There's a concept I draw on often in social interactions.  I've been calling it the "happy price", but that is originally terminology by Michael Ellsberg with subtly different implications.  So I now fork off the term "cheerful price", and specialize it anew.  Earlier Facebook discussion here.

Tl;dr:

• When I ask you for your Cheerful Price for doing something, I'm asking you for the price that:
  • Gives you a cheerful feeling about the transaction;
  • Makes you feel energized about doing the thing;
  • Doesn't generate an ouch feeling to be associated with me;
  • Means I'm not expending social capital or friendship capital to make the thing happen;
  • Doesn't require the executive part of you, that knows you need money in the long-term, to shout down and override other parts of you.
• The Cheerful Price is not:
  • A "fair" price;
  • The price you would pay somebody else to do similar work;
  • The lowest price such that you'd feel sad about learning the transaction was canceled;
  • The price that you'd charge a non-friend, though this is a good thing to check (see below);
  • A price you're willing to repeat for future transactions, though this is a good thing to check (see below);
  • The bare minimum amount of money such that you feel cheerful.  It should include some safety margin to account for fluctuating feelings.
• The point of a Cheerful Price, from my perspective as somebody who's usually the one trying to emit money, is that:
  • It lets me avoid the nightmare of accidentally inflicting small ouches on people;
  • It lets me avoid the nightmare of spending social capital while having no idea how much I'm spending;
  • It lets me feel good instead of bad about asking other people to do things.
• Warnings:
  • Not everybody was raised with an attitude of "money is the unit of caring and the medium of cooperation" towards exchanges with an overt financial element.  Some people may just not have a monetary price for some things, such that the exchange would boost rather than hurt their friendship, and their feelings too are valid.  Not as valid as mine, of course, but still valid.
  • "I don't have a cheerful price for that, would you like a non-cheerful price" is a valid response.
  • Any time you ask somebody for a Cheerful Price, you are implicitly promising not to hold any price they name against them, even if it's a billion dollars.
  • If Tell Culture doesn't work for someone, Cheerful Prices may not work for them either.
  • If a friend didn't already ask for your cheerful price, it may be good to explicitly tell them when you're naming your cheerful price rather than your minimum price.
  • Life does not promise us that we will always get our Cheerful Prices, even from our friends.

Q:  Why is my Cheerful Price not the same as the minimum price that would make me prefer doing the transaction to not doing it?  If, on net, I'd rather do something than not do it, and I get to do it, shouldn't I feel cheerful about that?

As an oversimplified model, imagine that your mind consists of a bunch of oft-conflicting desires, plus a magic executive whose job it is to decide what to do in the end.  This magic executive also better understands concepts like "hyperbolic discounting" that the wordless voices don't understand as well.

Now suppose that I don't want to hurt you even a little; and that I live in terror of accidentally overdrawing on other people's senses of friendship or obligation towards me; and that I worry about generating small ouches that your mind will thereafter associate with me.

In this case I do not want to offer you the minimum price such that your executive part, which knows you need money in the long-term, would forcibly override your inner voices that don't understand hyperbolic discounting, and force them to accept the offer.  Those parts of you may then feel bad while you're actually performing the task.  I want to offer you an amount of money large enough to produce an inner "Yay!" loud enough that your executive does not have to shout down the other inner voices.

Q:  Say more about why you'd pay extra to make my balance of inner voices be very yayful?

Some possible reasons:

• Because I feel worried about the trade not getting around to taking place at all, if you are reluctant to name a price high enough to make you feel cheerful.
• Because I worry about you feeling a sense of ouchness about trading with me, and I want to be sure you don't end up unconsciously avoiding trading with me in the future.
• Because I think you're otherwise likely to name too low a price compared to my willingness to pay, and I'd feel bad about an unfair division of gains from trade.
• Because my willingness to pay marginally more, for a marginally better thingy, is high; so I'm eager to pay more in order to have you feeling better about doing the thing, in hopes that I get a slightly better result.
• Or I just don't want to hurt you even a little; either because I care about you, or because I selfishly don't want to worry about the guilt of worrying I hurt somebody.

Q:  Before we get too much further, is there anybody for whom this whole document is diametrically the wrong advice?

For one, anybody who tends to already set their prices so high that they end up not getting enough business to keep them busy, should not read things that they might interpret as exhorting them to go set even huger prices.  For more on this, see Michael Ellsberg's original cautions around the "happy price", and how it differs from people being exhorted to set ever higher sky-high prices on their seminars.

