Tuesday, June 06, 2006

Podcast Bears Fruit: Opportunity Cost is Not An Easy Concept

A note from a loyal listener (actually, a loyal listener to Russ Roberts' terrific PODCASTS, of which I was privileged to do one).

I found your podcast discussion of ticket scalping pretty interesting. I particularly enjoyed the part of the conversation where you two discussed the mystery of gift-giving;, why do people prefer to receive a gift rather than money, even though the standard econ model might lead one to believe that the recipient can be made no worse off by the money, and probably better off?

That particular puzzle reminded me of something that happened to me about a year ago. My Mom had asked me to pick her up and take her to the airport, as she didn't want to pay to leave her car parked at the airport for 3 days. I thought about it and realized that I valued my time more than the cost of parking her car, so I offered to pay for her parking, rather than drive her. I thought that was a perfect solution, though my mom didn't quite agree. She was pretty offended. I started thinking about it, and realized that a lot in life is like that. Most of us think little of asking a friend to help us move, but would never ask a friend for the money to hire a mover (even if our friend would *prefer* to hire a mover, rather than help himself!).

I wonder what's going on in these situations? Steven Pinker has referred to two distinct types of exchange - one refers to impersonal market-type exchanges, and the other refers to familial-type exchanges. I wonder if the conflict is caused by a confusion of the mores that govern each type of exchange?

I love the podcasts...they're the only thing keeping me sane during my long drive from Akron to Cleveland. Thanks!


Michael Stack

That really is interesting, and very true. My parents had no conception of their time having any value, because it really didn't. Raised in the depression years, ANYTHING they could do to save money was worth it.

But if my time has a value of $50/hour (and it surely does, or more), then it costs me $100 or more to drop off my wife and pick her up at the airport. (She travels quite a bit on business). So, she takes taxis. The accounting costs are higher ($50 for round trip taxi from Munger castle to RDU, compared to nearly zero for the MM shuttle), but the real costs are less.