Friday, April 12, 2019

The Considerate Economist's Guide to Spring Cleaning

The Problem
You have too much stuff. Every year when spring rolls around you, and almost everyone else in Western society justifies hanging on to practically useless things in our closets, garages, and backyards. If you'd like to know why we keep stuff we don't need and can't seem to get rid of it and what to do about it, read on.

Why the problem exists

Ubiquitous advertising pushes us to buy even more as getting more and newer stuff is a major component of our society--we call this status quo bias, peer effects, or conformity--but that is a topic for another time. If you're interested in how testosterone affects our preferences for buying fancy shmancy stuff, read my recent paper with Gidi Nave, Hilke Plassmann, David Dubois, and Colin Camerer here. But this doesn't help us understand why we don't get rid of things we don't need, so for this piece, let's focus on stuff we already have. The North American norm is to have stuff we don't actively use and only when our junk encroaches on our life we start seriously thinking about clearing it out. Then, instead of letting it go we rent a storage unit or keep it at our parents' place, but we don't actually let it go.

The typical approach to cleaning out is going through a mass of stuff and pick out stuff to give or throw away.  There was a Blondie comic strip years ago that captures this all-too-common sequence: the first panel showed Dagwood (the goofy dad character) move the entire contents of the garage and place it outside and tag it for sale; panel two shows him looking at his stuff with an uncomfortable expression; and panel three shows him putting everything back exactly where it was in the first panel. Like most Blondie cartoons, it is cute and funny, and captures a human tendency to resist parting with our stuff. Yet the "getting rid of" approach is doomed to fail for us as it did for Dagwood, and behavioral economics can show us why.

One of the most practically applicable findings in behavioral economics involves asymmetries in people's behavior, especially in how we behave differently depending on how a problem is posed. For example, when it comes to taking risks, most people avoid risking losing something they have and take lots of risk to get back something they lost (prospect theory).

This behavior manifests in other areas of our lives, such as in investing in stocks, trading cards, relationships, and costly projects. So evaluating whether to keep something or not based on whether we perceive it as valuable will likely end up with getting rid of few things we already own because, well, we value them. Also, people demand more money to part with something they already own (we call this "willingness to accept") than they do to buy something they do not yet own ("willingness to pay"). The reason is that we value material things higher than others do simply because they are ours. There is extensive evidence that we do this and we call it the "endowment effect", and if you look carefully, you will notice this is used as a sales strategy by auto dealers allowing people to take home a car for the weekend, and services that are initially free. This pattern suggests that we have the capacity to make different decisions depending on how we characterize the question and in relation to a reference point.

Another reason giving something away is difficult is because our unconscious criterion for getting rid of something will likely automatically not be met by the virtue that we already have it. In other words, in acquiring something it must have been the case that it was "worth it" to us to get, so we would have a tough time justifying giving it away.

Together, this is why I propose flipping the decision making process backwards and applying a different approach. This will allow us to leverage our biases in favor of a better outcome by harnessing our innate behavioral patterns for our advantage to free ourselves from the bondage of our own excess stuff. The solution, in short: start with clean slate and add only what you really need.

Pack Your Wagon
Most Americans who went to elementary school in the 90's played the computer game Oregon Trail. This video game simulates the harsh realities of packing up all your stuff and moving out west with a group of other pioneers in a covered wagon train in the mid 1800's; your role in the game is as a wagon leader guiding a party of settlers from Independence, Missouri, to Oregon's Willamette Valley. Some of the most important decisions you make are what you take with you and what you leave behind and any particular decision may determine whether you live or die on this hazardous journey. I'm pretty sure that on my first go-round in this game my entire wagon train died of dysentery, and although it was disappointing to see pixelated computer characters die under my ten-year-old leadership, through this I learned a valuable lesson of separating the sentimental from the fundamental.

Another helpful example comes from mountaineers: because they carry everything on their backs, they will find the lightest materials, smallest tents, and even break off the handle of their toothbrush to cut down to the absolute practical minimum total weight they carry. This is because they feel the consequences of having too much stuff acutely during the hike, and possibly chronically afterwards due to compression and damage of knee discs with severe consequences. In our homes we do not incur such obvious costs to having excess stuff, but there are costs.

Assets and Liabilities
There is a basic central concept in accounting that differentiates between whether something is an asset or a liability, where an asset has value in that it is expected to bestow a benefit and a liability is something the requires a pay-back now or in the future. Most of us see our stuff as assets because we paid for them and they feel like they are valuable. Yet instead of seeing our stuff as an asset, we need to begin to understand that most of it is actually a liability. This is because we are paying to keep the sweater we haven't worn since freshman year (and no, it won't help pay off student loans).

You might be paying a direct financial cost in the case of storage, but you're also paying a variety of psychological costs of having it at all. There is a large literature in psychology that shows that cognitive load bears heavily on various abilities, and it strikes me how much my quality of thinking and mood are affected by my environment when it is unkempt. There has always been a strand of society that values simplicity, such as monks and college students, yet without having to take a vow of chastity or sign up for organic chemistry, you too can live a life that is unencumbered by junk.

