First, an anecdote.  Names and a few minor details have been changed to protect the innocent.  Otherwise, this is a true story.

A friend of mine, in the summer just after we graduated from college, went on a cross-country drive in an attempt to have some fun before he got serious with his job at a large Wall Street firm. On the strength of his future income, he had just splurged on a nice sports car, which he really loved (I am pretty sure it was an Audi, but I don’t recall which), that would propel him and his golf clubs smoothly across this vast nation.   I had arranged for him to meet up with another friend of mine when he passed through Arizona.  My friend in Arizona let me know he would take my college friend on a trip to the Grand Canyon, because that seemed liked the obligatory trip. Everybody seemingly must make that pilgrimage.  

I have always been outdoorsy, and my Arizona friend had long been one of my backpacking companions.  I should have seen the trouble coming, and maybe I did, just a bit. It was like a little twinge deep inside that was easy to ignore, yet somehow unsettling.  Part of the problem was that my friend in Arizona, who I will call Gary, and my college friend, who I will call Charlie, had very different backgrounds.  Charlie was what I think of as a typical suburban kid, who played golf and baseball.  Gary is cut from different cloth entirely, he did backcountry mountain biking, solo ultralight hiking, he worked on fighter jets, and I figured he had probably taken up base jumping or something equally crazy since I had seen him.  Gary also had a tendency to push the envelope, and at his fairly young age at this time, still had a bit of a naïve sense that things would always work out.    When Gary and I went backpacking, he was always the one who wanted to take side trips, some of which were rather perilous, and often landed us in tricky situations (like sleeping in an emergency snow shelter when trapped on a barely-charted mountaintop in below zero weather).  

As I said, I felt the twinge, and dismissed it, figuring Gary would intuit that he couldn’t take Charlie on the kind of trip he and I might take.  I cautioned Gary to take it easy, and not do anything very ambitious.  I reminded him that he was going to have to be the responsible one (for once), because I wouldn’t be there to reign him in.  Not that I did a great job of that even when I was there…hence the sub-zero bivouac I referred to.  Gary was like the little devil that sits on your shoulder and says “C’mon, why not?  It’s only a little detour…what’s the harm? Really, what could happen?”  He was very persuasive.  Gary assured me he would take good care of my friend Charlie, and I took him at his word. I never learn, apparently.

So the day of the trip arrives, and they take a pleasant drive from Phoenix to the Grand Canyon, and begin a descent on the South Rim in order to reach a scenic overlook a mile or so down.  I should point out that after having been out late the night before they got a late start, and with driving time and other factors, they started walking at about noon.  They reached the overlook, and had not drunk much of their combined two liters of water, so they decided to go a bit further, and reached the next good stopping place.  By now their water was about half gone, but they were making good time.  The day was getting hot, and they were really perspiring now, and as they descended the heat was baking off the walls of the canyon, making them really start to cook.  Bear in mind, that they had really only planned on kind of looking over the edge, so they didn’t really have the usual “hiking gear.” Gary figured they could go a bit farther (remember what I told you about him?) and so they did.  The Colorado River looped through the canyon and started to look so very close.  Wouldn’t it be great to get a closer look?

At the next stopping point, they realized it was about three in the afternoon, or three-thirty maybe, and they were out of water, and it was getting really hot, with all of the heat of the desert baking them from the canyon walls.  It would take longer to climb out of the canyon than it had to descend into it, because gravity would no longer be on their side.  Given that, they had a small problem-- being out of water.  On the other hand, they were now getting pretty close to the bottom, and all that water rushing past.  The obvious solution was to go all the way down to drink and refill their water, so on they went.  They arrived at the bottom of the canyon, drenched in sweat, overheated, and exhausted.  They plunged their heads into the river, and splashed themselves with the cold water and quickly cooled off.  They filled their water bottles right from the river (not having brought any kind of water filters or water treatment stuff—a backcountry no-no, after all, this was an unexpected side trip) and drank copiously.    It was about five pm.

