(apparently the correct spelling is “marshmallow.” I’m not going to go back and change it)

There is a famous experiment called “the marshmellow test.” It is a popular point of reference in behavioral finance circles. Here is a summary courtesy of Wikipedia (footnote annotations removed for clarity):

The Stanford marshmallow experiment was a study on delayed gratification in 1972 led by psychologist Walter Mischel, a professor at Stanford University. In this study, a child was offered a choice between one small but immediate reward, or two small rewards if they waited for a period of time. During this time, the researcher left the room for about 15 minutes and then returned. The reward was either a marshmallow or pretzel stick, depending on the child’s preference. In follow-up studies, the researchers found that children who were able to wait longer for the preferred rewards tended to have better life outcomes, as measured by SAT scores, educational attainment, body mass index (BMI), and other life measures.

A replication attempt with a sample from a more diverse population, over 10 times larger than the original study, showed only half the effect of the original study. The replication suggested that economic background, rather than willpower, explained the other half. The predictive power of marshmallow test was challenged in a 2020 study by a team of researchers that included Mischel.

There is quite a bit of worthwhile material here, from both a philosophy of science perspective and a practical perspective. The philosophy of science is (mostly) beyond the scope of this blog. So we’re not going to open that can of worms here. Instead, I’m going focus on the practical angle.

The practical angle is that this study is often referenced in the context of teaching children, and people in general, about delaying gratification. In a financial context: saving instead of spending. Given the results of replication attempts, and variations on the original study, I’d argue the marshmellow test should be regarded more as a parable than anything.

We’re talking about a marshmellow here.

If someone puts a marshmellow in front of you, and you want to eat the marshmellow, then eat the marshmellow. I don’t care if you’re five or fifty-five. The advice stands.

It is difficult for me to adequately convey the supreme irrelevance of the decision to immediately eat a single marshmellow or wait 15 minutes for some incrementally better reward.

Some decisions matter and some don’t. It is easy to focus on decisions that don’t matter. Decisions that don’t matter are easy decisions. They are marshmellows. People sometimes ask me things like: “should I put 1% of my net worth into crypto?” This is another kind of marshmellow. Sure. Go ahead. Whatever makes you happy.

There is a whole genre of marshmellow-centric “latte finance.” Don’t buy that Starbucks Coffee and you will save $1,200 per year. Compound that out over 30 years, blah, blah, blah. There’s something to be said for getting people to think critically about their purchasing decisions. But in terms of long-term impact, a daily coffee habit is dwarfed by decisions like how much house you choose to buy; what car you decide to drive; whether you send your kids to private school; what you can, can’t, will or won’t do to increase your earnings power.

When we get into things like houses, cars and kids we start to get into territory involving deep-seated emotions around values and status. Much of the consumer debt industry in America is built on a deep reluctance to sacrifice status to save money. If anything, the culture encourages the opposite.

This is not an argument for hairshirt frugality. If you want to live a high status lifestyle, you either need to make a whole lot of money or take on a whole lot of debt.

Treat yourself on the coffee. Save your energy for the tough. stuff.