Five More Common Money Mistakes – Dollars and Sense, Part 2

Dollars and Sense - Common Money Mistakes Part 2

ICYMI, check out Common Money Mistakes Part 1 first! Originally, I had planned to review Dollars and Sense in one go, but there was too much important information for a single post. Hope you enjoy Part 2 just as much!

We now return to the story of the psychological forces behind the money mistakes we make, and how we can avoid making those mistakes.


Whether or not we think something is fair affects how much value we attribute to it. How many of us have been price gouged when purchasing an umbrella during a sudden storm? Who here has waited out an Uber surge pricing and almost missed her flight home? (raises hand.) When we think something is unfair, we are either reluctant to pay for it, or we resent having to pay the “unfair” price. But the operative word here is think.

Economics say sellers should raise their prices when supply is low and/or demand is high. So rationally speaking, we shouldn’t be mad at the umbrella seller; he or she is only trying to make a living. But when we think something is unfair, we don’t care if there is a legitimate reason for the price hike. In fact, we will punish unfairness, even at our own expense (e.g., trying to fix the plumbing ourselves instead of hiring the plumber who charged us too much last time).

The thinking part also leads us to paying more for incompetence. Our brains unconsciously associate effort with value. The more someone works on something, the more we believe they deserve to get paid. When someone does something quickly, we don’t want to pay premium prices. We often forget that we are paying for their years of knowledge, experience, and expertise. Years of blood, sweat, and tears that we have not seen.

Transparency is a way to solve this bias. Being able to see the process will build trust and increase value. But even transparency has its own bias. Transparency asymmetry is when we keep track of all the work we put in, but are not aware of the effort someone else put in (e.g., coworker, spouse). We only see the final product. Desire for transparency can also leave us susceptible to manipulation; someone can demonstrate a lot of effort without actually getting anything done.


Anyone who has heard a great speech knows about the power of language. But we don’t often realize how far-reaching that power is. Language affects how we experience things, by drawing our attention to or away from certain aspects. In Part 1, we encountered the medical diagnosis example, of phrasing a treatment as having “a 20% survival rate” rather than “an 80% mortality rate” – even though they essentially mean the same thing. From the book:

“We choose from among descriptions of various things, not from among the things themselves. Descriptions… change out actual experience consuming them.”

We are told a story, the history of the product or service, and it gets us to slow down, to think, focus, pay attention, to appreciate an experience and the world differently. If we have any doubt, think about our dining experiences. At a four-star restaurant, we can have a $35, 100% grass-fed beef burger topped with aged cheddar, heirloom tomatoes, and organic mixed greens on a freshly baked pretzel roll, served with a side of Yukon Gold fries sprinkled with sea salt. Or we can go to McDonald’s, for a Big N’ Tasty (this was actually my favorite McDonald’s burger back in the day – sadly, I believe it no longer exists).

Of course, we can argue that language isn’t needed to make a four-star burger taste better than a Big N’ Tasty. But what about a regular hamburger with lettuce, tomato, and cheese? Do you want that, or do you want a 100% grass-fed beef burger topped with aged cheddar, heirloom tomatoes, and organic mixed greens on a freshly baked pretzel roll? The description makes our experience so much richer.

Language plays a part in conveying effort and fairness, as well as knowledge and expertise. Words such as “artisanal” and “handcrafted” tell us these items were made with skill and care. Jargon also increases the perceived value (this may be why people try to sound smarter by using words they don’t understand). From the book:

“Obscure and impenetrable language conveys a sense of expertise. It reminds us that they have greater knowledge than we do, that they must have worked hard and long to gain all that knowledge and skill, and now they get to show it to us by using their overly complicated language.”

Ironically, jargon and other technical language lacks transparency; oftentimes, we don’t understand all the words our lawyers or doctors or mechanics are throwing at us. But this lack of transparency increases value.


Expectations distort our judgment. A very fitting example is the stock market. Stock prices don’t fluctuate daily because the value of the company changes; stock prices change because investors and analysts expect them to go one way or the other. And that expectation is what causes it to change.

