The researchers then induced moods of happiness, neutrality, or gratitude. Participants in the happy or neutral groups preferred the smaller sum immediately—the typical response in delayed gratification experiments.

The surprise came from those who felt grateful. They preferred to wait for the larger sum, which is the smarter, if less immediately gratifying, option.

The authors don’t say why gratitude forestalls impulsiveness, but their findings make sense within the context of my own research. I’ve found that people typically purchase impulsively for one of two reasons. They do so 1) to counteract a sense of emptiness, boredom, or void in their lives; or 2) because they are not fully focused when making a purchase. Gratitude can be the antidote in both of these scenarios.

Fill the Void
Impulsively snapping up a bargain or a trinket (or more) can provide an emotional boost, even a genuine momentary thrill. A void you feel—which can range in magnitude from simple boredom to a deep emotional need for human connection—is temporarily filled in the act. Sometimes the pleasure of some new “find,” or just the distraction of the transaction is subconsciously more what people are shopping for than whatever it is that’s actually being purchased.

People that “fill up” with impulsive purchases in this manner are often thought to be motivated by simple greed. What I’ve found, though, is that the catalyst is not so much greed or materialism, but emotional relief. Momentary lapses of impulse control are frequently fueled by an urge to feel something different—to get out of a funk and change your mood.

Feelings of gratitude, not just for possessions, but for almost anything—a friendly encounter, a cool breeze, a tasty lunch, a nice text from your kid, a beautiful landscape—are nourishing. It’s harder to feel a void or sense of emptiness when you pause and notice how much you have. It makes sense that everyone, not just shoppers, exhibit greater levels of impulse control when they feel thankful.

Get in Focus
Consumers’ minds nowadays are drawn in different directions by nonstop multitasking, and anxiety and sleep deficiencies are on the rise as a result. Focused decision-making, particularly on seemingly non-urgent tasks such as shopping, is on the decline, as is truly focusing on anything, it seems. No wonder I increasingly hear, “What was I thinking when I bought this?” from shoppers I interview. An exhausted, distracted brain pays less attention to everything and therefore has less bandwidth to forestall impulsive purchasing.

The calming focus of gratitude can help. A few seconds of thankfulness is not only a mood elevator, it’s a fast and simple mindfulness exercise that improves focus and can stave off mindless, impulsive spending.

But if you’re trying to rein in impulse spending, wouldn’t it make more sense to simply force yourself to pay closer attention to purchases, rather than trying to focus on feelings of gratitude? Well, no. Focusing on purchases is actually harder than it seems. Why? It’s boring when compared to the thrill of the purchase, and therefore consumers are apt to forget they’re supposed to be mindful and think twice about what they’re buying.

Also, paying close attention to purchases comes with the possibility of arousing negative emotions—feelings concerning problems with debt or budgeting, or pressures about responsibility and what you should or should not do. Our self-protective, irrational brains are likely to look for an easy “out” to get rid of these bad feelings, ironically often by simply losing focus and doing things mindlessly, impulsively. That’s why so many consumers experience a mismatch between their good intentions and ultimate actions when it comes to shopping.

Gratitude is a gentle way to force focus, and it creates a sense of abundance that transcends the need for a momentary shopping boost. As a bonus, there are lots of other benefits to feeling and expressing gratitude—most notably, happiness.

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Kit Yarrow, Ph.D., is a consumer psychologist who is obsessed with all things related to how, when and why we shop and buy. She conducts research through her professorship at Golden Gate University and shares her findings in speeches, consulting work, and her books, Decoding the New Consumer Mind and Gen BuY.

MONEY freebies

7-Eleven Free Slurpee Day Supersized Into a Freebie Week

As usual, 7-Eleven customers get free Slurpees on 7-Eleven Day (Friday, July 11). What's unusual this year is what comes after 7/11: seven more days of freebies.

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In what has become a wildly popular annual tradition, July 11 is celebrated as 7-Eleven Day by the convenience store giant. The average customer probably refers to the day as something different, though: Free Slurpee Day. On that day, all customers are entitled to a free Slurpee, no coupon or loyalty program membership required.

