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timtyler comments on Time and Effort Discounting - Less Wrong
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Some friends are in the process of buying a house costing about a million dollars. There was some serious haggling over the final price, to which my friend finally replied "Forget about it, it's just thirty thousand dollars, it's not worth the conflict." And after all, paying $1,100,000 vs. $1,130,000 doesn't seem like an interesting difference.
I imagine that if they were haggling over a car that cost $20,000, they would move heaven and earth to avoid paying $30,000 more; $20,000 vs. $50,000 seems a major difference.
This seems a lot like hyperbolic discounting, where having to wait ten minutes makes a big difference if it's ten minutes from now, but very little difference if it's a year vs. a year + ten minutes. Spending $30,000 makes a big difference if it's the first $30,000, but very little if it's $1.1 million + $30,000.
See today's post on prospect theory for more.
It seems as though this idea is closely related to "diminishing marginal utility":
I don't think so.
Diminishing marginal utility is a fundamentally rational process: I really do need my first $20,000 more than I need the next $100,000, because when spending the first $20,000 to increase my utility, I can knock off my low-hanging fruit preferences like food, water, and housing - but when spending the next $100,000 I come to more complicated preferences like social status and comfort that aren't quite as important.
But the discounting I'm mentioning here is per item. I would be more likely to excuse a $50 cost overrun on a $200 item than on a $20 item, even if I am a millionaire and in the end $50 makes no difference to my total amount of money either way. Even if I know I'm going to buy both a $20 item and a $200 item, I'd still prefer getting the $50 surcharge attached to the $200 item, even though it doesn't affect my total expenditure. That's irrational, and so it's got to be a bias rather than an instance of diminishing marginal utility.
Good call - I think. Diminishing marginal utility does seem like a rather nice name for phenomena such as temporal discounting, expenditure discounting and effort discounting, though - even if it is currently defined to mean something else. Is there a better name for these things? Or is some terminology hijacking required?
You are correct, timtyler is wrong.