The Value of Time
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The Value of Time
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Re: The Value of Time
#2There's a meaningful literature about this sort of thing in transport economics: http://en.wikipedia.org/wiki/Value_of_time
Re: The Value of Time
#3I think that OP raises a good point in this post, but I'm skeptical of whether his strategy is really applicable in the real world. Yes, there are obviously some cases where it may make sense to do the more expensive option in order to save time, but can this strategy really be used as an overarching decision making mechanism? I think not, primarily because of the fluctuations in productivity/necessity of productivity that happen from minute to minute, hour to hour.
As OP says, he "use[s the] expected values throughout this post,"—I don't think average/expected value is really an accurate way to make decisions about non-averaged decisions. Primarily, if you always choose the more expensive thing to save time, justifying because your average value makes it worth it, you will inevitably end up "saving" time that is useless; therefore, you'll end up—on average—spending more money than the value you create.
Does anyone else feel this way/think I'm crazy for thinking this?
Re: The Value of Time
#4This is the concept of opportunity cost[1], and along with time preference and marginal utility, it is one of the foundations of praxeological thought. Understanding OC changes your entire perspective on the world, makes you realize why rich people don’t recycle as much, why first class flights exist, and why people with higher salaries are more likely to have chauffeurs (so they can not waste time on the act of driving, when the economic output they would produce in that time pays for the driver, the car, the fuel, and still leaves profit).
Re: The Value of Time
#5A good start down the path - but you have to make the next conceptual leap after thinking about time as a countdown resource. That leap is thinking about whether you can use time to create more time, what sort of trade-offs you can pull in through support of medical research to ensure that you have a higher expectation value of living for a greater number of healthy years.
You can indeed put time and resources in to that goal in this day and age, and a related question is what you losing in the trade-off by not doing any of that. e.g.:
http://www.lifestarinstitute.org
http://translate.google.com/translate?u=http://www.scienceag...
etc.
Re: The Value of Time
#6I think that OP raises a good point in this post, but I'm skeptical of whether his strategy is really applicable in the real world. Yes, there are obviously some cases where it may make sense to do the more expensive option in order to save time, but can this strategy really be used as an overarching decision making mechanism? I think not, primarily because of the fluctuations in productivity/necessity of productivit…
Let's take the salesman example. A salesman isn't literally making $150/hour. As a hypothetical the value might be $0 in hour 0, $450 in hour 1 and $0 in hour 2 for an average of $150/hour. Much of sales work is this way, their is preparation time, and sales time. There may be prospecting, etc. So even though they may not make the money during that hour, if you are burning their motivation to prep or prospect you are burning their ability to get through hour 0 and into hour 1.
Part of the reason to use an average is that it gives you a very simple, but generally applicable metric. There are always exceptions and the rate may change frequently or slowly. Those are nitpicks though. The general point is that your time should be valued against the best use of your time. For instance the hotel example only makes sense if the alternative to walking to the convention is working or more time networking to generate revenue. If the alternative is sitting in your hotel room longer watching TV then $160/hour is not the replacement rate.
Re: The Value of Time
#7Jason Cohen, founder of WP Engine, talked a bit about this when he interviewed[1] for Mixergy:
Yeah. I’m a big fan of, I think Don Mershaw[SP] was the first person that told me this, but he said a founder needs to value his time at $1000/hour ...
Which he justifies:
So, what if you had a consulting customer that said, “I’ll pay you $200/hour but there’s only a one fifths chance that I’ll actually pay you.” Now, what hourly rate would you quote? Now you’d quote more like $1000/hour, because you probably won’t get paid, but if you do you need to be paid disproportionately high to account for the fact that you took on the risk. That’s exactly what’s happening in a start up, and that’s exactly why it needs to be $1000/hour.
Re: The Value of Time
#8This is the concept of opportunity cost[1], and along with time preference and marginal utility, it is one of the foundations of praxeological thought. Understanding OC changes your entire perspective on the world, makes you realize why rich people don’t recycle as much, why first class flights exist, and why people with higher salaries are more likely to have chauffeurs (so they can not waste time on the act of driv…
Opportunity cost is an important idea to keep in mind.
However, there are some other factors which are also important. For one, money now is worth more than money later. It's easiest to imagine future earnings discounted based on how far in the future they are; I think traditionally they are discounted exponentially.
Another is that time worked is not necessarily linearly proportional to productivity. Perhaps for the most menial of assembly line work this is true, but for creative endeavors like programming it isn't. In fact, working more can make you less productive in an absolute sense!
You also have to keep your risk tolerance in mind. That is, a 1% chance of earning $1000 is not the same as a 10% chance of earning $100.
And, of course, opportunity cost also applies to all sorts of resources like money (especially in some liquid form) as well as time. This is something to keep in mind if you plan on investing money in something illiquid.
In short: opportunity cost is important, but so are a bunch of other things.
Re: The Value of Time
#9You probably shouldn't spend your day calculating trade-offs for every purchase you make. Theoretical value added is still just theoretical value, but cash outflows come from finite cash.
The best values and leverage are found high repetition or high scale activities. For example, everyone has to commute to work every day. Considering moving the office closer to a train station/highway/bus terminal so that each of your employees shaves off 15min of commute time is a highly leverage-able decision.
Re: The Value of Time
#10This is the concept of opportunity cost[1], and along with time preference and marginal utility, it is one of the foundations of praxeological thought. Understanding OC changes your entire perspective on the world, makes you realize why rich people don’t recycle as much, why first class flights exist, and why people with higher salaries are more likely to have chauffeurs (so they can not waste time on the act of driv…
Opportunity cost is an important idea to keep in mind. However, there are some other factors which are also important. For one, money now is worth more than money later . It's easiest to imagine future earnings discounted based on how far in the future they are; I think traditionally they are discounted exponentially. Another is that time worked is not necessarily linearly proportional to productivity. Perhaps for th…
This can actually be captured with the simple recognition that opportunity cost is not entirely monetary, but rather it's about value. "Money now" has more value than "money later". This is described using a http://en.wikipedia.org/wiki/Value_function
> It's easiest to imagine future earnings discounted based on how far in the future they are; I think traditionally they are discounted exponentially.
It's called http://en.wikipedia.org/wiki/Temporal_discounting