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This is completely backwards. Always think in absolute dollars and not in rates. $1000 is $1000 whether the cost per use is pennies or tens of dollars. Thinkin

This is completely backwards. Always think in absolute dollars and not in rates. $1000 is $1000 whether the cost per use is pennies or tens of dollars. Thinking in terms of rates is how people would fall for predatory installment purchases in the old days (you can have a new computer for just $2.5 a day!) The other obvious problem is looking at cost absent of a market. It's not just how much it is worth it to you, but what the competition is offering it for. I personally pay less than $400 a phone and keep it for over three years. Paying $1000 for a phone just two years is not an improvement. Edit: I spoke very dogmatically above. Using rates can be OK in certain situations where the analysis becomes equivalent to using absolutes, but it's not at all rare for rate analysis and absolute analysis to differ, and people make the mistake of using rates there. You will never, ever, go wrong by looking at absolute amounts, though - and it's usually the easier way to analyze. In my engineering undergrad, Engineering Economics was a required course. I remember a fellow student said "I often return other engineering textbooks to get some cash, but this book is more useful than most of my engineering ones." Decades later, I can say he was definitely right. All too often I see engineers making poor financial decisions based on heuristics when they're quite capable in doing the (simple) math. But a lifetime of being exposed to flawed ways of thinking of money provides a convenient shortcut.

