Making Better Purchasing Decisions: Introducing the Alternative Basket of Goods

A few years ago, I stumbled upon a random idea that has genuinely helped me and others I've shared it with. It’s a practical tool that can tangibly improve the way you make purchasing decisions. I call it the Alternative Basket of Goods.

I have always had a peculiar affinity for not spending money. From a young age, I found great joy in saving every penny I could get my hands on. I would meticulously organize my cash, tally up my savings, and even create hand-drawn graphs to track my savings over time. But let me tell you, no one loves not spending money more than my partner, Steph.

Last summer, when we moved to New York, we desperately needed an air conditioner for our apartment. Steph embarked on a mission to find the cheapest AC unit in all of New York City. After hours of online searching, she stumbled upon a bargain on Facebook Marketplace—an old AC unit resembling a rocket ship. It seemed like a steal, but there was one problem—it produced an unbearable amount of noise and barely cooled the apartment.

Imagine the sound of a roaring truck echoing through your living room every time we switched it on. Needless to say, it put a significant strain on our relationship. Yet, despite the suffering, we hesitated to spend money on a replacement. Looking back, it's clear that our decision-making was irrational.

What's even more perplexing is that we had no problem splurging on other things like dining out or buying new clothes. So, what was driving our choices? I think it was something akin to the sunk cost fallacy—we had already invested time and money into that noisy AC unit, and we were reluctant to change course.

Now, in theory, knowing about this bias should have helped us make a more rational decision. The problem, however, is that the sunk cost bias is just one of the hundreds of cognitive biases that could have impacted our choices.

For example, the anchoring bias could have led us to rely too heavily on the first piece of information we encounter in our search. Or alternatively, the framing effect could have swayed our judgment based on how information was presented to us, altering our perception of the options available.

Knowing about these biases is nice but it doesn’t actually help you make better decisions. It's nearly impossible to remember all these biases, let alone apply the right bias correction when you need it. That's precisely why approaches like corporate unconscious bias training fail to produce sustained effects.

In fact Daniel Kahneman, the renowned expert on the psychology of judgment and decision-making, once commented that despite decades of research on cognitive biases, even he is no better at avoiding them.

So what is a more effective approach to overcoming decision-making biases? One solution is establishing systems that guide us towards better choices.

For instance, in the corporate setting, we use tools like interview guides with marking rubrics to minimize the impact of biases. Systems like this help reduce bias without conscious effort. Similarly, in our personal lives, we can employ a lightweight system to guide our purchasing decisions.

And that's where the "Alternative Basket of Goods" comes in.

The crux of this idea lies in our brain's ability to reason more effectively when dealing with concrete things rather than abstract concepts like money. So, how does it work?

You can create a basket of goods representing things you'd most like to purchase at different price points. For example, a $10 coffee date with a friend, a $100 pair of running shoes, a $1000 new iPhone, or a $10,000 trip to a dream destination. These items serve as concrete benchmarks for comparison.

Now, the next time you find yourself agonizing over a purchase, you can compare it to items in your alternative basket of goods.

Let's say you're considering buying a $400 billiards cue. By contrasting it with your alternative basket, which includes items like running shoes, a smart home display, a billiards coaching session, and coffees with friends, you gain valuable insight. This comparison may reveal that you value the alternative items more, indicating that the billiards cue isn't worth $400 to you. This realization prompts you to reconsider and potentially save your money for something you value more—like an air conditioner.

The Alternative Basket of Goods offers a simple yet powerful tool for making better purchasing decisions. By leveraging our brain's ability to reason about concrete objects, we can avoid impulsive or regretful choices. Instead of being overwhelmed by numerous cognitive biases, this system guides us towards decisions aligned with our true values.

Next time you face a buying dilemma, remember to compare it to your alternative basket of goods. Let this system empower you to make well-informed and satisfying choices.