After resting, they began the inevitable return trip.  If you haven’t done a hike like this, let me tell you, going up is much, much harder, and much slower.  And the desert night was getting ready to settle in on them, and they were soaked from their splashing around, and had no warm clothes to fend off the cold that would settle in as the temperature in the high desert dropped like a stone into…well, the Grand Canyon.  I should also add that because this was only going to be a quick jaunt, they didn’t have any lights to use when ascending the windy path that climbed the canyon wall.  These paths are steep and windy and had no railing or shoulder.  A misstep could send you plummeting thousands of feet, so doing the climb in the dark is really not a task to undertake lightly.  Thankfully, the clear desert skies sparkled with stars and moonlight, so nobody fell.  They made the climb, arriving back at the car at midnight, out of water, shivering and exhausted. 

Gary was a bit chagrined the next day, when he called to tell me about the trip.  Charlie swore to me that he might never speak to me again, after my friend had attempted to kill him.  They told me about almost being reduced to tears at the end, and Charlie’s feet were blistered and that his toenails were turning black.  I figured it was about a fifty-fifty chance that my friendship with Charlie was over after this.   It was a bit awkward, but eventually we all laughed it off, and I just had to shake my head and remind myself that I should have foreseen it. 

Many years have passed, and I have stayed in touch with Charlie only in a loose sense.  Time and distance and careers and life have intervened.  We just had the opportunity to get together at a college reunion and he reminded of the ill-fated trip to the Grand Canyon, all those long years ago. 

He looked at me and said, “Man, I really have to thank you again for that.  That was maybe one of the best days of my life.  That was AWESOME.”

So you might ask what on earth this story has to do with anything.  It has something to do with a series of studies by psychologists like Daniel Kahneman, Leaf Van Boven, Thomas Gilovich and many others.  It has to do with the value of experience.  It has to do with what decisions we can make about our time and our money.  It calls into question a fundamental aspect of economic modeling.

If you were faced with the decision about what to do with five hundred dollars, you could hypothetically buy a flat screen television, or go on a trip.  Conventional economics wisdom would propose that the trip would be over in a few days (it is only five hundred bucks, right?) and that the television could conceivably continue to serve faithfully for years.  The standard rational choice model generally employed by economics would propose that the television would maximize your expected utility, and that the trip would be transient and therefore you should buy the television.  But in practice, this decision turns out to be far more complex. 

Figure 1--Should you go for a new flat screen or a weekend away?

I will point out that Charlie did not mention the awesome car that he drove to Arizona, although that may have been in his mind.  If it was, I will venture it was not because of the car’s utility, its ability to get him physically to Arizona.  If it is still lingering in his mind at all, it was because it added to the experience of the cross-country drive.  The virtually free trip to the bottom of the Grand Canyon that could have killed him was front and center, though.  There is no doubt in my mind about that.

Back in 2003, a study published in the Journal of Personality and Social Psychology addressed the question of whether experiences or goods were generally considered more valuable to us.  The paper was authored by Leaf Van Boven and Thomas Gilovich and entitled To Do or to Have?  That is the Question. If you are interested in the study, which I will discuss briefly, you can get check it out here.

Aside from the necessities of life, it seems that we are wired to appreciate experiences and value experiences far more than we appreciate material goods.  There are nuances to this that are worth mentioning.  As incomes rise, experiences seem to matter more.  Age and gender seem to influence it a bit.  The research largely shows that once you are off the bottom level of Maslow’s Hierarchy, and your basic needs have been met, experiences rapidly gain in relative importance compared to goods. 

