Wednesday, March 16, 2011

gaining some prospective

I've had best intentions for several days now to take a photo of my car to reveal my choice in the door color dilemma.

But it wouldn't be a very excited picture anyway, because I decided to go with the paint. The door looks exactly like the rest of my car.

My family seemed much more willing than my friends to put me into the cheapskate box. Unfortunately, I can't gloat over their seeming lack of insight into my true character because, had the decision been entirely up to me, I would have gone with the silver door. But Abe had a say in things, too. I figure that, budgets allowing, the spouse who wants a tad more class and decorum has the right of way in these matters.

It's probably a good thing, in the end. After all, we plan on driving this car for several more years ... to places like the grocery store, church, and ultimate Frisbee games.

Well, what's done is done.

Here's another way to think of the $250 door painting dilemma that I've been mulling over.

Question 1: Would you agree to pay $250 for someone to paint your door to match the rest of your car (assuming that without paying it wouldn't match).
Question 2: Would you agree to receive $250 for someone to paint your door to mismatch the rest of your car?

I found myself saying no to question 1 and no to question 2. If you think in terms of strict monetary payoff, that doesn't make any sense. Saying no to question 1 is like saying that I'd rather have $250 than a matching door. But then saying no to question 2 is like saying that I'd rather have a matching door than $250. My payoffs are exactly switched.

Here's a decision grid. This is formatted like the 2-player game payoff grids that economists often use (at least in my 101 econ class). You are the only player, and you have 2 choices to make: get the car painted to match (Q1 - column, payoffs as the second number, blues) and get the car painted to mismatch (Q2 - row, payoffs as the first number, blacks).

It makes sense to be in the upper left or bottom right corners. Your payoffs are the same for each decision. But I fall in the upper right corner. Economist explain this contradiction with Prospect Theory. Essentially, we value losses much greater than we value gains. So the pain I feel in giving away $250 is much greater than the joy I feel in receiving $250. And so the adage is true "It is greater to give than to receive".

Here's the classic graph used to illustrate Prospect Theory.

And so, while I won't give away $250 to match my car door, I won't receive $250 to mismatch it. You'd have to give me more.

How much more?

Well, I'm not sure. A lot, I think. Even more than if I hadn't just forked out $250 to get it painted. Which is evidence of yet another little behavioral twist that psychologists can use as a co-variate and economists can devise an equation for.


Megan said...

Way to put your Econ 110 to use!

Jen said...

Erin, if you recall, I said I'd bet $250 you didn't paint the door. We should have made it official, you could have come out even and I wouldn't have just had horrible flashbacks of a summer spent in a 7:30am econ class.

Dawn said...

Wait! I have to go get some paper to take notes! :) Will there be a quiz later?