Keipop Econ 101

I've actually made attempts to understand the financial crisis. My knowledge of the situation has not increased at all, but I am now more familiar with the vocabulary involved: mortgages, credit, stocks, government regulation, $700 billion bailout plan, taxpayers, etc. Note that this is coming from someone who's step zero was to realize that Fannie Mae is not the same thing as Fannie May. I justify this initial confusion by noting that the candy company had some financial problems in the past couple of years or so. So goes my-style economics, 101.

The problem with finances for me is that I like to see my money in one place. I don't like borrowing it, I don't like thinking about interest rates, and I don't like credit cards. Basically, I don't want to step outside the world of addition, subtraction, and positive numbers. The Porok in me lives on strong!

But now, I figure, I should move away from this financial primitivism. This will help me understand more complicated monetary ideas that are important in the life of a typical upstanding citizen. However, that entails acting against my motto, which is this blog's theme, however thin it is: the preservation of youth. Still, I'm not against mental exercises, so I decided to start with the more thoughtful money management of all the frivolous things I currently covet.

Under my financial adviser Mordecai, I have taken the things I want now, and tried to rationalize and prioritize potential purchases. Generally, the goal is to satisfy "wantiness" and minimize spending. In other words, how do we satisfy "wanty" Kei while also reducing Mordecai's criticisms of Kei's overdesiring and overspending? (I just realized the personifcation of the objective.) So for every item I want, I ask myself, "On a scale of 1 to 10, 1 being 'meh' and 10 being 'omgmusthavenow,' how bad do I want the thing?" This number is the "desire magnitude." Next, I need to know how long in days I've wanted the item, the "desire duration." And finally, a column for the price.

The "desire duration" shouldn't be weighted as much as the "desire magnitude" because as the days go by, this number will always increase. The magnitude is very important but stays about the same over time, or averages to whatever the start magnitude was (this is generally true at least for me). So the duration is divided by 4 (more or less arbitrarily chosen), and added to the magnitude. The sum is divided by the price, and the total multiplied by 100 to work with whole numbers. This results in the "purchase potential." So, you can see which items can be justifiably purchased and which items to put on hold for further deliberation.

This might seem like a lot of work with results that ultimately match pre-calculated intuitions, but it's not and it's also nice to have a systematic process for all the small things that add up. I could go into other ramifications of the methodology, but I'll stop here. Comments and suggestions for improvement are invited. For now, what to do with these preliminary results...

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Related articles:
FAQ on Lehman and AIG, NYT Freakonomics 9/18/08
"Money Disorder," NYT Fashion & Style, 9/24/08 (at least see the ending quote)