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Benjamin Franklin, in between spending time flying kites and visiting prostitutes, noted that time is money in a 1748 essay titled "Advice to a Young Tradesman." Thanks, Ben. Good insight. But time is how much money? Like, actually. How much money is time worth?
The question actually really matters, especially for the government. Before pursuing projects, governments weigh costs and benefits to figure out if they're worth doing. And for many types of projects, especially those having to do with roads or bridges or railways, one of the biggest benefits is time saved.
It's why the US Department of Transportation has spent a lot of time trying to figure out how much time is worth. It helps them figure out where to spend taxpayer dollars. For people like truckers, the calculation is kinda easy. They say the value of an hour saved on the road is just how much they get paid per hour. It makes sense. But for people off the clock and driving for personal reasons, the calculation gets more complicated. In 1997, the DOT, using the best available research at the time, came up with a formula for valuing personal travel time: half of what the typical household makes per hour. That works out to about $14 today. Yep, if you're driving to a park to, like, drink a couple White Claws with your friends or whatever, the DOT says every hour on the road is worth about $14.
A new study sponsored by the rideshare company Lyft conducted experiments on 3.7 million customers — and it suggests that the government has it wrong. The authors, Ariel Goldszmidt, John A. List, Robert D. Metcalfe, Ian Muir, V. Kerry Smith, and Jenny Wang, are a mix of academic economists and employees of Lyft, and most of them recently hopped on a Zoom call with us to spend some time talking about their time study.
Having a platform like Lyft to mess around with is kind of an economist's dream. The team was able to conduct experiments on millions of Lyft rides in nine American cities (before the pandemic). They tweaked prices and wait times to test when users requested and didn't request rides. Then, they were able to suss out how much people are willing to pay to wait less for their rides. It's a cool way to measure how people value their time.
For a long time, economists have relied on surveys of people in which they're asked questions equivalent to, "How much would you pay to save 5 minutes?" People in these surveys may not accurately give the value of their time because it's only a hypothetical. But Lyft's data has information on the actual decisions that people make about how they value their time. If Lyft makes you wait 5 minutes more for your ride, will you take it? What if it charges you more for a shorter wait? Lyft has an interest in answering these questions because they want to fine-tune their pricing strategy to make the most money.
After crunching the numbers, the researchers found a precise estimate for the average value of time in the nine cities they studied: $19 an hour.
"The value of time that we estimate is significantly larger than what the US government values people's time at," Metcalfe says.
The researchers also found that the people's value of time shifts throughout the day. "We do find that the value of time is 50% larger in peak commute in time versus non-peak commute in time." It makes sense. During commute time, minutes matter. People don't want to be late to work. The researchers also find that the value of saving minutes on rides increases when it's raining or snowing — because waiting in the rain or snow sucks.
Now, regarding their overall estimate of the average value of time, we should note that their experiments were conducted in nine of the richest urban areas in America: New York City, Boston, San Francisco, Los Angeles, Atlanta, Miami, San Diego, Austin, and Seattle. These are bustling areas where people have disposable income and business meetings or dinner reservations where being five minutes late can matter. Plus, they're the type of people who pay for taxis. This likely skews their estimates upwards. The researchers said they took pains to address this by adjusting their sample to match nationally representative surveys done by the government, and they say they are confident in their findings.
"We think that right now policymakers are underestimating your time," Metcalfe says. "They're not giving it the full weight that you fully give it. And that's important for how we think about how the government should spend money. The benefits of any government projects that reduce wait time or journey time might not be valued correctly."
Maybe it's time to change how we value time.
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