Some reflections on money
Nov
30
Some quick reflections on the ways money is useful and difficult to deal with — and some ways we can fight back.
22 Comments to “Some reflections on money”
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Hi, I’m Dan Ariely. I do research in behavioral economics and try to describe it in plain language. These findings have enriched my life, and my hope is that they will do the same for you.
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One thing that you don’t really touch on here is the saturation of value of a particular comparative item. Lots of people feel that one latte is worth $5, or that 10 lattes over the course of a week are worth $50, but no one is actually going to consume, say, 100 lattes in a day, so 100 lattes aren’t really *worth* $500 in the same way that one latte is *worth* $5.
When is the iPhone app coming? And when it’s listed will it be free or will it be listed as the same price as a song on itunes or in $? Or will it be free?
Great video. Thanks for posting it.
With saving money and being cost effective -
Does it work in terms of thinking of hours needed of labor? So if the latte costs $5, that latte costs someone 5 minutes of labor, or 12 minutes of labor, or even 30 minutes, etc?
brilliant!.. the idea for the application reminded me of the way I, as a child, used to evaluate the amount of money I had in terms of the number of pizzas and bubble gums I could buy with it..
The envelope idea is actually recommended by Dave Ramsay to help people stay on a budget.
When you develop mobile apps – Please don’t forget the Palm Pre!!! webOS rocks…
Thanks for a great video.
But one thing I kind of disagree (sorry!) is about a debit card. Using a debit card helps me to save money more than using cash for two reasons: 1) I don’t have to give up a
small change like 9 cents for tips. 2) When I get $2 or $1 coins back (I’m in Canada) after I pay something by bills, I tend to use the coins more.
You may think using debit card may take longer time, but when you are used to it, it won’t be like that. Also, you don’t have to carry all the coins.
So, I think for people like students who do not have much budget, debit card may be more efficient to save money than cash.
You may think using debit card may take longer, but not that different may be just a few more seconds, and if you think of carrying all the coins it is worse.
So, I think for people like students who do not have much budget, debit card may be more efficient to save money than cash.
Great video, and great book. Your reflections about comparisons of goods and money reminds me of Mises’ Human Action. He reaches similar conclusions, albeit he follows a different methodological path. He argues that products are not substitutes between narrow categories (as defined by price elasticity), in “closed markets”; instead, substitution is open to any good that satisfies consumer’s most important subjective need.
In my work with people, I’ve found it easier for them to recognize the value of money in relationship to time. Here’s how:
Calculate the amount of hours you spend to work for income (including transportation, time it takes to decompress after work, etc.).
Calculate your actual income, which is total income minus the cost of generating that income (commuting time, training, clothing, etc.).
Divide Actual Income by Hours Spent and you’ll know what you REALLY earn per hour.
THEN, for any purchase, divide the price by your REAL hourly earnings and you’ll see how many hours of your life are required for that purchase…
This is, often, a much more palpable way of “feeling” the cost of something. In a way this can “increase the pain of pain” (if the purchase requires a disproportionate number of hours).
With respect to people failing to consider the difference between the price of two bottles of wine being three gallons of milk it seems that the few who do this are deemed social misfits – Asperger’s syndrome or perhaps a high functioning autistic.
How closely is the awareness tied to the social expectations of “normalcy” rather than being completely irrational thinking?
-ron
I have the flip-side experience with cash… I feel much more powerful using cash than credit cards. People like receiving it more too.
Credit cards feel weak to me (and I know how much more pain they can cause much later on).
Dan, the human limitation with opportunity cost which you outline is not specific to money. It is a general problem of any human choice. If you obtained the car by exchanging it with any kind of good, such as chicken (many of them) or labor, you would have the same problem.
Yes, the problem is hard, but it is not a problem with money. Money actually simplifies the calculation.
Tools such as the iPhone app or the envelope system you describe seem like great ideas to empower people with their own choices. Looking forward to more ideas like this.
Thanks for your sharing.so wonderful!wish you have a lovely day and Happy New Year.
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Hello Dan,
I am a programmer, interrested in creation of economical wisdom mobile apps (iPhone and Android). Your idea is great – please keep us informed about it’s success and/or failures.
Or just drop me a line if you’ll need programming services
I’ve used this system many times in life, especially when traveling.
Though I have no trouble converting between currencies, what is hard to convert is a countries relative standard of living and the *value* of that cash.
So in order to figure out if a restaurant or hotel or taxi fare was expensive, I’d convert to “beer money”, or occasionally “local takeaway price” if alcohol was abnormally cheap or expensive.
A local restaurant in Thailand may be ‘cheap’ by absolute standards, but comparing the price of a sit-down meal to what was charged at a street stall the locals ate at told me if it was what was worth paying.
10 beers = 1 hostel room, 20 beers = an ok hotel room.
As a young blood working as a bartender around the world, when the local boss asked me how much I thought I should be paid, the price started at “2 beers per hour”. If it was 800 drachma, 6 pounds, or 2400 yen, it fit the local economy and the style of bar I was in
PS, thanks for the book, I got a copy for myself over Christmas!
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Great video. Thanks for posting it.
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