Monday, February 10, 2003

Indulgence

Self-control is a problem for spendthrifts and drug addicts, right? People prepared to indulge themselves in the present at the expense of their welfare in the future. These people can get around their problem by precommiting to do good: locking alcohol away and hiding the key, or paying most of their salary into an automatic savings plan.

But self-control can also be a problem for people who are addicted to not spending on themselves. The papers I discussed on Life Matters conclude that about 30 per cent of people have this problem.

I and my wife have this problem. We won't spend on indulgences on any given day because it always makes more sense to save the money up for necessities later. But a life lived this way means no indulgences ever, which can hardly be optimal.

Ran Kivetz outlines the problem is a newish paper The Joyless Consumer: Pre-Committing to Luxury to Overcome the Necessity Compulsion.

The solution he offers to those of us who find it hard to be bad is the same as the chief solution used by people who find it hard to be good: precoimmitment.

At the start of this year my wife and bought season tickets to every show put on by the Sydney Theatre Company during 2003.

That forced us to get out and to stop worrying about the cost. We wore the psychological pain of our decision to spend on indulgence once at the start of the year, and then were forced to enjoy ourselves throughout the rest of the year.

Kivetz conducts hypothetical and real lotteries and discovers that a substantial segment of consumers choose the luxury prizes over the cash prize of equal or greater value. He says most explain their choice as motivated by the need to pre-commit in order to guarantee a luxury experience and to stop the money ending up in the pool used for necessities.

Click to Read More...

Monday, February 03, 2003

Waiting for Mr. Right: Rising Inequality and Declining Marriage Rates

The thesis of this paper discussed on Life Matters is that women are waiting longer because there is now a greater potential payoff from doing so. When all the potential males earned pretty much the same income there was little to be gained (financially) in Waiting for Mr. Right.

Increasing inequality, say the authors, explains about 30% of the marriage rate decline in the US over the last few decades. They purport to show that this is not due to the labor force decisions of women in response to rising income inequality, or to the marital decisions of men in response to rising income inequality.

Click to Read More...