Are Exceptions as Exceptional as We Think?

Every fall when my university’s academic calendar kicks into high gear, I tell myself that this term I’ll manage to stay on top of my work and avoid late nights writing reports, tweaking presentation slides and answering emails. I’m always sure that last semester’s challenges were an exception and this year will revert to “normal.” There was the year my son was born, and that naturally threw me for a loop, but he was destined to be an only child so I told myself I’d eventually settle back into a rhythm involving some balance. Then I started a new research center, and birthing that was its own wild ride. However, I knew the startup pain was only temporary. Of course, just as that madness started easing, I signed a contract to write a book, which was immensely time-consuming. And then there was the COVID-19 pandemic, which meant a spike in work hours spent on childcare. But once elementary schools and after school activities re-opened all would be sane again, right? Then came the surprise of an arduous committee assignment, but that’s wrapping up soon, so next year things will surely improve …

Do you see the pattern?  Does it sound at all familiar to you?

The interview I’m sharing today helps explain our tendency to write-off recurring but distinct shocks to our time, indulgences and budgetary slips as exceptional rather than recognizing the truth: that there’s always something. But before we go there, here are a few of my favorite listens and reads of the month …

This Month’s Recommended Listens and Reads

 
 

Q&A: What Counts as Exceptional

In this Q&A from Choiceology, University of Chicago Booth professor Abby Sussman shares her research on the foods and expenses we tend to label “exceptional” despite their recurring nature and what we can do to plan better for predictable exceptions.

Me: You have some research I love about how the exception is the rule. Can you explain what that means?

Abby: Yeah. So, this goes against a common expression: It’s the exception, not the rule. But my research finds that things we think happen only once in a while actually tend to happen with some sort of frequency. We often have expenses—foods we eat, for example—that we think of as one time only, but they actually happen again and again and again. So, they tend to add up over time.

Me: Ah, that sounds familiar. Saturday’s slice of cake is at a friend’s birthday party, Monday’s donut is a treat brought in by a coworker, and Thursday’s ice cream cone is to celebrate your kid’s report card. They’re all exceptions but they’re not exceptional at all! I know you’ve thought about how this issue affects our spending too. How does that work?

Abby: It has to do with the way we categorize special expenses. If you normally spend about a hundred dollars at the grocery store, you consider this a recurring expense that you should really care about because it’s meaningful for your budget. But the extra food you buy at the grocery store—let's say it’s Halloween candy—you’re not going to put it into the category of your grocery budget. You’ll put it into a different, ad hoc category as a one-time thing that you don’t really need to care about.

Me: And that’s why we can fall into the trap of over-spending or breaking our budget over these kinds of recurring exceptional expenses?

Abby: Going back to the idea of categorization and setting budgets, you might try really hard to stick to a particular budget. But in exceptional cases people tend to be more flexible. They just decide that the money is going to come from someplace other than any budget category they already have, and it's going to be okay. I also have some evidence that people tend not to recall these expenses as well because they’re not tracking them.

Me: What should people do differently to make better decisions in light of this tendency?

Abby: The main thing to do is to make sure that anything you're spending on is part of a budget category and develop the ability to look at the aggregate expense and be sure that you're not pulling out anything important. You can think about doing this in two different ways. One is to say the Halloween candy, for example, is part of your grocery budget. Then you can notice that you’re spending more on groceries this month because of Halloween. And maybe the next month, you’re spending more because it's Thanksgiving. The alternative would be to realize that there are going to be a bunch of one-time expenses coming up. And instead of assigning them to the closest category, you create one budget category for these exceptional things. That way you have an allowance and the ability to track the expense.

Me: Those are great tips. What got you interested in exceptional spending?

Abby: In a prior life, I worked as a financial analyst at Goldman Sachs in equity research, researching the airline industry. From an accounting perspective, companies are supposed to be pulling these expenses out of their income statement and reporting them essentially below the line. The intuition is that when you're forecasting expenses for the future, you're not supposed to be including these one-time things. When I was researching the airline industry, it was in perpetual turmoil. One year there would be a restructuring and we would forecast expenses as though they didn't include that restructuring. The next year, there was a hurricane that caused unusual delays and problems for their income. And we would pull that out and assume a run rate of income excluding something like a hurricane. And then the next year there was some other issue with grounding planes or unions or whatever it was. And so, it’s interesting just how strong this intuition is to exclude exceptional expenses, so much that it's codified in accounting principles.

Me: That’s a really interesting origin story for your research! Has the work made you any better at making decisions in your personal life?

Abby: In my twenties, there was a point where every weekend there was a wedding. And yet it seemed so right at each wedding to say “I can eat this cake because it's Sarah and John's wedding.” So it felt different from the wedding cake that I’d eat next week at Dave and Melissa's wedding. Now, I’m probably better than most people at tracking and acknowledging these things or at least realizing that there will probably be something else I will fail to track in the future. Rather than changing my behavior, I've become aware of my behavior.

Me: I have to admit, this reminds me of a conversation I recently had with my husband about time, which I know isn't something you’ve studied, but feels like it fits this model. I was apologizing for being too busy to take our son to an activity one evening, saying it was because it's my teaching semester and I'm in the middle of this crazy period with my MBA teaching. And he responded, “yeah, but Katy, it's always something, right? So don't expect it to be any calmer in the future.” And it was one of those moments where I realized that it always feels like an exception.

Abby: I completely agree. There are a lot of natural connections between how people think about their time, money and food. Has your husband’s comment changed your behavior?

Me: Probably not, but it has changed my tendency to expect change. So that's helpful. It's good to have reasonable and realistic expectations in life! Abby, thank you so much for taking the time to talk to me about this.

Abby: Thank you so much for having me.

This interview has been edited for clarity and length.

To learn more about Abby’s research on exceptional expenses and meals, listen to the episode of Choiceology where we dig into the topic.

That’s all for this month’s newsletter. See you in May!

Katy Milkman, PhD

Professor at Wharton, Host of Choiceology, an original podcast from Charles Schwab, and author of the Wall Street Journal Bestseller How to Change

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