Laundry Cycles
Along the same lines as packing your wagon, when we pack for a trip we think about carry-on vs. checked baggage and the terrain and distance we will be carrying our stuff, but we seldom think in these terms when it comes to stuff in our homes. People are often surprised when I show up with an overnight bag for three-week trips abroad. I explain that, when I pack, I think in terms of weather for types of clothing to bring, but I think in terms of laundry cycles for quantity. This means that I can pack very little for a long trip if I know that I'll be able to launder at specific intervals.

Similarly, assuming that laundry is done weekly at home, I can count on a seven-day laundry cycle that allows me to have approximately enough clothes for that timeframe (not seven of the same item, most people wear more than one pair of socks each day). This gives us the quantity of each item you need to have in your closet.

In terms of choosing which items to keep, we can be guided by the fact that most of us have favorites (this might be true among teachers and parents, but that's definitely off topic) and given that we strongly prefer one collared shirt to another, we are more likely to wear it more frequently. Out of my many collared shirts, I have a subset that I wear often, a few I seldom wear, and some that are still waiting for their opportunity to be shown off. If I were to tally the times I wore each shirt I would have what is called a "right skewed" distribution showing that my less favored shirts are severely neglected. In the parlance of finance research, wearing that blue double-collared shirt (yes, double, look carefully) I got in Amsterdam for the Research in Behavioural Finance conference would be a "tail event" because it would be highly unlikely from a statistical standpoint.

Economics as a field and economists in general get a bad rap for being selfish and teaching that pure self-interest is the proper way to conduct one's life. But surveying the changes in the field since these early, simplifying assumptions shows that the field has done a good job at showing and measuring the various ways that people genuinely care about each-other and the costs they incur to ensure greater equality, fairness, and equitable outcomes (My undergraduate advisor Prof. Bill Harbaugh did an fMRI study on charitable giving which is definitely worth reading). For most people, caring about others is automatic and innate, and even more salient once we are reminded to do so. It seems that we generally don't equate cleaning up with charity probably because we seldom give our stuff away to the the person who'll use it, but my first professional job interview was when I a freshman in college forever changed the way I think about donating old stuff.

Serendipitously, I was given the opportunity to interview for a professional relations and marketing job for an oral and maxillofacial surgery practice. I had virtually no money so I went shopping at the Salvation Army for something to wear and miraculously found a three-piece suit that was fit as if bespoke. It was custom made with high-quality fabrics and I imagined that a successful professional parted with it out of generosity. I walked into the interview with confidence and received a job offer that changed the course of my life with with an incredible mentor, allowing me to pay for my undergraduate degree myself, and fueled my first startup with the skills and contacts.

I might have gotten the job without this perfect, magical suit, but something about finding such a high quality outfit felt as if it was meant to be. So if giving away that nice shirt is difficult to do, imagine that someone is in need for that exact item and that you're giving it to them for an important event in their life--imbue your used stuff with the quality of making some else's life better and rejoice in letting it go.

The Solution: reverse the process by adding, not subtracting
What have we to learn from early American pioneers and extreme hikers? That we should "pack" only what we need for the trip ahead, not carry forward what we had before. Practically speaking, this is the better way to determine what you need, for as we know, it is difficult to let go of anything of value.

Using your bedroom closet right now as an example, I suggest following these steps:
Step 1. Empty the closet completely

Step 2. Pick high probability items
Select the items you wore over the past winter (I know this difficult for Hawaiians and Angelinos to imagine, but in cold climates this is actually a separate wardrobe) and store them and donate the rest (except perhaps high-value speciality items, like a mountaineering jacket you're going to wear on your trip to Lapland next year).

Step 3. Get ready for next year
From your spring clothing, only pick enough of your favorite (i.e., frequently used) clothes that will last you for two laundry cycles. Remember the "tail event" example? Ditch that shirt and its statistical equivalents.

Closing Thoughts 
Even though today's version of the Oregon Trail game would probably entail choosing a long-haul moving carrier for everything in your house and picking a flight time from Kansas City International to Portland International that lets you sleep in, the basic lessons of only taking what you need remains true. In applying this process you'll likely encounter resistance, yet if you faithfully apply it with awareness of costs and benefits you might welcome spring lighter and feeling more generous. Remember the reason this approach works is that it is additive (think willingness to pay) rather than subtractive (think willingness to accept) thinking sets us up for a better outcome than the typical cherry picking of bad cherries.

I recall the TV show Hoarders and how it would peel back the curtains on people's pathological piles of stuff and show the dramatic arc of how their families tried to resolve the situation. Perhaps that show was successful, as there is now a new series on Netflix called Tidying Up With Marie Kondo that is is gaining lots of attention. It came out around the time my daughter was born so I haven't seen a single episode, but I suspect many of these issues are brought up. If you're wondering why I felt compelled to write this, it is because I now live in Toronto (read: the three of us are in small apartment) and the issue of spartan living has gone from a philosophical matter to a survival strategy. My wife and I were discussing how to leverage behavioral economics to solve our situation and this is what I came up with. But this applies to everyone, regardless of the size of home.

Those who have taken the bold steps to eliminate clutter and unnecessary stuff and/or have read or seen Fight Club can attest, the more you own, the more it owns you. So follow the first rule of fight club, reverse the cleaning process, save yourself the costs of carrying unnecessary burden, and give the stuff that others would put to better use.

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