4 ms·

You're misunderstanding the question they've posed people. In either situation, the question is "is half an hour of transit worth $50 to you." Whether it's $50

by RSZC 9y ago

You're misunderstanding the question they've posed people. In either situation, the question is "is half an hour of transit worth $50 to you." Whether it's $50 saved on a $300 item or a $1000 item has no impact on the $ saved per minute.

lazulicurio 9y ago
I'd be interested to know if there was some sort of priming effect going on. With the wealthier people thinking more in percentage terms rather than absolute price, they might expect that the $1000 tablet would be discounted more in the future (if the $300 tablet can be 17% off, why not the $1000 tablet?) and decide to wait it out.
rdiddly 9y ago
Right, but there's a subtlety: The dollars saved in those minutes are worth a different amount to a rich person depending on their relative impact on the sale. $50 off of $300 is a 1/6 discount, so a "good deal" that they will (somewhat recreationally) decide to go and get. But they still don't inherently care that much about $50. You could say if they make lets say ten times what I do, they probably care 1/10th as much as I do, about $50. Anyway and meanwhile, $50 off of $1000 is a 1/20 or 5% discount. Now it's still the same $50 they don't give a shit about, but it's also now an insignificant discount. Would they spend extra time on what to them is a rounding error on a $1000 purchase? They're not really getting a "deal" anymore, it's a bore, and they decide to spend the extra $50 just to buy back their half-hour. So long as the price is still "about $1000" they're OK with it.
- tylerhou 9y ago
  The rational answer is that if you would drive 30 minutes to save $50 off a $300 tablet, then you should also drive 30 minutes to save $50 off a $1000 tablet. You've described the psychology of why a wealthy person might not drive the 30 minutes for the $1000 tablet well (but still will spend the time to save money on the $300 tablet), but that choice is still irrational.
  - rdiddly 9y ago
    Well yes, it's completely arbitrary! Those with the luxury to act irrationally will sometimes do so, I guess. And economics doesn't do a good job of explaining it, so the root of this branch of the comment tree was kinda right when they said traditional economic theory is a ass.[0] Adversity and scarcity breeds a precision and a ruthless attention to detail that prevents that $50 from escaping. Meanwhile abundance leads to a relaxing of all such, and maybe even a dulling of that skill. Being born into wealth I imagine would put you at an even bigger disadvantage in that regard... though I might be okay with having such problems... [0] I'm paraphrasing of course and I changed Law to Economics. http://www.bartleby.com/73/1002.html http://www.bartleby.com/73/1002.html
    - tylerhou 9y ago
      The reason why people act irrationally has more to do with psychology than economics. Vsauce has a good segment talking about human tendency to think in terms of proportion instead of absolute scale: https://youtu.be/Pxb5lSPLy9c?t=1m53s https://youtu.be/Pxb5lSPLy9c?t=1m53s
  - keenerd 9y ago
    It can still be rational, but you need to look at shopping as an aggregate of probabilities. Let's make it more extreme. A $50 item for free or $50 off a $5000 purchase. Discounts as big as 100% off don't come every day. Maybe you'll never see that deal again in your life. You should jump on it. Where as a 1% discount is something you see every day at dozens of stores. There will probably be a bigger discount next week, so don't bother going out of your way. If you have to make a choice between the two, you choose the item with the less-common discount.
    - Buge 9y ago
      You're thinking that the question is "should I this item or not", or "should I buy this item now or wait a while". Then it could be logical to prefer the higher percent discount. But that's not what the study asked. The study said "you need to buy this item now, where will you buy it?" In this case it is illogical to prefer the higher percent discount, dollar value is the only thing that matters.
charlesdm 9y ago
Most people think about a dollar as a dollar. They don't realise it's not worth focusing on saving a dollar here and there, if they then move ahead and overpay for a house or a car (e.g. by not negotiating). Half the battle is getting a good (or great) deal on expensive, one off purchases, if possible (say everything above $2k). Don't worry about the rest. As with everything: 20% of the "work" gets you 80% of the way there. You can then not worry about the smaller expenses -- the ones that are generally time consuming and annoying to track -- that tend to make your life miserable. Yes, Starbucks is expensive, but you're not going to go bankrupt drinking their coffee. You're also not going to get rich by not drinking it.