Last year, when 7-Eleven increased the size of free Slurpees from 7.11 ounces to a regular Small (12 ounces), something like 7 million free Slurpees were slurped by customers. Even more are expected this year, when 7-Eleven has upped its game again, transforming its ordinary one-day giveaway into eight days in a row of freebies.

While 7-Eleven Day works like normal—anyone who shows up from 11 a.m. to 7 p.m. gets a free Slurpee—the rest of the freebies require the download of a 7-Eleven app. Do so and show your smartphone screen to a 7-Eleven clerk on the appropriate day for these freebies:

Saturday, July 12: Big Gulp
Sunday, July 13: M&M’s Birthday Cake Flavor Candies
Monday, July 14: Grandma’s Cookies
Tuesday, July 15: Twinkies
Wednesday, July 16: Snickers or Twix Ice Cream Bar
Thursday, July 17: Quaker Chewy Yogurt Snack Bar
Friday, July 18: Pillsbury Cookie
Saturday, July 19: Small Slurpee

That’s a lot of freebies.

Why does 7-Eleven do it? One reason is that giveaways are good for business. When a consumer is handed something for free, it generates good will—and a sense of obligation to want to pay that nicety back in some form. So when a customer gets a free sample at a supermarket, he’s more likely to buy whatever it is he tasted, or at least to buy a little something extra. When the sample is little in size, there’s also a tendency to want a little more.

That’s why, historically, the day that 7-Eleven hands out free Slurpees is also usually a huge day for sales of Slurpees, as well as sales of other items. And what goes well with Slurpees?

As company executives explained to USA Today, stores will be pushing “Big Bite hot dogs for $1 on Friday (usually $1.99) to wash down with the free Slurpees.” The new Doritos Loaded cheese sticks, unleashed on the public in early July, will probably also be big sellers.

The requirement to download an app also makes a lot of sense for 7-Eleven. In today’s noisy, ad-splashed world, brands and retailers love the idea of having such a direct connection—and sales path—to consumers. But it’s gotten harder and harder to convince consumers they should download yet another app, especially one that’s going to spam them with news and promotions they don’t necessarily want. Few are going to download an app for, say, a measly 50¢ discount.

But a whole week of freebies? A lot of folks will say: Sign me up.

TIME psychology

New Retail Mantra: Customers are Scum

Retailers Hope For A Good Christmas Despite The Current Economic Gloom
A woman walks along Carnaby Street holding several shopping bags on December 6, 2011in London. Oli Scarff—Getty Images

The more you're made to feel unworthy of a product, the more you wind up wanting it

“When I went to Louis Vuitton, the sales girls were so [unfriendly]—I could not believe it. I was just dressed normally…and when I walked in [they] stared at me. It was like walking into a freezer, they were so cold toward me…”

That’s a quote from a discussion board on a fashion website. It’s also the introduction to a scholarly article in the June 25 Journal of Consumer Research, which argues that a common reaction to such treatment, is to lust even more passionately for a Louis Vuitton bag. “Our research,” say authors Morgan Ward, of Southern Methodist University, and Darren Dahl, of the University of British Columbia, in a press release, “highlights the fact that we are profoundly attuned to social threats and are driven to buy, wear, and use products from the very people who are disrespectful to us.”

The reason, they explain in “Should the Devil Sell Prada? Retail Rejection Increases Aspiring Consumers’ Desire for the Brand,” makes sense, in a somewhat appalling way: if someone acts like you’re not good enough to own a particular product (or belong to a particular country club or attend a particular college), you might just walk away in defeat. But you might try even harder to prove that yes, damn it, you are good enough. It might not work with the college or the country club, but you’re going to own that bag, even if you have to buy it online—as it turns out many consumers end up doing when they feel dissed in a brick-and-mortars store.

Some luxury retailers have evidently tried to democratize their salespeople, ordering them to be friendlier and more welcoming to the riff-raff who wander in. But given the results of the study, that may actually be bad for business. Treat customers like scum, and they’ll just buy more.

 

 

 

MONEY consumer psychology

Why We Always Fall for Products Making Outlandish Claims

140620_EM_Suckers_Skechers_1
Chris Weeks—WireImage

Who would be foolish enough to fall for "shoes" that make it feel like you're running barefoot, or cookies that promise to make women's breasts bigger? Lots and lots of people, apparently.