Spivak 4y ago
You’re not really disagreeing with the author. * $/use isn’t really a rate in the way you’re describing with predatory financing. It’s not a cost hiding measure but one of many ways of estimating utility. Optimizing for price alone and not $/utility will bite you for lots of goods. * A $400 phone used 100 times is $4/use and a $1000 phone used 100 times is $10/use so markets still have plenty of an effect.
- 2muchcoffeeman 4y ago
  Thinking in terms of rate can still be used to wrongly justify things to yourself. Or can be used by others to make things seem like a good deal. E.g. I should start a new hobby because I am definitely going to keep at if for 5 years! And then you don't.
- zhte415 4y ago
  Those seem expensive options. Why not take your phone out of your pocket more to check the time more? That would increase your use, and thus reduce the $/utility.
bombcar 4y ago
For non-necessary payments I think of it in cheeseburgers. Would I rather have this five hundred dollar phone or eat a cheeseburger a hundred times?
- BeetleB 4y ago
  What you're doing is considering opportunity costs, which is quite a good thing to do.
- lvturner 4y ago
  Cheeseburger all day every day... but then I need to think about the quality of life degradation that 100 additional cheeseburgers would bring... sigh The rabbit hole never ends.
  - bombcar 4y ago
    Sure, a hundred cheeseburgers in a day would be too much, but if the phone will last three years, that's about three burgers a month ... could be worth it!
- rufus_foreman 4y ago
  Cheeseburger, cheeseburger, cheeseburger, cheeseburger. Android no iPhone.
l33t2328 4y ago
You will use the computer for more than 400 days, so the rate is useful.
- BeetleB 4y ago
  Rates are usually only good when comparing apples with apples. So if you know you'll use the computer for N days, and the alternative is roughly for the same N, then comparing rates and comparing absolute numbers is an identical analysis. But if you're comparing using a computer for 5 years vs eating cheeseburgers over 10 years, using rates become more challenging, and is prone to faulty analyses. My point, though, is that cost per use is not usually a helpful metric.
  - OJFord 4y ago
    > My point, though, is that cost per use is not usually a helpful metric. I think it can be: say you're comparing two cars with the same fuel efficiency, one's more expensive and more luxurious (or to make the same efficiency less contrived, you're considering the 'luxury interior package' upgrade) - roughly how many times (or hours) will you use the car over your ownership; it might be helpful to consider the per use (or hour) cost of that extra comfort. Or (as a hobbyist/DIYer) a fancier tool vs. Draper/Silverline/Amtech/unnamed clones that'll get it done but won't last nor make you feel warm and fuzzy while using them. How many times will you actually need a ⅑" tartan paint brush with 90deg handle? Maybe it's quite expensive to get the better one that will last for the one time you'll use it. (I'm not very good at that one - know I'd hate myself the second time used it.)
    - BeetleB 4y ago
      > I think it can be: say you're comparing two cars with the same fuel efficiency, one's more expensive and more luxurious (or to make the same efficiency less contrived, you're considering the 'luxury interior package' upgrade) - roughly how many times (or hours) will you use the car over your ownership; it might be helpful to consider the per use (or hour) cost of that extra comfort. You can get away with this because you are fixing the time interval: You'll presumably drive both cars the same amount, for the same number of hours. Hence a total amount vs per use (or per hour or per year) gives the same result. What the author is doing is comparing per use cost for very different entities, with unclear timelines. Ask a random person: Is it better to use your phone for 2 cents, or eat an $8 McDonald's meal?[1] Putting aside that both serve very different needs, the question is missing the component: Over what time frame? The phone will die one day, but I'll always have the option to eat McDonald's. [1] I have no idea where he lives where a McDonald's meal is over $14...
Void_ 4y ago
Actually the installments are a great way to think about purchases. I have a budget of 500€ for sports per year. I use this on gyms, running shoes and what not. I wanted to get into skiing so I bought some skis this year. It was about 700€. Normally this doesn’t fit my budget. But I’m gonna keep these skis for at least 4 years. Now the price is 175€/year. And I still have a bigger portion of my budget left for other sports.
- gmadsen 4y ago
  i mean if you have trouble not staying in a budget, I suppose that helps, just seems weird to tout that as a great way, if you are overall spending more money...
  - appletrotter 4y ago
    That's amortization?
- OJFord 4y ago
  Amortising the cost over n years isn't the same as calculating a 'per use' rate though. (For many things it makes more sense, don't get me wrong, just pointing out the difference.)
  - deleted 4y ago
    [deleted]
- dsrees 4y ago
  This only works if you subtract 175 from your sports budget for the next 4 years. The problem with this thinking is that in 2 years you'll forget this commitment you made to yourself and end up giving yourself that full 500 again. Thus spending more money
deleted 4y ago
[deleted]
hitovst 4y ago
Have you seen what has happened to the market for fuel inefficient vehicles lately?
- lelanthran 4y ago
  > Have you seen what has happened to the market for fuel inefficient vehicles lately? I have not. What has happened? Have SUVs stopped being the most popular class of passenger cars being sold?
  - hitovst 4y ago
    The demand for the big diesel SUVs that get about 9 miles to a gallon has gone away, and people are trying to sell them for 20% of what they'd bring a year ago.
    - lelanthran 4y ago
      > The demand for the big diesel SUVs that get about 9 miles to a gallon has gone away, and people are trying to sell them for 20% of what they'd bring a year ago. Any idea what they are replacing them with? Diesel's are pretty fuel-efficient after all, compared to petrol.
    - HeyLaughingBoy 4y ago
      That sounds... odd. The big diesel SUVs and pickups that get around 9MPG are typically fairly old and used mainly as tow vehicles for businesses or people with large boats, horse trailers, etc. The acquisition cost of a more fuel efficient vehicle that has similar horsepower, torque and towing capacity is far higher than just paying more at the pump. This isn't passing the smell test. Do you have examples of it happening?
godelski 4y ago
