All Value is Perceived Value

A lot of folks hate advertising, and it's hard to blame them. But in a 2009 TED talk, ad man Rory Sutherland argues that what advertising creates — perceived value — doesn't deserve its bad reputation.

If you want to live in a world with less Stuff, for example, your two options are:

  • Live in a world that's poorer, which most of us don't want to do.
  • Live in a world where greater value is placed on the intangible — which can conserve resources

Confused? It all comes down to your perception.

Perceived value
Most people think that value is about making things — the labor and the raw materials — and that any intangible value added on top isn't real. That's understandable. You can't touch or feel or see perceived value, yet it affects our actions more than we'd like to admit.

Sutherland uses the example of placebos:

What on earth is wrong with placebos? The seem fantastic to me. They cost very little to develop. They work extraordinarily well. They have no side effects, or if they do, they're imaginary, so you can safely ignore them.

Another example is Fredrick the Great of Prussia, who wanted Germans to adopt the potato to provide a second carbohydrate staple in addition to wheat. (This would stabilize price volatility in bread and lower the risk of famine.) The problem, says Sutherland, was that Prussians weren't big on vegetables, and the potato is rather ugly.

So, Fredrick made a law that people had to grow potatoes, and there are records of people being executed for refusing to comply. This didn't work, so he tried a new approach, which was to declare the potato as a royal vegetable — only royalty could eat it. He had a royal potato patch planted, with guards who were asked not to guard it too well.

“Now 18th century peasants know that there is one pretty safe rule in life, which is if something is worth guarding, it's worth stealing,” says Sutherland. Pretty soon there was an underground potato-growing operation (ha — underground).

Mustafa Kemal Atatürk, the first president of Turkey, used a similar marketing ploy to create negative perceived value when he wanted to make the country more modern by discouraging the wearing of a veil. Instead of simply banning the veil, which would incite anger among the people, he made a law that prostitutes had to wear the veil. (Sutherland admits he can't verify this story, but “…it does not matter,” he says. “There is your environmental problem solved, by the way, guys: All convicted child molesters have to drive a Porsche Cayenne.”)

All value is relative — all value is perceived value. This is why all but maybe the top expert wine tasters think a more expensive wine tastes better (and it stimulates in the parts of the brain that experience pleasure), when really it's a cheap $5 bottle of wine — or the exact same wine to which they're comparing it.

Impulse saving
Eventually, Sutherland's talk ventures into the realm of personal finance. He shares his thoughts on impulse buying, which marketing has made extremely easy, and the idea of impulse saving:

If you had a large red button…on the wall of your home, and every time you pressed it it…put $50 into your pension, you would save a lot more. The reason is that the interface fundamentally determines the behavior…We've never created the opportunity for impulse saving. If you did this, more people would save more. It's simply a question of changing the interface by which people make decisions.

To get people to save more, Sutherland says, we need to think about fundamental ways to change human behavior. Obviously, being an ad man, his job is to encourage impulse buying — not saving. But it's interesting to think about how the methods that get people to purchase a magazine and Coke at the check-out counter might be used to get them to stash an extra $10 per day in a savings account.

For example, automatic monthly billing is a great way to get regular revenue from a customer. Think about how gym memberships operate. Half the time people quit the gym and keep paying, either because they forgot about the dues or they're too lazy to cancel. Many of us use the same principle to encourage savings by paying ourselves first through automatic deposits, which we know is much more effective than relying on willpower or memory to save every month.

Wanting what we've got
“We need to spend more time appreciating what already exists,” Sutherland says, “and less time agonizing over what else we can do.”

One way to start to place higher value on what already exists is through social networking. (Yes, that threw me for a loop, too; Facebook and I have a love-hate relationship.) But get this: He says there's some evidence that social networking helps people appreciate what they have because it lets them share news and give “badge value” to everyday, trivial activities.

“So [social networks] actually reduce the need for spending great money on display,” he says, “and increase the kind of third-party enjoyment you can get from the smallest, simplest things in life. Which is magic.”

That's true — at least in my social network. People post about funny things their kids say, a photo of the cookies they just baked, pictures of loved ones, updates about funny stories or the things that are making them happy. Nobody posts shots of their new Hummer or boasts about spending $500 on new clothes. It's pretty humdrum, really, but also, as Sutherland says, a little magical.

