I’d pick the $1.03, so long as it was in the form of an electronic funds transfer and not more pennies to clutter up my pockets. I guess I probably qualify as a very strange person though?
If you get rid of every possible transaction cost, even implicit costs of the inconvenience of dealing with the transaction and currency, then I would agree that many people would take the $1.03. In fact, I would too. It’s only that these costs are neglected as not being real that I see a problem with. Utility of money just isn’t that simple. For example, some people might actually prefer that the money be handed to them than that it be transferred to their bank account even at the same moment, because if they have found money in-hand, they won’t feel guilty about using it to purchase something “for themselves” rather than paying bills. In fact, someone might prefer $50 handed to them in cash over $55 transferred to and immediately available in their bank account. Is that irrational, or are they just satisfying their utility function in light of their cognitive limits to control their feelings of guilt?
In some ways people want it to be answered in an ideal scenario, as if it’s a physics problem, but I don’t think that’s how most people answer questions like this. Most people read the question, imagine a particular scenario (or set of scenarios, maybe), and answer for that scenario. If you want people to answer in an ideal scenario than the question is underspecified. Also, it’s not clear to me that you can make it an ideal scenario and retain the effect in question, because the more people look at it like a physics problem with a right answer, the less likely they are to answer in a way that’s not in line with their behavior in normal circumstances which you are trying to predict.
I’d pick the $1.03, so long as it was in the form of an electronic funds transfer and not more pennies to clutter up my pockets. I guess I probably qualify as a very strange person though?
If you get rid of every possible transaction cost, even implicit costs of the inconvenience of dealing with the transaction and currency, then I would agree that many people would take the $1.03. In fact, I would too. It’s only that these costs are neglected as not being real that I see a problem with. Utility of money just isn’t that simple. For example, some people might actually prefer that the money be handed to them than that it be transferred to their bank account even at the same moment, because if they have found money in-hand, they won’t feel guilty about using it to purchase something “for themselves” rather than paying bills. In fact, someone might prefer $50 handed to them in cash over $55 transferred to and immediately available in their bank account. Is that irrational, or are they just satisfying their utility function in light of their cognitive limits to control their feelings of guilt?
In some ways people want it to be answered in an ideal scenario, as if it’s a physics problem, but I don’t think that’s how most people answer questions like this. Most people read the question, imagine a particular scenario (or set of scenarios, maybe), and answer for that scenario. If you want people to answer in an ideal scenario than the question is underspecified. Also, it’s not clear to me that you can make it an ideal scenario and retain the effect in question, because the more people look at it like a physics problem with a right answer, the less likely they are to answer in a way that’s not in line with their behavior in normal circumstances which you are trying to predict.