A Reader Buying an iPhone for the Right Reasons
I previously wrote about how I would approach the decision to buy an iPhone. I appealed to a marginal cost/benefit framework, where I concluded the marginal benefit, the added value, is insufficient compared to the marginal cost, which is the sticker price.
I felt pretty good about myself. One of my friends even plugged the article on Facebook (thanks).
And then I got this email from a reader, which put things in perspective:
I am pretty sure I am buying an iPhone. I need a new phone and I can’t say it’s too expensive with a bonus coming… You know how it is… There is just no excuse, really. Even with your article about why there may not be a marginal benefit for the extra cost. I may not marginally need it, but I marginally want it.
So he understood my argument (yay) but made a different choice (doh). But on reflection, that’s okay.
It was a cold dose of reality that we don’t go through the world thinking in strange abstractions. Frameworks can help you make better decisions, and they are often entertaining to read, but they should not be taken too seriously. I actually laughed when I read the email. I was tickled that my article made an impression on him, but I certainly didn’t mean to be taken literally.
I emailed back and learned the reader was a trader with already very good saving habits. He was quite down to earth and was taught these habits at an early age. I applaud his family.
It’s also relevant to me that he didn’t buy the iPhone right when it came out, but several months after the price had fallen and the hype went away. So when he says he marginally wants it, I think he means he really values it and will get his money’s worth. It’s certainly not an impulse purchase.
And that’s what making the right choice is about. As I say, it’s better to spend $10 on a useful item than listen to frugality theory and instead spend $5 on a worthless item. The biggest driver in personal finance is not finances, but your preferences.
7 Responses to “A Reader Buying an iPhone for the Right Reasons”
My girlfriend just got an iPod touch. I actually find myself pretty amazed at how cool it is. It is the first hand held computer that not only allows full web browsing and online communication, but makes it actually fun and easy. I have spent hours using it, yet not once have used it as an mp3 player.
I think the problem with trying to put a price on the iPhone is that it has introduced functionality that people have never had before. It is easy to compare a phone to a phone, but very difficult to compare a phone to a handheld media device, especially since you don’t know how much you will be using the functionality until you actually try it out.
By Mike on Mar 1, 2008
@Mike: Good point–how do you put a price on a brand new service? I’ll do some research on this and see what people have concluded…
The reader reminds me the marginal framework is a good start but it fails to capture how we actually make decisions.
Here’s my own example. I don’t have HDTV, but I do have a good TV that suits me. The picture quality is not as good, but how much more satisfaction can I get by seeing the individual threads on a baseball players sock?
Not much, in a marginal framework analysis. But if it were a bloody sock in a baseball playoff game, that would really change the story…
By Presh Talwalkar on Mar 1, 2008
@Mike - While Apple introduced a device that presents its media functions in a very seamless way, its far from being the first hand-held media device, as Archos, Creative and a few others have been making portable media players for years beforehand, so you could easily compare the ipod touch to them.
Granted, that doesn’t change the fact that a portable media device is something new to you personally, thus making it hard to personally price it.
By RohoMech on Mar 3, 2008
Yes, @RohoMech, media devices have been fairly common. However, I haven’t seen any portable device with web browsing even approach the usability of the iPhone/Pod.
I haven’t purchased a HDTV system yet either, @Presh. The decision of whether to buy one of those seem pretty straightforward, since it is just a quality improvement of an existing service, and doesn’t provide any thing new to the experience other than crispness.
By Mike on Mar 3, 2008
@Mike - True, browsing on the ‘pods is pretty neat, so yea, I guess its harder to price that feature, especially since the hype would be, you’re taking the internet around with you.
HD-content is slowly becoming common-place, now that Blu-ray won, you’ve got a 70-80% chance that any new movie is going to have a high-def version along with the DVD.
I’d argue that HD increases the enjoyment of what you’re watching much in the same way screen-size / sound-system does: immersion. If you see a movie in a theater, the huge screen and great sound can really pull you into the experience. But those things aren’t going to make a bad movie easier to watch. Likewise, even on a small black&white mono TV, something really engaging is still going to pull you in.
By RohoMech on Mar 3, 2008
A snipper from Shakespeare’s sonnet CXXV
“Have I not seen dwellers on form and favour
Lose all and more by paying too much rent?”
quoted in the Appendix of “The Intelligent Investor”.
By Mahesh on Mar 3, 2008
@Mahesh: Shakespeare was well ahead of his times
By Presh Talwalkar on Mar 3, 2008