If you were given a modest financial bonus that you were not expecting – a truly unexpected bonus rather than, say, a year end performance bonus that you were already anticipating – how would you use it? I’m not talking about winning the lottery here but something much smaller – say $5,000. It is important that you were not expecting it. Perhaps you were really, really expecting a performance bonus of $25,000 (or whatever) and you received $30,000 so the extra $5,000 is literally “beyond your expectations” but at the same time it is not a massive amount of money. Would you hoard it or add it to your savings? Pay off a credit card bill? Use it for a sensible purchase? Splurge on something?
How would you feel about a modest time bonus? Suppose, completely out of the blue, your boss said thanks for working so hard recently, why don’t you just take the day off tomorrow? Today in Hong Kong we are getting a bit of a battering by a passing typhoon so the city is pretty much closed down for the day. In theory, many of us can do some work from home but in practice most of us have suddenly found ourselves with a free holiday. How to spend the time? Stay in bed and catch up on sleep or slump in front of the TV with a DVD? Use the time wisely to sort out some personal administrative paperwork or to clear out the junk in the cupboard? Go for a walk on the storm battered beach? Or get together with your neighbours for an impromptu typhoon party?
Different people account for such bonuses in different ways. Behavioural economists such as Richard Thaler (who has written extensively on this phenomenon) call this “mental accounting”. Mental accounting is about the process whereby people evaluate economic outcomes by grouping their assets into separate (non-fungible) mental accounts. The classic example of this from Thaler is the snowstorm and the basketball game: A family has paid $40 for tickets to a basketball game at a town an hour’s drive away from their home. On the day of the game there is a snowstorm which will not stop them from going to the game but it will be a big hassle to drive there and reduce the overall pleasure they would get from the trip.
Most people believe that because the family has already paid for the tickets they will probably make the effort to struggle through the snow to watch the game. But if the tickets had been given to them as a gift, they would probably stay home. Surely the tickets are still worth $40 and, with the snowstorm, visiting the game requires a further investment in time and hassle? Yet if the tickets were a gift they might just chuck ‘em away and stay at home to watch the game on TV. There are some other great examples of mental accounting in this article from the Washington Post.
So how did you spend your typhoon day in Hong Kong?
