The Case for Spending Too Much on Summer Vacation

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Millions of families will take off this week to do something Americans do less than almost any other country -- go on vacation. If you plan on spending lots of money, you're probably doing it right.

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Vacations are expensive. You know that already. Traveling costs money. Hotels cost money. Being pampered costs money. How much? Travel surveys by Visa, AAA, and Money Magazine have all put the median cost somewhere around $1,600. It should be much more.

Our brains are hard-wired to think we need to spend a lot on summer vacations to be happy. But underneath what you might call biases and miscalculations, there is a good deal of wisdom. The fact is that economic and psychological research suggests we would be happier if we devoted more of our time to buying brief experiences on vacation rather than buying even durable stuff to wear and keep around us.

There are at least three reasons why families with means are already likely to spend considerable sums on their brief vacations, already. The first reason is in that adjective, brief: Americans don't go on vacation that often compared with other countries. We're the only advanced economy in the world without a federally-mandated minimum number of vacation days, and more than 50% of workers don't use all their vacation days, anyway. According to the law of diminishing marginal utility, this should make vacation especially valuable for us. The same way the first sip of lemonade on a hot day is more refreshing than the 15th, a brief once- or twice-a-year vacation appears more valuable than a routine long weekend.

The second reason some of us feel okay spending lots of money on vacation is that, given how precious breaks are, we want to leave nothing to chance. The technical term for this is "risk-averse": We don't want little things to go wrong, and we're willing to pay to ensure they won't. But as anybody who's been on vacation knows, things go wrong all the time. The hotel room has too few beds. The restaurant messed up the reservation. The Disney World lines are eternal. Vacations are supposedly releases from stress, but they are also often stressful -- not least because we've investing so much time, money, and expectations in them. And yet, every year, we return to the scene of the stress, expecting better. Why?

An explanation might be the "peak-end rule." When we reflect on a complex experience like a vacation, we're likely to discount the mundane or mildly uncomfortable experiences and keenly recall the the highs. If you've been to an amusement park, ask yourself: Are you more likely to remember the hour you spent in line or the two minutes you spent on the ride at the end? The ride, of course. You might have spent 30X more time complaining about your legs hurting than feeling exhilarated while flying at 70 miles-per-hour upside-down. But it's the upside-down flying that you have in your mind when you take out your wallet and make plans to return to the park.

These small psychological ticks and biases influence how think about, and pay for, vacations. But just because they're biases doesn't mean they're bad. In fact, the abundance of research on money and happiness suggests should probably spend more on experiences.

Occasionally "we favor objects because we think that experiences can be fun but leave us with nothing to show for them, but that turns out to be a good thing," says Daniel Gilbert, the renowned psychologist and author from Harvard University. "Experiences are like good relatives that stay for a while and then leave. Objects are like relatives who move in and stay past their welcome."

The other nice thing about vacations is that they are social occasions. Most of us travel with friends and family and share our stories, which allows us to relive our vacations in memory. "We are social animals, and the best predictor of happiness is the goodness and extent of our social relationships," Gilbert says. "Experiences are more likely to be shared than objects are."

At every tourist hot-spot, there are those families that walk around with a camera in front of their eyes. These families obviously place a high value on creating memories. On the other end of the spectrum, some people (like myself) take very few pictures, preferring instead the real-time experience of the vacation to the knowledge that every moment will be captured for posterity. Which strategy is best? Far be it for me to say. I guess it just depends on what you're paying for.


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Derek Thompson is a senior editor at The Atlantic, where he writes about economics, labor markets, and the entertainment business.

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