I don't think you're necessarily disagreeing. There's a factor that neither you nor the author are considering: value/$. Author is implicitly assuming that the higher cost equates to a higher value (clearly this is never a linear relationship). So my friends call me the cheapest person they know, but I also think like the author. If there is something I am going to use a lot and the added value helps me, then I'll shell out more for it. Really we're talking about Boots Theory[0]. If you buy cheap rubbish then you'll buy frequently. If you buy quality you may only have to buy once a lifetime, even if it is 3-5x. With your phone, if all you care about is texting and making calls, yeah, you're not getting any added value paying more. If you're a person that takes a lot of pictures and values the camera, you will get added value (don't come at me with the "buy a dedicated camera" because you're not carrying that in your pocket everywhere and thus can't capture the same moments). So if you wear boots every day, it's better to shell out for the boots that will last you a lifetime rather than ones that will last you a season. [0] https://en.wikipedia.org/wiki/Boots_theory https://en.wikipedia.org/wiki/Boots_theory
- sacred_numbers 4y ago
  I see so many people talk about the Boots theory, and while I don't disagree, there's another side to the story. What if you buy a really nice pair of boots that will last a lifetime and then a couple years later you move to a beach town where you wear sandals all day? Or what if you get paralyzed and have no need for durable shoes? The point is that life is unpredictable and both your circumstances and preferences can change quickly. Also, to extend the analogy further, imagine you have a dog that decides that your boots are a good chew toy. A dog can tear a hole in a pair of $50 boots almost as easily as a pair of $10 boots. I t doesn't matter if the boots last a lifetime of normal use if they get destroyed in six months by an abnormal event.
  - godelski 4y ago
    > Or what if you get paralyzed and have no need for durable shoes? While this is possible, I don't think that's really something you can go about with your life. Shit luck does happen. But you can keep your boots away from your dog. You should acknowledge black swans, but you shouldn't plan your entire life around accounting for them.
mise_en_place 4y ago
> Always think in absolute dollars and not in rates. $1000 is $1000 whether the cost per use is pennies or tens of dollars. Thinking in terms of rates is how people would fall for predatory installment purchases in the old days (you can have a new computer for just $2.5 a day!) It depends on the opportunity cost. If you can get a house for 3600 a month, and the house appreciates in value in excess of the discount rate, then it's worth it to purchase that house.
- lelanthran 4y ago
  > It depends on the opportunity cost. If you can get a house for 3600 a month, and the house appreciates in value in excess of the discount rate, then it's worth it to purchase that house. To add to this, there is also the opportunity cost of buying the more expensive option because the difference is only $1/day. Spending $365/year on the more expensive option is missing out on getting some other item[1] for $365/year. Like I keep telling people who ask me why I don't pay for $FOO instead of using $BAR (where $FOO is "Windows", or "Office365", or some development tool and $BAR is OpenOffice, Vim/Emacs, git from the cli, Linux, etc). The answer to any "Well $FOO only costs you $10/m, and if you are a professional using it as part of your profession, then you should be able to afford it" is "I can afford lots of things, doesn't mean I am necessarily going to buy them". [1] Sticking with the phone example, taking a phone that works out to be cheaper by $365/year means that you could spend the extra money for redundancy (if your phone breaks, simply buy a new one in 30m), you get a drawing tablet (suddenly, whiteboarding during zoom meetings saves 30m - what's your hourly rate?), or you put it into a index tracker or stock or debt, and get a positive return.
- BeetleB 4y ago
  > It depends on the opportunity cost. If you can get a house for 3600 a month, and the house appreciates in value in excess of the discount rate, then it's worth it to purchase that house. In this case, the absolute value analysis yields the same result, so it doesn't really "depend". I'm not saying you will always go wrong thinking in terms of rates. I'm saying you'll never go wrong thinking in terms of absolute values.
HWR_14 4y ago
Cost per use absolutely makes sense when the items being compared have different lifespans. Although that's more estimating depreciation than what the article is talking about.
nextlevelwizard 4y ago
>I personally pay less than $400 a phone and keep it for over three years. Paying $1000 for a phone just two years is not an improvement. Either you aren't using your phone much or you are needlessly suffering with inferior product. Wearing cheap shoes for years when you could afford comfortable high quality shoes is not a virtue. Same goes with tools we use.
- HeyLaughingBoy 4y ago
  Have you considered that other people have different needs than you? My last phone (Nokia 640) cost about $200 and I kept it for 6 years. My current Samsung A12 is better in every respect and cost about $170 through AT&T. I'll probably keep it at least 5 years. I honestly can't imagine what usable benefit a $1,000 phone would provide.
  - nextlevelwizard 4y ago
    Yes, you can also walk bare feet, but that doen't make you any more virtuous. How did you invest that $900 you so diligently saved? >I honestly can't imagine what usable benefit a $1,000 phone would provide. unless you never leave your house you lack imagination pretty hard. how about just having 5G speeds for internet? what about actually quality camera? how about any of the millions of interactions a modern smartphone allows? yeah you (probably) can do most of thaty shit with old phone, but you thats like using 6 year old computer
kqr 4y ago
> Always think in absolute dollars and not in rates. Technically, you should think in probability weighted log-dollars to maximise your economy over the long term. (The Kelly criterion.) In some cases this is equivalent to thinking in terms of fractions of your total wealth -- this is how the Kelly criterion is popularly presented. For small ("everyday", as Bernoulli put it) amounts, this is equivalent to absolute dollars. So you're right, but it's a special case of a more general principle.
- jenny91 4y ago
  That assumes your utility of money is logarithmic in amount, which is not necessarily true.