For two, anybody who already experiences a lot of negative emotion from ruminating on how little they receive; or who feels sad and depressed about how little they have to give; and who doesn't have any power to get more, or give more.  They should maybe not be reading this at all?  They should maybe just stop reading this whole essay immediately, because it may just make them feel sadder.  You need to have Slack to benefit from an essay about how to use Slack.

Q:  Thanks, back to other questions.  Why is a Cheerful Price not the same quantity as "the least price that would make me feel sad and disappointed about the transaction being cancelled"?

Because of loss aversion and inner multiplicity.  Once you're expecting to get some money in exchange for doing something, even if you weren't cheerful about that price, the part of you that did want the money will feel a sting of loss about losing the money.  If you're setting the standard to "minimum price that leads to a feeling of loss about losing the money" then, especially if you strongly need money, you may be setting your price way too low and might not be capturing any of the gains from trade.

Also, since your strength of feelings may fluctuate over time, you should not be trying to cut a Cheerful Price very finely; you should name a price that includes some safety margin.  If I was uncomfortable with you taking some safety margin, I wouldn't be asking you to name your Cheerful Price in the first place.  I'm fine if I end up with a little more social capital than when I started.  Nothing goes wrong if you end up feeling slightly grateful about making the trade.

Q:  For several of your desiderata above, why not ask me instead for a price such that I don't feel any ouchness about it?

Because I expect people to have a much harder time correctly detecting whether they are feeling any tiny lingering ouches, compared to noticing a positive feeling of cheerfulness.

Q:  Why is it better to ask somebody to name "a price that makes you cheerful" rather than "a price that seems fair to you"?

Well, because those two things aren't interchangeable, and the thing that I actually want is the Cheerful Price?

But in particular I'd worry that the notion of a "fair price" might lead people to name prices-that-make-them-feel-bad.  

Suppose I want to pay somebody else to do my laundry this week.  If I ask them for a fair price, instead of a cheerful price, to do my laundry, they may substitute some other "fairness"-related question like:

"How much would I be willing to pay somebody else to do my laundry?"

And this presumes several symmetries that I think should not be symmetries.  My willingness to pay is not the same as your willingness to pay.  The price you'd pay to not have to do your own laundry this week, isn't the same as the price you'd accept to do an additional load of laundry this week.

This may not seem fair, because it doesn't seem universal and symmetrical.  But to me, in context, those seem like false symmetries and mistakenly substituted questions, that might lead somebody into naming a price they didn't actually want to take, and then feeling trapped into taking it.

So I'd see this as a case where the recipe "raise the price until the thought of accepting it makes you feel a noticeable feeling of cheerfulness" may beat the recipe "try to figure out what price would be 'fair'".

Q:  Hold on, technical objection to the above:  Isn't it suspicious from a coherent-decisions perspective if the price you'd accept to do somebody else's laundry is much higher or lower than the price you'd pay to not do your own laundry?  If you have a lot of opportunities like this, it's a theorem that either you can be seen as placing some consistent monetary price on your time and stamina, or you can rearrange your choices to end up with strictly more money, time, and stamina.  I mean, suppose somebody offers you $40 to personally do their laundry that week, but you can pay $20 to get a roommate to do your own roughly-equivalent amount of laundry -

When I ask you for your Cheerful Price, I'm asking what I need to pay to make your current chorus of inner voices cheerful about taking the money, instead of them feeling slightly resentful at me afterwards.  It's fine and noble if you want to cultivate your inner voices to make your life decisions more coherent; but please do that on your own time rather than by expending my social capital.

Q:  Why is it better to name a "cheerful price" rather than "a price where both parties benefit"?  Don't we want trades to execute whenever both parties benefit from them?

First of all, it's not always better.  It's better in those special cases when one or both parties to the trade have particular desiderata, as listed above, that matter to them equally or more than the variation in price.  This will not always hold true.

More generally, though:  Part of the great economic problem is finding trades that benefit both parties.  But even after we find a trade like that, we then encounter a further problem on top: the division of gains from trade.

Let's say I want to pay you to bake me a cake.  Suppose that $40 is the absolute most I'd be willing to pay, if I had no other options, and that I wouldn't feel good about it (the inner voices are then discordant and require an executive to shout them down and accept the transaction).  Conversely, you'd accept a bare minimum of $10, and wouldn't feel good about that price either.

