On Thu, Sep 08, 2011 at 01:04:41PM -0500, Venkat Inumella wrote: > On Thu, Sep 8, 2011 at 12:19 PM, Kragen Javier Sitaker > <[email protected]> wrote: > > To compete with a 3% ROI from other possible investments of your capital, a > > US$239 investment needs to earn or save you US$7 per year, even assuming > > that > > People make consumption decisions to maximize utility, not a > hypothetical ROI,
People make consumption decisions irrationally, not to maximize a hypothetical utility. Any number of experiments in behavioral economics have demonstrated this by now. > which should really only be used for financial investments, not consumption > spending. Perhaps I'm economically naive. Why is consumption spending special? > Since utility functions vary widely between people, wearing flips-flops would > be the optimal decision for you only if the utility you derive from walking > around in $200 shoes (even when flip-flops may be applicable) is less than > the utility you get from the money saved buying $0.75 flip-flops. The question I was addressing with the ROI calculation was whether or not you save money buying US$0.75 flip-flops instead of US$239 shoes. Surely before you try to decide whether the flip-flop savings are worth whatever sacrifice is involved, you should figure out how much the flip-flop savings are, at least whether they are negative or positive. In my case, I usually like the flip-flops better than the Red Wing boots or the Nike sneakers for the reasons I cited: they're lighter, so I can walk farther in them, and they're better for my feet. They also dry out faster when I walk in the rain. I prefer the sneakers when it's really cold outside. > > it *never* wears out or depreciates. You can probably find investments > > with a > > 3% ROI in almost any economic times and at almost any scale. > > Any number of hedge fund managers would beg to differ, I'm sure! Can you elaborate? Kragen
