Hey there, time traveller!
This article was published 14/8/2017 (307 days ago), so information in it may no longer be current.
Time and information are two sides of the same coin when it comes to the economy.
I often drive with the majority shareholder in my household. Many of these trips entail searching for a parking spot by our destination. Now, I am a "close enough" kind of guy; the other shareholder in our household is a "nothing but the closest" type of person.
Finding and choosing a parking spot is a familiar problem in economics. Formally, in mathematical probability theory this situation is called a "martingale" and represents the problem of when to stop searching for a parking spot, looking for a car or looking for love. When I decide to accept what is available, I am giving up the possibility that a closer spot may exist or that a better car might be just at the next car dealership.
In searching for the parking spot, I know the number of free spots declines as I approach the destination. I usually grab the first acceptable spot. My other shareholder knows parking spots become free more or less randomly and have no relation to proximity to the door. Sometimes, holding out works, and she looks at me with the glint of victory in her eyes when we secure a space right by the door to the mall. If we need to circle back, I grumble about the waste of time.
This seems like a minor issue against all the major decisions we need to make in our economic lives. But time and information are involved in this decision. I hate wasting time in looking for a free spot; my majority shareholder hates wasting time walking to the destination when we could be riding. I believe that free spots decline very rapidly the closer we are to the destination; she believes that a free space will always become available close to the mall entrance. It is maddening how often she is right.
Both these beliefs derive from the theory of probability and our experience.
Hands up, everyone who thinks we need to keep gathering data and can never have enough information. Go immediately to the back of the class if that’s what you think.
Information is costly to acquire and to process. In any decision, one can argue a better decision will result, if only I read one more restaurant review, test drive one more car or date one more person. Opportunities pass before us on a conveyor belt and disappear forever. The information we need is whether a better choice will emerge by continuing to look, or that what we have in front of us is the best we can do.
In all these decisions, time plays perniciously. First, we are aging and a finite end does exist. Decision delay means less time enjoying any choice, simply because with each day I deplete my total time savings account — my lifespan. I tend to opt for the first acceptable choice more often as I age.
Second, time spent in deciding robs me of enjoyment of other activities. Decision time may improve my eventual choice, but comes at a cost of displacing other activities.
Third, we are not the only players in the game of choice. The decision to purchase a house will always involve you (the buyer), the sellers and — most importantly — other buyers. Delay in making an offer or signing can mean you must accept second best. The imagined pleasure of what "got away" mars the enjoyment of your new home or your life partner.
Whether it is TripAdvisor, online matchmaking or Google reviews, the costs of not making at least an "OK" decision represent an opportunity for new services to assist us with pre-digested information to avoid a mistake. Unfortunately, it can also create an opportunity for fake information and misleading advertising — consumers must become sophisticated in their consumption of information that replaces time spent in searching.
To conclude, here is a true experience about the valuation of time.
I was waiting for a flight recently. A friend arrived with his majority shareholder and they clearly had shared "words" on the way to the airport. While his partner left for the bathroom, he asked me a question: "Greg, there are two types of people in the world — one is nervous if they do not arrive at least two hours before the flight, while the other becomes grumpy if they are at the gate with more than five minutes to spare. My question to you is this: why do those two types of people always marry?"
Gregory Mason is an associate professor in the department of economics at the University of Manitoba.