Then the price should fall somewhere between $10 and $40, for the transaction to occur at all.  But within that range, there's a zero-sum problem of dividing the gains from trade, on top of the positive-sum interaction of having the trade occur at all.  At a price point of $15 we're both better off, and at a price point of $35 we're both better off; but I am better off, and you are worse off, at a price point of $15 compared to $35.

If many transactions like this are taking place, we have a third, positive-sum game on top of the zero-sum second game: the game of supply and demand, the invisible hand.  You set a price on your cakes that will cause you to sell as much of your cake-baking time as you want to sell; and the more people want your cakes, the higher your price goes; and if your price is high enough, that signals others to enter the market and supply more cakes.  If we have a market price that balances a public supply function and public demand function for interchangeable cakes, all is good.  But not everything in life is exchangeable that way; and if not, there's a gains-division problem between a unique buyer and a unique seller of a unique good.

The domain of the Cheerful Price is the pricing-of-the-trade issue.  Though indeed, one of my potential reasons above for requesting a Cheerful Price was "Because I'm nervous about the trade happening at all, so I want you to name a price that makes you feel energized about getting around to it."

Q:  But if you ask somebody to name a Cheerful Price, doesn't that mean they might name a price too high for the trade to take place, even if at a lower price the trade would benefit both sides?  Or what if they just name an astronomical price?

When I ask you to name a Cheerful Price, this often - not quite always - happens when I have what I suspect is a relatively high willingness to pay.  But if your price goes so high that I no longer feel cheerful, the transaction won't actually take place at that price, and you won't get to feel cheerful about it.  So you still have some incentive to keep your quoted price to "makes me feel cheerful at all, plus some safety margin in case my feelings fluctuate, but not too much higher than that".

Q:  What if my cheerful price feels very high and I'm too embarrassed to say it?

If I'm willing to pay it, you probably shouldn't feel embarrassed about accepting it?  I wouldn't ordinarily advise other people to always directly confront their embarrassment about everything.  But "accepting money that other people are happy to pay you" is in fact an unusually good and important place to start overcoming your embarrassed feelings.

Q:  But what if you're not willing to pay the price I name?  Wouldn't that be socially awful?

Implicit in my asking you to name a Cheerful Price is a social promise that I will not hold any price you name against you.

Your Cheerful Price is a fact about you and your feelings.  It's not a statement that you think you're deserved something, or owed something, or that you expect to get that price from me.  From one possible perspective, I'm asking you to do me the favor of telling me that useful fact about your own state of mind, and you are doing me the favor of telling me.  If Tell Culture doesn't work for one or both parties to a transaction, the idiom of talking about Cheerful Prices may not serve them either.

If  I ask you "What price would make you feel cheerful about baking me a cake?" and you are feeling generally horrible and it would take a life-changing amount of money to make you feel good about kitchen work, you could say:  "Cheerful?  Probably a hundred thousand dollars.  But I'd rather do it for fifty dollars than not do it."  And that would be fine.

If your Cheerful Price makes me feel unhappy with the trade, I can tell you so.  And then we could just not do it; or I, or you, could try to negotiate the price downward to a non-cheerful but mutually beneficial price.

Q:  If you're not promising to pay my Cheerful Price and we might end up negotiating anyway, what's the point of asking me to name one?

Because there's no point in negotiating below your cheerful region, if your cheerful price is already inside my comfortable-willingness to pay?

In some contexts you could think of it as me asking you to start off with an unusually high opening bid, such that you'd feel quite cheerful if I just accepted that bid.  Which I'd do because, e.g., I expect that, compared to my trying to save a fraction of the price I'm guessing you'll name, your non-sadness and/or eagerness to deal with me again in the future, will end up more important to me.

Q:  Wait, does that mean that if I give you a Cheerful Price, I'm obligated to accept the same price again in the future?

No, because there may be aversive qualities of a task, or fun qualities of a task, that scale upward or downward with repeating that task.  So the price that makes your inner voices feel cheerful about doing something once, is not necessarily the same price that makes you feel cheerful about doing it twenty times.

Also in general, any time you imagine feeling obligated to do something, you have probably missed the point of the Cheerful Price methodology.

That said, you should probably check to see how how you would feel about repeating the transaction - it might turn up a hidden sense of "I'll do this for you once because I'm your friend", where your friend was hoping to pay you enough that they weren't expending social capital at all.  Similarly, you might want to check "How much would I charge this person if they weren't my friend?", not because your Cheerful Price for one person has to be the same as your Cheerful Price for somebody else, but in case your brain's first answer was mostly the friendship voice glossing over real costs that the other person is actively requesting to compensate you for.

