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Dont think of price, think of cost per use

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Re: Dont think of price, think of cost per use

#171

Post by Tade0 »

clircle wrote: post #121
Tade0 wrote: post #118

My spending habits changed considerably when I started to include the cost of real estate required in my calculations. I encountered this first in a forum discussion about boilers - someone pointed out that the largest cost component isn't even the unit itself, but all the space it takes. Anyway whenever I think of buying a treadmill, I remind myself that the actual cost is an additional €4500 just for the real estat…

If you don’t buy the treadmill, you don’t save money on the real estate you already own. It either goes unused or is used for a different purpose. Is this really the right way to think about the trade offs?

It keeps my hoarding habit, passed on through generations of people who lost everything in wars, at bay.

Re: Dont think of price, think of cost per use

#172

Post by jenny91 »

kqr wrote: post #158
jenny91 wrote: post #151

Earlier quoted context omitted.

That assumes your utility of money is logarithmic in amount, which is not necessarily true.

Common misconception. It does not. It makes only two assumptions: - Growth compounds, and - More is better. Under those two assumptions, log-dollars is what you need to optimise. By coincidence, logarithmic utility of money would also lead to the same conclusion, but that's mathematical happenstance, and not something going into the model. ---- Another way to put it: the Kelly criterion prescribes logarithmic utility…

That doesn't make sense, could you please elaborate? What do you mean by "growth compounds"? Do you mean that the value of 10% more is the same across all wealth levels, in which case you're implicitly assuming logarithmic utility?

Re: Dont think of price, think of cost per use

#173

Post by ozim »

webjunkie wrote: post #104
kqr wrote: post #87

A related idea is depreciation. You haven't lost $700 by buying a pair of skis. You have exchanged $700 in cash for at least $500 in a pair of skis that is now previously owned. So you might lose, say, $200 immediately for the privilege of buying something brand new. And then another $100 if we include up-front the effort to sell them to someone else. But the rest of the money is still there, in the shape of skis. As…

I like that thinking. It also became clear to me when moving. You can actually sell good furniture that you don't want anymore, and get quite some money back. And if you are considerate in which furniture you buy, you can assume you'll also get money for it, should you not need it anymore. Thus for example, a purchase of a $2000 designer table might not be that huge, if you use it 5 years and get $1500 for it afterwa…

I would rather buy $200 table from Ikea use it also for 5 years no problem and when I don't want it give it away for free. It is still $40 a year.

I also don't know anything about designer tables or design furniture so I probably would get ripped off on buying first and then second time when selling.

In the end I don't have any patience for selling things so I would even low ball the price just to get rid of stuff. Heck even giving stuff away for free is sometimes annoying.

If I would plan not to move anymore or be sure to live somewhere for 20+ years I could consider designer furniture even if I would pay too much for it :).

Re: Dont think of price, think of cost per use

#174

Post by saeranv »

jenny91 wrote: post #151
kqr wrote: post #84

Earlier quoted context omitted.

> Always think in absolute dollars and not in rates. Technically, you should think in probability weighted log-dollars to maximise your economy over the long term. (The Kelly criterion.) In some cases this is equivalent to thinking in terms of fractions of your total wealth -- this is how the Kelly criterion is popularly presented. For small ("everyday", as Bernoulli put it) amounts, this is equivalent to absolute do…

That assumes your utility of money is logarithmic in amount, which is not necessarily true.

Looking at the wikipedia derivation of the Kelly criterion, taking the logarithm of the expected rate of return E[r] = (1 + fb)^p (1 - fa)^(1-p) is just to make finding the derivative easier (because logs are monotonic). Nothing else.

Re: Dont think of price, think of cost per use

#175

Post by RileyJames »

There was a site I saw on HN once that made consumer reviews based around a cost by lifetime of use metric. I found it quite interesting.

I’m not sure if it was usable life, or how long the user kept it.

Somethings don’t break, they’re just not very good, and it makes sense to replace them with a more useful version. Most things just break tho.

Re: Dont think of price, think of cost per use

#176

Post by kqr »

jenny91 wrote: post #172
kqr wrote: post #158

Earlier quoted context omitted.

Common misconception. It does not. It makes only two assumptions: - Growth compounds, and - More is better. Under those two assumptions, log-dollars is what you need to optimise. By coincidence, logarithmic utility of money would also lead to the same conclusion, but that's mathematical happenstance, and not something going into the model. ---- Another way to put it: the Kelly criterion prescribes logarithmic utility…

That doesn't make sense, could you please elaborate? What do you mean by "growth compounds"? Do you mean that the value of 10% more is the same across all wealth levels, in which case you're implicitly assuming logarithmic utility?

