15
Oct
10

Marginal rationality

I was asked to donate to a charity the other day, the person canvassing made a very good point. If you can give 120 dollars right now, it’s better to give 10 dollars each month for a year. Why? Because then the organization doesn’t have to plan more canvassing each time it needs money. If it can secure money for a year at a time, then it doesn’t need to pay people to raise money during the rest of the year. Also, the organization can be strategic about where and when it invests in projects because it can KNOW how much money it will have in a few months rather than having to guess.

So basically, there is no reason at all to give one time gifts. Instead, people should commit to organizations for a year. This is also better for both parties, because giving 120 dollars out over a whole year is actually less expensive then giving 120 today (because of the time value of money), so I win, and the organization wins. Having realized this patently obvious point, I will never again make a one time donation (maybe in extreme cases, like when there’s a sudden problem like an earthquake).

In other words, I plan to be marginally more rational from now on.

The phenomenon I’m describing is the same reason a lot of money is wasted around Christmas time, because production has to spike up suddenly to meet demand for various things. If people bought “smoothly” throughout the year, we wouldn’t have to pay winter workers overtime and we wouldn’t have to rush orders to various places and push machines harder to crank out stuff for a certain time frame. Big savings for society.

Also, this is the reason why wages should, theoretically be responsive not only to what kind of work you do, but how many hours you get. This is counterintuitive. My hourly wage rate should compensate me for taking that hour of my time to work, and so should not depend on whether the job allows me to work for 3 or 12 hours in that day. Things aren’t so simple though, and the reason is that there are small costs to having to find multiple jobs. If I can work at a job that pays 10 dollars an hour for 4 hours of work a week or one that pays 10 dollars an hour for 50 hours of work a week, I choose the second job even though their pay rates are equal. Why? Cause I don’t have to go through the hassle of finding and then commuting between two jobs. Things are much cleaner.

There are countervailing factors (like people don’t get as bored if they do many jobs), but for the most part, all things equal, part time jobs or jobs with small hours should pay slightly more than a similar job that allows for many hours of work a week.

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