  - kqr 4y ago
    Common misconception. It does not. It makes only two assumptions: - Growth compounds, and - More is better. Under those two assumptions, log-dollars is what you need to optimise. By coincidence, logarithmic utility of money would also lead to the same conclusion, but that's mathematical happenstance, and not something going into the model. ---- Another way to put it: the Kelly criterion prescribes logarithmic utility. It says that to maximise growth (under above assumptions) you ought to adopt logarithmic utility. If you don't, you get worse results.
    - jenny91 4y ago
      That doesn't make sense, could you please elaborate? What do you mean by "growth compounds"? Do you mean that the value of 10% more is the same across all wealth levels, in which case you're implicitly assuming logarithmic utility?
      - kqr 4y ago
        By growth compounding I simply mean that the 2 % interest you earn today you earn not only on your starting capital, but also on the interest earnings of last year. Another way to phrase it is that you reinvest your winnings.
vasco 4y ago
Do you remember the title of the book?
golemotron 4y ago
> Thinking in terms of rates is how people would fall for predatory installment purchases in the old days (you can have a new computer for just $2.5 a day!) Or SaaS.
tallanvor 4y ago
It's not backwards, but nothing is black and white. An example of where looking at the cost per use makes sense is a gym membership. --If I consider the gym is worth, say, $5/visit and it costs $50/month, then I know I have to go at least 10 times a month to feel like I'm getting what I'm paying for. On the other hand, yeah, my phone is not something that I'm going to try and figure out a cost per use, not the least because each use has a different intrinsic value to me (contacting someone is more valuable than checking the news, at least for me).
- kqr 4y ago
  > then I know I have to go at least 10 times a month to feel like I'm getting what I'm paying for. This is also dangerously close to going backwards about it. Figuring out how much you need to do something purely to "get your money's worth" out of it is the sunk cost fallacy! It's better to start from how many times you want to go to the gym, multiply it with your desired cost per visit, and then see if this total exceeds the cost of the membership. I know that's what you were suggesting, but the way you presented it seems to me, well, backwards!
  - ghaff 4y ago
    >It's better to start from how many times you want to go to the gym Which you may or may not get close to. It's easier with subscriptions generally. It's a good idea to constantly be reviewing how much you're using the subscription and how much value/benefit you're getting from it. And of course, that equation can change over time if the subscription fee goes up or you stop using something as much.
bena 4y ago
I think he's phrasing it poorly and you're not too far from where he is. It's essentially a reworking of the "Boots" theory or poverty. Cheap things will typically wear out faster and need to replaced often. Like in your phone example. You actually based and compared them on rate. $1000/2yrs is worse than $400/3yrs. Hell, even $1000/3yrs is worse than $400/2yrs. That $2.50/day computer is going to wind up being $2.50 * number of days owned when it is finally replaced. It will take 800 days to match the value if the computer costs $2000 initially. If you keep that computer longer than 2 years, 2 months, and 9 days, you're now paying more than the value of the computer. I think the author's suggestion would be to just pay the $2000 up front. It's a lot of money right now, but if you keep the machine for 3 years, that's like $1.83 per day you paid for the computer.
Folcon 4y ago
I've not heard of Engineering Economics before, can you recommend any great textbooks that are preferably standalone and have good examples?
- BeetleB 4y ago
  Apparently I did not keep my textbook, and don't remember which one I had. This one[1] is probably decent (looking at its table of contents): https://www.amazon.com/Engineering-Economic-Analysis-Donald-Newnan/dp/0190296909/ref=sr_1_5?crid=GPRW190XY20F&keywords=engineering+economics&qid=1654877293&sprefix=eng%2Caps%2C426&sr=8-5#customerReviews https://www.amazon.com/Engineering-Economic-Analysis-Donald-... It's not a sophisticated topic. If you're a non-CS engineer who knows calculus and algebra well, this is one of the easiest topics in the curriculum. Even if your calculus is poor, simply using the concepts with a spreadsheet will get you almost all the way.
- HeyLaughingBoy 4y ago
  Actually, most of them tend to have exactly that phrase in their title. Count me in the group who wishes far too late that he had held onto his copy instead of selling it at a discount to another student. I think any introductory textbook on Managerial Economics would cover the same material. It's just that Engineering Economics books tend to use industrial plants and machinery for most of their examples.
demopathos 4y ago
I'm not sure why absolute values are inherently easier to analyze than rates. My income is a rate so I find normalizing on time to be pretty useful. I think $/use is pretty similar to normalizing on time
- BeetleB 4y ago
  > I'm not sure why absolute values are inherently easier to analyze than rates. Simple: $10K is greater than $8K. Analysis is complete. Is 10% better than 8%? Not always. It depends on how much you put in and what the duration for those investments are. This is trivially true, yet so many people ignore this aspect.[1] People also get confused between simple and compound rates. In a lot of real world investment situations, the inputs and timelines aren't the same. In real estate there are plenty of investments that require a minimum investment and have a fixed timeline (cannot withdraw in that time period). Quickly: Is a $50K investment at 8% compound rate over 7 years better than a $40K investment at 10% simple rate over 5 years? There are also investment strategies that require periods of holding cash. It's not trivial to compare those with, say, an S&P 500 investment using only rates. The standard taught in the engineering economics classes: 1. Fix your time interval to whatever is relevant for your situation. 2. Compute the cash you will have at the end of that time interval (i.e. absolute amount) 3. Go with the higher one. [1] Yes - even in the absolute analysis, you should have the same timeline, and technically it's equivalent to a rate comparison in that sense. But I've found that when people do the absolute analysis, they never seem to forget to account for the timelines being the same.

