This blog contains an eclectic array of tidbits of my life. As a behavioral economist, I write about preferences, beliefs, gender gaps, persuasion, and other topics. I also post about my other passions: Taekwon-do, food, fashion, and travel. Finally, as a working mom, I am forever seeking that elusive balance between parenthood, career, and hobbies.
Find me on Twitter @OlgaShurchkov and Instagram @_olgas
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How choices change behavior
Finally, a relaxing mini-vacation! Just Mike and I in Aruba –
a place that holds many nostalgic memories for us, including one very special
marriage proposal 14 years ago (can it be that long ago???). With all the
tranquil beauty of the sea, the beach, the perfect sunsets, one naturally
reflects on … optimality of choices? Yes, when the “one” is an economist.
Here is a dilemma for you. Upon arrival at our hotel, the front
desk clerk makes us an offer to upgrade to the club level. The freebies include: continental breakfast,
light lunch, hors d’oeurves and desserts in the evening, unlimited wine and
top-shelf liquor throughout the day, and a daily spa “activity” which no one
could explain to us. There is also some less exciting stuff like daily laundry
and pressing, concierge service, and free internet (which is already free for
all guests J).
The cost at face value: $300 per day for the two of us (a “discount” from the
normal rate of $400 per day). What would
you do? Well, let me add another piece
of information that perhaps shouldn’t be relevant if you are totally rational,
but might matter for everyone else: if we don’t do the club upgrade, our hotel
stay is free. That’s right: we are staying here on points, and with our status we
also already got a sweet upgrade to a suite with ocean views.
Here is the rational approach. Breakfast at the hotel would cost around $20
per person, lunch around $60 per person, and excluding dinner (which we planned
to eat off the resort) drinks and dessert around $50 per person. That gives
$260 total value, which doesn’t include the spa treatment whose value is uncertain,
but probably more than $40 for two people. Sounds like the $300 price tag might
actually be worth it. Also, once paid, the $300 becomes a “sunk cost” and
should not affect subsequent decisions. For example, if we had already decided
to do dinners at restaurants off the resorts, the fact that we paid for the
club level should not change our mind to eat there.
But Mike and I are rational enough to know that we aren’t
actually rational. The choice to upgrade to the club level would change our
in-the-moment behavior. Firstly, we typically don’t eat breakfast, but having
committed to the club level would be “forced” to go. Now I love breakfast food,
so I would definitely get extra enjoyment from the experience in the moment.
But then would come the regret from overeating.
We would also probably end up overindulging in desserts and drinks
because we would be similarly trying to extract maximum value from our club-level
upgrade. This might actually decrease our enjoyment we would get from exploring
different restaurants and local bars.
The second consideration is that paying for the upgrade messes
with the feeling that we are getting our vacation “for free.” This also is a
thoroughly irrational way of thinking. Of course, without the club upgrade, we
are still going to pay for all our meals.
But because we obviously have to eat whether or not we are on vacation,
paying for those meals doesn’t feel so painful. On the other hand, paying for
the club is dissociated from regular meals and feels like an “extra” expense. Furthermore,
at the moment of the decision to upgrade to the club level, those payments feel
remote – in a distant future – while paying $300 a night for the club is in the
present. In behavioral economics, we
call this “present bias” which distorts intertemporal decision-making.
So, we didn’t upgrade. And that decision set us on a
completely different path to actions relative to the path we would have taken were
we to pay for the club. I am still
happily caffeinated in the morning with the free in-room coffee, but we are
sticking to the no-breakfast rule. Instead of sending a wrinkly dress to the
overpriced pressing service, we hung it up in the shower and the humidity
successfully took the wrinkles out. We
are also getting enjoyment from the idea that our vacation is still “free”
(which is awesome, despite the fact that, of course, it is not because we’re
still paying for pricey food and drinks).
And yesterday night we visited a favorite restaurant of ours from the
trip when we got engaged, Papiamento, without any regret that we were forgoing
free food at the club lounge!
Fall of 2017: my closet is out of control. Bursting at the seams with hardly ever-worn party dresses, jackets, and jumpsuits, it still manages to be completely devoid of options. How is this possible, I muse, digging through the racks, laden with hangers, each carrying two or more items. Among the multitude of impulse buys and total duds, I locate that 15-year-old black jacket, two sizes too big and 20 dry cleans past its prime. I wear it with a belt, and it looks ok. Fast-forward one year: I no longer fall for impulse buys, and I almost never dry clean anything! Thank you, unlimited membership at Rent the Runway . In a nutshell, I rent clothes, keep the four items I pick as long as I want to, and then return (no dry-cleaning required!). As soon as the returns arrive back at the distribution center, I can pick my next items (conveniently "hearted" in the app). First, this is a perfect mental replacement for shopping (hello, commitment device!). I no longer go
I only wrote one post in 2019. It was not for lack of inspiration or important topics, but rather because writing op-eds is a “non-promotable” task for me. Other examples include serving on a committee, speaking on a panel, and talking to the press about research. So what is “ promotable, ” you might ask ? For an economics professor, it’s research. Actually, not so much the research itself, but publishing said research. (Somewhat tangential, here is a piece on bias in publication in economics and how it relates to promotions.) At some institutions, teaching counts too, as long as you aren’t doing it “too well” or too much, so as to not get pigeon-holed as “teaching faculty.” In the world outside of academia, non-promotable tasks may include things like organizing a social event for the firm or serving on a committee. Broadly defined, these are tasks that benefit the organization but likely don’t contribute to someone’s performance evaluation and career advancement. It tur
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