Even the smartest consumers can be tempted to buy a product based on some marketing claim that, deep down, everyone knows can’t be true. Why?

We live in a time when modern-day snake oil, in the form of not-so-miraculous “miracle” products that are misleading if not worse, is around every corner. For example, based on sales totals, it looks like more than 70 million Americans believed Vibram’s claim that running in “shoes” that brought you a step closer to jogging barefoot would improve their “foot health.” Vibram, creator of the thin-soled FiveFinger running shoes that fit each toe like a glove, was unable to substantiate that claim, and the company settled a $3.75 million lawsuit this spring, entitling buyers to refunds.

Last summer, Skechers began paying out a $40 million class action lawsuit to more than a half million people who believed it when the company (and spokesmodel Kim Kardashian) said the shoes could not only tone muscles but also help them lose weight and improve their cardiovascular health. Reebok and FitFlops have also lost lawsuits on behalf of millions of other consumers who believed similar overstatements about the power of shoes to basically do our workouts for us.

Though consumers apparently have a soft spot for supposedly miracle-performing footwear, we’re not just suckers for hyped-up claims about shoes. Millions have purchased weight-loss potions that promise users they’ll lose fat without changing the exercise and eating habits that piled on the pounds in the first place; or lotions that can sprout new hair on bald heads. (It certainly doesn’t help that medical experts like TV’s Dr. Oz sometimes seem to endorse dubious weight-loss products.) This spring, the FTC announced that Lice Shield, a “lice-prevention” shampoo, deceived customers and exaggerated claims, and ordered the company to pay $500,000 and stop pretending that the product was “scientifically shown to repel head lice.” Another recent FTC settlement will stop the company that makes a supplement called BrainStrong Adult from claiming it has clinical proof the product “improves adult memory.”

Sometimes, the claims are downright laughable, like the F-Cup Cookies sold in Japan that are supposed to make your breasts bigger.

How could anyone fall for such claims? How can people not know better? What’s behind our will to believe when common sense tells us otherwise? There are four particularly strong forces at work: one is human nature, and three are unique to our times.

1. We are hopeful. If we’re lucky, we have a healthy dose of a charming, positive and essential human quality: hope. Add a dash of that particularly American characteristic, optimism, and we have the potential to be led astray. Hope gives us the will to try, while optimism gives us fortitude. Untempered by common sense and logic, though, hope and optimism can devolve to gullibility. The solution is not to decrease hope—it’s to blend in wisdom, and a bit of skepticism.

2. We see miracles in action every day. One marvelous technological advancement after another, from GPS systems to smartphones, has taught us to believe in innovation. “New” has never been better, and we eagerly await the next bit of wizardry. We’re more trusting and less skeptical of innovation, and therefore more likely to believe that the next big thing is really all that—the next big thing. That puts a damper on an age-old adage that’s kept us on the straight and narrow for years: “If it sounds too good to be true, it probably isn’t true.” Today’s gadgets and innovations sometimes actually are as good as advertised. Which means consumers have to be craftier in ferreting out potentially false claims and examining the reputation of the source.

3. We have no attention spans. Evaluating products, and product claims, is harder today because of another side effect of technology—saturated with stimulation, we increasingly skim and rely on visual cues such as photos and symbolism to get the gist of what some hot new thing does. Nobody has ever been a fan of “fine print,” but today we’re less tolerant than ever. Nobody has the time or interest to dig deeper. Shorter attention spans have resulted in less patience to temper hope and optimism with thinking things through.

4. We are manipulated by marketers. Lastly, consumers are up against some brilliant marketing minds—professionals who are now armed with reams of data and psychological insights. Marketers increasingly use psychology to understand the deepest motivations of consumers and create the most resonant messaging. Most apply those insights to more fully satisfy consumers and gain an edge in a fiercely competitive marketplace. But some are less honest. Marketers have always been some of the best communicators in the world, and today they’re more aware and arguably better than ever.