Appreciating everyday, trivial activities.
Appreciating everyday, trivial activities may help you save money.

Another example is the evidence that past a certain modest economic level, we tend to judge our happiness on a relative basis. This is why “keeping up with the Joneses” leads so many to financial ruin. Chances are that if your friends place high value on new cars and fancy clothes, you'll be less happy without those things. At the very least, it's going to be uncomfortable to suddenly stop spending money with your friends or to opt out of regular shopping trips. To change the interface and fundamentally change your behavior, you might need to branch out and find a community with the same value perceptions you're trying to cultivate.

Here's my favorite part (because I get to pick the brains of GRS readers!): I'd love to hear your ideas for new ways to fundamentally change human behavior. How can we increase the perceived value of saving? What are ways to encourage an appreciation of what we already have?

More about...Psychology

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Luke
Luke
9 years ago

Most human behaviours can be changed (although my fiancée would argue that my bad temper cannot!) I think the problem is that we don’t *actively* save. Sure, we set up an automatic payment to our savings/investments for the day after payday, but after that the process is entirely passive. This is why the PF community loves automated savings – once you start, you tend to forget to a certain extent and this is where the balances start to creep upwards. It’s incredibly passive, boring as hell and we don’t really have any involvement beyond the initial stages. Anecdotally, behaviours and… Read more »

Starshard0
Starshard0
9 years ago

You could go with Frederick the Great’s idea. Declare saving an activity fit only for the wealthy.

LifeAndMyFinances
LifeAndMyFinances
9 years ago

My wife and I are paying down out debt, and we have a “debt stricker” on the fridge. Every day that we stick to our budget, we can eliminate $80 from our debts. In the month of January, so far so good!

I think saving could be the same way. If we assume an 8% interest rate on the money we save (or invest rather), we could develop a chart and put it on our wall. Each day we can put a check mark next to that larger number on the wall and feel great about our progress!

Maureen
Maureen
9 years ago

It’s as simple as putting put a poster in your room I think. I’ve got a list of things I’m grateful for which is permanently stuck up on my wardrobe. I went through a phase of feeling jealous of friends who were wealthier than me. I snapped out of it by reminding myself that I have a LOT of things that others couldn’t dream of having: 1) An education (to undergrad level) 2) Fluency in German 3) Two homes (and supportive family) 4) A paycheck every month (which I hope is permanent – obviously I have an emergency fund in… Read more »

Maureen
Maureen
9 years ago

Two homes refers to two places I can live. I don’t own two homes or any home!!

SBE
SBE
9 years ago

Thanks April, loved the article!

My wife and I recently returned to basics by putting cash into a jar on top of the fridge as a travel fund. We are doing this in addition to our other automatic savings. We put extra cash at the end of the week, spare change, money from junk we sold, etc. I just wish we actually had a piggy bank to put the money in!

Jacq @ Single Mom Rich Mom
Jacq @ Single Mom Rich Mom
9 years ago

When I was focusing on building enough savings to retire / semi-retire early, I spent A LOT of time lurking on the http://www.early-retirement.org forum. Also, the group of my friends that I hang out with the most are fairly high earners but quite frugal as well. So we make fun of each other and other people when they are too materialistic. They’re mostly first generation North Americans… The act of actively saving itself for something you really really want rather than just buying it on impulse also seems to increase the joy in acquiring it and of having it. It’s… Read more »

David Hunter
David Hunter
9 years ago

This post reminds me of an episode of “South Park” where Cartman inherits a large sum of money and buys a failing amusement park. Cartman has a TV ad about the amusement park and says “You can’t come!” All of a sudden, everybody wants to come and the amusement park is now a hit. I think diamonds are over valued. You see diamonds everywhere, but they are sooo expensive. Most of the diamonds at jewelry stores are S1’s which have flaws in them. If you’re not sure what I’m talking about with diamond ratings look them up on wikipedia. There… Read more »

Nicole
Nicole
9 years ago

Nifty article! I recently saw another TED talk or maybe different talk entirely that suggested making saving a competition… so you’d here a “Ding!” every time you put money away and you’d have information about what people comparable to you were saving and encouragements to beat them. Let me see if I can dig that up…

http://www.ted.com/talks/jesse_schell_when_games_invade_real_life.html

Jesse Schell on how to make saving (and other positive behaviors) a game.

