Americans are hunkering down and saving more. For a recession-battered economy, it couldn’t be happening at a worse time.

Economists call it the “paradox of thrift.” What’s good for individuals — spending less, saving more — is bad for the economy when everyone does it.

Some experts say consumers have been so shaken by how fast their wealth has shrunk, so burned by credit card debt, that they might not resume their robust spending for years, if ever.

“People are not saving; they are building financial bomb shelters,” said Mark Stevens, who runs a management consulting firm, MSCO, in Rye Brook, N.Y.

This article pertains directly to my master’s thesis: first, choices made by the individual that benefit the individual are not the same as those that benefit the economy and vice versa. Secondly, don’t frame the question as saving — frame the question as ‘not buying shit they don’t need and don’t have the money for.’ Americans had a negative savings rate on average for several years. We paid for stuff with credit card debt and leveraging against our houses, and I would receive six calls to refinance my mortgage per day. Every day. The article quotes Cornell’s Robert Frank, who mentions that this frenzy of consumption was unsustainable. Building a fortune on rampant consumer spending, in order to spend more yourself? Just another illusionary bubble that got popped.  And illusions die hard.

Now we’re saving hard to make up for it, and because the media tells us we should be worried (just like it told us to spend spend spend — and the ads are still there) — it reinforces the perception that we are in trouble, and that everyone else is saving, and that conformity effect is a subtle nudge towards not spending — even though the gist of the information here is that you should be spending for the good of our consumer society. Shades of 2001 with buying as a civic duty.

I don’t think that is going to work this time. This Prisoner’s Dilemma is brutal, and humans are conditioned to react twice as strongly to the idea of loss as to the idea of gain.

Matthew Conrad, a financial manager at Complete Wealth Management in Orange County, Calif., says he knows of people who drive a BMW or Mercedes and eat macaroni and cheese for dinner several nights a week. That suggests some are making an awkward shift from free-spending habits and are reluctant to give them up.

Grant McCracken theorized a remarkable idea about consumption, which he called the Diderot effect. The story goes that Diderot had a cozy little study, somewhat ramshackle but pleasing, and then he received a gift of a marvelous dressing gown from a dear friend. This dressing gown, of red velvet, made the rest of his study look shabby in comparison, so Diderot began to replace his study piece by piece until he had a fantastic room that matched the gown. And then he wrote about it.

The Diderot unity is a masterpiece of psychological connection: it asks that objects which are invested with similar qualities and meanings become grouped together and associated with each other, even if there is no actual linkage between them. For example, the BMW has more in common with the Rolex and the Bang & Olufsen coffeemaker than with Kraft Dinner; it implies that someone with a BMW should not be having to eat mac and cheese.

The Diderot effect is when the consumer decides that they need to obey the need for psychological consistency and commitment: when they choose to replace their existing goods with ones that match their lifestyle — or alternatively, reject new goods because they do not fit the existing Diderot unity. If you go down to the local farmer’s market and look for the people buying organic produce, you are going to find more Priuses than Hummers.

Diderot Unity Exhibit A: If I had a million dollars

But we would eat Kraft Dinner. Of course we would, we’d just eat more. And buy really expensive ketchups with it. That’s right, all the fanciest Dijon ketchups! Mmm. Mmm-hmm.

Diderot Unity Exhibit B: Stuff White People Like.


All right, it’s been a while since I last posted. The reason is that our class was supposed to work on a blog for class. Once that assignment was finished, we moved on to a new assignment. I don’t think the others are even updating, since they work us like dogs in this course and it has finally let up a bit.

However, the more you suffer to get into something, the more valuable you find the experience or the group. This is why aboriginal peoples have rites of passage to adulthood, and why fraternities haze new recruits.

The new assignment Hein gave us is to reinterpret Edward Bernays’ 1928 book, Propaganda, as a website. Bernays was the father of Spin and PR, and he was the first to translate the psychological theories of his uncle, Sigmund Freud, into advertising and propaganda. Bernays helped companies adapt the tools of mass communication to benefit mass production, and gave them the tools to turn needs into wants, turning America into a nation of consumers. Bernays is responsible for the success of IHOP and Denny’s, because he cast ‘bacon and eggs’ as the quintessential American meal and sold it to the public.

On November 20th, my colleague Melissa and I went to the Creativity World Forum in Antwerp, Belgium. It was a good set of speakers, particularly with David Heath and Chris Anderson.

I also discussed my ideas and background with Arjen Mulder in Amsterdam last week, in preparation for the December presentation of our thesis topics.

In short: I am interested in why people make choices. Logical self-interest, it turns out, is not the determining factor in decision-making.

For that, we go to James March’s Decision-making tree:

  1. What kind of person am I?
  2. What sort of situation is this?
  3. What does a person like me do in a situation like this?

Identity is the most important factor. So if you change the person or the situation, you can change the effects.

Body-Swapping as Psychotherapy

The evidence that inhabiting another’s perspective can change behavior comes in part from virtual-reality experiments. In these studies, researchers create avatars that mimic a person’s every movement. After watching their “reflection” in a virtual mirror, people mentally inhabit this avatar at some level, regardless of its sex, race or appearance. In several studies, for instance, researchers have shown that white people who spend time interacting virtually as black avatars become less anxious about racial differences.