What will I learn about: why ignoring opportunity costs is one of our biggest financial mistakes, and learn to evaluate what you are actually sacrificing when making a purchase?

Understand why ignoring opportunity costs is one of our biggest financial mistakes, and learn to evaluate what you are actually sacrificing when making a purchase.

What will I learn about: how external value cues like discounts and sales manipulate your spending, and why removing these 'bargain' illusions can actually frustrate consumers?

Discover how external value cues like discounts and sales manipulate your spending, and why removing these 'bargain' illusions can actually frustrate consumers.

What will I learn about: why we blindly rely on external visual cues to make decisions, rather than trusting our internal needs or recognizing an item's real value?

Find out why we blindly rely on external visual cues to make decisions, rather than trusting our internal needs or recognizing an item's real value.

What will I learn about: Grasp the concept of 'mental accounting,' a cognitive shortcut where we assign different subjective values to the exact same amount of money, often resulting in irrational choices?

Grasp the concept of 'mental accounting,' a cognitive shortcut where we assign different subjective values to the exact same amount of money, often resulting in irrational choices.

What will I learn about: Learn to separate your feelings from your finances by recognizing 'emotional accounting,' a psychological trap that causes you to spend cash frivolously based on negative associations?

Learn to separate your feelings from your finances by recognizing 'emotional accounting,' a psychological trap that causes you to spend cash frivolously based on negative associations.

Dollars and Sense

How We Misthink Money and How to Spend Smarter

Dan Ariely and Jeff Kreisler

★ 4.3 / 5(143 ratings)

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Categories:

Money & Investments Psychology

If You're Curious About These Questions...

You should listen to this audiobook

💡Have you ever wondered why we’re so easily seduced by 'sales' and 'discounts' that don't actually save us any money?
💡Did you know that the physical way you pay for your purchases can change how much 'pain' your brain feels while spending?
💡What if you could identify the hidden psychological traps that make it almost impossible to save money, even with the best intentions?

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Key Takeaways from Dollars and Sense

✓Understand why ignoring opportunity costs is one of our biggest financial mistakes, and learn to evaluate what you are actually sacrificing when making a purchase.
✓Discover how external value cues like discounts and sales manipulate your spending, and why removing these 'bargain' illusions can actually frustrate consumers.
✓Find out why we blindly rely on external visual cues to make decisions, rather than trusting our internal needs or recognizing an item's real value.
✓Grasp the concept of 'mental accounting,' a cognitive shortcut where we assign different subjective values to the exact same amount of money, often resulting in irrational choices.
✓Learn to separate your feelings from your finances by recognizing 'emotional accounting,' a psychological trap that causes you to spend cash frivolously based on negative associations.

Learning Tools

Reinforce what you learned from Dollars and Sense

Mind Map

Dollars and Sense

The Root of Irrationality+

Flawed Valuation+

Flawed Accounting Systems+

Perception Manipulators+

Strategies for Self-Control+

Quiz — Test Your Understanding

Question 1 of 7

According to the authors, what is one of the biggest financial mistakes people make when deciding to buy something?

A. Failing to consider the opportunity costs, or what else the money could be spent on.
B. Refusing to negotiate prices with salespeople at car dealerships.
C. Spending too much time comparing prices between different stores.
D. Overestimating the future depreciation of the items they purchase.

Question 2 of 7

Why did JCPenney lose $985 million after CEO Ron Johnson introduced 'fair and square' pricing?

A. The new normal retail prices were actually higher than the previous discounted prices.
B. Customers lost the sales and coupons that served as important value cues making them feel they were getting a bargain.
C. Competitors immediately undercut JCPenney's prices, drawing their core customer base away.
D. The store stopped carrying the premium brands that customers preferred.

Question 3 of 7

How does 'mental accounting' explain why someone might replace a lost $100 bill to buy a concert ticket, but refuse to buy a new ticket if they lost the original $100 ticket?

