Wildstar,
That was a good try, but you realized that it didn't match reality.
The problem, it seems to me, is that the premise is wrong.
If I am going to make an exchange, it must be because my final state of comprehensive subjective satisfaction is judged to be greater than any alternative that is precluded by my actually making this exchange. EVERYTHING is taken into account, both everything received, and everything given up. This would include the satisfaction of a bargain.
The problem seems to assume that price is a measure of value, and ignores completely my subjective valuation of having a calculator or having a coat.
The problem can be reworked into having an instant in-store $5 rebate coupon for any purchase at the cash register in a store across town that sells both $15 calculators and $125 coats. My trip then more clearly depends on the relative valuations of the individual products and the money expended to purchase them. I might make two trips to buy both, or I might buy neither.
But even ignoring all that, the apparent preference for percentage discounts vs absolute discounts is, contrary to the problem statement, often completely logical.
One simple demonstration of this is to change the goods involved to some low priced single good and a much higher priced case lot of the same good. Clearly, it would be generally be pretty illogical to buy a case lot at a smaller percentage discount than is available for a single good.
More generally, we can go all the way back to the Austrian theory of the demand to hold a money cash balance. This demand to hold money is what gives money value. According to Mises, there would be NO demand to hold money whatever if the future were not uncertain. If you knew precisely what payments you would need precisely when in the future, then you could loan out your money at interest, due for repayment at exactly the moment you need it. Alternately, you could negotiate for prepayment discounts for goods to be delivered in the future. But the main demand for money comes from the flexibility it provides in both taking advantage of unpredictable bargains that may appear and dealing with unforeseen emergencies, or other changes of subjective valuations of goods that may come along.
If I have a discretionary spending capacity of $150 per month, my buying a $125-$5 coat limits my flexibility much more than a $15-$5 calculator and precludes a number of other possible 33% discounts that may well come along.
Of course, the availability of credit can serve for both bargains and emergencies, but in fact this DOES REDUCE the demand for money and reduces its purchasing power as less of it needs to be held by an individual.
My discretionary spending of $150 per month includes a wide distribution of goods at various prices. The more I spend on high-priced, low percentage discount goods, the less far the $150 will go.
Thanks, Don |
