How to make your intuitions cost-sensitive

by apophenia1 min read8th Feb 201127 comments


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I recently wanted to keep track of my income and expenses, in a cost-sensitive way.  I am not very good at treating money as a real object, and very few people are good at valuing an expense appropriately.  I'd been having some financial difficulties as a result, so I wanted to be able to reason about what to cut or reallocate in a sensible way.  For me, sensible means using intuition instead of hard rules like a computer program.

I took several sheets of grid paper and taped put them together.  Using colored markers, I drew in my expenses.  If I spent $50 at the grocery store, I would make a blue box that surrounded 50 squares on the grid paper, and label it "Groceries".  I color-coded the expenses, but this is optional.  I left some white squares representing my savings.  I had a whole empty sheet where I could pencil in incoming money as I worked an hourly job to motivate myself (I work from home and need to self-motivate).  I realized certain things were a bigger deal than I thought, and other expenses I didn't need to fret about as much as I had been.  I think humans are intuitively better at visualizing than dealing with numbers.  My main tips for this project are to use a felt-tip marker so the lines really stand out, and to do it by hand instead of computer, so nothing moves around on a "redraw" and you learn the contents as you make it.  Also, I used a scale of $1=1 square, but if you have a lot more/less money than me you could use a different scale or omit savings.

I plan to start life-logging and reviewing the use of my time the same way, which is my other exchangable, limited resource, and which I manage even less well.

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27 comments, sorted by Highlighting new comments since Today at 8:05 AM
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Hi Apophenia! I like your suggestion, and I will give it a try, but I think your article suffers from Typical Mind Fallacy. Just because you do better with visualization than with numbers does not mean that "humans" in general are "intuitively better" at visualizing. If you have any other evidence to support your claim that visualization is better, you should provide some of it.

Also, it is traditional to post short articles with no math or citations in the "Discussion" section rather than on the Main Page.

This is a good criticism. I'm more aware of the Typical Mind Fallacy than most people because I've switched modes of thinking several times--I'm not currently a visual thinker. I don't think people are good at visualizing, I think they're bad at numbers. I'm a mathematician, and I think other mathematicians I've met are generally bad with numbers. I also tried to make clear that this suffered from high uncertainty via the keywords "I think".

I don't read Discussion any more, but I found it the contents similar to the old monthly discussion threads I read religiously. I posted things to those; I thought this merited a top-level post. I try to keep a very concise style, and I think top-level posts can (and should be) short on occasion.

and I think other mathematicians I've met are generally bad with numbers

Let me add another data point to your analysis: I'm a mathematician, and a visual thinker. I'm not particularly "good with numbers", in the sense that if someone says "1000 km" I have to translate that to "the size of France" before I can continue the conversation. Similarly with other units. So I think this technique might work well for me.

I do know my times tables though.

[-][anonymous]10y 2


Also, it is traditional to post short articles with no math or citations in the "Discussion" section rather than on the Main Page.

Things get "traditional" very fast here ;-) However, this is probably the most to the point advise for deciding where to post something (minus the meet-ups etc.).

Maybe fit enough for the FAQ?

I recently began to use a similar method and have seen my own lack of thought when it comes to what I am willing to spend my hard-earned money on. I will easily spend $25 dollars to see a movie in a theater (a one time viewing) yet hesitate at spending $19.99 on a DVD I know I will watch several times. I will unwaveringly pay for dinner at a restaurant, but stand, with great time spent in deliberation, in a grocery store aisle debating the cost of ingredients. I am slowly gaining a better sense of perspective. Keeping track will do that!

I'll pay a lot more for a movie than I would for a DVD, and a lot more for a restaurant meal than I would for ingredients, because I'm paying for the experience, which is well worth it.

This raises a couple of interesting questions:

1) What is the ratio between your expected consumer surplus and your deliberation costs? 2) What should that ratio be?

Oh, so a useful answer for 2: Fix a tradeoff cost for time and money, adjusting for [un]pleasantness of the work. A good starting number for working adults is your hourly pay, especially if you actually have the option to work more or less hours. A good number for students is your future hourly pay.

It's a convenient starting point, but I'm not sure how well it would perform in practice. Suppose your hourly pay rate is $20/hr. That's your marginal gross benefit of working an extra hour, but your marginal costs of working overtime are probably pretty high -- tacking on another two hours at the end of the workday might mean you have to buy a restaurant meal, take a cab, hire a sitter, etc. It also might just be exhausting enough that you pay an opportunity cost in terms of your ability to accomplish household/personal work in the evening, or even in terms of your ability to properly enjoy whatever entertainment you might have planned. If you have the ability to work additional hours and you don't, we might even say under the doctrine of revealed preference that your marginal costs must exceed your marginal benefits.

