I think understanding this is a big part of it, and is something Megan McArdle mentions sometimes in her columns. The idea is that we see lots of people around

I think understanding this is a big part of it, and is something Megan McArdle mentions sometimes in her columns. The idea is that we see lots of people around us who we think are very much like us. And we see that lots of them have a house with 3000+ square feet. And lots of them drive an Escalade. And lots of them have their kids on travel sports teams. And lots of them have this and that and the other thing. Every time we see that people around us tend to have such a thing, that suggests to us that we can afford it too. The thing is, we make each of those observations independently. We don't generally take a complete inventory and see that Family A is paying for those sports activities, but doesn't have the top-of-the-line cable TV package; while Family B has the cable TV but goes without the annual vacation to the Caribbean. We tend to want all the things that we observe that much of our community has, without thinking too deeply about the fact that none of them actually have all of it. EDIT - spelling