In both cases, the tradeoff is the same—drive fifteen minutes to save twenty bucks—but people were much more willing to do it for the cheap item, because $20 was a higher percentage of its total cost. With the $2000 TV, the $20 vanishes into the total cost like a drop in the ocean and seems insignificant.
Evaluating cost savings as a percentage actually makes a certain amount of sense when evaluating policies rather than acts. Cheaper purchases tend to be much more frequent: you probably buy many more shirts than you do big-screen TVs, so expending the effort to find the cheapest source of shirts and evaluate whether it’s worthwhile to go out of your way to buy them will save you several times $20 over the lifetime of the policy, whereas the TV is effectively a one-time decision which will only save you $20 total. True, the 15 minute drive time is per-purchase rather than per-policy, but 1) the cost is not just the drive time, but also the effort to research options and the cognitive load of picking and option, which are one-time costs, and 2) a general policy of thriftiness for small, frequent purchases can have a substantial effect on your overall financial situation, but indulging in overpayment for convenience on the odd big one-time purchase is an affordable luxury.
On a different note, another factor to take into account when evaluating commuting times is the possibility of changing jobs. When I bought my house, I specifically looked for a short commute time, but not just to my then-current workplace. I also took into account commute times to other places I might end up working if I changed jobs (other campuses of companies in the area which employ large numbers of people in my field, especially places which employ friends of mine who could refer my for positions). By over-optimizing for my then-current job, I felt I would have increased my risk exposure if I lost my job or became unhappy with it, as well as reducing my ability to take advantage of new opportunities if another employer could make more productive use of me and cut me in on the additional value created.
One mistake I did make in buying a house was very badly underestimating the cost in time, effort, and cash to make repairs and improvements to a house purchased in poor condition. In hindsight, I think I made the right tradeoffs, in that after spending the money I wound up with a house that will suit my needs better and for a longer period of time than I could have afforded by paying the additional cost to buy a house that was already in good condition (this includes the substantial benefit of being able to customize aspects of the house to my desires as I made repairs and improvements), but this was a happy accident despite the major misevaluations I made when planning the purchase.
Or maybe it’s just outrageous to ask for $40 when it’s clearly possible to sell it for $20. So you kind of punish the shop that asks for $40 because you see them as dishonest and morally repulsive. Sometimes you also have to pay attention to what behavior you encourage with your actions. Not only the immediate dollar value.
Why don’t Christmas tree sellers sell the last, leftover Christmas trees for much cheaper, right before Christmas? Because then lots of people would just wait until that time and then buy it cheap. If buyers know that the seller will rather throw out the goods to the thrash rather than sell them cheaper then they will just casually buy the tree knowing that the price is stable and it’s all fair. Short-sighted optimization would tell the seller to just sell the leftovers cheaper rather than throw them away.
Similarly, you may want to “send a message” to the $40 shop that you will rather drive a lot than participate in such an outrageous deal.
″...frequent purchases can have a substantial effect on your overall financial situation, but indulging in overpayment for convenience on the odd big one-time purchase is an affordable luxury.”
I’m not really sure if that explains the behavior as one could also argument that the “cognitive burden” of extra effort for everyday purchases is greater than putting it into those big one-timers.
I’m assuming that most everyday purchases are frequently repeated (e.g. you buy milk and eggs every week), so the cognitive costs of figuring out the best place to buy milk and eggs can be amortized out over many transactions.
There’s another good reason why savings in terms of percentages are reasonable to consider, beyond just absolute savings. You can travel fifteen minutes to the store where a shirt costs $20, and buy two of them. This makes it a much more complicated decision than saving $20 on a television.
Televisions are something that most people don’t need a lot of. Even if there was a half-price sale on televisions, you probably still wouldn’t be tempted to buy two of them (unless you’re really into giving televisions as gifts or you think you can turn a profit on e-bay). So with a half-price sale you’d probably just by one TV and smile as you save $1,010 off the sticker price. So for just $20 off of a $2,000 television, I really wouldn’t expect anyone to be tempted into buying two sets. It’s a very simple tradeoff, then: Would you prefer $20, or 15 minutes? (It’s still probably worth travelling, unless you make more than $80 per hour...)
Shirts, though, are the kind of thing you’d possibly buy twice as many of if the price were halved. Looking ahead to when the first shirt gets worn out, you’ll have to replace it. This could cost you another $40, plus the duration of a second shopping trip, which is probably longer than 15 minutes in total. Meanwhile, if you spend fifteen minutes now and buy two shirts, the fifteen minute travel time will pay itself back in the long run and you’ll save the $40 that the second shirt would have cost you.
This logic can be extended: If you are looking ahead that far, and have enough disposable income to spend $80 on shirts, you can avoid the second shopping trip by buying two shirts at the closer, more expensive store. But now your 15 minutes are worth $40, not $20. And for that price you could buy four shirts at the cheaper store...
Ultimately your decision to travel 15 minutes might come down to how much closet space you have for extra shirts, how much of a hurry you’re in right now, and how much money you have access to. Basically, there are many things that make 50% off on a $40 shirt more attractive than $20 off on a television. It shouldn’t necessarily be viewed as a bias.
