Interesting study from the LSE on the economics and psychology of choice:

Standard economics works on the assumption that the things we want most are the things that we will enjoy best and that our imaginations are good forecasters of the impact of future events. In contrast, behavioural economics incorporates the lessons of psychology into the laws of economics and demonstrates that this isn’t always so.

Dolan explains: “It’s all about ‘attention’. The issues that we think about when we forecast our happiness and well-being are not actually the things that we pay attention to as we live our lives. And that can lead us to miscalculate the effect of events on our well-being.

“If you ask someone, for example, how much pleasure they get from driving their car on a scale of 1 to 10 and then correlate that with their car’s value, you’ll find a correlation of about 0.4. So, according to this, people who have more expensive cars get more pleasure out of driving their cars.

“Except, if you ask the question, ‘How much pleasure did you get the last time you drove your car?’ and correlate that with the value of the car, the correlation is zero. And that’s because of attention. When you are actually driving your car you are thinking about the idiot in front of you or arguing with your kids or your husband or wife – you are thinking about all those other things that are nothing to do with how flash your car is.”

So the solution is to live on a quiet road, have no kids, and stay single…then a “flash” car will achieve its expected value. Makes sense to me, actually, but not as economics. Easier to look at this study through a risk management lens and from an anthropological view.

A flash car value requires it to be displayed as the owner intends; it has to be driven or parked as a flashy object. That only happens when undesirable risks — things that diminish the appearance of flash — are kept under control.

Loss of control means lost flash. I think most could predict that basic equation yet still chose to buy a flash car to achieve happiness. That is because they will do a poor job predicting why or when they will lose control. The question thus is not whether people vote for something to make them happy but that does not, but rather why they fail to accurately predict risks to what can make them happy.