One issue in all the studies I have seen is that material goods are a bit challenging to quantify simply.  Is a car simply a car, or does it create a driving experience that is somehow memorable (Any thoughts, Charlie?) that make it an experiential purchase as much as a material one?  I have clients that recently drove a new sports car pretty much as far north as one can go in North America, on an extended road trip.  In this case is the car a material good or a conduit to the experience?  In order to figure these questions out, and many others, there have been a number of studies done on this subject.  I am going to cut to the chase a bit, and summarize, but I plan to come back to this topic in the future.  The question has a lot of importance to people like me, who assist clients with financial planning decisions. I am asked to weigh in on subjects like the direction of future cash flows, and the size (and cost) of houses (and cars) that can be maintained along with a myriad of topics that influence a person’s future.  I try to see these questions from many perspectives, and therefore I read these weird studies.  Also because I am a bit of a nerd at heart.

The basic take away seems to be that we tend to value experiences a lot more than the average material good.  Why do you think all of the big brands out there try to make their products evoke an experience?  Nike and Starbucks and Apple are in the business of projecting the idea of an experience on their products, because they know that experience is something we seem to connect with.  As I said, some goods are “hedonistic” in that they are conduits to experience.  Others seem not to be.  Each individual is singular in that a “hedonistic tangible good” to one person is simply a tangible good, with no experiential value at all to somebody else.   Some people are mystified about how certain people, who seem to have everything are still unhappy.  I think we all know that money does not necessarily buy happiness.  It has been widely observed that “…increases in our stocks of material goods produce virtually no measurable gains in our psychological or physical well-being.  Bigger houses and faster cars…don’t make us any happier”(Frank, R. H. (1999) Luxury Fever: Why Money fails to satisfy in an era of excess,  New York: Free Press).  There is a prevailing idea in certain studies that the problem that we run into in a “materialist” culture is that we suffer from shifting reference points.  If we work hard and save money, and acquire nice things, and get better jobs, we often find ourselves moving to nicer neighborhoods, where our previous acquisitions do not seem as nice.  We might move and go from having the nicest car on the block, to one of the “lower-end” cars on the block, because our reference point (the standard by which we measure) has changed.  It is thought that one common aspect for the loss of satisfaction of consumer goods has to do with this migration, even if it is not a physical migration, but only one that happens behind our eyes.  We compare our current situation with a different cast of characters for reference.

It seems hard to dispute the idea that money does allow for us to have certain experiences, however. Taking a vacation where you fly first class and stay at a luxury hotel is certainly a different vacation from one where you fly coach and stay at a hostel. What is also a key issue is that in this sense money does not necessarily dictate whether or not you have a valuable experience, it only means that certain experiences are open to you. There are ways to have amazing experiences that cost far less.  I have an acquaintance that takes a three week vacation each year and travels in the cheapest possible manner, carrying a backpack and riding local busses into some of the most remote corners of the world.  She tells stories of crossing the high passes in the Andes on New Year’s Eve on a dilapidated converted school bus, and driving a “rent-a-wreck” to Angkor Wat.  Whatever your budget is, you can probably find experiences that could call to you.  I am not ultimately concerned with what that experience is, I am mostly concerned with the issue of budgeting priorities here.  Should you upgrade to a larger television, or save your money for a trip to Prague?  That is the question that interests me in this context.

A few interesting things come out of my reading on this subject.  The first is that the purchase of a basic tangible good (called a utilitarian good as opposed to a hedonistic good), that does not reliably produce any experience value, fades rapidly.  Experts seem to agree that “rapidly” can mean somewhere from six weeks to a few months. (CNN Health)  The perceived value of experiences seems to hold up much better.  This makes sense to me, based upon my own experience.  Getting a snazzy new something-or-other is fun for a while, but you adjust to having it rather quickly.  Sometimes you adjust so quickly that you experience that dreaded “buyer’s remorse” where you suddenly think you were foolish to make the purchase, and that you drastically overestimated the value of what you were buying before the purchase, and now you see the error of your ways.  This phenomena seems less common with experiences: “It will bother you more that your friend’s home theater is better than yours than if your friend saw more sights on her South Seas vacation,” according to Gilovich.(CNN Health).  When you factor the effects of time into the equation, and think about the persistence of “happiness” with what you buy, it might be said that the “experiences” you have are rated as bringing more happiness, even if they occurred in the distant past, about 72% of the time (Van Boven & Gilovich).

