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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

#61

Post by sacred_numbers »

godelski wrote: post #54
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…

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 can change quickly. Also, to extend the analogy further, imagine you have a dog that decides that your boots are a good chew toy. A dog can tear a hole in a pair of $50 boots almost as easily as a pair of $10 boots. I t doesn't matter if the boots last a lifetime of normal use if they get destroyed in six months by an abnormal event.

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

#62

Post by OJFord »

BeetleB wrote: post #41
l33t2328 wrote: post #33

Earlier quoted context omitted.

You will use the computer for more than 400 days, so the rate is useful.

Rates are usually only good when comparing apples with apples. So if you know you'll use the computer for N days, and the alternative is roughly for the same N, then comparing rates and comparing absolute numbers is an identical analysis. But if you're comparing using a computer for 5 years vs eating cheeseburgers over 10 years, using rates become more challenging, and is prone to faulty analyses. My point, though, i…

> My point, though, is that cost per use is not usually a helpful metric.

I think it can be: say you're comparing two cars with the same fuel efficiency, one's more expensive and more luxurious (or to make the same efficiency less contrived, you're considering the 'luxury interior package' upgrade) - roughly how many times (or hours) will you use the car over your ownership; it might be helpful to consider the per use (or hour) cost of that extra comfort.

Or (as a hobbyist/DIYer) a fancier tool vs. Draper/Silverline/Amtech/unnamed clones that'll get it done but won't last nor make you feel warm and fuzzy while using them. How many times will you actually need a ⅑" tartan paint brush with 90deg handle? Maybe it's quite expensive to get the better one that will last for the one time you'll use it. (I'm not very good at that one - know I'd hate myself the second time used it.)

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

#63

Post by OJFord »

robocat wrote: post #55
nayuki wrote: post #10

Along these lines, I find that not many people correctly calculate the cost-per-use of their car. They only think of the cost of gasoline burned, and maybe tolls and parking. They don't think about the cost of insurance divided by the number of trips, or the capital cost of the car amortized over the years of ownership. If people thought hard about the cost-per-use of driving, then other transportation options start…

> not many people correctly calculate the cost-per-use of their car Cost-per-use by itself is fairly meaningless, costs needs to be compared against value-per-use. What is the worth of: a visit to my friends; taking a surfboard to the beach; taking a load of firewood to my parents; an emergency 2AM visit to a suicidal acquaintance; taking my nephew and his friends to the skatepark; helping a friend move; picking up a…

> 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.

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

#64

Post by godelski »

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…

> Or what if you get paralyzed and have no need for durable shoes?

While this is possible, I don't think that's really something you can go about with your life. Shit luck does happen. But you can keep your boots away from your dog.

You should acknowledge black swans, but you shouldn't plan your entire life around accounting for them.

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

#65

Post by mise_en_place »

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…

> 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!)

It depends on the opportunity cost. If you can get a house for 3600 a month, and the house appreciates in value in excess of the discount rate, then it's worth it to purchase that house.

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

#66

Post by BeetleB »

godelski wrote: post #54
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…

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…

> With your phone, if all you care about is texting and making calls, yeah, you're not getting any added value paying more.

If that's all you care about, paying $400 like I do is silly - you can get it much cheaper.

The $400 phone I get takes fairly good photos (it's one of my main criteria in deciding on phones). Sure, if I want great photos, I'll have to pay more. I've decided that an extra $1100 over 3 years is not worth it for the marginal improvements in photo quality. But I know for some people it is, and that's fine.

Regarding the boots, we're both saying the same thing, which I think is not what the author is saying: You're fixing a time interval (e.g. 30 years), and calculating that it's cheaper to get the expensive boots vs the cumulative cost of cheap shoes in that time period.

When you fix the time interval (e.g. 30 years), comparing rates vs comparing absolute totals is equivalent.[3] What I typically see is that people take this equivalence and begin to compare against different time intervals (option X is for 2 years, option Y is for 5 years). This is what leads to so many silly blog posts saying you'll never get a better investment than your employer's ESPP benefit, because you get a huge return.[1][2]

In any case, the author isn't using the Boots Theory. He's looking at cost per use - and not utility/cost as a whole.