Deep down, we want to believe in magic. Human beings always have. Thanks to the spectacular increase in innovation, from smartphones to self-driving cars, there’s proof that products can do seemingly magical, miraculous things. But the existence of amazing gadgets isn’t an excuse to lose grasp with reality. Smart shoppers temper hope, optimism, and awe with critical reasoning. It seems like a downer, but it’s never been more important.
_____________________________________________________

Kit Yarrow, Ph.D., is a consumer psychologist who is obsessed with all things related to how, when and why we shop and buy. She conducts research through her professorship at Golden Gate University and shares her findings in speeches, consulting work, and her books, Decoding the New Consumer Mind and Gen BuY.

MONEY online shopping

It Doesn’t Matter That Amazon’s Music Streaming Service Is Lame

listening to bad music
Monalyn Gracia—Corbis

Last week, Amazon introduced Prime Music, a streaming service included in a Prime subscription that scared … absolutely none of the big music streaming competitors.

Within hours of Amazon introducing its music streaming service, Prime Music, the consensus among critics and observers is that the service is … okay.

While Amazon played up the fact that Prime Music has “unlimited, ad-free streaming” and a catalogue of “over a million songs,” anyone and everyone evaluating the service was quick to point out that players in the streaming scene such as Spotify have well over 20 million songs. “It’s hard to tell who is the target audience for Amazon’s service. If it’s a consumer mass market play, there are still some big gaps,” TechCrunch observed, noting that 9 of the current top 10 in the Billboard Top 100 were not available last week via Prime Music streaming.

Businessweek called the service “half-baked,” declaring “there is little reason to believe that Prime Music will lure people away from Spotify or Rdio.” The tech columnist at USA Today agreed: “If you’re already a paying subscriber to Spotify, or huge fan of Pandora, nothing in Amazon’s new Prime Music offering, introduced Thursday, will make you want to switch.”

Prime Music’s reception in the marketplace bears an eerie resemblance to that of another streaming service, which also happens to be an Amazon product. Tech and entertainment writers have long argued that Amazon Prime’s streaming video options were no match to Netflix, which has a far more robust catalogue of TV shows and movies.

When Prime Instant Video was still new, critics bashed its “dismal lack of popular and recent titles.” Likewise, music critic Bob Lefsetz called Prime Music a “disaster” because, among other reasons, there are so many holes in the catalogue it’ll inevitably frustrate subscribers. “Now Bezos wants me to waste time, which nobody has any of, to click around and find the music I want to hear on his service, ultimately being disappointed in a fair share of my efforts?” Lefsetz wrote. “This is not a benefit, this is a DISTRACTION!”

Much of the Prime Music criticism is completely valid. But it probably doesn’t matter. Amazon customers are not only likely to see Prime Music as a benefit, but as the best kind of benefit, one that’s totally free, passed along by those generous benefactors in Seattle. Amazon Prime was born as a two-day delivery service—buy as much as you want on the site and get two-day shipping for $79 annually—and that’s what the average subscriber still thinks he’s paying for. All the extras, including video streaming, some free Kindle ebook rentals, and now, Prime Music, tend to be viewed as just that, as perks or extras.

It’s hard to complain about a service being somewhat subpar when the service being provided is free. Or at least when it feels like the service is free. Of course, you’re paying for the service, via your subscription fee—now $99, up from the original $79—plus all of those purchases you’re making at Amazon. But it still sorta feels free. For that matter, the “free” two-day shipping isn’t really free either; it’s more like a flat prepaid payment of $99 for a year’s worth of shipping.

By bulking up what’s included in the Amazon Prime service package, Amazon is using a tactic out of the storied cable TV bundle playbook. The average pay TV subscriber watches only around 17 channels, yet his package includes 100, 200, perhaps 700 more options. Paying $90 per month for a mere 17 channels sounds like a lot. But when that $90 gives the customer a bundle of 600 channels, it feels like a much better value—even if you never watch 573 of them. Similarly, Amazon Prime members are likely to feel like they’re getting good value for their Prime bundle, even if they rarely or never take advantage of the streaming options and other extras.

