How can behavioural economics determine to what extent is time money?
The first known record of currency is from 600BC, traced to King Alyattes of Lydia (now part of Turkey). The first ever minted coin depicts a roaring lion and since then the first banknote was issued in 1661 BCE and the first credit card in 19461. Currency represents a systematisation of the idea of value and henceforth humanity would judge the value of material things not in terms of sheep or goats but with reference to a benchmark. We are of course all used to ‘paper’ as a metonymy for money and this is typically used as pejorative to essentially express its lack of inherent physical value. However, we ascribe it some value; paper as a commodity has been a social construct powerful enough to redraw borders, cross seas and collapse civilisations. Is something inherently less valuable because it has been done in less time? Time and money have become like catenanes and maybe behavioural economics can untangle the knotted mess.
Obviously for most cases, the more time passes, the more money can be made (or perhaps lost). This is the premise of investing in things, such as start-ups where an investor is willing to make a short-term loss with the aim of obtaining a long-term profit. Considering a model industrialist factory, such as one churning out ketchup bottles, where supply equals demand, a constant rate of production will be preferred. Assuming a constant price as people do not seem to be more or less willing to buy the product so wouldn’t be predicted to be willing to pay more or less money, units sold (and profit) will scale with time. But we know that outside of such a steady-state situation, if demand rockets the ketchup bottles may suddenly become a whole lot more valuable.
To take another interesting case consider illicit drugs, demand for them seems to be inelastic i.e. no matter the legal or social ramifications of taking drugs, there always appears to be a demand. By the point of addiction, essentially by definition, drug taking habits are rigid; entrenched. Governments have tried to combat this by reducing supply but even if the area used for coca cultivation was slashed so drastically that the price cartels would have to pay for enough coca leaves to make a kilogram of cocaine trebled (from $385 to $1185), and if subsequently all the extra cost was carried by the consumer, it would mean that a kilogram of cocaine in the U.S would cost an extra $770-that is, $122,770, rather than $122,0002. Evidently, eradication will have been a pathetic investment.
Either way, the end result is the same: profits increase. But in neither has time necessarily been a deciding factor. Yes, the factory may start to produce more ketchup bottles per unit time to ‘meet demand’/make money but all the while the workers on the factory line get paid the same amount of money. In different industries, it is not uncommon for employees to receive a bonus at the end of the financial year, and this (typically) simply depends on the profit the company has made that year, irrespective of time. If Mr. Heinz’s value doubles though, paying the employees the same in times of both constant and high demand is justified by the fact the manual labour they performed is the same so time scales with money for them, but clearly not for Mr. Heinz. As for the law enforcement razing coca plantations, all the time they will have spent mowing down coca groves will have hardly made a dent in the monetary value of cocaine.
One way to account for this non-linear behaviour is with behavioural economics, which frames people’s decisions in the sometimes more naturalistic setting of their own psyche, rather than in the ice-cold rationality of classical economic theory. Many of its findings, such as risk aversion3 - an apparent preference for more certain outcomes over more uncertain ones, even when their monetary reward may be lower, which would not be predicted by this ice-cold rationality. But the scope for people to make irrational decisions would predict fluctuations that might cause increased demand or inelastic demand; for instance, in the former case people ‘hopping on the bandwagon’ to buy something popularised by a celebrity in an ad-campaign despite even if they knew about it before and hadn’t bought it, or others continuing to take drugs despite they know it may be bad for them. As a consequence, time need not scale linearly with money, so perhaps this old adage of ‘time is money’ will leave the vernacular.
2. Narconomics” by Tom Wainwright, published 2016, pg.28-29
3. Risk aversion is credited to Tversky & Kahneman (1983), within their “Prospect theory”