When I started my first office job I got into the habit of buying lunch every day. Every office has its own culture and this has a big impact on how you make decisions, fancy cars, drinks after work, certain style of clothes, buying lunch every day. When you start your first real job you have no reference for the existing cultures and routines. We spend a lot of time with our co-workers (whether we like it or not!) and this has a big impact on our spending. Having a spendthrift friend makes it hard to understand what ‘normal’ spending looks like and you’re going to see that reflected on your credit card bill. Spending decisions your friends make will become reference points for your own spending decisions. Taking expensive vacations 2-3 times per year might seem normal. Dropping $300 on a bar night might seem normal. Spending $500 at the mall might seem normal. Thanks to arbitrary coherence your spendthrift friend will have a big impact on what YOU consider to be a normal purchase. Having a spendthrift friend will make sticking to a budget way more difficult. Here are a few examples of arbitrary coherence you may experience.įriends have a big impact your spending decisions, what they buy, where they eat, how often they go on vacation. We believe that we’re in control of our own spending but that’s not really the case. This happens to all of us all the time and we don’t even notice. Even if TV’s are completely different ten years in the future you’re probably not going to be willing to pay more than $500 because you want to remain consistent with your past decisions. If you purchase another TV five or ten years in the future you’ll use this information again to evaluate your decision. You also carry this information forward into the future. At first the price for the 50” TV was arbitrary, you had no reference point, but after it becomes an anchor and in your mind the prices for the 40” and 60” TVs need to be coherent. But once you’re told that 50” TV is worth $500 then you know the 40” TV should be worth less, maybe $400, and the 60” TV should be worth more, maybe $600. If you’ve never seen and ad for a TV who’s to say exactly what a 50” TV is worth, or a 40” TV or 60” TV for that matter. But after we get that initial piece of information we start to use it as a reference point, and subsequent decisions are made using it as a reference. We’re even influenced by random people we have no relationship with like the people in advertisements.Īrbitrary coherence is the idea that the first decision we make, or the first piece of information we receive regarding a decision, is arbitrary, we don’t have any reference point or anchor to evaluate this new piece of information so it’s very arbitrary. We’re influenced by things we purchased in the past, or things friends have purchase, or co-workers, or even our family. We’d like to think we’re in control of our spending but that’s not really the case. We want to keep things consistent so we make decisions based on what we did in the past (or what we’ve seen other people do). We judge current spending decisions based on past spending decisions. We all have this weird desire for coherence. Habits are subconscious and they form in weird ways. Did you know that a lot of our spending is driven by past decisions?
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