Penny Wise and Pound Foolish

Bad Thinking Habit # 1

Last night I revisited one of my old journals — an activity Randy Travis might call "Digging up Bones: exhuming things better left alone." I came across a page labeled "Bad Thinking Habits." Here are a few examples from my list.  I claim no originality.

*Choice of percentages vs. dollars.  [See my confession below.]

*All-or-nothing thinking.  [Stay tuned.]

*Confusing hindsight with foresight, or hindsight with insight.

*Being a slave to habits.

*Filtering out unwanted conclusions.

*Staying married to earlier positions.  (Being born to a belief; being a victim of history or family.)

*Focusing too much on arbitrary time segments (years, months, weeks) when time is continuous.

*Failing to account for diminishing marginal utility.

*Overgeneralization.

*Overly strong or weak time preference.

*Changing value of time vs. money

*Splitting the difference when inappropriate.

There are more in my list, but you get the idea.  See below for my confession regarding bad thinking habit number one.

Percentages vs. Dollars

I struggle with this type of bad thinking all the time, but my most memorable failure came in Seoul, Korea, in 1998.  I was there for a central banking conference, and one afternoon a couple of us went to a famous shopping district to look for bargains.  I found some beautiful silk ties that cost a fraction of what I was used to paying.  I bought only three, for $7.50 each, as I recall, the only three at that price that appealed to me.

They had more ties that appealed to me, but they were priced higher.  I believe they were $10.  I was torn, but in the end I just couldn't justify paying $10 when just-as-good ties cost only $7.50.  After all, that's a third more — 33.33% more. ("No McTavish was ever lavish." Ogden Nash.)

Needless to say, my perspective changed once I got home where my ties costs many times $10.  I had let percentages blind me to the dollar costs.  Dollars are real; percentages are abstract. From an economist's viewpoint, I'd also used the wrong opportunity cost.

That incident didn't cure me, of course.  Yesterday, I spent considerable time in the grocery story comparing the unit costs on cashews, trail mix, and candy, all of which probably came to about $10.  Perhaps that is an accurate reflection of the current value of my time.  At any rate, I bought an expensive mid-life-crisis sports car last year after giving price considerations about the same amount of time.  I should have listened to Benjamin Franklin's caution about being not being penny wise and pound foolish.

Footnote to the Korean trip:  I returned via Tokyo on Japan Airlines. When I plugged my earphones into the seat outlet, guess what was playing:  Elvis's 1968 Comeback Special.  Is this a great country world, or what!