Disclaimer: I wrote this article in 1997, whilst studying for an A-Level in Economics. It was printed in the would-be-prestigious 'QE Economics and Business Review, Christmas 1997' Journal, of which, according to the inside of the bright yellow photocopied cover, I was deputy editor. It appeared alongside other prescient articles like 'The Telecommunications Revolution - It's Changing our Lives' and 'The Best Thing to Kick Start and Economic Book - A War!'.
I'm currently going through the process of finding and digitising old writing - mainly as a some sort of personal digital housekeeping exercise. This article, though, is interesting enough to publish - not because of its content (which is fairly banal) but because of what it might reveal about certain threads connecting a version of me that existed 30 years to the person I am now. I'll explore that, and related ideas, in an upcoming article, but you'll need this original piece for context.
So here it is, in all its teenage glory: The Economist's Couch.
Make way brain buffs, Jonathan Pincas discusses his idea of psychoeconomics, which could change our perception of economic theory and human behaviour forever.
Everyone who studies economics gets something different out of it. Many people enjoy the subject’s historical aspects: economic changes over time. Others focus on the subject’s inextricable links with politics in today’s modern world. Then there are those who study economics with a specific interest in the business world. All these topics are taken into account in syllabuses so that those who study economics in conjunction with subjects such as history and politics can link their interests together. We study the changes in Britain’s trading patterns over time, we study the different types of businesses and the role economics has to play in the world of business and, although the subject teachers do their very best to separate politics and economics whenever the two spheres overlap, we have to look at the role economics plays in government and the role that government plays in economics. But we also study economic theory and the individual; matters such as demand and supply, elasticity and marginal utility theory. So, I hear you ask, if other sections of the subject may be of interest to a variety of different specialists—both students and people in the “real” world—who on earth does basic economic theory and the individual interest? Economic anoraks? Not necessarily…
The basic economic problem: scarce resources and infinite wants. When considering the individual, the basic economic problem means that a person has a set income with which he must satisfy as many of these wants as possible. In order to do this, he obviously must allocate his resources (income) in the way that is most efficient. For example, he would not spend all his money on light bulbs because he only needs a few to light his home. If he did spend all his money on light bulbs, he would have none left with which to buy other goods and services and so would not be able to satisfy any other of his wants. This would be a seriously inefficient allocation of resources on his part. So here we have a situation where a single economic idea can explain to a great extent how a person’s main objectives will be when it comes to spending their income.
Economics has helped us to explain a person’s behaviour in relation to resources. In fact, the study of economics at all levels takes us into increasing depth in the explanation of people’s behaviour in relation to how they allocate their resources. So, talk to a professor of economics who has done extensive research in this topic area throughout his career and he will probably tell you that he can explain this certain element of human behaviour down to the most minute detail. Talk to a psychologist about every other element of human behaviour apart from resource allocation and he will probably tell you the same thing.
The basic economic problem again: scarce resources and infinite wants. Now, keep an open mind and consider one of those juicy topics that appears during the study of A‑Level economics: diminishing marginal utility and consumer equilibrium, which boil down to this. As one spends more and more on one thing, the less satisfaction or utility they will get out of it. Take a simple example in sweets. Over a set period, the first sweet that you eat will render a lot of enjoyment. However, with the taste already in your mouth and your stomach that little bit fuller, the second sweet will not render quite as much. By the time you get to the last sweet in the bag, you could take it or leave it. Economically, this is known as diminishing marginal utility—not so difficult to understand.
A little more complicated is consumer equilibrium, which basically goes as follows. Let us say that a consumer buys only two goods, jam and marmalade. At the moment they are the same price and the consumer buys five jars of each. Now, let us say that the consumer replaces one of the jars of jam with a jar of marmalade. She now has six jars of marmalade and four of jam. By doing this, a number of changes have occurred. Firstly, from what was said earlier, we can say that the marginal utility of the marmalade has fallen because she is now consuming more than before; also, we can say that the marginal utility of the jam has risen because she is now consuming less. So, the marginal utility of the jam is now higher than that of the marmalade, meaning that the consumer could increase her total utility by consuming more jam and less marmalade. Logically, she would do this and there would be a return to the situation where five of each is being consumed. If the consumer replaced one of the marmalade jars with a jar of jam, then the reverse of the above would occur, and the consumer would eventually end up returning to the situation of five of each being consumed.