Q:  I question the whole concept of a Cheerful Price between friends.  I don't think that's how friendship works in the first place.  If I'm willing to bake you a cake because I'm your friend, bringing money into it would just make me feel icky.  If it was more money I'd just feel ickier.

You have mentally arranged your friendships differently from how I arrange them!  But your feelings are also valid, and you should clearly signal them to anybody who starts talking about "cheerful prices" at you.  Tell them explicitly that's not how friendship works for you!  They offered you a Cheerful Price in the first place because they wanted you to be happy.  They don't want you to feel icky.

Q:  Just reading all this already made me feel icky.  When I bake you a cake, you're not expending social capital, we're being friends -

In that case, you should not read the rest of this post.  It's a cognitive hazard to you.  Leave immediately.

...

Uh, are they gone now?

Q:  Yeah, they're gone.

Really?

Q:  No, they're still reading, but now with an additional sense of offense that you think they're too low-status to withstand the weight of your words.  Obviously, only low-status people could possibly be damaged by reading something.

Sigh.  There are many things I wish I could unread, cough-Gray-Boy-cough.  "Just stop reading things that are damaging you" is an important life skill which has commonalities with "Don't leave your hand on a hot stove-plate if that hurts you" and "Speak up when people are touching you in ways you don't like."  

Q:  Fine, but there's nothing more you can do at this point to warn them off.  So, what would you actually say to somebody who claims that, when they bake you a cake, you're not "expending social capital" to get the cake, because them doing you a favor can actually strengthen your friendship?

I'd try to explain that economics is about "limited resources" rather than, I don't know, things that are easy to quantify, or things that are standard and interchangeable, or whether people feel like they're losing something in the process of a trade.  The fact that somebody won't willingly bake me an infinite amount of cake is enough to call that a limited resource, even if they didn't feel bad or lossy about baking one cake.

And that finite cake limitation is enough to make me worry about what I'm losing when I ask a friend to bake me just one cake, even if they don't feel bad or lossy about it the first time.  Because I'm the kind of person who ends a computer RPG with 99 unused healing potions, that's why.  And because I grew up relatively isolated, and I don't have a good sense of how much I'm losing when I ask somebody to bake me a cake.  I don't trust my ability to read someone's reactions if I ask them to bake me a cake.  I don't trust my ability to judge whether that will strengthen the friendship or weaken it.

So in reality, I'm not very likely to end up friends in the first place with somebody who's made sad by my asking to quantify the cost to them of baking a cake.  I can't tweak my state of mind far enough to encompass their state of mind, or vice versa.

Q:  Okay, but as you admit, some people, maybe even most people, would rather not put financial prices on things at all, in their friendships.  They'd rather just do favors for each other without a felt sense of trying to keep track of everything.  Why did you claim back up top that those feelings were valid, but less valid than yours?

I was speaking mostly tongue-in-cheek.  But in fact there are coherence theorems saying that either you have consistent quantitative tradeoffs between the things you want, or your strategies can be rearranged to get you strictly more of everything you want.  I think that truly understanding these theorems is not compatible with being horrified at the prospect of pricing one thing in terms of another thing.  I think that there is a true bit of mathematical enlightenment that you get, and see into the structure of choicemaking, and then you are less horrified by the thought of pricing things in money.

Q:  Fine, but why is it not valid to let people go on feeling whatever they feel without demanding that they be enlightened by coherence theorems right now at the cost of doing violence to their emotions?  Who's to say they're not happier than you by living more the life of a human and less the life of a paperclip maximizer, while both of you are still mortals in the end?

Well, sure?  Hence it being "mostly tongue-in-cheek" rather than "slightly tongue-in-cheek".

Q:  Despite your pretended demurral, I get the sense that you actually hold it against them a bit more than that.

Fine, to be wholly frank, I do tend to see the indignant reaction "How dare you price that in money!" as a sign that somebody was brought up generally economically illiterate.  I mean, if somebody says, "Sorry, I haven't attained the stage of enlightenment where explicitly exchanging money stops making me feel bad", I'm like, "Your feelings are valid!  I'm still human in many ways too!"  But if they say, "There are some things you can't put a price on!  How dare you!", I'm like, "This low-decoupling indignation engine will probably have a happier childhood if I rudely walk away instead of trying to explain how the notion of a 'price' generalizes beyond things that are explicitly denominated in money."

