## Thursday, January 7, 2010

### Are economists cheapskates: A case study

Lately, economists have been copping it from all angles.  They have been widely acknowledged as cheapskates, following this Wall Street Journal article.

My personal view is that economists are either; (a) more aware of the satisfaction they derive from various goods, services and activities (they know their utility), or (b) studying economics makes us more aware of which choices provide more satisfaction.

I tend to agree with this point about economists, and myself in particular (from here):
They are cheap in the sense that they need to be convinced of an item's value—and be convinced of the fact that there is no cheaper way of getting that item—before paying up. They hate being wasteful, and they take a cold, scientific approach to maximizing efficiency.

When I consider any purchase I generally think in terms of opportunity cost - what else could I be doing with my time or money that would provide myself and my family greater satisfaction.  For example, when I consider a $10 purchase, I weigh up the new item against other things I could have for$10, such as a take away lunch, the ingredients for a home cooked dinner, a book from an online store, fuel for the car to travel about 80kms, and so on.  I am even aware that it takes me about 20mins of work to earn this amount after tax.  It's not like I think everything through in this way, but I am aware of it, and for items I am on the cusp of purchasing, this awareness helps me to be ruthless in culling unnecessary spending.

So it is with this attitude in mind that I bring your attention back to the photograph above.  Next weekend we are heading to Stradbroke Island for a holiday with some friends.  Both families are squeezing in to our car to reduce fuel and ferry costs (and you always get great conversation jammed in the car on road trips), so we will need some more space for a few things.

Here's where the economist in me really shines through.  Ready made roofracks to suit the car cost between $300 and$400.   That's the almost the cost for the whole family holiday, about a weeks rent, a couple of days work, a return airfare to Melbourne and so on.

The value to me is marginal.  We will probably only put surfboards up there, maybe a stroller, so the only real difference to the trip will be that I will swim in the mornings for a couple of hours instead of surfing, and may have to carry a child when they are tired.

Instead, I bought some bolts with the correct thread and cut some timber to fit.  There you have a $9 roof rack, which in my mind, is equally as functional. Of course there was a couple of hours work involved, but I actually enjoyed a bit of tinkering and couldn't have worked those hours anyway (I was home with my toddler). By the way, if you read the linked WSJ article, I would not have sent a friend money to hire removalists for a few reasons. 1. I enjoy a bit of heavy lifting now and then. 2. I enjoy the camaraderie when friends pull together to help out. 3. I enjoy the hard earned beers afterwards. #### 2 comments: 1. Ahh but how do you value appearance? If how others perceives you is valuable (i.e. a politician, first date), I would have thought$400 is looking a little more reasonable not to mention how a particular individual values surfing etc...

2. I value neither appearance, nor how other perceive me, especially if they draw strong conclusions about my character from the timber on my roof.

Also, I'm not super passionate about surfing, so I don't put that value above all those things I will miss out on because of \$300 bill.

But you make a good point that a rational person, just with different values, can easy justify such an expense.