Buying Happiness: Buy Less Insurance

(This is part three of eight in a series that explores how money can buy happiness, just less than we think, and only if spent the right way. It’s based on the findings of researchers Dunn, Gilbert, and Wilson in their paper, “If Money Doesn’t Make You Happy Then You’re Probably Not Spending It Right” [PDF].)

If you’re just joining us for the series, so far we’ve talked about buying experiences instead of things, helping others instead of yourself, and buying many small pleasures instead of a few big ones.

Today we’ll discuss the fourth principle, buy less insurance.

Humans adapt well to bad news

You are much more resilient that you think. Research cited in the report found that people tend to think of themselves as “emotionally fragile creatures,” but in truth we rationalize and re-frame events to protect ourselves. People aren’t as vulnerable to negative events as they believe.

Knowing consumers overestimate negative effects, businesses offer insurance policies against potential unhappiness, such as return policies to protect you from buyer’s remorse and extended warranties to protect you from “losing money” if your new purchase breaks.

With extended warranties costing up to 50% of the purchase price, they are generally a bad bet.  But consumers continue to buy them anyway because they fear prospect loss ― they expect the pain of losing to be greater than pleasure of gaining (or in this case, saving the money they’d spend on a warranty). But studies have shown that people aren’t as affected by loss as they predict they’ll be, and extended warranties are often unnecessary and overpriced emotional protection.

I have no regrets

Politicians aren’t the only ones who put a new spin on events. Research shows that ordinary Joes are just as capable as reconstruing events to avoid regret and self-blame, but we don’t give ourselves enough credit for the skill. From the study:

When passengers on a train were asked to estimate how much regret they would feel have felt if they had missed the train by five minutes or by one minute, they estimated that they would have felt more regret in the latter case than the former. And yet, passengers who had actually missed their trains by one and five minutes reported remarkably little regret, and equally little regret regardless of whether they had missed the train by five minutes or by one (Gilbert, Morewedge, Risen, and Wilson, 2004).

Passengers who imagined missing the train thought they would blame themselves for not getting up earlier or getting dressed faster, but passengers who actually did miss the train blamed external factors like traffic. They experienced less regret than predicted because they avoided self-blame.

Return policies may reduce happiness

In one study, participants were offered a choice of art prints. After making their selection, half were offered a generous exchange policy, and the other half were told their selection would be final. After being informed of this, those who didn’t have the option to exchange saw their print more favorably, whereas those with the return option liked their choice the same as before they were offered the exchange policy.

Even more interesting is that participants predicted that a return policy wouldn’t affect their happiness with their print, when in fact those without the option to exchange were happier with their choice.

Return policies may actually undermine your happiness!

What do you think about return policies? When do you buy them, and when do you turn them down?