Tiffany
Tiffany
9 years ago

Love this post. I think the hard thing about saving is that it’s not very exciting. There really isn’t an instant gratification like there is with spending. It definitely takes time to train your brain to become excited over seeing your account balance go up each month, and it takes time to develop goals and equate the savings balance with those goals. I find that sitting down and really thinking about my financial goals, and making a bulleted list of realistic actions to achieve those goals…then posting them in my wallet and on the fridge, really helps me to stay… Read more »

garrett smith
garrett smith
9 years ago

I keep a journal and write down 3 good things that happen every day. Even 3 small things. This helps you appretiate and think about all of the good things that you have and that happen in your life.

Becs
Becs
9 years ago

I was just thinking about your comment on impulse saving and how I’ve been doing “impulse debt reduction” – I have a set amount that’s going to pay down my credit card, but weeks when I have more money than I thought I would I just toss it at the debt. I could probably be more efficient but I find that I get a lot more satisfaction out of it this way.

Crystal@BFS
9 years ago

Different methods would work on different people, but I have found that people are way more thankful for what they have when they work closely with people who have way less. So, if the target is to get people to save more for retirement, maybe we could push the idea of volunteering to work with Meals on Wheels or something similar for a little while. It is amazing how much people want to save for their future when they see what happens otherwise face on. Plus, simply volunteering causes people to value themselves more and feel better about the world… Read more »

James
James
9 years ago

“To change the interface and fundamentally change your behavior, you might need to branch out and find a community with the same value perceptions you’re trying to cultivate.”

For me this is the primary help of Facebook. It has let me follow people like Dave Bruno and his 100 Thing Challenge, which provide for me some of the community I am trying to emulate and cultivate. It would be much harder without feeling part of that community.

April
April
9 years ago

Such great ideas! @Nicole–Saving as a competition sounds perfect for type A personalities like myself. 🙂 (I’ve figured out that type A people are far too easy to manipulate. Just make something a competition and we have to win it.)

April
April
9 years ago

@James–A very good point. I found a like-minded community here at GRS when I didn’t have any real-life people in my social circle who were focused on paying off debt and learning about money. For example, everyone we knew thought going from two cars to one was a bad idea, even suggesting that our marriage would suffer. It was the GRS community that offered the support to give it a try, and it was the right choice for us (and we have never had a single disagreement about the car).

Jo@simplybeingmum
9 years ago

Seriously good post, I have read and will re-read again to absorb everything. I am a professional marketer by trade, and very aware of perceived value. Some of the concepts discussed here are really worth digesting. I’m going to watch the Ted talk. The ref to FB is very interesting. I started blogging in Oct 2010, and the benefits have been immense, it is adding value to my life, by making what I do day in day out tangible and measurable. I love the quote about appreciating what we have… it is the answer to so many things in life.

mike crosby
mike crosby
9 years ago

Though we may not have a lot of money, if we step back and see how we fit in this place, we’re all quite incredibly rich. And that’s not perceived–that’s a fact.

Vijay tony
Vijay tony
9 years ago

“To change the interface and fundamentally change your behavior, you might need to branch out and find a community with the same value perceptions you’re trying to cultivate.”

For me this is the primary help of Facebook. It has let me follow people like Dave Bruno and his 100 Thing Challenge, which provide for me some of the community I am trying to emulate and cultivate. It would be much harder without feeling part of that community

retirebyforty
retirebyforty
9 years ago

WOW! Rory is a great speaker. One of the best I’ve seen. Thanks for posting this.
I will sleep on this and think of some ways to create intangible values.

I watched the whole clip. It is really really good, well worth the time.

Mom of five
Mom of five
9 years ago

#13 Crystal – I’ve got a good life and I feel very lucky to have it, and my guilt over that is such that if I don’t do something with all I’ve been given, I feel Karma (or whatever) is going to come back and bite me. But sometimes I think I’m the only person in the world who doesn’t feel better about myself or the world when I volunteer to help the less fortunate. For instance, I volunteer through my church to drive senior to appointments. Easily more than half the times I’ve driven, I’ve thought to myself, “You… Read more »

Adrian
Adrian
9 years ago

I think this is a brilliant article and I intend to recommend it to my friends. My idea for making savings easier and more fun is to expand on the idea of automatic savings through your purchases. I’ve seen a couple of debit card options that either put the odd change from your purchase into a savings account (you spend $3.75 and it is rounded up to $4.00 and the .25 gets put into savings), or $1 is transferred into your savings account every time you use your debit card. Either one is just fine and I wish my bank… Read more »

