Wednesday, August 16, 2017

The Economics of Emotion

In a previous post, I considered the emotional basis of decision making, concluding that all decisions are essentially emotional ones.  The reason we want to achieve an outcome is often to achieve another outcome, but when you follow the chain to the ultimate outcome, it is the desire to effect an emotional state. 

We choose to take action because it earns a monetary profit, but what need do we have for that money?   If there is a specific need (to purchase certain things) it is because we expect to experience happiness because of their consumption.   If there is no specific need and we simply desire to have purchasing power, it is the possession of that power that creates feeling of security and happiness.  In either case, it is an emotional objective.

But what of the other side of the equation – the cost and effort involved in achieving an emotional benefit?   By the same reasoning, these are emotional costs.   The willingness to part with money is a willingness to do without those things (or the purchasing power) that money represents because we estimate we will feel greater happiness from whatever we purchase than with the possession of money.   Or the willingness to perform unpleasant tasks to acquire money is because the happiness that the money will provide is greater than the unpleasantness of what must be done to obtain it.

Thus considered, economics is not about money – as money is an element that can be factored out of the equation.    If we undertake displeasure to gain money, then use that money to obtain pleasure, then money is merely a temporary possession that is used to facilitate an exchange of displeasure for pleasure – of undesirable emotions for desirable ones.

The childish game of “what would you do for a million dollars” is in this context quite illuminating – it focuses on the unpleasant and humiliating activities a person would undertake to gain the pleasure of a reward, and puts focus on the emotions rather than the money, which is merely a token.   This is actually quite realistic.

In considering any job, the worker asks himself whether the labor is worth the wage.  It is not a matter of how much money will be earned, but how much pleasure will be received.   And considering that many of the most unpleasant and degrading occupations pay minimum wage, it can be seen that workers have different levels of tolerance for emotional displeasure in exchange for the same emotional benefit.

So when one asks if a given trinket is “worth” five dollars, it is not merely the amount of money that is considered, but the amount of displeasure that was undertaken to earn that sum and whether it is worth the pleasure of owning and consuming the trinket.   And this is the reason that various buyers place different bids on the same object.

To rely exclusively on monetization is implicitly to ignore the emotional basis of economic decisions, and will invariably lead to serious errors in judgment.

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