I recently began to use a similar method and have seen my own lack of thought when it comes to what I am willing to spend my hard-earned money on. I will easily spend $25 dollars to see a movie in a theater (a one time viewing) yet hesitate at spending $19.99 on a DVD I know I will watch several times. I will unwaveringly pay for dinner at a restaurant, but stand, with great time spent in deliberation, in a grocery store aisle debating the cost of ingredients. I am slowly gaining a better sense of perspective. Keeping track will do that!
I’ll pay a lot more for a movie than I would for a DVD, and a lot more for a restaurant meal than I would for ingredients, because I’m paying for the experience, which is well worth it.
Oh, so a useful answer for 2: Fix a tradeoff cost for time and money, adjusting for [un]pleasantness of the work. A good starting number for working adults is your hourly pay, especially if you actually have the option to work more or less hours. A good number for students is your future hourly pay.
It’s a convenient starting point, but I’m not sure how well it would perform in practice. Suppose your hourly pay rate is $20/hr. That’s your marginal gross benefit of working an extra hour, but your marginal costs of working overtime are probably pretty high—tacking on another two hours at the end of the workday might mean you have to buy a restaurant meal, take a cab, hire a sitter, etc. It also might just be exhausting enough that you pay an opportunity cost in terms of your ability to accomplish household/personal work in the evening, or even in terms of your ability to properly enjoy whatever entertainment you might have planned. If you have the ability to work additional hours and you don’t, we might even say under the doctrine of revealed preference that your marginal costs must exceed your marginal benefits.
And if, in practice, you don’t work overtime because it would cost you more than you’d earn, it isn’t much use to say that it’s “worth” an hour of comparison shopping to save $20. If you skip the shopping and spend an extra $20, you won’t choose to work overtime to make up the difference, you’ll just buy less of other things or go into debt. Conversely, if you do go comparison shopping, you can probably schedule it at a time when you’re least likely to suffer high opportunity/exhaustion costs, whereas you rarely have control over exactly when you work overtime, especially if you have to commute to work and/or deal with the public.
Finally, “deliberation costs” are even fuzzier than information costs—the problem isn’t investing an hour of time in comparing prices, but investing a difficult-to-quantify chunk of your willpower and analytical skills in making a rational decision or in delaying your gratification for an appropriate period of time.
I rarely do movies by myself, having recently gained a permanent significant other. Movies can run anywhere from $9 (Matinée) to $16 (IMAX 3D). It is a travesty, but the experience is often worth the cost. Sneaking in candy or drinks can make the outing that much more exhilarating!
I recently began to use a similar method and have seen my own lack of thought when it comes to what I am willing to spend my hard-earned money on. I will easily spend $25 dollars to see a movie in a theater (a one time viewing) yet hesitate at spending $19.99 on a DVD I know I will watch several times. I will unwaveringly pay for dinner at a restaurant, but stand, with great time spent in deliberation, in a grocery store aisle debating the cost of ingredients. I am slowly gaining a better sense of perspective. Keeping track will do that!
I’ll pay a lot more for a movie than I would for a DVD, and a lot more for a restaurant meal than I would for ingredients, because I’m paying for the experience, which is well worth it.
This raises a couple of interesting questions:
1) What is the ratio between your expected consumer surplus and your deliberation costs? 2) What should that ratio be?
Oh, so a useful answer for 2: Fix a tradeoff cost for time and money, adjusting for [un]pleasantness of the work. A good starting number for working adults is your hourly pay, especially if you actually have the option to work more or less hours. A good number for students is your future hourly pay.
It’s a convenient starting point, but I’m not sure how well it would perform in practice. Suppose your hourly pay rate is $20/hr. That’s your marginal gross benefit of working an extra hour, but your marginal costs of working overtime are probably pretty high—tacking on another two hours at the end of the workday might mean you have to buy a restaurant meal, take a cab, hire a sitter, etc. It also might just be exhausting enough that you pay an opportunity cost in terms of your ability to accomplish household/personal work in the evening, or even in terms of your ability to properly enjoy whatever entertainment you might have planned. If you have the ability to work additional hours and you don’t, we might even say under the doctrine of revealed preference that your marginal costs must exceed your marginal benefits.
And if, in practice, you don’t work overtime because it would cost you more than you’d earn, it isn’t much use to say that it’s “worth” an hour of comparison shopping to save $20. If you skip the shopping and spend an extra $20, you won’t choose to work overtime to make up the difference, you’ll just buy less of other things or go into debt. Conversely, if you do go comparison shopping, you can probably schedule it at a time when you’re least likely to suffer high opportunity/exhaustion costs, whereas you rarely have control over exactly when you work overtime, especially if you have to commute to work and/or deal with the public.
Finally, “deliberation costs” are even fuzzier than information costs—the problem isn’t investing an hour of time in comparing prices, but investing a difficult-to-quantify chunk of your willpower and analytical skills in making a rational decision or in delaying your gratification for an appropriate period of time.
Where do you live where movies cost $25.00? Are you in the US? I’m in an area with a high cost of living, and they still haven’t broken 10.50 USD...
I rarely do movies by myself, having recently gained a permanent significant other. Movies can run anywhere from $9 (Matinée) to $16 (IMAX 3D). It is a travesty, but the experience is often worth the cost. Sneaking in candy or drinks can make the outing that much more exhilarating!
Perhaps he’s paying for a date and/or buying various theater concessions?
In that case he must be getting an incredible discount!
=P