Perception of value

I have direct deposit. It’s great. Twice a month my salary gets deposited into my account automatically. I don’t have to to go the bank, I don’t have to wait for the funds to clear. It just works.

A lot of my bills are taken care of in the same way. The mortgage gets paid automatically. The credit cards are nearly automatic. I keep that manual in case there are ever charges that I need to dispute, same with the phone bill. But, in the end, finances are controlled by logging in to an online service and shifting funds from one entity to another.

I sometimes wonder if this is a bad thing.

Money has become an abstraction in my life. I do not carry cash anymore. Too often, when I did carry it, I’d end up giving it away to people begging for change in the subways or on the streets in Boston. I’m not opposed to helping people in need, but think that supporting institutions designed to get people off the street is a much better use of my funds rather than giving someone $5 because they tell me they need money for a bus ticket to get home. What little reading I’ve done into the subject gives me little encouragement that the $5 is actually going to a bus ticket .

So, life is easier with a credit or debit card, handling the finances in computerized transactions that are automatically recorded, removing humans and human errors largely from the equation, streamlining the system of payment to give me what I want exactly when I want it, without having to worry about the availability of funds.

It’s easy to see why this appeals to so many people. The simplicity and speed of gratification is a sign of modernity. Companies like it too. One would think it heretical that both sides like the exact same thing. After all, aren’t they both competing to hang on to the money? Except we don’t. Or, at least I don’t.

What is a dollar worth? For value propositions, we are often presented the worth of something in dollars, but without a baseline perception of the metric, how can we have any meaningful comparisons?

Example 1: An unlocked (purchased off contract, without a subsidy) smart phone for $200 is perceived to be a good deal, but why? The reason is that, compared to other unlocked cell phones, $200 falls on the low end of the spectrum. Higher end Android and iPhones unlocked easily broach $600. But what is the value of $200? For that, you could buy 200 loaves of bread, or 100 half-gallons of milk. Or split the difference and eat like a medieval peasant for a third of a year (and probably die by the end, that’s not the healthiest diet).

The point is, why has $200 for a smartphone been deemed an acceptable value? One could argue that the  market demand determines the price. Higher prices reduce adoption, lower prices eliminate profitability margin, and you’re sort of right. We don’t usually know how much things cost to make, in every sense.

Example 2: Health insurance. The Affordable Care Act, if nothing else, is forcing people to face the quagmire of health insurance. Lots of articles and news reports have shed light on the completely bizarre value propostion presented by health insurance. Money loses are sense of value when it comes to health insurance. Doctors and hospitals bill amounts mandated by the hospitals, get reimbursed a certain amount, patients get charged another amount, and then there’s other amounts that just sort of vanish. It’s called “funny money” It’s charged, but never collected, and never expected.

Say you go to the doctor because you don’t feel good. She takes your temperature, concludes you have a cold that needs to run its course, and send you home with some aspirin. It was worth going because now you know what you have and you aren’t worried you’re about to die of some horrible, obscure disease. (Hypochondriacs unite! But don’t hold hands.) Let’s say the doctor’s time is worth $100, plus the cost of the aspirin at $3. Rather than pay the doctor directly, you pay a co-pay of 7.5 half-gallons of milk. The doctor then bills the insurance company for 300 loaves of bread. The insurance company pays out a quarter of an unlocked iphone ($150 for those keeping score) to the doctor and take the copay, along with the monthly premiums that the person and their employer pays them. But the doctor billed for half an unlocked iphone. What happened to the other 150 loaves of bread? The doctor bills that much because she is contractually obligated to charge a certain amount to the insurance company for certain kinds of service, but the value in it is never clear.

Example 3: Dinner out at a nice restaurant plus a show plus a babysitter easily runs north of $200. Plane tickets for the family to travel to Texas for a week: $800. A brand new videogame $60. According to steam, the most time I’ve ever spent on a single videogame is about 200 hours (that was before I had kids), but people online have bragged about spending over 2000 hours on some Call of Duty games. Not a a statistic I would brag about, but to each his own. For one of those people, a video game breaks down to $.03/hr. A dinner breaks down to $67/hr. A week in Texas breaks down to $4.76/hr (not including food, lodging, etc.) Am I spending too much on dinner, or not enough on the videogame?

Market forces are supposed to determine the value people have for a good or service, but has the abstraction of money clouded our perception of value, rendering a market that is free to chose a price that it wants, and then simply has to convince us that we want it at the price it has set? Are we numb to the market?

Either way, I think I need to find a babysitter I can pay in loaves of bread.