Thursday, November 22, 2012

Say yes to the dress...the everyday economist style

Good morning economists. Last night, I was watching an episode of "Say yes to the dress" on TLC. For those of you who have not heard about the show before, future brides visit the Kleinfeld bridal store where they hope to find their dress for that special day. (For those of you who wonder why I was watching the show, it suffices to say that there was nothing else on TV.)

The funny thing is that the producers of the show came up with an episode which is a classic case study for economists! For the sake of anonymity, I will give you the gist of the story using generic names for the brides involved.

Two brides entered the store each with their respective families. The brides did not know each other and the fittings were conducted in independent rooms. Both bride A and bride B had a budget of $5000 for their dress. Both appeared to have the same taste and from what I could perceive they both belonged to the same social class. Both brides were trying on dresses within their budget when all of a sudden an important variable changed for bride A.
Bride A's mother handed her an open check informing her that she now had an unlimited budget for her dress. Suddenly, bride A was not satisfied with the $5000 dresses and opted for dresses with a higher price tag. She even tried on a $12000 dress before she settled to $7000 out of guilt that she did not want to spend a ridiculous amount even though she had an unlimited budget. She was satisfied with the price tag of $7000.

Bride B was trying dress after dress and when she was informed that there was one on sale for $2500 she was ecstatic! She tried the dress on and she immediately liked it. When she informed her family of the price, they were extremely surprised and were enthusiastic when she announced that the specific dress constituted her final choice.

To recap, bride A had to compromise for a dress that was worth a lot more in terms of money then bride B's dress. Bride B was ecstatic because she found what she wanted and was well under budget. Given the case study above, does unlimited budget always yield higher utility (satisfaction)? Apparently not!

Have a nice day!




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