“Because this explains why, for example, a billionaire can be more depressed than somebody who’s making a hundred grand,” Tai continues. “It explains why JCPenny went broke when they got rid of coupons and just set all their prices low. It explains Las Vegas, explains why people behave weird at casinos.
I’ll start by saying this. Classic economics put forward the concept that humans act logically with their money. Now if you’ve been listening to me for the last however many years, I’ve been talking about the twenty-five cognitive biases.”
In other words, Tai knew the textbooks got it wrong. Humans do not always make good choices, especially with their money. Anyways, in the book, it talks about how this new CEO comes in to JCPenny, says he’s gonna turn things around, decides he’s gonna do it by setting all their prices super low.
Forget coupons for fifty percent off, we’ll just set the price to half-off all the time. Shoppers, logically, should be ecstatic, right? You’re saving them the trouble of collecting coupons and all that.
But, lo and behold, that’s not how it played out. It was a disaster. Dude’s “everyday low prices” idea basically ran the company into the ground. So what went wrong? Why would shoppers rather clip coupons and do extra work to get stuff for the same price? Because they’re dopamine addicts, that’s why.
Same reason social media works, why you can’t stop scrolling through TikTok clips. We want that high, that feeling of, “Ooh, I saved money.” So just strolling into JCPenny and seeing everything already priced low didn’t feel like a win, right?
Tai gives another example from the book. Say you go to Vegas with a hundred bucks. You gamble, you get lucky, all of a sudden you find yourself up ten grand. Huge dopamine rush. But you know what’s more powerful than that? The negative bias of the brain.
So say you keep gambling, your luck runs out, you start losing. Now you’re down to five grand. Guess what? That loss? Even though, overall, you’re still up like five Gs? Even if you cash out and walk out with that five grand, you do so feeling kinda crappy, don’t you? Crazy.
“Once again, humans are not rational actors,” Tai says. “That’s what this book’s about. So what’s another example of this? Let’s say somebody blows up, they’re on the Forbes list, they’re worth two billion dollars. And let’s say they lose ninety percent of it. Almost all of it.
So now they’re worth a hundred million. Even though in absolute dollars they’re still one of the wealthiest people on earth, they will experience more depression, more negative hormones. And someone who makes a hundred grand, and gets a raise, is probably happier than that former billionaire.”
So what’s the main takeaway from the book? For Tai, it’s this. You gotta continue to rise above your animal instincts with how you invest your money, how you think about your losses, about sunk costs, where something’s going poorly and you gotta get out of it, even if you dumped a bunch of money into it.
To get above average results, especially when it comes to making (and keeping) money, you’re gonna have to think different than the masses. Check out the book, Misbehaving, for more on the subject. Good stuff, Tai.