(Edit: Umm, yes, but having said all this, it doesn’t really apply to houses. They’re more like televisions, and thinking in terms of the absolute savings is very much a good idea. $35k saved is $35k earned.)
Evaluating cost savings as a percentage actually makes a certain amount of sense when evaluating policies rather than acts. Cheaper purchases tend to be much more frequent: you probably buy many more shirts than you do big-screen TVs, so expending the effort to find the cheapest source of shirts and evaluate whether it’s worthwhile to go out of your way to buy them will save you several times $20 over the lifetime of the policy, whereas the TV is effectively a one-time decision which will only save you $20 total. True, the 15 minute drive time is per-purchase rather than per-policy, but 1) the cost is not just the drive time, but also the effort to research options and the cognitive load of picking and option, which are one-time costs, and 2) a general policy of thriftiness for small, frequent purchases can have a substantial effect on your overall financial situation, but indulging in overpayment for convenience on the odd big one-time purchase is an affordable luxury.
On a different note, another factor to take into account when evaluating commuting times is the possibility of changing jobs. When I bought my house, I specifically looked for a short commute time, but not just to my then-current workplace. I also took into account commute times to other places I might end up working if I changed jobs (other campuses of companies in the area which employ large numbers of people in my field, especially places which employ friends of mine who could refer my for positions). By over-optimizing for my then-current job, I felt I would have increased my risk exposure if I lost my job or became unhappy with it, as well as reducing my ability to take advantage of new opportunities if another employer could make more productive use of me and cut me in on the additional value created.
One mistake I did make in buying a house was very badly underestimating the cost in time, effort, and cash to make repairs and improvements to a house purchased in poor condition. In hindsight, I think I made the right tradeoffs, in that after spending the money I wound up with a house that will suit my needs better and for a longer period of time than I could have afforded by paying the additional cost to buy a house that was already in good condition (this includes the substantial benefit of being able to customize aspects of the house to my desires as I made repairs and improvements), but this was a happy accident despite the major misevaluations I made when planning the purchase.
Or maybe it’s just outrageous to ask for $40 when it’s clearly possible to sell it for $20. So you kind of punish the shop that asks for $40 because you see them as dishonest and morally repulsive. Sometimes you also have to pay attention to what behavior you encourage with your actions. Not only the immediate dollar value.
Why don’t Christmas tree sellers sell the last, leftover Christmas trees for much cheaper, right before Christmas? Because then lots of people would just wait until that time and then buy it cheap. If buyers know that the seller will rather throw out the goods to the thrash rather than sell them cheaper then they will just casually buy the tree knowing that the price is stable and it’s all fair. Short-sighted optimization would tell the seller to just sell the leftovers cheaper rather than throw them away.
Similarly, you may want to “send a message” to the $40 shop that you will rather drive a lot than participate in such an outrageous deal.
″...frequent purchases can have a substantial effect on your overall financial situation, but indulging in overpayment for convenience on the odd big one-time purchase is an affordable luxury.”
I’m not really sure if that explains the behavior as one could also argument that the “cognitive burden” of extra effort for everyday purchases is greater than putting it into those big one-timers.
I’m assuming that most everyday purchases are frequently repeated (e.g. you buy milk and eggs every week), so the cognitive costs of figuring out the best place to buy milk and eggs can be amortized out over many transactions.
There’s another good reason why savings in terms of percentages are reasonable to consider, beyond just absolute savings. You can travel fifteen minutes to the store where a shirt costs $20, and buy two of them. This makes it a much more complicated decision than saving $20 on a television.
Televisions are something that most people don’t need a lot of. Even if there was a half-price sale on televisions, you probably still wouldn’t be tempted to buy two of them (unless you’re really into giving televisions as gifts or you think you can turn a profit on e-bay). So with a half-price sale you’d probably just by one TV and smile as you save $1,010 off the sticker price. So for just $20 off of a $2,000 television, I really wouldn’t expect anyone to be tempted into buying two sets. It’s a very simple tradeoff, then: Would you prefer $20, or 15 minutes? (It’s still probably worth travelling, unless you make more than $80 per hour...)
Shirts, though, are the kind of thing you’d possibly buy twice as many of if the price were halved. Looking ahead to when the first shirt gets worn out, you’ll have to replace it. This could cost you another $40, plus the duration of a second shopping trip, which is probably longer than 15 minutes in total. Meanwhile, if you spend fifteen minutes now and buy two shirts, the fifteen minute travel time will pay itself back in the long run and you’ll save the $40 that the second shirt would have cost you.
This logic can be extended: If you are looking ahead that far, and have enough disposable income to spend $80 on shirts, you can avoid the second shopping trip by buying two shirts at the closer, more expensive store. But now your 15 minutes are worth $40, not $20. And for that price you could buy four shirts at the cheaper store...
Ultimately your decision to travel 15 minutes might come down to how much closet space you have for extra shirts, how much of a hurry you’re in right now, and how much money you have access to. Basically, there are many things that make 50% off on a $40 shirt more attractive than $20 off on a television. It shouldn’t necessarily be viewed as a bias.
(Edit: Umm, yes, but having said all this, it doesn’t really apply to houses. They’re more like televisions, and thinking in terms of the absolute savings is very much a good idea. $35k saved is $35k earned.)