Imagination by Jim Davies

Author:Jim Davies
Language: eng
Format: epub
Tags: Epub3
ISBN: 9781643132884
Publisher: Pegasus Books
Published: 2019-08-28T00:00:00+00:00

HOME ECONOMICS

Time to use your imagination. Imagine that you are about to buy a milkshake, and it’s $10. Then you hear that there’s an identical milkshake for sale. It’s five blocks away, and it’s only $5. Would you walk the five blocks to buy the cheaper milkshake? Most people would.

Okay, now imagine you’re about to buy a smart watch for $505, and you hear that there’s an identical one for sale, five blocks away, for only $500. Would you walk the five blocks to buy the cheaper smart watch?

If you’re like most people, you’d be more eager to walk five blocks to save $5 for the milkshake than you would be for the smart watch. And why? Well, it seems like $5 is nothing compared to the $505 purchase you’re considering, but it feels like a big discount for a $10 shake. But this is really irrational—the effort you’re putting in, walking five blocks, is the same in both cases. In both cases, you’re basically getting a value of $5 for walking five blocks. The actual amount saved is independent of the overall cost of the product you’re buying.

You can try to overcome these kind of irrationalities by using your imagination. In this example, you might try to abstract away from the purchase you’re making. Try to forget whether it’s a $10 shake or a $505 smart watch, and just think about the monetary value of the added effort. Would you walk five blocks for $5? What if some stranger offered you $5 to walk a five-block round trip to drop off something? Would you take this gig?

If you walk a block a minute (which is pretty normal), then this is getting paid $1 per minute. How long would you walk for $1 per minute? Would you do it for two hours ($60 per hour)? The answers to these questions are probably pretty clear in your imagination, and it helps when you abstract the issues like this.

How much is your time worth? If $60 hour is more than you make at your job, perhaps it’s worth walking five blocks in either case. If you make $300 per hour, maybe not. Of course, this also depends on how much you’d benefit from a walk, independent of the money. Is it raining? Do you need the exercise? Or a break?

My beloved and I used this reasoning when we hired someone to clean our house. We were doing the house cleaning ourselves, taking turns. I would do it one week; she the other. It took us a few hours every time. We found that a cleaning person would do it for $90.

My beloved asked me: would you clean our neighbor’s house every other week for $90? My answer was a clear “no.” She asked me how much money I’d charge to do this. The thought of cleaning my neighbor’s house sounds so annoying that I admitted that I’d probably charge $500 per hour. Otherwise it just wouldn’t be worth it to me. Well, the answer was clear—it wasn’t worth my time to clean my own house either.

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