- mc32 9y ago
  It really depends. There was a time when what i could have spent on Starbucks was equivalent to at least one main meal, so splurging on a drink like that was a luxury of sorts for when i had extra funds-- this was at tertiary school and got by with a PT job.
- autokad 9y ago
  > "Yes, Starbucks is expensive, but you're not going to go bankrupt drinking their coffee." I observed people spending 5$ both morning and lunch/day, but for arguments sake stick to 1/day. thats roughly 1300$/year. now imagine living paycheck to paycheck and spending that (very common). they end up taking on dept @20% interest. in a 5 year window, just that spending on starbucks is effectively costing them nearly 10,000$. edit: keep in mind, i heard the average 401k savings is ~5k
  - sjg007 9y ago
    Starbucks could offer a 401k that comes with a free daily cup of coffee.
  - wetpaws 9y ago
    As someone said, you will not get rich by cutting pennies. I spend about $50 on starbucks a month, mostly on weekends in the morning, $500/y would be not such a big gain. On the other hand the quality of life I'm getting without good morning coffee would be much, much worse. If I would need extra $500 that bad, I would consider doing some side work or even changing the job. It's very easy to go over the top of living frugal and forget what is the sole point of earning money and living your life in a first place.
mirimir 9y ago
I freelance, so I consider 30 min travel vs $50 saving differently, depending on how much work I have, when it ought to be done by, and what I'm billing at. If I were billing at less than $100/hr, and had enough slack, I'd of course make the trip. But if I were behind schedule on a $75/hr job, I'd probably pay the extra $50. But damn, people working 15 hours per day at minimum wage might also pay the $50, if they can't readily get time off work.
- scarface74 9y ago
  It's not just about the $50 vs. time spent. If after the calculation you decided it was worth $50 to spend that extra 30 minute drive, it shouldn't matter if you're saving $50 on a $100 item or you are saving $50 on a $1000 item.
  - mirimir 9y ago
    Agreed. Except to the extent that people who buy $1000 tablets care less about saving $50 than people who buy $100 tablets. And their time is more valuable as well. Unless they don't need to work, and enjoy driving.
gowld 9y ago
When behavioral economists do these studies and brag about counterintuitive results, they usually ignore that more expensive items usually have a longer lifespan, so the cost per unit time isn't as different as the sticker price suggests.
- Buge 9y ago
  I think you're misunderstanding. The question had nothing to do with whether the more expensive tablet is better or not, or which one someone would rather buy.
  - alehul 9y ago
    The parent's comment point was that it may logically be assumed that you'd be doing such an action once every 1 year vs once every 3 years, for example. Edit: Upon realizing that you'd save the $50 every time you go / every 30 minutes spent regardless of how often, me (and presumably the parent) are wrong, and I'm going to bed. :)
    - Buge 9y ago
      Whether the device will last 1 year, or last 3 years, doesn't change whether you should spend 30 minutes to save $50. The rich people who changed their answers were still illogical.
alehul 9y ago
I completely understand the parent comment and I don't think it's a misunderstanding. The idea is that a rich person doesn't care to think through that situation using all their reasoning capabilities, as they're more focused on the long-term; they spend their time thinking about how to get that promotion to prepare for their children's college funds, or something of that sort. An example: I was raised by a single mother in poverty, where she would try to scrape by and live on welfare without working, year after year after year. She would only think about tomorrow's expenses, and she'd do a great job budgeting to make sure we had enough food to eat and so forth. As a child, I would show her job listings, explain the value of utilizing her assets as well as she could (she had her inheritance invested terribly), and all that. She would never be able to understand it, as she couldn't think that far ahead with all her mental capacity being devoted to making the best decision to save $50, as mentioned in the other comment. In conclusion, optimizing those tiny financial decisions often leads you to neglect the ones further out. That's the issue the parent comment was highlighting. Also, traditional economics isn't a fool if you account for the limited economic reasoning capability, and consider that reasoning capability as a scarce resource to be allocated.