Spivak 4y ago

You’re not really disagreeing with the author. * $/use isn’t really a rate in the way you’re describing with predatory financing. It’s not a cost hiding measure but one of many ways of estimating utility. Optimizing for price alone and not $/utility will bite you for lots of goods. * A $400 phone used 100 times is $4/use and a $1000 phone used 100 times is $10/use so markets still have plenty of an effect.

2muchcoffeeman 4y ago
Thinking in terms of rate can still be used to wrongly justify things to yourself. Or can be used by others to make things seem like a good deal. E.g. I should start a new hobby because I am definitely going to keep at if for 5 years! And then you don't.
zhte415 4y ago
Those seem expensive options. Why not take your phone out of your pocket more to check the time more? That would increase your use, and thus reduce the $/utility.

bombcar 4y ago

For non-necessary payments I think of it in cheeseburgers. Would I rather have this five hundred dollar phone or eat a cheeseburger a hundred times?

BeetleB 4y ago
What you're doing is considering opportunity costs, which is quite a good thing to do.
lvturner 4y ago
Cheeseburger all day every day... but then I need to think about the quality of life degradation that 100 additional cheeseburgers would bring... sigh The rabbit hole never ends.
- bombcar 4y ago
  Sure, a hundred cheeseburgers in a day would be too much, but if the phone will last three years, that's about three burgers a month ... could be worth it!
rufus_foreman 4y ago
Cheeseburger, cheeseburger, cheeseburger, cheeseburger. Android no iPhone.

l33t2328 4y ago

You will use the computer for more than 400 days, so the rate is useful.

BeetleB 4y ago
Rates are usually only good when comparing apples with apples. So if you know you'll use the computer for N days, and the alternative is roughly for the same N, then comparing rates and comparing absolute numbers is an identical analysis. But if you're comparing using a computer for 5 years vs eating cheeseburgers over 10 years, using rates become more challenging, and is prone to faulty analyses. My point, though, is that cost per use is not usually a helpful metric.
- OJFord 4y ago
  > My point, though, is that cost per use is not usually a helpful metric. I think it can be: say you're comparing two cars with the same fuel efficiency, one's more expensive and more luxurious (or to make the same efficiency less contrived, you're considering the 'luxury interior package' upgrade) - roughly how many times (or hours) will you use the car over your ownership; it might be helpful to consider the per use (or hour) cost of that extra comfort. Or (as a hobbyist/DIYer) a fancier tool vs. Draper/Silverline/Amtech/unnamed clones that'll get it done but won't last nor make you feel warm and fuzzy while using them. How many times will you actually need a ⅑" tartan paint brush with 90deg handle? Maybe it's quite expensive to get the better one that will last for the one time you'll use it. (I'm not very good at that one - know I'd hate myself the second time used it.)
  - BeetleB 4y ago
    > I think it can be: say you're comparing two cars with the same fuel efficiency, one's more expensive and more luxurious (or to make the same efficiency less contrived, you're considering the 'luxury interior package' upgrade) - roughly how many times (or hours) will you use the car over your ownership; it might be helpful to consider the per use (or hour) cost of that extra comfort. You can get away with this because you are fixing the time interval: You'll presumably drive both cars the same amount, for the same number of hours. Hence a total amount vs per use (or per hour or per year) gives the same result. What the author is doing is comparing per use cost for very different entities, with unclear timelines. Ask a random person: Is it better to use your phone for 2 cents, or eat an $8 McDonald's meal?[1] Putting aside that both serve very different needs, the question is missing the component: Over what time frame? The phone will die one day, but I'll always have the option to eat McDonald's. [1] I have no idea where he lives where a McDonald's meal is over $14...

