Sort of like a Disney Lightning Lane, you can pay for a Clear membership that will move you to the front of a TSA line before your flight. Similarly, at Killington, you can pay extra for a Four-Day Fast Track skiing experience while Universal Studios charges you to bypass the line.
By paying to skip the line, you’ve said that your time matters more than your money.
But how much?
The Dollar Value of Time
In a 2020 NBER paper, researchers calculated the value of time (VOT). Focusing on 3.7 million Lyft ride share users in 13 cities, they created six time/price pairs to see what customers valued. You can see below that low prices boosted request rates, even when the estimated time of arrival (ETA) was high:
As always though, it is not quite that simple. A closer look reveals that decisions about price and wait times relate to the reason for the ride, the availability of substitute transportation, and the time of day. Furthermore, the destination, the local wage rate, and the length of the wait also matter. Comparing cities, they found that Lyft riders in New York and Washington D.C. have lower time tolerance than residents of Miami and San Francisco. And finally, concluding that we care about price more than delays, they calculated that an hour is worth $19.38.
Our Bottom Line: Public Policy
More than a researcher’s number, $19.38 matters.
It suggests that public policy makers were wrong when they decided that an hour of time was worth $14.20. If they undervalued what time is worth, then they miscalculated the value of new projects. For example, thinking that mass transit saves $19.00 an hour makes it much more valuable than saving $14.20 an hour. The different numbers shift public priorities by changing their opportunity cost.
During the 18th century, Ben Franklin said it all:
“Remember that time is money. He that can earn ten shillings a day by his labour, and goes abroad, or sits idle one half of that day, tho’ he spends but sixpence during his diversion or idleness, ought not to reckon that the only expence; he has really spent or rather thrown away five shillings besides.” Benjamin Franklin, 1748
So yes Like Ben Franklin, we’ve said that time can matter more than your money. But also, by deciding how much we will spend, we’ve let a value of time determine our behavior.
My sources and more: Thanks to Slate Money for inspiring today’s post. From there, CNN had the examples while NBER had the analysis. I also recommend this econlife where we described line sitting.
