We do not run our lives like an economist. Our decision making is flawed and is based on emotions than rational thinking. When looking at the decisions made by others, with the advantage of hindsight and emotional detachment, we make commentaries about the qualities of those decisions. The New York Times has an article by DAVID STREITFELD on the unfortunate homeowners who used storage to stash their belongings after foreclosure on their homes. David says,
“… some people cannot keep up with their storage bills any better than they could handle their mortgage payments and the storage companies are auctioning of their property for a pittance”
An economist would ask, have these people considered all options before choosing storage as the best option? David asks,
This is the eternal mystery of self-storage. If the material was worth
money, it was foolish to let it go to default. If it was not worth
much, why spend at least $50 a month to store it?
The problem is most people, and we can safely say all of these people who used storage only to lose the contents, do not have a formal decision process. One could argue that if they did, they would not have reached this stage in the first place. But if we give people the benefit of doubt, unexpected events and bad luck could easily be the reasons that drove them to foreclosure. Kirchler and Rodler of University of Vienna say in one of their cases on Consumer behavior,
“People in private households make decisions when they are still groggy in the morning or tired again in the evening after a day’s work. Economics decision making is imbedded (sic) in the daily routine of a relationship, which is faced with a multitude of different decision topics which often do not present themselves one after the other but rather demand simultaneous solutions”.
At the time of foreclosure they are already stressed and are trying to make a living and/or support their families. Their already sub-optimal decision making process is further weakened by their current state. They cannot make economic decisions on whether to sell the stuff right away or pay the rental charges to the self storage.
People tend to look at their property as a representation of their past, a life they once had and want to have back in the future. While it might make economic sense to sell these off rather than spend $600 a year to store them, only to lose them later, their emotional attachment makes them choose the option of storing instead of selling.
Unlike an economist people are not rational. Unlike a economist people are emotional. Unfortunately, this emotional decision process destroys private and public wealth.
This brings us to the questions,
- Should people be making their own decisions?
- Should there be professional decision makers, trained economists, who can take on the multitude of decision problems that require simultaneous solutions?
- Just like people are not qualified to treat their own medical conditions, should they leave their economic decision making to professionals?
Addendum: People may very well be making a valid decision if they think they value their possessions to be more than the cost to replace them. This could easily be the case as explained by Endowment effect that states we value things that we own more than what the market is willing to pay to buy from us.