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Today we sponsor a guest post from UR undergraduate student Zhenghao Li. I told him to write up a great question he asked me the other day about how it is that some people seem to hold inconsistent positions when it comes to valuing their time. I’ll withhold comments and give him the stage. I was thinking of writing up something similar based on my recent experiences at a very crowded amusement park. Despite my free-market mind, I found myself hating the idea of purchasing a pass to cut lines. I know, that is absurd of me, more on that to come perhaps. I post Zhenghao’s comments in full below. Regardless of what you think, notice how effectively he frames the question and systematically tries to address it. I’d also ask you to notice his humility. By the way, in regard to his insight from Hume – my own two cents is that people just believe what they want to.

Why don’t people value “time”?

One day, whiling waiting for the bus near our home, I asked my mom:” If there exists an omniscient God that could sell you extra hour that could be spent at home for just 5 dollars, will you buy it? “My mother replied: “Yes, I will”. Then I asked: ”Then why don’t you just take a one –hour-taxi for 5 dollars every day  but instead take the 2-hour-bus for free? What’s the difference?” She remained silence and didn’t reply any more.
I switched to other persons and basically their answers were just like my mom. I kept wandering: “why are they doing this?” On the one hand people all claim to cherish longevity while on the other hand people do all kinds of things that are inconsistent with their ideas?
Some people tell me :”well, it’s just like buying staff, maybe they just use one hour of life in exchange of 5 dollars. You know, people who smoke, no matter how much they say they value longevity, are actually rationally exchanging some time of his life for the utility from smoking.” Before any discussion, I have to point out that these scenarios are totally different from the one I talked about. In these examples people’s behavior and their reasoning are exactly consistent. However, if you ask those people who are just “use one hour of life in exchange of 5 dollars”, they will definitely tell you that they don’t want to buy the time for God. The real question here is: Why are so many people’s behaviors just inconsistent with what they think they do.

i.                  Answers from non-economists

For most of them, they just argue that people are just not rational. As a neo-classical, my analysis will be basically based on rational choice theory since it’s the only way we are able to try to evaluate the problem.

ii.              Answers from some behavior economists

Some of my friends told me about a really interesting concept in behavior economics that may could help us with this problem. There’s a concept called mental accounting that might be able to provide an answer and perhaps a good one. Behavior economists believe that when people make trade-offs, they unconsciously frame the time saved by taxi and the time sold by God in different mental accounts. As a result, there behaviors change as to response to the different framing. Another interesting example is that people behave differently when they are using credit card and cash, even though they are purchasing the same dollar value of goods.

iii.           Neo-Classical Analysis

According to rational choice theory, when people prefer sold time by god to time saved from extra spending, there’s always something that makes the trade-off not as equal as it seems to be. Since the net value of something is both defined by how much you value it, and the cost of acquiring. We can begin the reasoning from these two stand points:
i.                     Value Difference: For the problem to be solved by this part, it must be the case that the time saved for $5 is different from that bought for $5, no much how identical they seem to be. Actually, when we can reason this way: when you buy one hour from God, you just actually got 25 hours a day, with which one extra hour you could still have the freedom to take taxi or bus (May be sometimes people get utility from but traveling. ). Comparatively, you have a little more freedom when you buy time from God than to save it by taxi. As a result, you may just thusly answer my question in that way.
ii.                   Cost Difference: Well, it seems that the cost of acquiring is all 5 dollars separately, but it could also be the case that there’s something more than monetary cost that makes the tradeoff different. Some people might just get extra utility from bus traveling than taxi traveling. They may want to see the environment on the road or may just want to relax longer before arriving.
iii.                  People just have no idea what they are talking about: Actually, when I ask people this question, they seemed all be really confused and didn’t know what to say. They’ve never think about this problem at all! This reminds me of a guy I met some other time. There was a guy who claims himself to be a true “hard core liberal” with “honor”, but when I asked his opinion about abortion, he said:” Yes, government should force the law to ban any abortion.” As to me, this obvious contradiction only means this guy has no idea what he’s talking about. David Hume once pointed this out: (I’m not really sure what the original sentence was, but I think he means this)“If your behavior or your opinions are inconsistent with what you claim you think. Eg. This guy claims he prefers liberalism than other philosophical ideas but his opinion on abortion says no. Then actually you don’t prefer any one, no matter what you say about it. People might just “think” that it’s a good deal to buy time from God, but there behavior just tells us that they either are making no sense or actually don’t value time that much, sometimes not even more than 5 dollars.

Conclusion

For myself, the neo-classical analysis is more appealing; however, I am actually still not sure which one is more concrete. I think if I really want to find this out, I really need to form a model and collect some data, which all seems a little impossible currently for me.
Nice job Zhenghao!

3 Responses to “Mental Accounting and Wasting Time”

  1. chuck martel says:

    Once in awhile I’ll ask someone if they’ve done something, read a certain newspaper article, for instance. Very often the response, when they haven’t done that thing, is “I didn’t have time.” I always then say, “Really? I got 24 hours yesterday. I’m pretty sure i’m going to get 24 more tomorrow. Are you getting less, like 19 hours or something? Maybe you should speak to somebody about that. Or did you just choose to use your time in a different way?” They usually just turn around and walk off.

  2. RIT_Rich says:

    The framing model of behavioral economics seems to make more sense to me, if we think about loss aversion. People may frame the loss of $5 greater to the gain of 1 hour. This becomes independent of the value of the $5 vs 1 hour.

  3. Pat says:

    The issue is a bit more complicated. The value placed upon the $5 is variable. A person who earns $2.50 per hour values this as representing 2 hours, versus a person who earns $10 per hour represents 0.5 hour of work. Then there is the issue as to whether the earnings are acquired through “blood money”, or if it is a mindless task that is performed. (I call this “easy” versus “hard” money). Additional issues arrise when the earnings are all spent on “survival” or basic needs without much “discretionary”, as well as an ample supply of work for acquiring earnings versus a limited supply of work for earnings. Then we need to look at “opportunity cost” as well. (Is there a goal behind the acquisition of money?)

    I can say that there are cultural viewpoints on money as well. Many of my industrious friends equate the cost of something as a trade in “hours worked” for purchasing that something. Then there are people I know who never bridge the gap between what something costs, and what they are willing to trade their work hours for ….. and they often spend more than they earn. Then there is this false psychology that exists whereby someone says “I deserve it”, for justification for purchase. The whole question of “how much do you value your time?” then becomes a bit more complicated ….. and from my experience, the less of something you have, be it time or money, then the more you value it.

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