A. People place a higher emotional value on physical cash than on printed event tickets.
B. Cash is subject to inflation over time, so spending it quickly feels like a more rational decision.
C. A lost ticket triggers a sunk-cost fallacy, making people feel they must abandon the event entirely.
D. The lost ticket is categorized as money 'already spent,' whereas the lost bill hasn't been assigned a specific category yet.

Question 4 of 7

Based on the 2013 study involving chocolate bars, how do rituals impact our perception of an item's value?

A. Rituals distract us from the price, making us more likely to overspend on basic necessities.
B. Creating a ritual around consuming a product generally increases the amount we are willing to pay for it.
C. Slow, deliberate rituals make us realize the true opportunity cost of a small luxury item.
D. Rituals decrease our consumption vocabulary, making us less susceptible to clever marketing.

Question 5 of 7

What is a 'Ulysses contract' in the context of personal finance?

A. A legally binding agreement with a financial advisor to prevent early withdrawal of retirement funds.
B. A budgeting method that requires writing down every single purchase in a ledger.
C. A strategy to remove temptation by setting up a system where making a bad financial decision isn't an option.
D. A psychological trick where you imagine having a conversation with your future self to delay gratification.

Question 6 of 7

Which of the following psychological strategies is recommended to help increase self-control and resist the temptation to spend?

A. Thinking of retirement savings in terms of a general timeframe rather than an exact date.
B. Picturing a detailed conversation with your future self to create an emotional connection.
C. Avoiding thoughts about the future altogether so you don't feel overwhelmed by long-term goals.
D. Reviewing your complex, highly specific budget every night before going to bed.

Question 7 of 7

What actionable advice do the authors give regarding personal budgeting?

A. Track every single expense obsessively to ensure you never overspend on discretionary items.
B. Avoid using debit cards and switch entirely to cash to physically feel the loss of money.
C. Replace complex budgets with a broad 'discretionary spending' category and use a prepaid debit card for it.
D. Create a detailed spreadsheet that categorizes every possible purchase to maximize opportunity costs.

Dollars and Sense — Full Chapter Overview

1Recommendation
21 — Irrational spending comes from ignoring alternatives and relying too much on external signs of value.
32 — Without value cues, we struggle to recognize value and make good decisions.
43 — Mental and emotional accounting strongly shape our decisions, often in irrational ways.
54 — Language and rituals can alter how we perceive value.
65 — You can strengthen self-control and resist or remove spending temptations.
76 — Final summary

Dollars and Sense Summary & Overview

We use money every day to take care of bills and purchase the things we need to get by in life, yet rarely seem to think rationally about spending it. Dollars and Sense (2017) explores the irrational human nature that leads to bad spending habits, why we’re so bad at saving money and how to resolve this all too human shortcoming.

Who Should Listen to Dollars and Sense?

People who struggle to manage their money
Bargain hunters
Young people thinking about saving

About the Author: Dan Ariely and Jeff Kreisler

Dan Ariely is a professor of psychology and behavioral economics at Duke University. His work has been frequently published in scholarly journals as well as the New York Times, Washington Post, and Scientific American. He’s also the author of Predictably Irrational (2008), The Upside of Irrationality (2011) and The Honest Truth about Dishonesty (2013).

Jeff Kreisler is a former lawyer who specializes in using humor and satire to promote behavioral economics and better financial habits. A graduate of Princeton University, his first effort was the satirical book Get Rich Cheating: The Crooked Path to Easy Street (2009).

Dollars and Sense

If You're Curious About These Questions...

Listen to Dollars and Sense — Free Audiobook

Key Takeaways from Dollars and Sense

Learning Tools

Mind Map

Quiz — Test Your Understanding

Dollars and Sense — Full Chapter Overview

Dollars and Sense Summary & Overview

Who Should Listen to Dollars and Sense?

About the Author: Dan Ariely and Jeff Kreisler

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