Useful framing, but don’t forget to factor in opportunity cost—spending $750 on the new phone instead of $250 on an old model means you have $500 less available for some unexpected opportunity. Note that having savings for such opportunities, assuming you don’t get direct enjoyment from money, means you’re losing enjoyment-hours on whatever you’d otherwise have spent on.
It’s around this point in my modeling of such choices that I tend to give up and fall back to general principles: for things I use often, I buy either the cheapest option, or the best option. Compromise bugs me every time I use it, so the hedonic difference between cheap and ok is small, and betweek ok and good is large.
We can break this problem up into two parts by partitioning your budget into a spending and saving component.
You can get a diminishing marginal utility curve for spending, by looking at what your total purchases would be at different budgets. Then you can estimate marginal expected value of cash on hand (the complement of your spending budget spending). Then you hold enough cash for the curves to intersect, and spend the rest.
In practice this isn’t always tractable, but usually it’s overdetermined anyway since the vast majority of decisions are strongly inframarginal.
Useful framing, but don’t forget to factor in opportunity cost—spending $750 on the new phone instead of $250 on an old model means you have $500 less available for some unexpected opportunity. Note that having savings for such opportunities, assuming you don’t get direct enjoyment from money, means you’re losing enjoyment-hours on whatever you’d otherwise have spent on.
It’s around this point in my modeling of such choices that I tend to give up and fall back to general principles: for things I use often, I buy either the cheapest option, or the best option. Compromise bugs me every time I use it, so the hedonic difference between cheap and ok is small, and betweek ok and good is large.
We can break this problem up into two parts by partitioning your budget into a spending and saving component.
You can get a diminishing marginal utility curve for spending, by looking at what your total purchases would be at different budgets. Then you can estimate marginal expected value of cash on hand (the complement of your spending budget spending). Then you hold enough cash for the curves to intersect, and spend the rest.
In practice this isn’t always tractable, but usually it’s overdetermined anyway since the vast majority of decisions are strongly inframarginal.