Here are a few ways:

Just because you can do almost anything with money doesn’t mean you can do everything.

Choices must be made; we must choose things not to do. When we spend money on one thing, it’s money that we cannot spend on something else, neither right now nor anytime later. These are Opportunity Costs.

Mental Accounting is operating our financial behavior much like organizations and companies do, allocating our money to categories, or accounts, and setting a budget for clothes, rent, bills, etc. These categories control what we spend and how we spend it, etc.

Receiving money from a negative source (drug dealing or selling guns, for example) that you don’t feel good about, so you try to “launder” it by donating the tainted money to charity or other good things or causes is Emotional Accounting.

The Pain of Paying is exactly what it implies; it’s some version of mental pain when we pay for things, at any price. If we happen to consume something while thinking about the payment, the pain of paying will deeply color the entire experience, making it far less enjoyable. Things like credit cards, auto-pay, debit cards, etc. are ways to “lessen” the pain, but the pain is still there.

To avoid the pain of paying, we increase the time between payment and consumption and decrease the attention needed to make payment (like paying for a trip or an item well in advance of enjoying or receiving it).

There are basically three types of times we can pay for a product or service: Before consumption or enjoyment; during consumption; or after consumption.

When we are drawn to a conclusion by something that should not have any relevance to our decision, Anchoring is what happens. This concept influences the price we are willing to pay (how much is it at the dollar store or the local Piggly Wiggly, for example? That’s what I’ll go by).

Herding is a part of anchoring; it’s the idea that we will go with the crowd, that we assume something is good or bad based on other people’s behavior. If they like it, do it, and pay for it, it must be good.

Basing our financial decisions on similar decisions we ourselves have made in the past is Self-Herding.

Confirmation Bias occurs when we interpret new information in a way that confirms our own preconceptions and expectations. It’s also when we make new decisions in ways that confirm our previous decisions.

The idea that we value what we have more simply because we own it is the Endowment Effect.

Ikea Effect-The harder it is to make something, the more we feel that we had some part in creating it, and our love for it increases even more. Investing effort creates extra love!

We don’t want to give up what we own partly because we overvalue it, and we overvalue it partly because we don’t want to give it up. This is the concept of Loss Aversion. Here’s an example:

1. Could we live on 80 percent of our current income?
2. Could we give up 20 percent of our current income?

The answers to both questions should be “yes,” because they’re the same question. But most people will say yes to no.1 and no to no.2. Why?

It’s the “give up” part in no. 2 that most will focus on.

Segregating Gains plays on loss aversion in this way: It’s one painful loss against many pleasurable gains. When a product has many features, it’s in the seller’s interest to highlight each one separately and to ask for one for all of them. To the consumer, this promotional practice makes the whole seem much more appealing than the sum of its parts.

The concept of Sunken Costs is finding that once we’ve invested in something, we have a hard time giving up on that investment. Therefore, we’re likely to continue investing in the same thing, not wanting to lose that investment. So often we throw good money after bad, adding a dash of wishful thinking.

Transparency reveals the work that goes into a product or service, allowing a company to show us that they’re working hard, earning our money. We don’t value things much unless we know there’s a lot of effort involved or at least the appearance of effort.

When we use specific terms to describe an experience, like the “bouquet” of a wine, that’s an example of Consumption Vocabulary. Consumption vocabulary gets people to think, focus, and pay attention, to slow down and appreciate an experience in a different way, and then experience the world in a different way.

Enjoyment of something comes from both the sensation of the thing (taste, the sound of a song, etc.)-and what’s happening in our brain to co-create the total experience of it, the full consumption experience.

Language can enhance or reduce the quality of the consumption experience-and that’s the primary reason it so powerfully influences the way we value something.

When language supports an experience, it changes and enhances that experience and how we value it.

When consumption vocabulary also describes the process of production, we appreciate the item even more.

Reward Substitution is a way to fight self-control. We value a reward in the future much less than we value a reward in the present even if the reward in the present is much, much smaller.

Source: “Dollars and Sense: How We Misthink Money and How to Spend Smarter” by Dan Ariely and Jeff Kreisler, 2017.