[1] https://thefinancebuff.com/employee-stock-purchase-plan-espp...

[2] I'm pro ESPP - but looking at those claimed return numbers is almost useless. It's trivial to make more money with, say, a mere 5% annualized return.

[3] When comparing investments, you also need the same input. It starts getting messy - which is why the standard advice is to convert to absolute dollars and compare.

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

#67

Post by HWR_14 »

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…

Cost per use absolutely makes sense when the items being compared have different lifespans. Although that's more estimating depreciation than what the article is talking about.

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

#68

Post by BeetleB »

OJFord wrote: post #62
BeetleB wrote: post #41

Earlier quoted context omitted.

Rates are usually only good when comparing apples with apples. So if you know you'll use the computer for N days, and the alternative is roughly for the same N, then comparing rates and comparing absolute numbers is an identical analysis. But if you're comparing using a computer for 5 years vs eating cheeseburgers over 10 years, using rates become more challenging, and is prone to faulty analyses. My point, though, i…

> My point, though, is that cost per use is not usually a helpful metric. I think it can be: say you're comparing two cars with the same fuel efficiency, one's more expensive and more luxurious (or to make the same efficiency less contrived, you're considering the 'luxury interior package' upgrade) - roughly how many times (or hours) will you use the car over your ownership; it might be helpful to consider the per us…

> I think it can be: say you're comparing two cars with the same fuel efficiency, one's more expensive and more luxurious (or to make the same efficiency less contrived, you're considering the 'luxury interior package' upgrade) - roughly how many times (or hours) will you use the car over your ownership; it might be helpful to consider the per use (or hour) cost of that extra comfort.

You can get away with this because you are fixing the time interval: You'll presumably drive both cars the same amount, for the same number of hours. Hence a total amount vs per use (or per hour or per year) gives the same result. What the author is doing is comparing per use cost for very different entities, with unclear timelines.

Ask a random person: Is it better to use your phone for 2 cents, or eat an $8 McDonald's meal?[1] Putting aside that both serve very different needs, the question is missing the component: Over what time frame? The phone will die one day, but I'll always have the option to eat McDonald's.

[1] I have no idea where he lives where a McDonald's meal is over $14...

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

#69

Post by BeetleB »

nayuki wrote: post #10

Along these lines, I find that not many people correctly calculate the cost-per-use of their car. They only think of the cost of gasoline burned, and maybe tolls and parking. They don't think about the cost of insurance divided by the number of trips, or the capital cost of the car amortized over the years of ownership. If people thought hard about the cost-per-use of driving, then other transportation options start…

I find people making the opposite mistake: They take the total cost of ownership, and say that paying an extra $8K for the car is a small fraction of the total cost, and over 10 years that's just paying an additional $2.20 a day, so it's no big deal.

$8K is $8K - it doesn't matter if it's all paid in one day, or spread over 10 years.[1]

I always notice how they like to look at the cost per day and not, say, the cost per year. I suppose if the daily cost still looks high they'll calculate the cost per hour. Or as in this case, the cost per use just because it makes the number even smaller.

[1] If you exclude opportunity cost. If you include it, investing $8K up front will likely give you better returns than investing $2.20 a day.

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

#70

Post by ukoki »

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…

You've perfectly described one half of what makes me uneasy about "boots theory" which is the added risk of making fewer, larger purchases. The other half is that I find that often the more expensive choice does not have as much quality as needed. Boots theory depends on finding product choices where quality (ie durability, ie expected lifetime) increases faster than price. But my personal experience is that quality increases slower than price. I worry that most boots that cost say 5x the baseline budget boot might have less than 5x the "quality" and therefore expected lifetime. I'd guess my last boots were 5x price, 3x quality, so buying them cost me 2x the cost of the budget boot in terms of lost lifetime value. Finding that boot that has >5x quality is difficult and requires all sorts of extra work working out what reviews to trust etc, and risky because if you make a mistake you could be out of pocket for many multiples of the budget choice cost.

Boots theory is attractive because it's pretty obvious that more expensive products are nearly always better quality. But what actually matters is whether the increase in quality is greater than the increase in price, which I think is much less obvious.

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