And if, in practice, you don't work overtime because it would cost you more than you'd earn, it isn't much use to say that it's "worth" an hour of comparison shopping to save $20. If you skip the shopping and spend an extra $20, you won't choose to work overtime to make up the difference, you'll just buy less of other things or go into debt. Conversely, if you do go comparison shopping, you can probably schedule it at a time when you're least likely to suffer high opportunity/exhaustion costs, whereas you rarely have control over exactly when you work overtime, especially if you have to commute to work and/or deal with the public.

Finally, "deliberation costs" are even fuzzier than information costs -- the problem isn't investing an hour of time in comparing prices, but investing a difficult-to-quantify chunk of your willpower and analytical skills in making a rational decision or in delaying your gratification for an appropriate period of time.

Where do you live where movies cost $25.00? Are you in the US? I'm in an area with a high cost of living, and they still haven't broken 10.50 USD...

I rarely do movies by myself, having recently gained a permanent significant other. Movies can run anywhere from $9 (Matinée) to $16 (IMAX 3D). It is a travesty, but the experience is often worth the cost. Sneaking in candy or drinks can make the outing that much more exhilarating!

Perhaps he's paying for a date and/or buying various theater concessions?

Perhaps he's paying for a date

In that case he must be getting an incredible discount!

As a side note, I was especially pleased by my motivation to work after I hung this by my work computer, which was better than expected--very little gets me to stop procrastinating. I found it particularly useful to think of myself as "paying off" things I had gotten instead of adding money. This felt a little like a deadline. It was also fun to think of myself as "working on" a particular thing, like a book I had recently purchased. I suppose one could do this in advance, but I am more motivated by things physically present than motential things. This also helped segment the work. I could "work off" one thing at a time, instead of having to dread full time work as a whole. Also, making money had a bigger effect than spending less compared to my guesses, so this also cheered me up when working.

Were you inspired by the Debtris visualization?

Unfortunately, those boxes aren't actually to scale!

Compare, for example, "Big Tobacco Settlement" and "Amount needed to help developing nations combat climate change

static image

Huh- that's disappointing.

In their defense, it does say "note: some slight visual cheating to make things fit", it does list the actual numbers, and fudging by a factor of about 1.5 still leaves order-of-magnitude differences perfectly clear. But it should have been done better.

How about writing the numbers in a tiny notebook instead?

There's lots of ways to keep track of expenses. I'd long been doing that in an excel spreadsheet.

Once you have them, you need to look at them in a cost-sensitive way. I don't see how writing down numbers accomplishes that.

Surely some people can better apply intuition to regular numbers? I actually just tried this graphing method and it didn't do anything for me at all. I actually caught myself trying to divide the ratio of area back into numbers.

I've never needed more than a text document for working these things out... and only if there is more information than I can keep track of in my head. For example, if I'm considering purchasing a $100 pair of jeans I might weigh the value against, say, 13 ribeyes, or opportunity cost of 5 hours at work.

I also keep a loose running estimate of expenditures to ensure I have a surplus over any period longer than a few weeks.

I've got a friend that used to express value in terms of the equivalent cost in burritos; if he was considering spending $20 on a new album, for example, he'd try to estimate whether he'd get more or less enjoyment out of it than getting four meals out of the nearest taco truck.

It worked pretty well for small to middling values but ran into scaling issues with large ones: a new computer system, for example, was intuitively incommensurate with five hundred burritos. Differing rates of hedonic depreciation also turned out to be a problem: a T-shirt was in the same economic ballpark as a burrito, but its hedonic value was spread out over one or two years rather than twenty delicious minutes of beans and lard.

The obvious comparison is to spread out the burrito consumption over equivalent periods. Assuming ~2 years of the new computer system - 'would I prefer on any given day either a burrito, or use of the new computer system (over the old)?'.

While we're at it, I like the catpennies quote.

Oh. Well, I guess I was wrong. Having two methods is still a good idea, since some people can't. In fact, I'd be almost certain that there's still lots of people neither method will work for.

This aligns well with Andrew Gelman's constant refrain that graphs are almost always better than tables for conveying info.

Edward Tufte makes a similar point in his books ("The Visual Display of Quantitative Information", etc.)

Did you ever try graphing the data in the spreadsheet? I don't know if it would easy to do exactly the same graph you do, but you can certainly mimic the graphs of I can see a lot of tradeoffs between the approaches, but nothing you've mentioned.