Crystal@BFS
9 years ago

#20 Mom of Five,

I have had those days too, “Well, if they didn’t smoke a pack a day at $6 a pop and be sexist jerks, their daughter might want to visit more and they wouldn’t be depending on Meals on Wheels for their lunch…”

That is another way it can work…you do learn why certain people are in certain situations and make mental notes how not to get there in the future. I am nicer to people when I come across jerks and am better for it. 🙂

bagelgirl
bagelgirl
9 years ago

This subject of “perceived value” is extremely evident in the purchase of designer clothes and goods.

I find I am often pointing out to people that the higher priced clothes at the mall are not always more attractive and aren’t necessarily even better made or cut.

But people who need that particular “high” will convince themselves they are paying for quality. They are usually paying for status, at least in their own minds.

It’s an uphill battle.

Trina
Trina
9 years ago

YMOYL also recommeds the graph approach to building wealth and reducing debt. I like how the graphs in Quicken automatically do that for me, and I see it all the time because I go in several times a week to download new transactions.

Candice Helfand
Candice Helfand
9 years ago

Great post! One thing though – social networking sites allow others to show off what they have. If someone gets a new car, or closes on a house, or has an expensive wedding, pictures are up as soon as they’re available. Such sharing has the potential to inspire the sort of want/impulse-induced spending this article warns against. I’m merely playing devil’s advocate here, though. Fundamentally, I agree with what’s said here. In fact, I think that simply spending more time around people (online or in person) and not in your own head can help. Communicating your goals is also a… Read more »

Jen
Jen
9 years ago

Years ago when we were paying off our mortgage my dh had a saying that helped keep me focused. I would get discouraged & want to go to eat or I’d just feel deprived thinking about what I couldn’t afford do. My husband would say, ‘Honey, look at all the money we spend to live here. Let’s stay home & enjoy it!’ It always made me think about where I could be living if I spent my money in a different way – we live on 5 acres on a lake so our budgeting could really have changed where we… Read more »

Eric
Eric
9 years ago

Very true, but unfortunately easyly forgotten in everyday life. Good to be reminded by GRS!

BrentABQ
BrentABQ
9 years ago

Why stop there? If all value is perceived value then there is no point in actually saving more. You only need to convince yourself that what you already save is more. Advertising DOES deserve its bad reputation. It encourages us to abandon critical thought. It encourages us to satisfy our whims rather than our needs. It creates those whims by exploiting to the heuristics our brains. Just because it CAN be used for good things does not mean that it usually is. Social networking is not going to solve this. Social networking will only speed up whatever direction the society… Read more »

Suzita @ playfightrepeat.com
Suzita @ playfightrepeat.com
9 years ago

I’ve been thinking about perceived value from a parenting perspective. I want to help my kids be more grateful for what they have rather than pining for what they don’t have. This led me to read the book, Thanks! How the New Science of Gratitude Can Make You Happier, by Robert Emmons. It said that people who keep a gratitude journal (which I think could be done in various ways) exercise more, get sick less, feel better about their lives as a whole, and express greater optimism. He of course says many other cool things about gratitude in his book… Read more »

Tyler Karaszewski
Tyler Karaszewski
9 years ago

It seems the entire comes down to “you’re as happy as you think you are” and then some discussion of psychological tricks to make you think you’re happier than you used to be. That’s fine, but I don’t know what to do with it. Obviously, not all value is simply “perceived value”, for example, I’d argue that you can’t just perceive your way out of starving to death without some real food at some point. But a lot of things really are more perceived than actual — the real difference between a chevy and a mercedes is probably smaller than… Read more »

michelle
michelle
9 years ago

One tiny little game I play with myself is to tag all of my ING savings accounts with very reasonable goals that I always am on target to hit in the near future. One ING account is labeled “Christmas 2011 Account Goal 100”. I make a mental note that I really want $500 in there by December. $100 is a simple goal and I’ll hit it in the next month or so. It’s a long term goal ($500) that’s broken down into tiny steps, so every time I check the balance and see “Balance $25”, “Balance $75″, I’m ecstatic because… Read more »

