How We Value

Friend of the blog Ashley has a nice post about how her life changed after she and her husband threw out their TV. She highlights, in fact, five distinct reasons why her life is better now that the TV is gone.

Because I write about wonkish policy issues here, people are constantly reminding me that that we have to think about whether policy addresses the things in life that people value. There is an assumption that people know what they value, and that they act accordingly. Further, economists typically use rationality as a necessary condition in their models. Without it, the models would come apart at the seams.

But back to this TV scenario.. a year ago, an observer would have looked at the situation and said that Ashley obviously values having a TV and watching it; the observer would know this because it's what she was doing. The reality was that what she was doing was actually making her worse-off than the alternative.

There are two things that strike me about the post. Two reasons why Ashley had a TV, even though not having one would have been better:
  1. It was the default option. In this case, she had access to cable TV in college dorms and her first apartment. To switch from having TV to not is to reverse momentum and deny the default option.
  2. It was a 'normal' thing to do. If anything, people probably look at someone without a TV and feel sorry for them. Quitting TV isn't culturally perceived in the same positive light as say, quitting smoking.
Here's the point: because people are already doing something does not necessarily confirm that they value it more than something else. They could be wrong for any number of reasons, or because a better alternative simply doesn't exist yet - one that can be addressed with policy.

I hear this in the transportation debate all the time. I say we ought to build more bike lanes and paths. My opponent says we shouldn't because nobody wants to bike - everyone wants to drive. Further, we know this because few people currently bike but many drive. On the one hand, I'm somewhat confident that a small number of people would switch if they just tried the alternative (they don't because, like above, it's not the default option and it's not the 'normal' option). But there are others, people who economists might call "marginal non-participants". They are on the fence but they need an alternative which doesn't yet exist for them to make the switch.

Dan Ariely has done some good work on rationality, his book is one of my all-time favorites. But his research focuses a lot on dollars and cents calculations, he looks at situations where it's obvious whether people are making the wrong decisions. He doesn't delve into questions of abstract value because it's very difficult to measure. For that reason I think a lot of people tend to shy away from it, even though it's still an important calculation.


    I completely agree about the bike path/lane argument!

    I talk with others all the time who'd love to bike more often, but are nervous about biking with cars - I am, in fact, in that boat. There's no good way to bike down a busy street - the cars get antsy or too close, and the sidewalks are bumpy and filled with people.

    And a better winter would help with the biking. :) Can we create a policy for that?

    C'mon, Cleveland!