After snowshoeing for the first time a few weeks ago, using rented shoes in a Chicago Forest Preserve, I recently purchased snowshoes from REI (Atlas Snowfalls1). In classic economic student fashion, I retroactively made this decision more complicated by running through a whimsical cost benefit analysis. Initially concerned that I would not use them enough to merit buying my own, I am now most pleased with my decision. This is why:
The snowshoes I purchased from REI cost $100. Renting snowshoes from REI costs $20, plus $7 for each consecutive additional day. But there are other costs.
With snowshoes I own, I invest a little more care and work into them, and try to use them only on snow-covered terrain (and not on plowed roads and sidewalks). I would pay $1 per outing to avoid that and use them however, without a lot of tender loving care.
With rentals, I have to go through the trouble of renting and returning them. It costs $4.50 round trip on the CTA, as well as maybe two hours of time, worth maybe $5 an hour each.
As for benefits, the rentals are a different model with different, higher quality features, costing $140. I would be willing to pay $3 more per outing to use the better shoes.
The ownership of shoes in itself benefits me $0.25 a day, as I know I have them, I can go whenever I want, I do not have to worry about acquiring shoes, etc. And an outing of snowshoeing itself is worth about $30 to me.
- $100 one-time
- $1/outing (tender loving care)
- $7/consecutive additional outing
- $14.50/rental (transportation)
- $0.25/day (peace of mind)
- $3/outing (better quality)
- $1/outing (no tender loving care)
- $30/outing (enjoyment)
$30/outing + $0.25/day – $100 – $1/outing = $29/outing + $0.25/day – $100
$30/outing + $3/outing + $1/outing – $20/rental – $7/consecutive additional day – $14.50/rental = $34/outing – $34.50/rental – $7/consecutive additional day
I am glad I purchased my own shoes! For a rental to be personally profitable, I must go on an extended trip where I use the shoes in consecutive days, which I will not be doing too often. What are the final numbers?
By assigning probabilities to different outcomes, the expected net benefits of both owning versus renting snowshoes this winter (between January 1st and March 15th) become apparent. Say there is a 10 percent chance I go snowshoeing twice, an 80 percent chance I go six times with a two-day trip, and a 10 percent chance I go 10 times with two two-day trips.
Own Shoes–Net Benefit
0.1 * ( ($292) + ($0.2573) – $100) + 0.8 * ( ($297) + ($0.2573) – $100) + 0.1 * ( ($2912) + ($0.2573) – $100) = (0.1-$23.75) + (0.8$121.25) + (0.1*$266.25) = -$2.375 + $97 + $26.625 = $126
Rental Shoes–Net Benefit
0.1 * ( ($342) – ($34.52) ) + 0.8 * ( ($347) – ($34.56) – ($71) ) + 0.1 * ( ($3412) – ($34.510) – ($72) ) = (0.1-$1) + (0.8$24) + (0.1*$49) = $24
Neat! While this is just for fun, using mostly made-up numbers, and I may have made a mistake, my $100 investment should result in something like a $100 profit. Go me! Of course, despite taking something simple and making it complicated, it is still not complicated enough to reveal the truth. There is inflation, future costs and benefits should be discounted to some degree, my estimations and probabilities may not be very accurate, etc.
No one–including economists–thinks an individual should become mired in such equations before deciding whether or not to buy something.2 Fortunately, people are actually quite good at this already. Paraphrasing a former economics professor, we have evolution to thank for this ability. Everyone willing to spend more energy getting their food than their food provided (or more money than the benefit of their purchase provided) died.3
Remember that. Though far from perfect, in many ways, we are all good economists. And that is the Home Economics lesson of the day.
- Which are pretty great by the way. I have now used them twice, and the 25s hold my 175 pounds okay over most midwestern snow terrain. Seemingly good value for the cheaper price; the bindings do get stuck sometimes. ↩
- Although it becomes a better idea the more expensive and/or riskier a purchase is. A candy bar, or even a pair of $100 snowshoes may not be worth such scrutiny, but how about a $50,000 new car, or a $5 million house? ($5,000,000, keeping the formatting consistent.) ↩
- This has been about individuals. There are also entities called “corporations” and “governments”. All economists acknowledge market failures (like negative externalities) and a role for government in the marketplace (public goods, such as national defense). Yet generally, we are wary of governments because they tend not to play by the same rules of evolution as the rest of us. Their costs can outweigh their benefits, and they won’t die. They’ll just raise taxes. ↩