Void_ 4y ago

Actually the installments are a great way to think about purchases. I have a budget of 500€ for sports per year. I use this on gyms, running shoes and what not. I wanted to get into skiing so I bought some skis this year. It was about 700€. Normally this doesn’t fit my budget. But I’m gonna keep these skis for at least 4 years. Now the price is 175€/year. And I still have a bigger portion of my budget left for other sports.

gmadsen 4y ago
i mean if you have trouble not staying in a budget, I suppose that helps, just seems weird to tout that as a great way, if you are overall spending more money...
- appletrotter 4y ago
  That's amortization?
OJFord 4y ago
Amortising the cost over n years isn't the same as calculating a 'per use' rate though. (For many things it makes more sense, don't get me wrong, just pointing out the difference.)
- deleted 4y ago
  [deleted]
dsrees 4y ago
This only works if you subtract 175 from your sports budget for the next 4 years. The problem with this thinking is that in 2 years you'll forget this commitment you made to yourself and end up giving yourself that full 500 again. Thus spending more money

deleted 4y ago

[deleted]

hitovst 4y ago

Have you seen what has happened to the market for fuel inefficient vehicles lately?

lelanthran 4y ago
> Have you seen what has happened to the market for fuel inefficient vehicles lately? I have not. What has happened? Have SUVs stopped being the most popular class of passenger cars being sold?
- hitovst 4y ago
  The demand for the big diesel SUVs that get about 9 miles to a gallon has gone away, and people are trying to sell them for 20% of what they'd bring a year ago.
  - lelanthran 4y ago
    > The demand for the big diesel SUVs that get about 9 miles to a gallon has gone away, and people are trying to sell them for 20% of what they'd bring a year ago. Any idea what they are replacing them with? Diesel's are pretty fuel-efficient after all, compared to petrol.
  - HeyLaughingBoy 4y ago
    That sounds... odd. The big diesel SUVs and pickups that get around 9MPG are typically fairly old and used mainly as tow vehicles for businesses or people with large boats, horse trailers, etc. The acquisition cost of a more fuel efficient vehicle that has similar horsepower, torque and towing capacity is far higher than just paying more at the pump. This isn't passing the smell test. Do you have examples of it happening?

godelski 4y ago

I don't think you're necessarily disagreeing. There's a factor that neither you nor the author are considering: value/$. Author is implicitly assuming that the higher cost equates to a higher value (clearly this is never a linear relationship). So my friends call me the cheapest person they know, but I also think like the author. If there is something I am going to use a lot and the added value helps me, then I'll shell out more for it. Really we're talking about Boots Theory[0]. If you buy cheap rubbish then you'll buy frequently. If you buy quality you may only have to buy once a lifetime, even if it is 3-5x. With your phone, if all you care about is texting and making calls, yeah, you're not getting any added value paying more. If you're a person that takes a lot of pictures and values the camera, you will get added value (don't come at me with the "buy a dedicated camera" because you're not carrying that in your pocket everywhere and thus can't capture the same moments). So if you wear boots every day, it's better to shell out for the boots that will last you a lifetime rather than ones that will last you a season. [0] https://en.wikipedia.org/wiki/Boots_theory https://en.wikipedia.org/wiki/Boots_theory

sacred_numbers 4y ago
I see so many people talk about the Boots theory, and while I don't disagree, there's another side to the story. What if you buy a really nice pair of boots that will last a lifetime and then a couple years later you move to a beach town where you wear sandals all day? Or what if you get paralyzed and have no need for durable shoes? The point is that life is unpredictable and both your circumstances and preferences can change quickly. Also, to extend the analogy further, imagine you have a dog that decides that your boots are a good chew toy. A dog can tear a hole in a pair of $50 boots almost as easily as a pair of $10 boots. I t doesn't matter if the boots last a lifetime of normal use if they get destroyed in six months by an abnormal event.
- godelski 4y ago
  > Or what if you get paralyzed and have no need for durable shoes? While this is possible, I don't think that's really something you can go about with your life. Shit luck does happen. But you can keep your boots away from your dog. You should acknowledge black swans, but you shouldn't plan your entire life around accounting for them.

mise_en_place 4y ago

> Always think in absolute dollars and not in rates. $1000 is $1000 whether the cost per use is pennies or tens of dollars. Thinking in terms of rates is how people would fall for predatory installment purchases in the old days (you can have a new computer for just $2.5 a day!) It depends on the opportunity cost. If you can get a house for 3600 a month, and the house appreciates in value in excess of the discount rate, then it's worth it to purchase that house.

