Thursday, March 11, 2010

Temptation tax

Some thoughts from on the psychology of temptation. Has implications for anyone trying to build wealth. Even has some implications for getting in shape or improving your education: you need to find a way to avoid frittering away your gains on your own personal "temptation tax." Not only will this help you make progress, but knowing that you will keep your gains improves your motivation to get started saving/exercising/whatever in the first place.

When you're very poor, you have very little income to spend on anything other than food. There's very little spending on temptation goods. At some point you might start to spend more on these temptations. You can start to eat dosas, doughnuts, lots of things that you might not value so much, but they're around you when you have cash and you buy them. And of course because of the regressivity, that flattens out. Once you're over here, you can now spend on things like education, etcetera. So, we've got an S-shaped curve: very low spending on temptation goods at deep poverty, but an increasing amount as income increases and then it flattens out as you get wealthier.

If you have somebody like this, notice that being here is very good. Being [at the top] is very good.
But moving from [along the middle of the curve] is ultimately pointless—it looks like your income has doubled, but so much of that extra discretionary income is being spent on wasted things, on things that you don't think are that important. [emphasis added]

The key thing is to find a way not to waste the gain on things you don't care about.


"When people are married, instead of trying to get rid of each other, reflect that you have made your choice, and strive to honour and keep it." --Brigham Young

If you're so evil, eat this kitten!

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