The Question of Windfall

Before you read today’s blog, please answer the following question:

I think this is a great question about human behavior. The logically “correct” answer is that you’d choose the monthly payments for a total cashflow of $1,200. That’s 20% higher than the $1,000. The odds that you could make a 20% return over the next 12 months is slim to none.

And yet getting $1,000 today is fun. It would certainly be better for the economy–you’d be much more likely to go out and spend that money on an impulse buy. Back in Japan, where I studied abroad, many large companies pay employees nearly a third of their salaries in one lump sum around the holidays. It’s a huge boost for the economy during those times.

Personally, I’d choose the monthly payments. I end up with more, and I don’t need $1,000 today (some people might). What would you choose? Why?

If this kind of question interests you and you live in St. Louis, I would highly suggest going to Dan Ariely’s reading on Monday, June 14 at the county library (plus, I’ll be there!). His work inspired my series on sex psychology earlier in the year. It’s great stuff.