lelanthran 4y ago
> It depends on the opportunity cost. If you can get a house for 3600 a month, and the house appreciates in value in excess of the discount rate, then it's worth it to purchase that house. To add to this, there is also the opportunity cost of buying the more expensive option because the difference is only $1/day. Spending $365/year on the more expensive option is missing out on getting some other item[1] for $365/year. Like I keep telling people who ask me why I don't pay for $FOO instead of using $BAR (where $FOO is "Windows", or "Office365", or some development tool and $BAR is OpenOffice, Vim/Emacs, git from the cli, Linux, etc). The answer to any "Well $FOO only costs you $10/m, and if you are a professional using it as part of your profession, then you should be able to afford it" is "I can afford lots of things, doesn't mean I am necessarily going to buy them". [1] Sticking with the phone example, taking a phone that works out to be cheaper by $365/year means that you could spend the extra money for redundancy (if your phone breaks, simply buy a new one in 30m), you get a drawing tablet (suddenly, whiteboarding during zoom meetings saves 30m - what's your hourly rate?), or you put it into a index tracker or stock or debt, and get a positive return.
BeetleB 4y ago
> It depends on the opportunity cost. If you can get a house for 3600 a month, and the house appreciates in value in excess of the discount rate, then it's worth it to purchase that house. In this case, the absolute value analysis yields the same result, so it doesn't really "depend". I'm not saying you will always go wrong thinking in terms of rates. I'm saying you'll never go wrong thinking in terms of absolute values.

HWR_14 4y ago

Cost per use absolutely makes sense when the items being compared have different lifespans. Although that's more estimating depreciation than what the article is talking about.

nextlevelwizard 4y ago

>I personally pay less than $400 a phone and keep it for over three years. Paying $1000 for a phone just two years is not an improvement. Either you aren't using your phone much or you are needlessly suffering with inferior product. Wearing cheap shoes for years when you could afford comfortable high quality shoes is not a virtue. Same goes with tools we use.

HeyLaughingBoy 4y ago
Have you considered that other people have different needs than you? My last phone (Nokia 640) cost about $200 and I kept it for 6 years. My current Samsung A12 is better in every respect and cost about $170 through AT&T. I'll probably keep it at least 5 years. I honestly can't imagine what usable benefit a $1,000 phone would provide.
- nextlevelwizard 4y ago
  Yes, you can also walk bare feet, but that doen't make you any more virtuous. How did you invest that $900 you so diligently saved? >I honestly can't imagine what usable benefit a $1,000 phone would provide. unless you never leave your house you lack imagination pretty hard. how about just having 5G speeds for internet? what about actually quality camera? how about any of the millions of interactions a modern smartphone allows? yeah you (probably) can do most of thaty shit with old phone, but you thats like using 6 year old computer

kqr 4y ago

> Always think in absolute dollars and not in rates. Technically, you should think in probability weighted log-dollars to maximise your economy over the long term. (The Kelly criterion.) In some cases this is equivalent to thinking in terms of fractions of your total wealth -- this is how the Kelly criterion is popularly presented. For small ("everyday", as Bernoulli put it) amounts, this is equivalent to absolute dollars. So you're right, but it's a special case of a more general principle.

jenny91 4y ago
That assumes your utility of money is logarithmic in amount, which is not necessarily true.
- kqr 4y ago
  Common misconception. It does not. It makes only two assumptions: - Growth compounds, and - More is better. Under those two assumptions, log-dollars is what you need to optimise. By coincidence, logarithmic utility of money would also lead to the same conclusion, but that's mathematical happenstance, and not something going into the model. ---- Another way to put it: the Kelly criterion prescribes logarithmic utility. It says that to maximise growth (under above assumptions) you ought to adopt logarithmic utility. If you don't, you get worse results.
  - jenny91 4y ago
    That doesn't make sense, could you please elaborate? What do you mean by "growth compounds"? Do you mean that the value of 10% more is the same across all wealth levels, in which case you're implicitly assuming logarithmic utility?
    - kqr 4y ago
      By growth compounding I simply mean that the 2 % interest you earn today you earn not only on your starting capital, but also on the interest earnings of last year. Another way to phrase it is that you reinvest your winnings.

vasco 4y ago

Do you remember the title of the book?

golemotron 4y ago

> Thinking in terms of rates is how people would fall for predatory installment purchases in the old days (you can have a new computer for just $2.5 a day!) Or SaaS.