by RSZC 9y ago

lazulicurio 9y ago

I'd be interested to know if there was some sort of priming effect going on. With the wealthier people thinking more in percentage terms rather than absolute price, they might expect that the $1000 tablet would be discounted more in the future (if the $300 tablet can be 17% off, why not the $1000 tablet?) and decide to wait it out.

rdiddly 9y ago

Right, but there's a subtlety: The dollars saved in those minutes are worth a different amount to a rich person depending on their relative impact on the sale. $50 off of $300 is a 1/6 discount, so a "good deal" that they will (somewhat recreationally) decide to go and get. But they still don't inherently care that much about $50. You could say if they make lets say ten times what I do, they probably care 1/10th as much as I do, about $50. Anyway and meanwhile, $50 off of $1000 is a 1/20 or 5% discount. Now it's still the same $50 they don't give a shit about, but it's also now an insignificant discount. Would they spend extra time on what to them is a rounding error on a $1000 purchase? They're not really getting a "deal" anymore, it's a bore, and they decide to spend the extra $50 just to buy back their half-hour. So long as the price is still "about $1000" they're OK with it.

tylerhou 9y ago
The rational answer is that if you would drive 30 minutes to save $50 off a $300 tablet, then you should also drive 30 minutes to save $50 off a $1000 tablet. You've described the psychology of why a wealthy person might not drive the 30 minutes for the $1000 tablet well (but still will spend the time to save money on the $300 tablet), but that choice is still irrational.
- rdiddly 9y ago
  Well yes, it's completely arbitrary! Those with the luxury to act irrationally will sometimes do so, I guess. And economics doesn't do a good job of explaining it, so the root of this branch of the comment tree was kinda right when they said traditional economic theory is a ass.[0] Adversity and scarcity breeds a precision and a ruthless attention to detail that prevents that $50 from escaping. Meanwhile abundance leads to a relaxing of all such, and maybe even a dulling of that skill. Being born into wealth I imagine would put you at an even bigger disadvantage in that regard... though I might be okay with having such problems... [0] I'm paraphrasing of course and I changed Law to Economics. http://www.bartleby.com/73/1002.html http://www.bartleby.com/73/1002.html
  - tylerhou 9y ago
    The reason why people act irrationally has more to do with psychology than economics. Vsauce has a good segment talking about human tendency to think in terms of proportion instead of absolute scale: https://youtu.be/Pxb5lSPLy9c?t=1m53s https://youtu.be/Pxb5lSPLy9c?t=1m53s
- keenerd 9y ago
  It can still be rational, but you need to look at shopping as an aggregate of probabilities. Let's make it more extreme. A $50 item for free or $50 off a $5000 purchase. Discounts as big as 100% off don't come every day. Maybe you'll never see that deal again in your life. You should jump on it. Where as a 1% discount is something you see every day at dozens of stores. There will probably be a bigger discount next week, so don't bother going out of your way. If you have to make a choice between the two, you choose the item with the less-common discount.
  - Buge 9y ago
    You're thinking that the question is "should I this item or not", or "should I buy this item now or wait a while". Then it could be logical to prefer the higher percent discount. But that's not what the study asked. The study said "you need to buy this item now, where will you buy it?" In this case it is illogical to prefer the higher percent discount, dollar value is the only thing that matters.

charlesdm 9y ago

Most people think about a dollar as a dollar. They don't realise it's not worth focusing on saving a dollar here and there, if they then move ahead and overpay for a house or a car (e.g. by not negotiating). Half the battle is getting a good (or great) deal on expensive, one off purchases, if possible (say everything above $2k). Don't worry about the rest. As with everything: 20% of the "work" gets you 80% of the way there. You can then not worry about the smaller expenses -- the ones that are generally time consuming and annoying to track -- that tend to make your life miserable. Yes, Starbucks is expensive, but you're not going to go bankrupt drinking their coffee. You're also not going to get rich by not drinking it.