Q:  On a completely different note, I worry that the notion of a Cheerful Price is unfair to people who start out poorer, because it will take less money to make them feel cheerful.

Generally speaking, when I ask somebody to name a "cheerful price", I'm trying to prompt them into naming a higher price so that I can avoid the fear of ouching them and/or do more transactions with them in the future.  Giving people more money is rarely less fair to them?  But if I try to probe at the implicit sense and worry of "unfair" that you're raising as a concern, I might try to rephrase it as something like:

"If you tell somebody they have to accept as fair the least price that makes them cheerful, they might accept a lower price than they could have gotten - a price that would be an uneven division of gains from trade, or a price below the going market rate - and this is more likely to happen to people who start out poorer."

And I agree that would be unfair.  If you can get more for your skills or your goods by going above the lowest price that makes you comfortably cheerful, go for it.

That said, if I'm asking everybody in the room their Cheerful Price to do my laundry, and the poorest person present names the lowest Cheerful Price, I think that's... actually everything working as intended?  The effect is that the person with the lowest prior endowment is the one who actually gets the money and feels cheerful about that; and the Cheerful part means they get more money (I hope) than if I asked everybody present to name their price without specifying the Cheerful part.

My current cheerful price for "Please write me a short story about the following" might be above $10,000 today.  In 2001 it might have been $100, back when $100 was 1/20th of the cost of the car I was driving.  The end result of this 10,000% increase in how much money it takes to make me happy, as I've accumulated more money... is that now people who'll write you a story for $100 get your money, instead of me.  That seems a good phenomenon from the standpoint of financial equality; it causes money to flow from people who have more money towards people who have less money.

But on a more personal level, if I ask someone to name an amount of money that makes them feel cheerful and energized, I expect and hope that this causes more money to flow from me to them.  If the technically defined "cheerful price" is less than the person otherwise thinks they can get from a payor, then by all means, they should tell me:  "Don't worry!  I set my standard fee of $X high enough that I already feel cheerful."  And then I won't feel worried about paying too little and everything will be fine.

Q:  Technical objection:  Surely if you're asking everybody in the room to name their Cheerful Price for something, you should pay the lowest bidder the second-lowest bid, not pay the lowest bidder their actual bid?

Uhhh... possibly?  I'm not actually sure that this logic works the same way when you're asking people for Cheerful Prices - I think you're already asking them to nudge the price upwards from "the lowest they'd accept", which means you don't have to give them the second-price of the auction in order to ensure they get any gains from trade.  It's a more friendly idiom in general - you're asking them and trusting them to tell you the truth about what won't make them say "ow".  And despite that example of the laundry, the whole thing seems more useful for individual interactions than auctions?  But you may still have a point.  I'll have to think about it.

Q:  Now that I think about it, this whole document seems to be written like the cheerful price is always something that the payor requests the payee to name.  Why would it always be like that?

I wrote from that perspective because it's the perspective I usually occupy - at this stage of my life, I'm usually looking for more ways to trade away money for what I want, not looking for more ways to trade away other things for money.

And since not everybody can afford to offer us our Cheerful Price, in interactions between friends, there's nonzero reason to not just rush ahead and name a cheerful price before being asked.  Or to avoid misunderstandings and possible resentment about you expecting too much, you should say "This is my cheerful price" rather than "This is my price", if the other person didn't already explicitly say "Please name your cheerful price."

But sure:  Some people who are in the habit of unilaterally underpricing themselves, to the point where they're undertrading, even though they have pricing power to ask for more, might do well to take the initiative on their side to think "What would I need to be getting to make me cheerful about more interactions here?"  And this is true whether the trade is for money, or not.

Or some people who are in the habit of underpaying, and not getting all the things they want, even though they have more to offer, might do well to think, "Would I still feel cheerful about paying much more for X, if I got more or faster or better X?  Is there some way to give more and get more?"  And this is true whether the trade is for money, or not.

Some people may benefit from switching perspectives to ask about cheerful prices with respect to some internal bargains between the voices in their head; to apply the same perspective to one-person transactions, not just two-person transactions.

But to repeat the warning from above:   If you have nothing more to give, or no pricing power to ask for more; then thinking about what it would take to make the bargain cheerful, may only make you sadder.  And this is true whether for outer bargains, or inner bargains.

Life does not promise us that we will always get our Cheerful Prices, even from our friends, and not even from ourselves.  Not every trade produces so much gain to divide, even among many good trades worth making.