(credit: Ulleo)

Find your inner economist

To make good choices, we have to be able to compare apples and pears

Perhaps the most fundamental error that people make when discussing, or thinking about, economics is the belief that, confronted with two or more options, we should always choose the one that delivers the most material benefit (the most utility, as economists call it). This is wrong for at least two reasons.

One is that it fails to take into account the complexity of pretty much every real-life choice. The idea that there is some linear relationship between the quantity of something, and the utility it provides, only holds if we can keep everything else the same. That is rarely true. We can agree that earning more money is better than earning less money, but if we have the choice between two jobs, the salary is usually not the only thing that distinguishes them. The work of the higher-paying position may involve unpaid overtime, travel in your own time, high-risk activities, and whatnot. A bigger house may have more appeal than one with fewer rooms — if it comes with free cleaning. Otherwise the prospect of having to dust and vacuum the library, the TV room, the games room, the music room, the dining room, the study and an array of bedrooms may dampen the appeal somewhat.

But this trade-off neglect is not the worst problem. Assuming only the material aspects of a choice matter overlooks the fact that, ultimately, almost nobody is interested in wealth per se. The cartoon character of Uncle Scrooge, who seems to positively enjoy spending time literally sitting amid his money is just a figment of Walt Disney’s imagination.

The inherent utility of money is only for Uncle Scrooge

Material wealth is a means to an end. We use money to buy things, these things provide us with utility, and that utility, in the end, corresponds with the positive emotion we experience as a result. We sacrifice material wealth in return for emotional utility. A three-piece suite, a comfortable and amusing T-shirt, a nice bottle of wine, a CD, a haircut, a holiday, a new car, and even a full tank of petrol (doesn’t being able to drive where you want make you happy?) — they all give us emotional utility.