Starting about nine months ago, I started to write down the key ideas that I think are interesting, funny, unorthodox, etc. from each book that I am reading. It takes more time to finish a novel because of this, but I find it helpful being able to refer back to the notes because I am notoriously forgetful once I finish a book. I got the idea from Derek Sivers. I highly recommend his reading list and book notes.
The idea for this blog post was inspired as I was looking through my notes from “The Wealthy Barber Returns” by Dave Chilton. Chilton has a section in the book where he talks about the Diderot Effect.
The Diderot Effect
The term is based on a story from French Philosopher Denis Diderot in the eighteenth century. Diderot lived a simple lifestyle in a small apartment. One day, he received a new luxurious dressing gown (bathrobe) as a gift. There was nothing wrong with his old robe, but the new one was beautiful. And that was the issue. It was so beautiful, that he noticed how out of place it was when surrounded by his existing possessions. Everything else looked old and cheap now. Soon, he began replacing his old belongings (wardrobe, chair, desk) to newer, high-end versions, and eventually fell deeply in debt. He blames the one luxurious item for leading him to be unhappy with possessions that he used to be content with.
Thus, the Diderot Effect is the idea that buying one possession can lead to a chain of additional spending as a result of the initial purchase. Spending begits spending!
Here are a few examples of the Diderot Effect that I can think of…
- When I bought my first iPhone, I bought an expensive case to protect it. I wouldn’t have spent that much on a case if I had bought a cheaper phone.
- For my grade 12 prom, I bought a new pair of dress shoes to go with the new suit that I bought.
- I bought a GoPro about 2 years ago. Then I bought a mount and an extra battery for the camera as well.
- Buying new bed sheets for a new mattress.
- Buying an extended warranty for expensive electronics.
- You buy a new gym membership, then soon you find yourself buying new running shoes, multi-vitamins, a Fitbit, weights for your home…
- During the construction of your new swimming pool, you decide to add in a diving board and waterfall as well.
- Maybe you want to renovate the cabinets in your kitchen. Soon you become agitated by the counter tops because they do not look nearly as nice as the new cabinets. Then you install new floors to match the new counter tops. Then you buy new couches to match the floors. Then you buy new pillows to match the couches. Then you buy a new blanket to match the new pillows. Then you buy a new table to be near the new couches. Then a plant to go on the table. Then some new pictures on the walls. Then a bigger TV. Then a fancy TV remote. Ok, maybe this example is a bit far fetched now, but the point is that there can be a spiral of consumption from adding a new possession to your life.
The Diderot Effect relates closely to mental accounting, a topic I wrote about in an earlier post. Mental accounting is the idea that we treat money differently depending on where it comes from or what we are spending it on. Take buying a car for example. The base model of a car might cost $20,000, but it is easy to buy thousands worth of upgrades – leather seats, larger sunroof, heated steering wheel, etc. What’s an additional $5000 if you are already spending $20,000, right? We don’t treat that additional $5000 we spent on upgrades the same way as if we had went to the store and spent $5000 on clothes. But $5000 is $5000, regardless of what we are spending it on.
Total Cost of Ownership
An important take away of the Diderot Effect is to look at the total cost of ownership when buying a good, in addition to the initial purchase price. Sure, you paid $500 for that new suit, but you also bought a new dress shirt, dress shoes, and belt for an additional $200 that you would not have spent if you did not buy the new suit. So that suit cost you $700, even though technically the suit itself was only $500.
Let’s continue with the above example of spending $5000 on extra upgrades for a $20,000 car to build on this point. In addition to the purchase price of the car, you also have to factor in the cost of fuel, insurance, tires, oil changes, parking passes/fees, license and registration fees, possible financing charges, possible highway toll charges, possible speeding & parking tickets & other infractions, possible repair costs from an accident occurring, etc. Plus a car is a depreciating asset, so it will be worth significantly less than what you bought it for when you go to sell it. So the total cost of car ownership is significantly more than the $25,000 purchase price when you factor in the subsequent purchases that need to be made to operate the vehicle.
The Diderot Effect is something that I wish I would have been conscious of earlier. It is helpful to acknowledge its existence, and to begin thinking of the total cost of ownership as opposed to just the initial price when making a purchase.