Dollars and Sense

Review of Dollars and Sense by Dan Ariely and Jeff Kreisler

A wise man knows himself to be a fool, but a foolish man opens his wallet and removes all doubt.

What is the book about?

Dollars and Sense is written by Dan Ariely and Jeff Kriesler. Dan Ariely is, of course, best know for his seminal book on psychology Predictably Irrational.

This book explores some of the most common mistakes made when it comes to money and the reasons behind those mistakes. For example: why are we willing to spend more on the same item when on a vacation than at home? Why do we feel it is ok to spend money on options when buying a car when that money is substantial in its own right? Why do we over spend when using a credit card or a digital wallet than when paying with cash? Why do we think Uber’s surge pricing is unfair when local cab companies charge a lot more as their base price?

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What does this book cover?

Dollars and Sense has three parts.

The first part discusses basic monetary concepts. The second part (and the longest) discusses all the psychological traps and behavioral quirks that make us unwise when it comes to fiscal sense. We also get to see the reasons behind these behaviors. The third part talks about how to be better at managing money given that we know what to watch out for.

Some of the quirks addressed in the book are as follows

  • Relativity (the myth of ‘sales’ or how much we are spending at the same time on something else)
  • Mental Accounting (classifying money into buckets)
  • Pain of Paying (The ease of payment makes it easy to over spend)
  • Anchoring (The first price we see or previous prices we have paid for a purchase)
  • Endowment Effect and Loss Aversion (our sense of ownership makes us think that what we own is more precious)
  • Fairness and Effort (how much we pay is based on how much of effort we think is involved)
  • Self-control (impulse decisions)
  • Overemphasizing money (the ease of comparing the price of various items)
  • Language and Rituals (the words describing something and what we do at the time of consumption)
  • Expectations (how we anticipate the consumption experience)

What did I like?

Dollars and Sense is well written and will continuously involve the reader. I found it impossible to put down since the explanations and examples were clear and crisp.

I found the insights valuable and some were new to me too. For example: I had not realized that budgeting, a personal finance tool that I use quite a bit, is not actually rational. But it is a heuristic that enables us human beings to manage complexities of value decisions.

The most surprising part of the book is that it is interspersed with humour. This made this book even more enjoyable.

What did I not like?


My Recommendation

I strongly recommend this book. This is a rare book that is fascinating, informative and useful at the same time. It takes a dull but important topic and puts it in a form that everyone can understand.

Any reader interested in behavior or just wanting to better at personal finances will find it extremely useful. This book stands out as a great general read even if there is no specific interest in the afore mentioned topics.

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Also published on Medium.