The G.I. Joe Fallacy and Money Problems

Do you remember G.I. Joe? If you were alive in the 1980’s, you’ve probably at least heard of him. G.I. Joe was an early comic book character and action figure, that was turned into an animated TV series in the 1980’s. As with most “wholesome” kids shows of the time, each episode had an important life lesson to teach. At the end of the episode, G.I. Joe would appear on screen to recap the moral of the story as a PSA. His motto: “Now you know, and knowing is half the battle.” This was the birth of the G.I. Joe Fallacy.

But is knowing actually half the battle?

I recently read a statistic that something like 60% of millennials making over $100,000 per year were living paycheck to paycheck.

If knowing is half the battle, how do you explain the millions of people making a livable wage who are still living paycheck to paycheck? Or, what about those who rack up thousands in credit card debit buying things they don’t actually need?

The disclaimer…

Before we move on, I want to acknowledge a couple things. First, there is clearly a financial literacy problem in this country. Secondly, there is an even bigger issue that millions of working families are living below the poverty levels because they are unable to earn a livable wage, or have been the victims of unfortunate events or injustices outside of their control.

Clearly money mindset did not play a significant role in this subset’s money problems, and I don’t mean to imply that it does. To clarify… I’m NOT referring to or trying put down such people today. These are huge systemic problems and we should all work harder to try and mitigate them.

This post is meant for everyone else, who might attribute at least some of their financial struggles to bad decisions. Were some of those bad decisions a result of a lack of knowledge or bad luck? Sure. However, I think some were made despite knowing better.

It’s easy to want to blame a lack of knowledge or our circumstances for our place in life. And while such things can and do certainly play a role, they are not everything. Similarly, psychology is not everything either.

When it comes to knowledge, advanced investing and tax strategies only play a small part in determining our financial success. In my opinion, the driving factors boil down to simple concepts that should be common sense to everyone, like “spend less money than you make”.

If you’ve made poor decisions in the past, that’s okay. You’re not doomed. Most people have made at least one bad financial decision which was driven by emotions… despite knowing better. Heck, I’ve made many! So let’s talk about this phenomena.

What is the G.I. Joe Fallacy?

If we know what we should be doing (or not doing), than why is it so hard to take the best course of action? Why do we often make bad financial choices anyway?

The answer: Because knowing isn’t half the battle.

Cognitive scientist Laurie Santos, Associate Professor of Psychology at Yale, coined the term the “G.I. Joe Fallacy” in a research paper she authored. Her team’s research found that having awareness or knowledge of the preferred course of action is not enough to overcome the emotional biases that drive our decisions.

Ms. Santos talks about the G.I. Joe Fallacy as it relates to our happiness levels, in her popular (FREE) Coursera course, “The Science of Well-being.” One of the ways she demonstrates this concept in the class is through the Müller-Lyer illusion, pictured below.

Which center line in this picture is longer?

If you answered “B”, than you are incorrect, along with most people presented with this illusion. The center lines are exactly the same in both pictures. Even after I tell you the right answer, your mind can’t help but to still see option “B” as longer.

Knowing doesn’t help us here. Our mind plays similar tricks on us when making other decisions in our daily lives.

The G.I. Joe Fallacy is the mistaken belief that knowing is half the battle. Merely knowing the preferred course of action, is not enough to change our behaviors. In fact, knowing plays a very small part of how we make decisions in the real world.

This phenomena is the same reason it took me years to finally lose the extra 35 pounds I’d been carrying around. Health is my other nerdy obsession, and I knew exactly how to lose the weight. But, I just didn’t do those things.

What does the G.I. Joe Fallacy have to do with your money problems?

A lot, actually.

Although used to demonstrate barriers to happiness in the course, the G.I. Joe Fallacy can very easily be applied to our money problems as well.

As mentioned above, the most important lessons in personal finance are often quite intuitive: Spend less money than you make. However, many of us actively choose to spend more than we make to buy a bigger home, newest gadgets or a fancy car. We know better. Yet, we do it anyway.

A little more nuanced is how we react to market swings when investing. When the market drops, people sell. Some of this fear is due to lack of understanding. However, much of it is not. You can see this pattern even among those who understand that declines in the market are normal and represent an opportunity to buy at a lower price, rather than a good time to sell. Even when we know, our emotional thinking can override our rational thinking.

It’s the same reason that I continue to dollar-cost average extra cash into the stock market, even when history and the odds suggest that going all in would be better.

Another simple example of this theory is the $19.99 price tag at the store. We all know that $19.99 is only 1 penny less than $20. However, our minds will perceive that $19.99 price tag as significantly more appealing when comparing the two.

So, what can you do?

It’s clear that knowing isn’t half the battle. But how much of the battle is it? And, is knowing that knowing is not enough, enough to help us make better decisions?

Maybe. Perhaps by understanding this fallacy, we can avoid relying on knowledge alone to help us make good financial decisions. Instead, we should appreciate and try to understand how our emotional impulses might impact our future decisions. From there, we can set up our finances in a way that protects us from… ourselves.

Regularly having to make decisions exposes us to our emotional impulses, which we now know can derail us from our goals. It’s the same reason that meal planning and prepping can help us lose weight. Doing it doesn’t improve your willpower, it just reduces the number of times you need to actively exercise that willpower. It minimizes the role our emotions play in our decision making process.

If you haven’t already, write down your financial goals and come up with a plan for how you’ll get there. Then remove the decision making process from as many aspects as you can.

One great way to do that? Automate! There are so many ways to automate your finances. It’s one of the best ways to stay on track and minimize the effort you have to put in. You can automate your bill pay, retirement contributions, regular stock purchases and extra debt payments.

Have a spending problem? Freeze your credit cards, both literally and figuratively. Or, don’t physically go into the stores where a $10 purchase regularly turns into $100+ spent (I’m looking at you Target).

Knowing may not be enough. But now that you know, you can take action to make it a little easier to stay on track.

The human mind is a funny thing

Morgan Housel’s book, “The Psychology of Money,” delves further into our emotional biases and attempts to answer some of the questions around why we do the silly things we do with money.

Although it doesn’t specifically discuss the G.I. Joe Fallacy, there are a lot of similar concepts and psychological studies in it, which I found interesting. If you want more on how our brains work when it comes to money, check out my recent review of The Psychology of Money for my favorite lessons learned.

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