 If what Gilovich found is true, and the purchase of a utilitarian good declines in value over a few months (we will say our perception of its happiness value depreciates to 50% of its face value, for the sake of argument), then the clear winner is to go for the experience.  If we imagine that the happiness gap is the difference between the statistical likelihood of perceiving the purchase as valuable in the future, and we accept the hypothetical 50% value on the utilitarian good, than you are on average 22% more likely to appreciate the experience.  If that is the case, you might consider spending 22% more of your budget on experiences, and that same proportion less on possessions, and have a better sense of happiness on balance.  That is a bit murky, but it is a possible framework for the decision.  I have become interested in the idea, and plan to spend some time trying to find a model for this that really works.  One interesting wrinkle is that we also tend to overvalue our possessions in dollar terms, but as that really is not a measure of our happiness with them, and is a subject of a future blog, I am going to ask you to let that slide for now, it is a completely different cognitive bias at work.

Figure 2--There are lots of reasons that acquiring new “things” can make sense, but don't be surprised if you regret the purchase later, or at least miss the money you spent.

So why is it that we respond to experiences in this way?  Here are the commonly understood reasons which were studied by Van Boven and Gilovich:

Experiences are more open to positive reinterpretation. 

Our brains are invention machines.  We think of our memories like a photo album or a video, but they are more like a choose-your-own adventure game, that we replay constantly, creating new stories through reinterpretation (even if they are all roughly the same) and cause new neural connections to form.  This process changes our perception of events, as we may forget the incidental discomforts, and focus on positive aspects.  I mean, really—who wants to dwell on how terrible something was?  If they do, perhaps that has a vicarious value as well.  People who survive disasters often recount the harrowing tale.  We gather from them that it had an impact on them that helped form their identity, which we will talk about in a minute.  More often, positives are remembered, and discomforts forgotten.  This is the interesting component of Charlie’s journey to the center of the Earth (or at least the floor of the Grand Canyon).   Over the years, the adventure,  accomplishment and the singularity of the experience continue to resonate, but the thirst, the tired legs, and the heat and cold have diminished through a process of mental retelling.  The rough edges have been sanded smooth.

What is more telling is that the positive aspects of the experience are reinforced as we revisit the experience mentally, and it seems that we revisit our experiences rather frequently.  We swap stories about them, break out the vacation pictures, recommend a trip to a friend years later, or think longingly of that golden time we went to “such and such” a place.  Charley recalled his story to me many years later, without any prompting at all, so it obviously had some fundamental resonance.

Consider this: as we age, the effects of many forms of dementia affect our ability to remember what we had for breakfast, who we are speaking with, and who the President of the United States is, but in many cases the experience of a trip to Hershey Park thirty years ago seems to be still wired in pretty well.  This becomes a defining element of our past, and has a quality of persistence.  What might that mean to us?

Experiences are more central to one’s identity

If we were to wipe away all of your memories, who would you be, in the sense of who you perceived yourself to be?  We are in many ways the sum of our experiences.  Our possession are fundamentally external to us.  The possessions that bring us experiences and those that we think of as making statements about our identity (think sports car vs sport utility vehicle) are maybe more tied to our self-image than say, a toaster.  The research hints that despite the better satisfaction levels with hedonistic goods, especially those that enhance our self-image, even these pale in comparison to the experiences we have, the stories we tell, and the recollections we have about what we did in our lives.

The central nervous system is constantly remapping the various neural pathways in a search for context and meaning in the world around us.  We see our place in our experiences in the context of other experiences we have had.  This reinforces the previous experience by calling it to mind again, as we discussed earlier, and it also adds to our perception of self, as we contextualize the current experience.  Because each experience we have connects in our mind to other experiences we have had in the past (through comparison or contrast or other mechanisms we employ to appreciate our vacation), the current experience is seemingly vested with significance, and the previous experience is recalled, perhaps with a bit of mental editing, as we discussed.