Just knowing that these extras are part of the package helps convince some consumers that a Prime membership is worthwhile. And if they actually use those streaming options for hours and hours, week in, week out? That works out well for Amazon too, because the more time spent on the site, the more likely a subscriber is to be tempted into making purchases. And the more likely a subscriber is to feel that an Amazon Prime membership is an absolute essential. Subscribers will only head more in that direction as Prime Music adds to its song list, which is sure to happen in the same way that Prime Instant Video has expanded its catalogue, adding HBO shows like “The Sopranos” in April.

And hey, remember, it’s all free for Prime subscribers!

MONEY psychology of money

The Money-Happiness Connection

201406_TBQ_WOLFERS
Justin Wolfers photographed in Washington, DC Joe Pugliese

Does money buy happiness? We put the question to economist Justin Wolfers, who recently conducted one of the broadest studies on the subject to date.

Does money buy happiness?

Wealthier people are happier than poor people. Wealthier countries are happier than poor countries. As countries get ­richer, they get happier. The relationship between income and happiness is extremely strong.

What’s the nature of that connection? Does money actually make you happier?

I should give the usual “correlation isn’t causation” disclaimer here. When I say rich people are happier than poor people, I don’t know if it’s the money that’s making them happy. When I say rich countries are happier than poor countries, I don’t know whether it’s the greater money that makes the average American happy or whether it’s the greater opportunities. Maybe it’s democracy, rule of law, or having functioning markets and political and social institutions.

Saying richer countries are happier than poorer ones seems obvious. Has other research found otherwise?

There’s something called the Eas­terlin paradox [named after University of Southern California professor Richard Easterlin], which claimed that while rich people are happier than poor people, rich countries are not happier than poor countries, and as countries got richer, they did not get happier. Now, what we [Wolfers and fellow University of Michigan professor Betsey Stevenson] did was study more comprehensive data. We looked at ­surveys, including the Gallup World Poll, of 155 countries covering 95% of the world’s population. It turns out that rich countries are indeed happier than poorer ones, and as countries get richer, they get happier.

[Easterlin says that Wolfers has mischaracterized his findings, and that his paradox indeed asserted that rich countries are happier than poor ones. Easterlin also says that while happiness and income are correlated over short-term periods, the relationship disappears over the long run.]

Psychologist Daniel Kahneman and economist Angus Deaton, also drawing on Gallup data, famously concluded that happiness doesn’t really increase above incomes of $75,000 a year. How do you square that with your research?

Whenever people talk about happiness, they are imprecise in their language. I’m mostly analyzing questions that ask you how you think about your life overall, or how happy you are, taking all things together. These are questions that we think of as being “evaluative.”

The $75,000 number comes instead from measures of affect. Rather than being evaluative, they gauge what’s going on with you right now. They say, “How did you feel ­yesterday?” This is not asking you to judge your life as a whole. And Kahneman and Deaton found at very high incomes more money did not increase well-being. The increases above $75,000 were vanishingly small.

Back to your research: Is the relationship between money and happiness linear? Will I feel the same jump in happiness with each $1,000 raise?

No. If you think about how much extra well-being is associated with each dollar, it’s absolutely a situation with diminishing returns. But if you describe it in terms of the percent change in income, a 10% rise yields a roughly similar rise in well-being to everyone in the world. A 10% increase in a very poor country like Burundi is equivalent to a 10% increase in a very rich country like the U.S.  But to get a 10% increase in ­Burundi doesn’t take a lot of dollars, whereas in the U.S. it takes a lot.

Happier3

The U.S. economy has grown a lot since the 1970s, but you’ve found that happiness here hasn’t increased much. How can that be?

I never said that the only thing that changes happiness is income growth. Something else is going on in the U.S.

Average per capita income has grown, but that can be misleading. If you look instead at the median—the income of someone making less than what half the population makes and more than what the other half does—income has barely risen over the past 40 years, once you adjust for inflation. Income has actually fallen for those at the lower end of the scale. If income has barely grown for most people, we shouldn’t be surprised that happiness has barely grown for most people.

So how can we fix that?

We can do it through the minimum wage or the tax system. We can do it through the benefit system as well. Things like the earned income tax credit. Remember, an extra dollar doesn’t buy much extra happiness for a millionaire, but it buys quite a lot for a working-class person.

Raising the federal minimum wage is politically difficult. So is making the tax system more progressive.

