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(image: Ross Dunn CC BY)

How cold?

When we say something leaves us cold, we don’t always mean absolute zero

Last Sunday, the Christmas lights were switched on in my town. This is an annual event, not just here, but up and down the country. The weather was nice and dry, but even when it is less clement, the switch-on seems to excite lots of people, children and grown-ups alike. But me? I am indifferent.

It leaves me about as cold as the Christmas market that takes place in our high street every Sunday from the first weekend of October, and as the Christmas displays in the shops that are ubiquitous this time every year. Not that I am complaining, even though moaning about premature Christmas decorations is a popular pastime in the UK. it is the country in which the phrase ‘Bah humbug!’ originated after all.

The no man’s land of indifference

But just like I cannot get excited about tinsel and fairy lights, I cannot get agitated by them being applied early either. The whole affair simply leaves me indifferent.

Of course, nobody can possibly get excited about everything, and tastes differ. One person may be passionate about opera while they have a strong dislike of football, while for their neighbour it may be the exact opposite. But for many people, there seems to be a no man’s land in between like and dislike, where we simply don’t give a damn either way.

From an economic perspective, the subject of such feelings (or better, absence of feelings) provides us with neither benefits or costs — this is indeed a way of defining indifference as an economics concept. And there are actually quite a few such things when you start looking for them. For people without small children, for example, the provision of playgrounds in their vicinity is of no consequence. Yes, you may have something of a societal conscience, and feel that it would be good if there were playgrounds for families with young children — or you may have grandchildren, or nieces and nephews who would benefit from them when they visit, or with whom you identify.

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It does not leave them cold (image: spilltojill CC BY)

But if everyone in your household is well beyond the age of being excited by a roundabout, a see-saw or a swing, playgrounds probably leave you cold. And if it’s not that, then there may be sports events (that you never attend), parks (that you never visit) or shops (where you never buy anything).

For things that involve public money, you could perhaps argue that their elimination would make you better off as you’d pay less tax. Or you could argue that playgrounds are an investment in public order, helping keep children occupied who might otherwise engage in mischief, causing an even higher cost than the upkeep of a play area. But unless you are so disposed, we are really talking about proper indifference.

Or so it seems, at least.

Not so cold?

The normal cost benefit analysis that we tend to use when we are footing the bill doesn’t really apply here.

Or imagine this situation, inspired by a discussion I had with a colleague last week, on what price we’d find acceptable for a hotel room “when the client pays”. You’ve booked a room at £150 per night, which is not out of the ordinary for the location, and you know that this will be entirely acceptable to the client. You then notice that this price includes breakfast — and that the price without breakfast is £25 less. A couple of croissants, a glass of juice and a coffee would cost about £7 in the café next door to the client.

If you had to pay out of our own pocket, you would most likely get breakfast in the café: £25 for breakfast feels rather overpriced. But if the client pays, and you know you can claim the cost, including breakfast, in full without problems, a rational you should really be indifferent to the price: you would not be better or worse off either way.

And yet, would you not feel a bit reluctant to allow the hotel to rip off your client, even if they would reimburse you without blinking, unaware of the overpriced breakfast? And you would probably not go for the most expensive dish on the menu, and still look for a good price for that suitcase, even if someone else is paying. It seems that indifference is not quite so indifferent.

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Is this breakfast worth £25… if someone else pays for it? (image: Kathryn Wright CC BY)

Something similar may be happening with playgrounds, parks and the annual Christmas lights switch on. Imagine you had no junior relatives, and you could move into your dream house which would either be built in an area with a playground nearby, or in one without. Your choice. Would you pay more for one option than for the other? Probably not — so you’re indifferent!

The question whether we’d pay for something is a good way to establish whether we’re indifferent. But it may not paint the full picture. Let’s turn things around: what if the local council were to decide to take down all playgrounds, or sell off the park we never visit to a property developer? What if the cute, quirky shops that we never frequent were to close? Would we still feel indifferent, or would we actually experience this as a loss? If, by contributing say just £10, we could prevent the playgrounds disappearing, or the park being turned into a housing estate, or the shops shutting down — would we do so?

I am pretty sure I would, and probably more than £10. I would miss the playgrounds even if I never use them, and the park that I never go to. And I’d miss the quirky high street shops where I never buy anything. Even if all I was prepared to spend to stop their disappearance is a tenner, that is enough for anyone, including myself, to question my claim that all that stuff leaves me cold. That’s the endowment effect for you: once you have something, it’s hard to be indifferent about it.

I would even be prepared to contribute to ensure that each year, there’d be Christmas decorations in the town, and even to have the annual event of switching the lights on.

It could be the Christmas spirit taking hold of me. But really, I think this stuff may not be leaving me as cold as I first thought…

Originally published at koenfucius.wordpress.com on November 22, 2018.

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Accidental behavioural economist in search of wisdom. Uses insights from (behavioural) economics in organization development. On Twitter as @koenfucius

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