The Peanuts Effect
It’s Friday afternoon and you’re home from work. You’re contemplating the myriad of options you have at your fingertips — “should I go out tonight?” you wonder, “or maybe stay in and work on that project I’ve been putting off.” It’s been a long week so you decide to go out and hangout with your friends.
It’s lunchtime the next day and you wake up late.. feeling a bit hungover. You know you’re trying to stick to a budget but you eat out with friends — “It’s just $10,” you say to yourself.
Shortly after, you check your phone and notice on Facebook that the lottery has reached $400 million. You have to play that — how can you pass that up?
We all have these moments, but this scenario demonstrates what behavioral science has deemed the peanuts effect. In short, people do not consider the consequences of small amounts and as a result, they incur high costs or forgo lucrative opportunities (Prelec and Loewenstein 1991).
We view the small things as “peanuts”.
Of course, small is relative. But in fact, even millionaires, professional athletes, and high-income individuals experience this effect on a daily basis. NFL athletes (78% of them) file bankruptcy or are “financially stressed” after two years of retirement. Within five years of retirement, an estimated 60% of former NBA players are broke.
The peanuts effect is real — we all experience it with almost no exceptions.
The behavioral science definition refers to money — but perhaps we can take the findings and apply the same theory to time. It’s most valuable resource, so how are we spending it?
We only have so much of it. Not to be depressing, but I’m expected to die at age 84. That gives me 22K more days remaining… talk about motivation to get up and move (especially considering I’ve already lived 8K days). Every second counts. Thinking otherwise can be costly.
The peanuts effect can also be applied to altruistic principles. Open your eyes to little situations where you might be able to help someone. If you see someone in need, reach out to them without hesitation or the expected reciprocity. It might seem small to you, but the peanuts add up.
Change your habits. Develop rituals. Help others. Spending, diet, and exercise can always be improved. Try new things and be different.
We are the sum of our experiences. Don’t underestimate the small amounts. It’s the peanuts that matter.