Aaron
Aaron
9 years ago

One way to fundamentally change human behavior (although not my idea) AND encourage people to save more, is the idea of the lottery-linked savings account. Basically instead of earning .25% interest on your savings account, you get a chance at winning thousands or millions of dollars in a lottery of all the account holder’s accumulated interested for the month. I heard about this concept on a recent Freakonomics radio program: http://marketplace.publicradio.org/display/web/2010/11/16/pm-freakonomics-savings-security-with-gambling-thrills/ This way people are given incentive to save, since they have a chance (albeit little) of hitting it big, rather than only making a few dollars a year guaranteed.… Read more »

chacha1
chacha1
9 years ago

@Tyler K., I think animals *in general* are competitive, and certainly humans are. Everyone wants the best nest, the best mate(s), and for someone else to bring them food.

Where the notion of perceived value can be useful is in helping us refine (or redefine) our actual, personal values. Being aware that material “value” is almost entirely subjective can help us align our spending choices more consciously.

partgypsy
partgypsy
9 years ago

People are inherently social animals, and we compare what we have or what we are doing to others. It’s far easier to compare things like cars, houses and vacations (maybe that’s why it’s called conspicuous consumption?) than savings balances, which is practically forbidden topic. That’s why I like going to forums such Get Rich slowly. They are like my my “elecronic” peers.

Kiki
Kiki
9 years ago

I think an ad campaign would work.

KP
KP
9 years ago

This is a very intriguing post, it’s true perception and playing on human behavior is what keeps advertisers busy. As a parent, this strategy even works on kids tuning into their favorite cartoon. After so many ad messages, they suddenly have a desire to have something they never even cared about before.

The only thing that we can do as consumers to combat this is to change our response to such marketing ploys. Focus on our own personal desired outcomes instead of letting everyone else tell us what we need, have to have and want.

FiveSigmas
FiveSigmas
9 years ago

Hah! Loved the video — very entertaining and thought provoking. Of course, though, an ad man makes his money by raising the perceived value of what you *don’t* have, which very often as a side effect dimishes the perceived value of what you *do* have. To take an example from Mr. Sutherland’s talk: when iron jewelry became the fad in Prussia, I’m sure that gold jewelry became a little less fashionable. And in modern times, when the hot new gadget 2.0 comes out with feature XYZ, the perceived value of gadget 1.0 that you already own decreases. Not exactly a… Read more »

Tony
Tony
9 years ago

Placebos don’t do anything. They only appear to work on subjective or self-limiting conditions.

When studied based on an objective measure of pain (like how much the pain interferes with your ability to preform a task), they show no effect.

Samantha
Samantha
9 years ago

@32 michelle

That’s what I do on the treadmill, and it works!

Andy
Andy
9 years ago

@Aaron #33: I thought of the exact same story when I read this article about the lottery linked savings account. I’m glad you found the post before I had to look for it. If you want to look at how perceived value affects investing, check out the work done by the Planet Money team on NPR: http://www.npr.org/blogs/money/2011/01/14/132906135/ranking-cute-animals-a-stock-market-experiment. The story basically talks about how sometimes people invest in an asset not because they think it should go up in value, but they think others think it will go up in value. I think gold is a great example of this right… Read more »

Postparty82
Postparty82
9 years ago

Good article! I’d never put much thought into how social media (and blogs like this) have saved me money as forms of free entertainment. I find the idea of “impulsive saving” has helped me a lot to save towards my goal. I simply keep track of the things I want and can afford to waste money on while shopping (but can do without), resist the purchase, and put into my savings account. Example: case of beer $15, Candy $3, DVD $10. Instead of buying these, its an easy one time deposit of $28 into my savings. Though… I don’t always… Read more »

Early Retirement Extreme
Early Retirement Extreme
9 years ago

1) To increase the perceived value of savings, save enough to provide a material income from the savings.

2) To increase perceived value of stuff, own less stuff so as to use what you own more often. This keeps the experience of the stuff fresh in mind.

The two works together. I think you need to do better than saving 15% and spending 85% to reach that level. That’s simply too little savings to realize the income and too many expenses to appreciate each expense.

Julien Couvreur
Julien Couvreur
9 years ago

Thanks for the excellent post. You highlight a most fundamental truth of economic analysis: value is subjective.

This has many consequences when you think about central planning or political paternalism.

Here’s an excellent explanation of the subjective theory of value, how it relates to exchange and differs from money prices: http://mises.org/AUSTECON/CHAP4.ASP

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