Like most behavioral finance concepts, the Diderot Effect is a fascinating phenomenon that you don’t know there are words to describe, until you learn about it. The French philosopher Denis Diderot first defined the term in the sixteenth century in his essay “Regrets on Parting with My Old Dressing Gown”.
The phenomenon describes a potential spiral of reactive purchases following the acquisition of one item that is not “complementary” to your other goods. In his essay, Diderot describes what happened after he buys a new scarlet robe - a garment that was far more luxurious than anything else he possessed, living as he did until then in relative poverty. But the robe made everything else he owned look tawdry and threadbare by comparison, and he was inclined to upscale his other possessions one by one, until he found himself becoming mastered by his possessions and never finding satisfaction. He was perfectly content with his belongings before the introduction of the new robe; there was no reason for them to suddenly not be sufficient for his needs.
There is a lot to learn from his essay and from understanding the potential we all have to fall victim to the Diderot Effect. Simply being aware of it, and also aware of the ways it is used, is a very helpful circuit-breaker to stop the spiral. As always, the key to this is mindfulness and intention - spend your money as you like, but make sure you are making decisions that bring you true joy and are aligned with your overall life goals and ideals. One way to use money in a more happiness-inducing way is to spend on experiences rather than goods - Dr Elizabeth Dunn writes about this in her book Happy Money and you can find out more about it in the latest episode of the Happiness Lab podcast hosted by Dr Laurie Santos - though I suspect those nice vacations might be subject to the Diderot effect themselves. Once you spend a week at a Four Seasons, will the modest cabin in the woods that was lovely to you before still be enough?
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