Tuesday, July 1, 2008

Find a Penny Pick It Up? Depends on Who You Are

Boston Gal, a personal finance blogger, has a nice little story about Russell Sage (link). Sage was a late 19th century wealthy financier. One day he received an advertisement in the mail for a play, which included a check for 4 cents and a note.

“Assuming that your income is $15,000 a year, and that you appreciate the fact that time is money, we enclose check for 4 cents in payment of two minutes of your time at that rate, to be employed in carefully reading a brief and honest statement of the novel, applause-winning features in our new musical farce"

Boston Gal estimates Sage’s income in the 5-10 million dollar range, meaning a minute of Sage’s time was worth $12, but Sage signed and cashed the check anyway. This is a common example, see Brad Templeton’s discussion of the value of Bill Gate’s time, which was estimated at $31 a second at one point.

These type of estimates are good for a first pass of if something worth your time. However, in some sense they are also an over estimate. If Sage or Gates worked a minute more they are likely to make less than their average wage per minute and in fact might not increase their income any. Same thing if you try to work a minute or few hours extra.

But, perhaps there is also something great about finding money. Never underestimate the fact that people like getting free (opportunity cost not included) money and services. If you don’t believe me just watch what people do for free t-shirts at a baseball game.

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