Figure 3--We might be the sum of our memories, and we seem to get a lot more happiness from them than we do from other purchases.

There is also an aspect of stereotype or archetype that seems to be part of our conditioning.  Think of James Thurber’s Walter Mitty, who daydreamed a rich life of experiences he had never had.   It is said that we are most always the hero of our own story, and we seem to want to be people that have done cool things.  For some people it is golfing at Pebble Beach, for others it is diving the Blue Hole.  How we see ourselves is reinforced by the experiences we seek.    I haven’t come across any discourse that addresses to what extent this is an evolutionary trait or a cultural trait, but this dynamic certainly seems to exist. 

Experiences have greater “social value” than stuff does.

The act of sharing experiences with people, and making connections is thought to be deeply satisfying to many of us.  Some people are very driven by self-image (as discussed in the last point about experiences crafting identity) and other people seem to derive much of their satisfaction from communal experiences.  Seeing the people around themselves having fun, or meeting new people in new places.  Even the introverts among us are still social animals (even if it is harder to tell).

The social value of an event or experience also seems to extend past the experience itself temporally, as mentioned earlier. Perhaps we plan a trip (using this simply as an example), and vest it with significance up front.  We anticipate it and look forward to it and talk with our loved ones and friends about how excited we are.  During the trip, we share the experience with others, perhaps. When the specific experience is over, we recount the story, show the pictures, (recasting the experience and reinforcing our identity all the while) and get satisfaction from the narrative that we share with others.  We get to speak of a wonder we saw, or a challenge we overcame, and we share something of ourselves, and people share with us in return.    In a sense the experience begins with the first consideration, perhaps reaches an apex and then the experience continues as we proceed through the period immediately after the trip, as we regale our friends with our adventures.  That conceivably extends the experience and adds to the staying power of our happiness with it. 

So this leads to some interesting financial planning implications.  Many people I know say they love their large house, and want to stay there forever.  Many times this is because it is the house where they raised their families, or because they lovingly renovated it to make it just right.  I appreciate that and understand it, and that is fine with me.  Other people want to spend the money renovating the kitchen, or putting in a game room.  If you are really confident that the experience of doing that, or the experience you will get out of that is worth the expense…great.  However, if you are going to sacrifice going on vacation with the kids, or going on a camping trip to a mountain lake, or taking a trip to China, then I think it is worth pausing to remember that experiences make us who we are, individually and in groups.  Appliances age, game rooms gather dust.

Often there are compromises to be found.  If you do not have the budget for an experience that you conceive initially one way, you can do a little bit of work to dissect the “dream” experience to figure out what the essential components are and find a less costly way to achieve them. I will use an example from my life.  I have been considering the purchase of a sailboat, in order to go on long sailing voyages to foreign ports of call.  This is a challenge given the fact that I have responsibilities ashore.  While I find ways to balance those responsibilities I have sought other ways to capture the essential elements of the experience.  It doesn’t make sense to spend a bunch of money on a sailboat capable of making those kinds of voyages if I will not have the time to use it now, or the time to properly outfit it and maintain it.  Instead, I volunteer as a crew member on offshore passages, like the ones I dream of, and leave the cost of the boat and the time required for maintenance to other people.  I get the essential open-sea experience, at a tiny fraction of the cost. 

If you think about any experience you might want to have, I think you can find ways to scale it up to something more memorable, or down to something more affordable if you are focused on what you are hoping to get out of it.  Sometimes shoestring experiences are adventures that you will never forget. Either way, if the choice is a purchase or an experience, remember this: Appliances age, pool tables gather dust. The effects of singular experiences linger.  Plan carefully, in order to be able to have some.  Twenty years from now, you can tell me the story, just like Charlie did.