By growth compounding I simply mean that the 2 % interest you earn today you earn not only on your starting capital, but also on the interest earnings of last year.

Another way to phrase it is that you reinvest your winnings.

Re: Dont think of price, think of cost per use

#177

Post by imtringued »

Tenoke wrote: post #110
lelanthran wrote: post #72

Earlier quoted context omitted.

> With your phone, if all you care about is texting and making calls, yeah, you're not getting any added value paying more. If all you care about is texting, making calls, playing the occasional game[1], browsing the web, doing mobile banking, listening to music, watching videos, using social media, responding to work emails, viewing the occasional PDF, word processed document or spreadsheet sent over email, screenca…

I read on my phone that has 525 dpi and it seems to make a difference (I only found myself comfortable reading all books on my phone on my previous one which had similar dpi without noticing). Your $400 phone likely has half the dpi, worse screen in general and worse camera for a start. Just because you don't benefit from a better phone it doesn't mean nobody does. And if you are bringing up games, wordle is an odd c…

I bought a $400 phone and it is pretty much one of the fastest android phones. I never need its performance.

Re: Dont think of price, think of cost per use

#178

Post by imtringued »

sacred_numbers wrote: post #61
godelski wrote: post #54

Earlier quoted context omitted.

I don't think you're necessarily disagreeing. There's a factor that neither you nor the author are considering: value/$. Author is implicitly assuming that the higher cost equates to a higher value (clearly this is never a linear relationship). So my friends call me the cheapest person they know, but I also think like the author. If there is something I am going to use a lot and the added value helps me, then I'll sh…

I see so many people talk about the Boots theory, and while I don't disagree, there's another side to the story. What if you buy a really nice pair of boots that will last a lifetime and then a couple years later you move to a beach town where you wear sandals all day? Or what if you get paralyzed and have no need for durable shoes? The point is that life is unpredictable and both your circumstances and preferences c…

The boots theory is questionable because the difference between shoes isn't that big. What the story actually talks about is that poor people barely have enough to cover their daily needs. The rich have more than enough and they use the surplus for truly "durable goods" like education.

Re: Dont think of price, think of cost per use

#179

Post by OJFord »

ghaff wrote: post #159
OJFord wrote: post #63

Earlier quoted context omitted.

> Cost-per-use by itself is fairly meaningless, costs needs to be compared against value-per-use. That implies the only alternative is not doing things? You can just order a taxi? I think for many car users the total 'cost per use' of their car exceeds the average taxi fare they'd pay for those journeys. Nevermind considering public transportation.

>That implies the only alternative is not doing things? The option is often not to do things. Leave aside the fact that I live in a semi-rural area. Even if I lived closer into the city, there are a bunch of outdoor activities (hiking/kayaking/etc.) that I do which require a car. Could I rent? In some cases with the caveat that the vehicle may not have an appropriate rack to transport a boat for example. And I probab…

I don't understand why this is so controversial - you compare the cost of the owned car to the cost of alternative way of doing whatever weird and wonderful requirements exist - if there's literally no other way then call it infinite.

I don't think anybody and certainly not I ever said 'a standard taxi or bus will do for everybody in all circumstances'.

To me it's a helpful comparison to make (even though I'm not very good at obeying its advice) because I have the need so little that however exorbitant a taxi or hire car might seem at the time, it beats year-round insurance, tax, depreciation, etc. hands down.

(I obey it in the sense that I don't own a vehicle, just not in justifying taxis as readily as I ought.)

Re: Dont think of price, think of cost per use

#180

Post by rufus_foreman »

bombcar wrote: post #29
BeetleB wrote: post #24

This is completely backwards. Always think in absolute dollars and not in rates. $1000 is $1000 whether the cost per use is pennies or tens of dollars. Thinking in terms of rates is how people would fall for predatory installment purchases in the old days (you can have a new computer for just $2.5 a day!) The other obvious problem is looking at cost absent of a market. It's not just how much it is worth it to you, bu…

For non-necessary payments I think of it in cheeseburgers. Would I rather have this five hundred dollar phone or eat a cheeseburger a hundred times?

Cheeseburger, cheeseburger, cheeseburger, cheeseburger. Android no iPhone.
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