- I routinely purchase a 20 oz Coke from the vendor in our atrium at $1.78.
- I have the alternative of purchasing the exact same product from a machine in the business school next door, but at a price of $1.25.
- Walking to the B-school Coke machine requires (on average) an additional 160 seconds than if I had purchased it from the vendor. Unfortunately, it also requires (on average) an additional 142 paces. The route is not particularly scenic, nor crowded, so there isn't much in terms of disutility or utility from walking the route.
- Since I routinely buy the closer, more expensive Coke, I have revealed that my value of time preference is at least (1.78-1.25)/160 = $0.0033125 per second...or $0.19875 per minute....or $11.92 per hour.
- It takes usually about 90 seconds to purchase something from the vendor. If that vendor could find a way to cut another 30 seconds off that time, they could conceivably charge me almost another $0.10 for said Coke.
- Suppose a vending machine could be invented that would read my mind and make a Coke appear on my desk the moment I decided to get up and purchase one, cutting the time of Coke retrieval down to zero. We can infer that I would be willing to pay about $2.07 for that Coke.
Tuesday, May 05, 2009
Value of Time: Coke Edition
Economists like to use revealed preferences in the market place to estimate things that are not traded...like time. This allows us to estimate the value of time saving projects like roads. Here is some data on my behavior, that allows for just such an estimation: