Prioritization by Price

When you wake up in the morning and you don’t have something on the calendar already how do you decide what to do? Or maybe you have leisure time in the evening. Suppose after dinner you can spend an hour however you like. What happens in the next sixty minutes of your mortal time?

Obviously these are questions that you’d never ask yourself. Such a thought would never even rise to your conscious mind. Because every modern human maintains a list of how many dollars were spent on each of the discrete objects they possess and the object with the highest dollar value is the singular obsession of every thinking person.

But it sure looks that way on TV

Nobody does this. There are zero people who use this accounting method to allocate their time. Suppose I possess a total of $100k worth of goods as follows

Oh that’s only $4,500 I totally forgot about my $95,500 baseball card collection.

If I were a character in a television show then that baseball card collection would drive all my actions. Every motive for any action would be described in relation to that baseball card collection. It just doesn’t make sense. It’s lazy writing of one dimensional characters. Is it rational though? Is that the way each of us thinks that all the rest of us reason?

Does what we spend predict anything about our actions?

Just looking at the items in table above, if my phone cost $500 then it does not follow that I derive 0.5% of my total utility from my phone. Does it mean I spend 0.5% of my time using it? Or maybe I think of it as 0.5% of my obligations. And clearly my computer would be four times better as the price was four times as much.

Turning it over end-for-end, if I ever bought a car then clearly it would supplant my phone and my computer as the object of my endless fascination. It’s unlikely I could even afford time to sleep in my relatively inexpensive bed with such a large expenditure parked in the driveway.

While this is clearly ridiculous it wouldn’t sound strange at all to hear someone worry about how they spent some big dollars on a fancy gadget and feel like they’re not using it enough to justify that cost. A treadmill comes to mind. As does an exercise bike or two.

The sunk cost that just keeps on sinking

There’s another variation on this thinking that I’ve felt myself make and heard from friends. I pay a monthly subscription for Netflix and/or Disney, Hulu, cable TV, Columbia House records, etc. So the thought floats up in my head that I should look at one of these services to find what’s on offer and watch something there. Obviously that’s how to get your money’s worth out of the service.

No. No it is not.

In fact it’s quite the opposite. Paying a subscription means that you’ve given them money. Going out of your way to engage with the service means that now you’re giving up your time on top of having already given up your money. Time and money may not be interchangeable resources but they are both finite.

“But it’s a subscription! I’m going to keep paying next month!” squeaks the futile protest. That’s just a modern rent-taking twist on the sunk cost fallacy. If you’re not going to make an immediate action to cancel the subscription based on what you do or don’t find to watch on the service then this argument doesn’t hold up.

Another direction - the stock portfolio.

Owning stock in a publicly-traded company is often seen as a plain and simple motivation explainer. Price prioritization is applied by the onlooker to describe what the investor is doing. As if buying a stock changes the investor from an unbiased observer into a single-minded maximizer of profit for that underlying company. If Mo the talking head writes a book about global warming then nobody cares. Until we find out that Mo holds some shares of STNK and STNK wants to sell solar panels. Or something. Then suddenly Mo has been transformed into the big shot investor talking up the interests of the Corporation. Clearly Mo is motivated by the massive upside in the stock and cannot be someone who both observed the climate crisis and invested in an idea they believe in.

Individuals like to use the notion of prices of stocks or total investment in a specific market traded security as an indication of success or failure as well as a guide to further investment decisions. This is probably the most defensible direct application of price prioritization. It probably comes up because the prices are ever-present for any investor at the time they look at their portfolio and it takes specific effort to come up with some different metric.

It would not be surprising in the least to find an investor believes they are prioritizing by price when they aren’t. Specifically an investor can be aware they own stocks X, Y, and Z. They can weigh the performance of each over a time window and decide that the money they’ve bet proportionally dictates their additional allocation. All the while this investor can ignore the second IRA, old 401k, or pension account which holds a mutual fund whose allocation is 100% in stocks which are not X, Y, or Z.

Bending the rules

Maybe the assessment of that second investor sounds unfair. They used the metric but they used it over a fixed list of stocks sitting in one portfolio. Okay, whatever. But that leads to another widening of the aperture. Let’s take in more light. Let’s see if some of the conditions are loosened maybe there’s something that sounds more logical.

Is there a useful idea here

Most of my meandering ideas here are just a loosely tied together rant against the appeal of simple stories. There’s some human tendency to brush aside nuance and look for winners and losers, heros and villains. The simplification gets under my skin so expect this kind of diversion a lot.

But is there a useful idea in the title? Probably not directly. Prices lose relevance after a transaction is complete. Prices are useful forward-looking measurements. A price is relevant before making a decision. Not after.

Paying for options

As a corollary to the notions presented here, perhaps thinking of purchasing an object as a final act of ownership is a flawed assumption. When I buy a fresh fruit I can say I own that banana. But as it turns from green to yellow to drosophila melanogross I never lose ownership. However I’ve missed out on the opportunity to enjoy a tasty sundae. When I bought the fruit I paid for an exclusive right to peel it and eat it. Could someone swoop in and snatch the bunch from my bundle buggy as I trudge home from the fruit stand? Could they, instead of I, then grow strong from the potassium found in the misappropriated snacks? Of course but we have laws against shit like that.