The cornerstone of optimally managing your finances is learning to control your spending, saving and investing habits. Far too often these habits are heavily swayed by emotion, when instead they should be driven by logic. While we can never fully separate emotions from our decision making process, we can get a whole lot better at minimizing the emotional influence.
Understanding the motivation and human response behind the emotions that play into our financial choices can allow us to recognize when our logical side isn’t steering the ship. And awareness is half the battle.
With awareness, we can slow things down, take a step back, and ask ourselves the tough questions about what is driving our motivation. And asking these questions is what will keep us from being swept along and influenced by the decisions and actions of others.
The concept of a social threshold was proposed by psychologist, Mark Granovetter back in the 80’s. His theory makes the assumption that an individuals behaviour depends on the number of other people engaged in any particular behaviour or action.
When enough people embrace a behaviour or belief, it becomes a social norm, and it feels acceptable to engage in. When something is on the fringe, say retiring in your 30’s, it’s far from a social norm and feels a lot less comfortable.
Or think of it in relation to a riot. A circumstance when otherwise law abiding citizens, seeing others act out, join forces to wreak havoc. Perhaps the riot is initiated by just a handful of ill-intended people, but seeing a half dozen other people breaking windows and flipping cars is sufficient to meet a few dozen others social threshold. They join in. Now we have several dozen people engaging in the behaviour, which meets the social threshold of a few hundred more. The crowd grows quickly, and what was initially a small group of misfits causing some minor damage, transitions to a full blown riot. Just ask the Vancouver Canucks about it.
But each individual has their own very unique social threshold.It’s kind of like a fingerprint. Influenced by your age, life experience, culture, socio-economic status, gender, religious beliefs, and personal tendencies. You name it, pretty much everything about us influences where we sit on the social threshold scale.
While Granovetter proposed this theory back in the 80’s, it was much more recently touched upon by well known author and podcaster, Malcolm Gladwell. In an episode of Gladwell’s podcast, Revisionist History, he zeroes in on a brave NBA player who embraced the free throw style known as a “granny shot”.
Its well known amongst basketball players that using the granny shot can improve their free throw average, for some, substantially. It’s simply more accurate, and they know it. And yet there are many superstar players who have struggled with their free throw for their entirety of their career’s. Players who would have been substantially more impactful on the court if they could simply make their free throw’s, and yet they didn’t adopt a style that would do exactly that.
But one player did. Rick Barry. Not only is he now in the NBA hall of fame, he led the league with the top free throw average for seven seasons. With a career average just a shade under 90%, he embraced the granny shot as a means to an end. The best thing to do for his team.
Gladwell reasons that players avoid the style in large part because it’s simply not cool. I mean, look at the name it’s attracted. The shot looks weird, sounds lame, and its certainly not the norm. There’s really not a lot going for the style. Oh, except that it works, better than an overhand approach. And when you’re looking at making it in the big leagues, where every edge counts and millions of dollars are on the line, you would think that even a slight increase in performance would edge out coolness. Turns out – it doesn’t.
Gladwell surmises that much of this has to do with social threshold. Most people simply can’t bring themselves to do something so far outside the social norm of what’s expected. Not even rich and famous basketball players.
So why could Rick Barry go out on the court day in and day out and execute? Turns out, he has a very high social threshold.
Logic outweighs the cool factor every time with Barry. He’s on the court to perform the best he can for his team. If he shoots free throws better underhanded than over, from Barry’s point of view, the choice is a no brainer.
And looking from the outside, it does seem like a total no brainer! Right?
Except – if I told you that you won the chance to shoot a free throw from the line at the next LA Lakers game, with millions watching, would you prepare by practicing the granny shot or would it be overhand all the way?
Although we would all like to think our social threshold’s are as high as Rick Barry’s, and the actions or beliefs of others have very little influence over our own decisions, the reality is that for the majority it’s quite the opposite.
Every day, in almost every way, we are being influenced by other people. That can be a good thing, if we are all surrounded by smart and ethical individuals. But we aren’t, so instead it can prove to be not only dangerous, but also financially debilitating.
But it’s not all bad news. It’s actually quite easy to raise our social threshold substantially. We simply have to be aware that this influence exists. If we are aware of it, we can give it the appropriate consideration when we are making decisions and buffer for its presence.
Resisting quick emotional responses and implementing a habit of approaching your choices of behaviour and belief thoughtfully will also boost your threshold.
So the next time you have to make a decision, take a moment to assess how significantly that decision is being influenced by what others around you are doing. Is your desire to buy a vacation home a result of your own wants and financial capability, or does it seem like a good idea because most of your friends have one?
Is reducing your hours at work to spend more time with your family or to build a side hustle a better use of your time? Are you holding off on doing it because others might infer it as irresponsible, or a lack of dedication to your job?
When it comes to finance, understanding and improving your social threshold will help inform and guide your critical analysis when it’s time to make key decisions.
After all, just because everyone else is suddenly buying bit-coin, doesn’t mean it’s a good idea for you.