When applied to the right kind of problems, economic thinking can actually yield very valuable insights. On the Saturday before Valentine’s Day, I was drinking coffee in a busy shopping street in The Hague (the Netherlands). Honestly, up until the moment I saw all the hearts and Valentine’s sales in the shops, I had actually forgotten about V-Day. This, because I have a girlfriend, was quite problematic (understatement). Seeing all these people on the street hurrying in and out of shops to get the best gifts for their beloved made me wonder what I should do. If ‘everyone’ was buying gifts, should I just buy them too?
|Image 1. Source: K & T p 279|
|Image 2. The V-Day shift|
Taking another sip of my coffee, I saw two options. First, take my losses for this Valentine’s Day and surprise my girlfriend when she didn’t expect it at another time. Hoping to achieve some positive utility then. Or, second, try to reach the status quo by giving her the best gift I could find under limited time and money I had (I couldn’t buy her a trip around the world, for instance). Kahneman and Tversky made me realise that the utility lost with not getting a gift, outweigh the gains of giving a gift at another time. So I had to buy a gift.
V-Day had me cornered. I took a last sip of my coffee, got up and moved in with the Valentine shopping crowd, looking for a Valentine’s gift.
Bottom line: Get your beloved a gift for Valentine’s. Always.
* Please comment on these posts from my microeconomics students, to help them with unclear analysis, other perspectives, data sources, etc.
- It is important to note that all the people on the street give a very biased view of the attention being given to Valentine’s Day. Just like the ads and shows being shown on TV.
- Kahneman, D. and A. Tversky. 1979. “Prospect Theory: An Analysis of Decision Under Risk.” Econometrica 47: 263 – 292.
- Put differently, the disutility of no gift now would never be "replaced" by a gift later, i.e., |Uno gift| > |Ugift|.