The same happens to our experiences. We trust ourselves the most; if we expect something to be amazing, we value it more highly, and we will pay more. Expectation can affect our experiences before (anticipation), or during. Anticipation usually increases our enjoyment of an experience (the opposite is dread). Expectations enhance an experience in the same way language and description can. Language itself can increase our expectations. If the burger isn’t amazing, why would the server take time to give us the provenance of every ingredient?

This also leads to self-fulfilling prophecies. If we expect to fail before we start a project, we will likely run into problems, and possibly give up. Studies have shown that teachers who expect certain students to do well and others to do poorly can have an effect on how the student performs. This is because the teacher’s expectations will change how he or she treats each student.

Brands are built on expectations. Why do we continue to pay a premium for name brands instead of purchasing store brands? We trust the reputation of those brands and expect them to deliver a high-quality product. So we are willing to pay more.


We value things in the present more highly than we do in the future. This is often why we will spend money now instead of saving for retirement. Our lack of self-control over delayed gratification makes us put our current selves above our future selves. We believe our futures selves will be better people, will have their finances in order and their lives together. In the future, we won’t succumb to emotion and temptation. We will always do the right thing. But, we will never be our future selves; we are always our current selves. The selves who want to eat that slice of cake, buy that new car, go on that vacation. Planning for the future is complex. We don’t know what will happen in 20, 30, 40 years. Saving for retirement requires us to put a value on things in the future, and plan accordingly.

The problem of self-control amplifies all the other biases mentioned above and in Part 1. Avoiding the pain of paying, such as using credit cards, makes it easier for us to give in to temptation. Mental accounting lets us find creative ways to justify why we can give in to temptation. We trust our past selves, but we also trust our future selves to make better decisions.

Our culture of consumption makes it doubly hard. Retailers want you to buy things now, and reality TV makes stars out of people who give in to their impulses (because what even is TV without drama?). When everything is designed to make us lose self-control, we have to be extra vigilant.


When we lack information, we often turn to the price to help us determine an item’s value. We focus on things that are easily measurable, and the most obvious number we see is the price. We automatically assume that a higher-priced item is of higher quality than a discounted item. Think caviar, truffles, lobster. Would you eat $5 caviar? Even if we’re not willing to pay the high prices ourselves, the price tag tells us that it must be worth that much to someone. That $80 ugly sweater we bought last time? If someone was willing to pay $200, we are definitely getting a deal on it.

This is also how we value our lives. One of the first questions we ask when meeting someone is, “What do you do?” A person’s job will give us a sense of how much they get paid. Studies have shown that we would prefer to be the highest paid in our company, making $85,000 per year, than to be the lowest paid of another company, making $90,000 per year. Our culture defines value through money, and being paid less signals to us that we are worth less to society than another person.


Again, being aware of these subconscious biases is the first step. We shouldn’t focus so much on fairness to the extent of hurting ourselves. Is refusing to buy an umbrella during a thunderstorm worth getting sick? Are we really going to fix the toilet ourselves because we think the plumber is overcharging us? Language and expectations can be used to enhance our experience, but we need to keep an eye out for manipulation (the book says no one needs an artisanal hammer). And finally, we have to focus on more than just money. The price/cost will tell us something about the value, but it won’t tell us everything, just as our paychecks don’t define who we are as a person.


Whew, glad that’s over! That was a lot of material to mull over, even broken into two parts. I think I fare better on these biases than the biases in Part 1. I’ve been working on my self-control these last few years, and on looking beyond money to find the value in things. Words and language are things I’ve loved my whole life, and yet I didn’t make the connection between value and the power of language. If these two posts have piqued your interest, I do recommend you read the book; there was much more I wasn’t able to include.

Get your copy here:


How about you? Which money mistakes do you make? Which were you already aware of? What do you struggle with most? Will you be picking up a copy of Dollars and Sense for yourself?

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Comments (3)

  • i think the power of jargon is something that always makes me give up to purchase something that i don’t really need. especially when i have to face the salesperson who keeps talking about how good one product is and all that. i’m like, okay just buy it so he could shut up.. :/

    Lily 2 years ago Reply

    Oh no! I’m so sorry salespeople make you feel that way, that’s one of the hardest things when dealing with salespeople :(. Are you able to return the products later at least?

  • kreisler 2 years ago Reply

    Thanks for the kind words! Glad you enjoyed it!

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