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Are we better at making good use of our time than at making good use of our money?
What is an hour worth to you? If you are in work, a reasonable approximation would be your equivalent hourly wage. After all, that is what you are willing to go to work for. Failing that, let’s take the median hourly wage – just under £14.50 before tax (about $18 or €15) in the UK.
If I asked you to take part in an experiment, which would need one hour of your time, would you do it if I paid you that amount of money? Perhaps. But what if my experiment would require you to spend this time at a moment of my choosing? It could be in the middle of the night, during a day out with the family, or 59 minutes before you have to catch a train (so you will be 1 minute late and miss it). You would probably want more than the standard rate, in those cases.
The value of your time (and that of everyone else) is clearly not uniform. Overtime (as well as work during weekends and nights) tends to be paid at a higher rate than comparable work during ‘normal’ hours. Extra hours come out of your spare time, and that carries a higher price tag. Likewise, people demand more money if they have to work when they could be socializing or sleeping.
A play with money
Time is money, they say, but in this respect, they are quite different. Money is entirely fungible: a pound, a euro or a dollar has the same value, irrespective of where it comes from, or in which bank account it sits. There is, as we saw, a good case for mental accounting with time – treating a minute of work time differently from a minute of leisure time, or a minute of sleep. Yet with money, we do just as much mental accounting – we put it in imaginary jars, and are reluctant to move it from one to the other.
In one of their amous papers, Daniel Kahneman and Amos Tversky describe an experiment in which they give the subjects one of the following two vignettes:
- Imagine that you have decided to see a play and paid the admission price of $10 per ticket. As you enter the theatre, you discover that you have lost the ticket. The seat was not marked, and the ticket cannot be recovered. Would you pay $10 for another ticket?
- Imagine that you have decided to see a play where admission is $10 per ticket. As you enter the theatre, you discover that you have lost a $10 bill. Would you still pay $10 for a ticket for the play?
Would you give the same answer in both cases? In principle you should, because the two situations are entirely equivalent as far as gains and losses are concerned: if you want to see the play, you’ll be $20 poorer, rather than the $10 you had envisaged (and if you decide not to see the play, your loss has made you $10 poorer). But if you didn’t, you are not alone: Kahneman and Tversky found that 46% would buy another ticket in the first situation, while nearly twice as many people (88%) would do so in the second case.
Why this difference? In the first situation, the expense of the ticket had been placed in the theatre or maybe entertainment mental account. Buying another ticket would mean putting an additional $10 in this account, and that might violate your budget for entertainment – $20 for a play? In the second situation, the money was still unallocated in your purse. As it had not yet been put in the mental entertainment jar, buying the ticket and taking the loss would not affect your entertainment budget. (This amusing video is a nice example: Gene Hackman and Dustin Hoffman talk about how they managed their money when they were impoverished young actors. It features actual jars of money, rather than mental ones.)
But it is not because we have better reasons to engage in mental accounting with our time, that doing so is always entirely rational.
Last Saturday morning at the crack of dawn, I was driving to the supermarket for the biweekly shop. I have two good reasons to want to to get there early. If I went later, I’d have to make my way through swarms of shoppers impeding my progress (and costing me time). And as I live in the town centre close to the local shops, I’d also find it impossible to park my car anywhere near my house on a Saturday morning after 9am.
So when I got stuck behind a learner driver who had already failed to proceed through a green traffic light twice, annoyance was creeping up on me. Those seconds (maybe even minutes!) I was wasting felt incredibly valuable. But were they really? How much would I be prepared to pay to be able to overtake the learner and carry on my journey unhindered? Not much, really, I concluded. Yes, that couple of minutes represented perhaps 10% of my return trip. But I could easily waste a similar amount of time looking for an obscure item on my shopping list. And it’s not as if a few minutes would make any difference in either the rush at the supermarket or my chance to find a parking space on my return. Besides, compared to my entire shopping expedition, rather than just the ‘travel’ mental account, those minutes would represent barely 3%, not 10%. Nothing to get worked up about.
I relaxed and continued to trundle behind the L-plated car for another kilometre or so. The driver behind me was less patient, however. All of a sudden, a Porsche shot past me on the wrong side of the road, overtaking me and the slow car in front. But barely 10 seconds later I ended up just behind the sports car, having to give way to the traffic on a busy roundabout (the learner was now standing in a different lane). Of course, the Porsche driver could have been lucky and be a mile ahead of me by then. Yet I still felt, a little smugly, that my deliberate mental accounting had trumped the impulsive, unwitting mental accounting there.
But what if it involves bigger chunks of time? My daughter and her family have moved house, and the drive there is now about 15 minutes longer. For my wife this feels like a really bad deal, while for me it’s pretty insignificant. The difference is entirely a matter of mental time accounting.
Her argument: it’s half an hour more (for a return trip – making the current total about 1.5 hours). That is 50% more travel time. We usually spend around 3 hours for a visit in total, so instead of taking one hour’s drive for two hours with them (a ratio of 1:2) we now devote 1.5 hours to the journey for just 1.5 hours there. That extra half hour travelling means half an hour less with them – that relative opportunity cost means it’s almost not worth it.
My argument: 15 minutes is nothing. Like any frequent traveller, I’m delighted if a plane is delayed by no more than 15 minutes. Even going to our daughter’s old place, we often didn’t quite make it in 30 minutes – that was like a best-case time. 15 minutes is 1% of a day, 0.15% of a week, so in the bigger picture it is entirely insignificant (we don’t even go there every week). But most importantly, there is no reason why we need to ‘pay’ for the extra travel time by shortening our time with our daughter’s family – to move time from the ‘spend time with family’ mental account to the ‘travel’ account. We can easily travel 15 minutes earlier and come back 15 minutes later, and spend half an hour less on some other activity (if need be, get up 15 minutes early, and go to bed 15 minutes later).
Does that settle the debate? Not really. But this difference in opinion shows how strongly our perception can be influenced by how we mentally account for our time. And that is a choice we can make – we may be mental accountants, but we don’t have to be unwitting mental accountants.