Tuesday, October 02, 2007

Absolute dollars and relative value

I am enjoying Stumbling On Happiness, a recent book by Harvard psychologist Daniel Gilbert. It's an effort to make sense of how human beings decide what choices to make in order to make themselves happy. As anyone who has stood by a friend through a bad relationship knows, those choices often seem mysterious or even perverse.

In particular, I am enjoying the distinction Gilbert makes between our sense of value and absolute dollars. He gives this example to explain the distinction: you order your favourite beverage and discover that it's price has doubled in just one day. It is likely that you compare the new price to the old price and make the decision that you are not willing to pay twice as much for the same amount of enjoyment (relative value). It would be more logical, Gilbert says, to compare the new price to other things that you could purchase for the same amount of money (absolute dollars) and decide whether or not the purchase is still worthwhile.

Is the argument interesting? Yes. Is it true? I am less sure. Many beliefs can get tangled up in the decision to buy something and not all of them are as clearcut as the experiments that purport to tell us about our decisions. Human beings share the properties of emergent systems: we have qualities that cannot be predicted by looking at simple components.

What happens when we replace absolute dollars with absolute time? We talk about taking time and making time: we cannot really do either. Time is a limited resource and it cannot be replaced. Whatever you do today, you will be giving it time that you can never get back or replace or give to something else. Your time is an absolute.

Or is it? If you rest for ten minutes you have not wasted ten minutes: you have prepared for the intense burst of activity that will take place next and that could not have taken place if you had not rested first. The value of that ten minutes appears to be relative because it is relative. It depends on what happens next.

How will you spend the next hour? Will you spend time as an absolute value, doing something that is worth more than anything else you could do with the same time? Or will you spend time as a relative value, doing something whose value depends on what you did before or on what you will do next?

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