Should I wait in line to get this free mug? Should I walk to dinner rather than taking a taxi? Should I drive an extra fifteen minutes to go to the cheaper grocery store? Should I keep reading reviews for another twenty minutes to make sure I’ve really found the best hot water bottle that $10 can buy? These questions can be quite difficult to answer without a framework for valuing our time, especially since considerations of this sort tend to trigger cognitive biases.
To figure out how much we value our time we can ask ourselves simple questions, such as, “How much would I have to get paid to be willing to do an hour of work now?” The answer we give will not always be the same from day-to-day, or even from hour to hour. On vacation we might be in a mindset where we find work more unappealing, and so might require a higher pay. On the other hand, in times when we are strapped for cash, we might be willing to accept less pay. Our required monetary reward will also depend on how pleasurable or displeasurable we expect the work to be. And if we’ve just been working for five hours, we might require more pay for the next hour than we did for each of the last five.
Let’s consider how we might actually apply this concept of placing a monetary value on our time. Suppose that a store is giving out free mugs, but to get one, you have to wait for 10 minutes in line. Ask yourself, “How much money would a person have to pay me now to wait for ten minutes in that line on his behalf?” Suppose that you decide that you’d be willing to do this waiting for no less than $5. That means that if someone said they would pay you only $4.95 to stand in line for them, you’d turn down the offer. Now, ask yourself, “In the future, would I rather have $5 or one of these mugs they are handing out?” Or, similarly, try “Would I be willing to spend $5 now to buy one of these mugs?” If the answer is that you’d prefer to have $5 than a mug then it probably doesn’t make sense to wait in the line. In this case, you are assigning that 10 minutes of time waiting in line a value equivalent to $5, but the mug is worth less than that dollar amount to you. Put another way, you would be willing to wait in that line for $5, but if you did so, you wouldn’t actually want to buy the mug with the $5 you earned! It is reasonable therefore to think of the waiting in line as being more costly for you than the mug is valuable to you. On the other hand, if you’d rather have the mug than the $5, in that case it likely would make sense to wait in the line.
Incidentally, it may be important to frame the question as “Would I spend $5 to buy that mug if I could?” rather than “Would I sell that mug for $5 if I already had it?” The problem with the latter is that research has shown that we tend to be biased to prefer items that we currently possess to ones that we don’t yet have. So, if imagining owning the mug is enough to trigger this bias, the latter question could lead to distorted answers.
This technique of placing a monetary value on our time is particularly useful in situations where something is being offered for free, since people often sacrifice an unreasonably large amount to receive free items. Perhaps genuine pleasure is created just from knowing that you got something for free, which helps compensate for such sacrifices. But nonetheless, one should be cautious about overacting to the word “free”, which can certainly snag us with its large psychological appeal.
To consider another example, suppose that you’re trying to decide whether you should drive an extra 15 minutes each way to go to the cheaper grocery store rather than the pricier one (we’ll assume, in this case, that the two stores have equally good products). The question to then ask yourself is, “How much would I have to be paid to drive for a total of 30 minutes on someone else’s behalf?” If the answer is $10, then ask yourself, “How much do I expect to save by going to the cheap store?” If the answer is more than $10, then it probably makes sense to drive the extra distance. If the answer is less than $10, it probably doesn’t make sense.
Our brains are not necessarily going to make sensible decisions unless we explicitly reason using this process. For instance, one study showed that people said they were willing to drive a certain extra distance to save a small amount of money on small purchases, but not on large purchases, even when the dollar amount saved was equivalent in the two cases. If being paid $10 is worth 30 extra minutes of driving to you, it should be worth it to drive that 30 extra minutes to save $10 whether you are then going to be spending $20 or $20,000 at your destination.
When you are making a decision involving sacrificing your time, it can be well worth it to ask yourself, “How much would someone have to pay me to use my time in this way?” Then, ask yourself, “How much would I be willing to pay to be given what my sacrifice of time is getting me?” If the former is bigger than the latter, you should seriously consider not using your time in that manner.
Excellent post, but I would caution that this nifty process, if followed unquestioningly, can sometimes interfere with personal relationships as well as life experiences that don’t have obvious monetary equivalents. For example, stopping by a friend’s house for an hour might not seem worth the $XX you could be making if you just stayed at work for an additional hour; however, there could be hidden value in that meeting, like improved friendship, a novel life discovery, or a perhaps a new and important contact. Trying to convert everything into direct dollar equivalents can be an oversimplification of all life’s delicious minutiae.
Hey Steve,
Thanks for the comment! I agree that you have to be thoughtful when you apply the technique. I meant it for use especially in cases where one is considering sacrificing time (such as waiting in line, or driving extra miles). It certainly won’t work very well when you don’t take into account all the ways a thing is valuable to you. So if one were going to try to apply it to spending time with a friend, it would be important to try to factor the possibilities of all the benefits you mention (improved friendship in the future, etc.) into that dollar value assigned (admittedly, a hard thing to do).
Good post, but you should also take into account the automotive expenses of driving the extra distance, which could be substantial.