tallanvor 4y ago

It's not backwards, but nothing is black and white. An example of where looking at the cost per use makes sense is a gym membership. --If I consider the gym is worth, say, $5/visit and it costs $50/month, then I know I have to go at least 10 times a month to feel like I'm getting what I'm paying for. On the other hand, yeah, my phone is not something that I'm going to try and figure out a cost per use, not the least because each use has a different intrinsic value to me (contacting someone is more valuable than checking the news, at least for me).

kqr 4y ago
> then I know I have to go at least 10 times a month to feel like I'm getting what I'm paying for. This is also dangerously close to going backwards about it. Figuring out how much you need to do something purely to "get your money's worth" out of it is the sunk cost fallacy! It's better to start from how many times you want to go to the gym, multiply it with your desired cost per visit, and then see if this total exceeds the cost of the membership. I know that's what you were suggesting, but the way you presented it seems to me, well, backwards!
- ghaff 4y ago
  >It's better to start from how many times you want to go to the gym Which you may or may not get close to. It's easier with subscriptions generally. It's a good idea to constantly be reviewing how much you're using the subscription and how much value/benefit you're getting from it. And of course, that equation can change over time if the subscription fee goes up or you stop using something as much.

bena 4y ago

I think he's phrasing it poorly and you're not too far from where he is. It's essentially a reworking of the "Boots" theory or poverty. Cheap things will typically wear out faster and need to replaced often. Like in your phone example. You actually based and compared them on rate. $1000/2yrs is worse than $400/3yrs. Hell, even $1000/3yrs is worse than $400/2yrs. That $2.50/day computer is going to wind up being $2.50 * number of days owned when it is finally replaced. It will take 800 days to match the value if the computer costs $2000 initially. If you keep that computer longer than 2 years, 2 months, and 9 days, you're now paying more than the value of the computer. I think the author's suggestion would be to just pay the $2000 up front. It's a lot of money right now, but if you keep the machine for 3 years, that's like $1.83 per day you paid for the computer.

Folcon 4y ago

I've not heard of Engineering Economics before, can you recommend any great textbooks that are preferably standalone and have good examples?

BeetleB 4y ago
Apparently I did not keep my textbook, and don't remember which one I had. This one[1] is probably decent (looking at its table of contents): https://www.amazon.com/Engineering-Economic-Analysis-Donald-Newnan/dp/0190296909/ref=sr_1_5?crid=GPRW190XY20F&keywords=engineering+economics&qid=1654877293&sprefix=eng%2Caps%2C426&sr=8-5#customerReviews https://www.amazon.com/Engineering-Economic-Analysis-Donald-... It's not a sophisticated topic. If you're a non-CS engineer who knows calculus and algebra well, this is one of the easiest topics in the curriculum. Even if your calculus is poor, simply using the concepts with a spreadsheet will get you almost all the way.
HeyLaughingBoy 4y ago
Actually, most of them tend to have exactly that phrase in their title. Count me in the group who wishes far too late that he had held onto his copy instead of selling it at a discount to another student. I think any introductory textbook on Managerial Economics would cover the same material. It's just that Engineering Economics books tend to use industrial plants and machinery for most of their examples.

demopathos 4y ago

I'm not sure why absolute values are inherently easier to analyze than rates. My income is a rate so I find normalizing on time to be pretty useful. I think $/use is pretty similar to normalizing on time

BeetleB 4y ago
> I'm not sure why absolute values are inherently easier to analyze than rates. Simple: $10K is greater than $8K. Analysis is complete. Is 10% better than 8%? Not always. It depends on how much you put in and what the duration for those investments are. This is trivially true, yet so many people ignore this aspect.[1] People also get confused between simple and compound rates. In a lot of real world investment situations, the inputs and timelines aren't the same. In real estate there are plenty of investments that require a minimum investment and have a fixed timeline (cannot withdraw in that time period). Quickly: Is a $50K investment at 8% compound rate over 7 years better than a $40K investment at 10% simple rate over 5 years? There are also investment strategies that require periods of holding cash. It's not trivial to compare those with, say, an S&P 500 investment using only rates. The standard taught in the engineering economics classes: 1. Fix your time interval to whatever is relevant for your situation. 2. Compute the cash you will have at the end of that time interval (i.e. absolute amount) 3. Go with the higher one. [1] Yes - even in the absolute analysis, you should have the same timeline, and technically it's equivalent to a rate comparison in that sense. But I've found that when people do the absolute analysis, they never seem to forget to account for the timelines being the same.