I recently wrote/created (though the graphic design is not mine) the below infographic for Good Magazine in an issue dedicated to societal trends. The idea here is that the material economy (which produces physical goods like cars and electronics) is being replaced by the experiential economy (which produces experiences like food and vacations). The psychological data is based on a paper we recently had accepted by the Journal of Positive Psychology (along with Ryan Howell and Paulina Pchelin at San Francisco State University) and my dissertation research, all of which focused on the longer term characteristics of people who tend to buy experiences (e.g. dinner at a restaurant) rather than material goods (e.g. clothing).
The take home message is that, convergent with lab research using experimental manipulations, people who report having a preference for experiential purchasing report being happier relative to people who report having a preference for material goods.
The reasons for this have been detailed by other researchers who report that people adapt to experiences less quickly, meaning that good experiences last longer. As well, people who buy experiences are less apt to compare their purchases to others, with the inevitable disappointment that exists when someone out there gets a better deal. For example, I recently bought a Prius and still find myself visiting priuschat.com to see if I got the best deal, an exercise which has no utility whatsoever. On the other hand, my recent hike to Machu Picchu remains an unequivocally positive memory.
I'd like to thank the editor at Good Magazine for asking me to frame things in terms of the direction of the economy as that led me to this Forbes Magazine article, which has data on how Americans spend their discretionary income. Spending generally has gone down due to the recession, but from the perspective of experiential vs. material purchasing, it's clear that experiential purchases (e.g. dining out) are becoming a greater percentage of discretionary spending compared to material purchases (e.g. jewelry). Anecdotally, I've noticed startups that seem to be trying to capitalize on the preference for experiences and my credit card won't just reward me with stuff, but with experiences.
Perhaps if economists want to consider ways to jump start the American economy, they should consider the trend toward experiences, which are intrinsically difficult to outsource. The world doesn't need increasingly more stuff, but there is an experiential deficit out there. Just think of all the elderly who lack humane care, the homeless for whom personal attention is needed, or the way that Zappos has thrived by making customer service a positive experience. In economic terms, if experiences really do create more value for consumers, then the economy should necessarily shift in that direction and I'm hopeful that thinking of "the experiential economy" explicitly will be generative for business leaders, policy makers, economists, and perhaps most importantly, for consumers.
- Ravi Iyer
Tony Hsieh, liberals, and libertarians prefer buying experiences to materialism – A Review of Delivering Happiness
I recently finished Tony Hsieh's book, Delivering Happiness, which is partially a business book, detailing his remarkable story where he has won (selling Link Exchange to Microsoft in his 20s for $265 million) and lost (selling almost everything to turn Zappos around) fortunes. Zappos, an online shoe seller, has gone on to become the model for online retailers and was acquired by Amazon for almost a billion dollars.
However, Tony Hsieh's book is clearly about something more than business. I recently saw him speak at the Miliken Institute in Los Angeles and the last 10 minutes of his talk could have been from a class we teach at USC, the Science of Happiness. In fact, I think the introduction to that series of slides was entitled the Science of Happiness and Delivering Happiness has a healthy dose of psychological research on happiness in it. His basic thesis is that if he makes his employees happy, they will in turn be able to authentically make customers happy, which will allow Zappos' brand, which is all about "WOW"-ing consumers (and suppliers actually). For example, Zappos surprise upgrades shipping for customers and tries to pay for dinner when dining with suppliers, who normally have to woo their clients. Zappos actively seeks to hire and fire employees based on their 10 core values, in order to maintain a happy harmonious workforce that can deliver happiness.
Hsieh gives a very succinct view of happiness/positive psychology research in his talks in a far more interesting manner than most psychologists, but there is one bit of new research that I bet he would be interested in. Specifically, more and more research is showing that people who buy experiences are happier than people who buy objects. In the book itself, Hsieh explicitly talks about his preference for experiences over objects.
From p.76 & p.106 respectively -
"ever since selling linkexchange, I'd committed to living by the philosophy that experiences were much more important to me than material things. Most people assumed that I would have gone out and bought a fancy and expensive car, but I was content with my Acura Integra."
(re: visiting Africa when it might not be financially the best decision) - "For me, summiting the tallest mountain of a continent was one of those things that I wanted to check off my list of things to do at some point in my life. It went with my life philosophy of valuing experiences over things."
In collaboration with Ryan Howell and Paulina Pchelin at San Francisco State, we've been developing a measure of experiential buying. In validating that measure, we've found that happiness->less materialistic values->experiential buying->more happiness. Conversely, neuroticism->more materialistic values->less experiential buying->less happiness. The simple correlational pattern indicated that those who were more approach oriented were more experiential, while those who are more avoidance oriented are more materialistic in terms of the purchasing styles.
I've since extended this model in looking at the relationship between values and experiential buying. Consider the below graph and notice that liberals (in blue) prefer experiences over possessions compared to conservatives (in red), who value experiences and possessions more equally. Libertarians also prefer experiences to possessions.
In further analysis, these differences were mediated fully by differences in values between liberals and conservatives. Specifically, liberals valued experiences due to their valuation of stimulation (using the Schwartz Values Scale), while conservatives' relative preference for material objects was mediated by endorsement of power. I subsequently experimentally manipulated values by having participants recall a low or high power situation (based on the idea that people of low power will seek power and work by Dacher Keltner that high power->stimulation). Sure enough, having people recall low power situations leads to more materialistic buying, while recalling high power situations leads to more experiential buying (preliminary graph below).
My plan was to take almost everything that I had left in my name and liquidate it in a fire sale. I would bet the farm and put all the proceeds into Zappos.
And he thought of his possessions as a means toward stimulation, rather than power or security. From p.115...
selling the party loft symbolized the end of an era for me. It was hard not to feel wistful and nostalgic. The loft had created so many experiences and memories for so many people.
Of course, it's easier to think about stimulation rather than power, when you've made millions in your 20s. But perhaps it explains some of the Zappos culture which includes approach/stimulation oriented statements like "Embrace and Drive Change", "Create Fun and a Little Weirdness", "Be Adventurous, Creative, and Open-Minded", and "Pursue Growth and Learning". One of Zappos' core values ("Be Humble") seems almost the opposite of power. Perhaps the key to Zappos' success is that its culture is conducive to selling shoes as experiences, rather than possessions.
- Ravi Iyer