mc32 9y ago
It really depends. There was a time when what i could have spent on Starbucks was equivalent to at least one main meal, so splurging on a drink like that was a luxury of sorts for when i had extra funds-- this was at tertiary school and got by with a PT job.
autokad 9y ago
> "Yes, Starbucks is expensive, but you're not going to go bankrupt drinking their coffee." I observed people spending 5$ both morning and lunch/day, but for arguments sake stick to 1/day. thats roughly 1300$/year. now imagine living paycheck to paycheck and spending that (very common). they end up taking on dept @20% interest. in a 5 year window, just that spending on starbucks is effectively costing them nearly 10,000$. edit: keep in mind, i heard the average 401k savings is ~5k
- sjg007 9y ago
  Starbucks could offer a 401k that comes with a free daily cup of coffee.
- wetpaws 9y ago
  As someone said, you will not get rich by cutting pennies. I spend about $50 on starbucks a month, mostly on weekends in the morning, $500/y would be not such a big gain. On the other hand the quality of life I'm getting without good morning coffee would be much, much worse. If I would need extra $500 that bad, I would consider doing some side work or even changing the job. It's very easy to go over the top of living frugal and forget what is the sole point of earning money and living your life in a first place.

mirimir 9y ago

I freelance, so I consider 30 min travel vs $50 saving differently, depending on how much work I have, when it ought to be done by, and what I'm billing at. If I were billing at less than $100/hr, and had enough slack, I'd of course make the trip. But if I were behind schedule on a $75/hr job, I'd probably pay the extra $50. But damn, people working 15 hours per day at minimum wage might also pay the $50, if they can't readily get time off work.

scarface74 9y ago
It's not just about the $50 vs. time spent. If after the calculation you decided it was worth $50 to spend that extra 30 minute drive, it shouldn't matter if you're saving $50 on a $100 item or you are saving $50 on a $1000 item.
- mirimir 9y ago
  Agreed. Except to the extent that people who buy $1000 tablets care less about saving $50 than people who buy $100 tablets. And their time is more valuable as well. Unless they don't need to work, and enjoy driving.

gowld 9y ago

When behavioral economists do these studies and brag about counterintuitive results, they usually ignore that more expensive items usually have a longer lifespan, so the cost per unit time isn't as different as the sticker price suggests.

Buge 9y ago
I think you're misunderstanding. The question had nothing to do with whether the more expensive tablet is better or not, or which one someone would rather buy.
- alehul 9y ago
  The parent's comment point was that it may logically be assumed that you'd be doing such an action once every 1 year vs once every 3 years, for example. Edit: Upon realizing that you'd save the $50 every time you go / every 30 minutes spent regardless of how often, me (and presumably the parent) are wrong, and I'm going to bed. :)
  - Buge 9y ago
    Whether the device will last 1 year, or last 3 years, doesn't change whether you should spend 30 minutes to save $50. The rich people who changed their answers were still illogical.

alehul 9y ago

I completely understand the parent comment and I don't think it's a misunderstanding. The idea is that a rich person doesn't care to think through that situation using all their reasoning capabilities, as they're more focused on the long-term; they spend their time thinking about how to get that promotion to prepare for their children's college funds, or something of that sort. An example: I was raised by a single mother in poverty, where she would try to scrape by and live on welfare without working, year after year after year. She would only think about tomorrow's expenses, and she'd do a great job budgeting to make sure we had enough food to eat and so forth. As a child, I would show her job listings, explain the value of utilizing her assets as well as she could (she had her inheritance invested terribly), and all that. She would never be able to understand it, as she couldn't think that far ahead with all her mental capacity being devoted to making the best decision to save $50, as mentioned in the other comment. In conclusion, optimizing those tiny financial decisions often leads you to neglect the ones further out. That's the issue the parent comment was highlighting. Also, traditional economics isn't a fool if you account for the limited economic reasoning capability, and consider that reasoning capability as a scarce resource to be allocated.