This situation is called the consumer equilibrium. For this consumer it is five of each being consumed; for other consumers it may differ. In the real world, all goods are not the same price, and a consumer does not only consume two different goods. In order to provide for these circumstances, we say that consumer equilibrium is where the marginal utility per pound is the same for all goods.
Now, if one does keep an open mind when looking at these theories, it is possible to see that the resource restricting the person in question is not just money—time is also a limited resource to which the basic economic problem can be equally well applied. A person’s time is limited to 24 hours a day. They will spend that time in a way which brings them the most enjoyment, satisfaction or utility. So we can apply the same ideas which govern how a person spends their money to predicting how they will spend their time.
Looking again at diminishing marginal utility, we can show how this idea can be applied with time as the restriction. If we begin to play a computer game, the first minute of playing will render the most fun. After maybe an hour of playing, the player’s eyes may hurt and he may be extremely bored of that activity—an extra minute of playing then will result in very little extra utility. So, as the player spends more and more time on the game, the marginal utility he derives will fall until he decides to switch off the computer and do something else.
Now let’s look again at consumer equilibrium. I said before that the marginal utility per pound of all goods bought would be the same for a consumer. By the same rationale, we can say that if we replace the resource of money with time, then the marginal utility per hour of all activities done by a person will be the same. Let us take the example of a person who does only two activities—playing football and watching television. At any time, the marginal utilities per hour spent on these two activities would be the same. So, for example, in a five‑hour period, the person might spend two hours playing football and three hours watching television, leaving him in equilibrium. If he were to change his time‑spending behaviour away from this equilibrium, then the effect would be a move away from optimal efficiency of time allocation. To right this he would change his time‑spending pattern back to the original state and so be in equilibrium again.
Obviously, in the real world there are many activities that have to be juggled around and fitted into a day. In general, though, the idea of consumer equilibrium with time as the limited resource can explain how a person allocates their time.
But, I hear you say, you spend hours and hours a week on your homework when you would rather be watching television; surely if that idea were right you would substitute homework time for television time and thus maximise your total utility gained from your time. You may also say that your parents or teachers make you do all this homework and therefore the idea is inapplicable. Well, just as we do in economics, we need to make assumptions. In this case, we have to assume away teachers and parents (too good to be true!) and say that the individual is free to make his own choices. We have to also assume that the individual is rational in his choice‑making and will therefore take into account long‑term factors such as the fact that achieving high grades at school will be likely to lead to a good career. Thus, even though you may not know it, you are getting a lot of utility from doing the dreaded homework.
If we continue with the idea of substituting income for time, then we should be able to redesign the standard economic demand curve to accommodate these new ideas. So all we do is substitute time on the vertical axis for price:
If we look at this diagram taking the example of the person playing the computer game we can see how it may work. If each separate game took ten minutes to play, then he may want (demand) to play five games. If, however, each game took one hour to play, then the player’s demand may fall to only one game.
When looking at demand curves with time as the restriction, we can also use elasticity analysis. If you take the example of eating as an activity, then it is possible to see how elasticity could be applied here. Let us assume that a person eats three meals a day; each meal takes him half an hour to eat. Now, let us say that the same person has some sort of medical treatment that means he must now eat much slower and so each meal takes him a whole hour to eat. He would still need to eat the same amount of food because it is a necessity, and so he would still eat three meals a day. We can thus say that the time‑elasticity of demand is zero for eating. The demand curve would look like this:
Obviously there are many other instances where fundamental economic ideas can be applied in the way that I have suggested throughout this article, those ideas that I have suggested are merely a handful of theorems and laws which can be manipulated to show how my idea would work. In fact, for almost all economic ideas where we say that resources are limited, we can substitute income for time which will always be limited.
So the difficulty is not showing that the idea of time allocation is a valid one, but deciding whereabouts in economics it fits. Many people might argue that it is another subject completely and that it should not really be discussed in the field of economics. However, seeing as we know that economics is the study of how resources are allocated, then surely time is an integral and fundamental part that should be placed side‑by‑side with the resources that mainstream economics focuses on. Whatever you think, it must be considered to be economics, whether a separate branch or part of the main core of the subject.
I hope to have proved through this article that just as economics can explain human behaviour in spending money, what I call psychoeconomics can explain human behaviour in a wider sense. It can describe, predict and explain exactly what people do in their lives, from day to day, week to week, and year to year through its use of time as a common human restriction. So next time you hear the men in white coats say that they have just moved a step closer to precisely modelling human behaviour, don’t ignore them: they’re not psychologists, they’re economists!