Let’s say you’re an average guy in the prime of his life (like me). You’re single (not like me) and gainfully employed (kind of like me). According to the latest numbers from the CPS, you make just under $60,000 annually ($58,815 to be precise). Sounds nice, but you give back about one quarter of this in income tax, social security, and Medicare, or lose it in the cushions of your IKEA sofa. So, in reality, you have about $44,111 of disposable income in your pocket.
Since you’re Mr. Joe Average, we also know (thanks to the nice people at the BEA) that you have a personal savings rate of about 4 percent of disposable income and according to the BLS, you’re likely to spend another 33 percent combined on shelter and food. All said and done, you’re left with just under $28,000 to spend on frivolous things (like dating). We’ll call this your adjusted disposable income.
Let’s say you’re the 1 in 33.33 adults who is actively dating. You’ve managed to snag a first date with that nice girl in accounting (who may appreciate this analysis, by the way). You’re feeling pretty good, right? Wrong. And here’s why.
Since we’re dealing with averages, we’ll assume the traditional dinner and a movie scenario. You’re looking to impress your new friend so naturally you’re paying. A nice meal and drinks for two at a decent restaurant, with tip, is likely to run you about $100 even. Two movie tickets, plus candy and drinks: $25, give or take a few. Throw in another five bucks for cab fare, parking, gas, and whatever, and you’re looking at a cool $130 for a shot at Ms. Right.
Not bad, you say. But this is only half the story. As you’re taught in Economics 101, every action in life comes with an opportunity cost—i.e., the value of what you’ve foregone in favor of whatever it is you’re doing. A simple way to think about opportunity cost is to think of it as time, and as we learned from Benjamin Franklin (or was it Puff Daddy?), time is money.
So, how can we estimate the opportunity cost of a date? A common trick employed by economists is to use our hourly wage as a proxy for the value we place on time. The logic is pretty simple: utility theory posits that if I’m a rational (we can debate this later) and self-interested consumer, my goal in life is to maximize my utility (benefit, happiness, pleasure, smiles …), or at least to optimize it given certain constraints (the need to pay child support, for instance). I derive utility from leisure and disutility from labor—so it follows that my opportunity cost of working (labor) is equal to the pleasure I derive from, you know, doing whatever the heck I want (leisure).