Compulsory education up to an age older than 16 could also work. Research shows that education and skills not only increase income later in life but also increase happiness.

What about the personal implications of your research? Are you happier now that you make more money than you used to?

Unquestionably, yes. When I was in graduate school and I went into a store, I was always looking at the prices. I was constantly calculating. You ask yourself, “Can I afford to buy this box of cereal?” You think, “If I buy more of this, maybe I can afford less of that.” You’re making these tradeoffs and you’re constantly aware of these ­tradeoffs. And it’s tiring.

The first thing I did when I had a well-paying job is I stopped looking at those price tags. Now I never really feel stressed about money. Even if I lost my job tomorrow, I have my degree, and I can get another job. I get to live free from stress and worry and the constant calculating of tradeoffs that I had earlier in my career.

So would I be happier if I became a hedge fund manager?

Don’t let an economist bully you into believing money’s all that matters. And don’t let a psychologist bully you into believing that money is completely unimportant. How you manage that tradeoff is going to require a lot of experimenting and thinking and introspection. People choose occupations based not just on money, but also on meaning. There’s nothing in my research that says that’s a bad idea.

MONEY Sports

Don’t Bet (But If You Do, Bet on California Chrome)

Kentucky Derby and Preakness winner California Chrome
Kentucky Derby and Preakness winner California Chrome, with exercise rider Willie Delgado up, goes over the track in preparation for the 146th running of the Belmont Stakes at Belmont Park on June 6, 2014 in Elmont, New York. Rob Carr—Getty Images

While it's very, very hard to win the Triple Crown, you're better off betting California Chrome to win.

In the movies, the long shot frequently overcomes terrible odds (and often a troubled past) to win the big game or race. In reality, long shots almost never win — even less often than you think and less often than the odds suggest, for reasons we’ll get to. So if you want to minimize your losses during a day at the races, stick with the favorites.

Keep that in mind this Saturday as California Chrome (a 3-5 favorite) vies to win the Belmont Stakes and become the 12th Triple Crown champion — and first since Affirmed in 1978. Triple Crown winners include War Admiral and Secretariat. The latter, perhaps the greatest racing horse of all-time, won the Belmont by an incredible 31 lengths.

Like California Chrome, Secretariat was the overwhelming favorite to win the Belmont, but that distinction generally does not bode well for potential Triple Crown winners going into the final race. Consider this, from the Edmonton Journal:

One has to go all the way back to 1978 when Affirmed held off Alydar at 3-5 to find the last odds-on betting choice to grab hold of the final leg of horse racing’s Triple Crown. In fact, Affirmed was the fourth straight odds-on winner following the footsteps of Seattle Slew (2-5), Bold Forbes (4-5) and Secretariat (1-9).

The argument against Chrome winning for a third time in five weeks is that it is really hard for horses to run that well for that long. As ESPN’s Bill Finley points out, “by the time they get to the Belmont, the Triple Crown hopefuls are not the same horse.” It is an exhausting endeavor and the 1.5-mile Belmont is a particularly grueling race.

Still, you’re better off betting California Chrome than any of his rivals, according to economists Erik Snowberg and Justin Wolfers. In a recent paper, they showed that betting on the likely winner will give you the best shot to lose the least amount of money. “The rate of return to betting on horses with odds of 100/1 or greater is about -61%, betting randomly yields average returns of -23%, while betting the favorite in every race yields loses of only 5.5%,” Snowberg and Wolfers wrote.

Their paper dealt with the favorite-longshot bias – which says that people overestimate the chances of longshots winning and underestimate the favorite’s likelihood of victory – and found that, “longshots win even less often than you think they do because you (and almost all people, really) are really bad at perceiving small probabilities,” says Snowberg, who teaches at Caltech.

When asked, both economists said that people shouldn’t bet. But if you have a little bit of cash burning a hole in your pocket, ignore the fact there hasn’t been a Triple Crown winner in 36 years and go with California Chrome.

“Longshots rarely win – even less often than indicated by the odds,” says University of Michigan professor Wolfers. “But favorites do, and you’ll not only be collecting more often, but in the long run, you’ll come a lot closer to breaking even on your bets.”

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