Stumbling on Chocolate: Of TV and Tofu

If economists and psychologists are going to collaborate, they really ought to learn more about each other’s discipline. I have in mind the field of happiness research, and my case in point is a statement by psychologist Daniel Gilbert, author of the rapidly climbing bestseller Stumbling on Happiness. I am perhaps a bit unfair, taking an incidental statement out of context, but the topic is interesting in its own right, and this provides a useful point of departure:

…when something makes us happy we are willing to pay a lot for it, which is why the worst Belgian chocolate is more expensive than the best Belgian tofu.

The first part of that statement can hardly be denied (at least by an economist), but the second part I would question. If chocolate and tofu were both produced by monopolists, the chocolate monopolists would indeed be able to charge more than the tofu monopolists, just because people like chocolate better. But I have a hard time believing that “the worst” Belgian chocolate is monopolistically supplied. Surely there must be plenty of very close substitutes, both from other Belgian chocolatiers who make slightly better chocolate and from foreign chocolatiers who make chocolate that is at least almost as good. No matter how much people like chocolate, these competitors would have incentives to keep undercutting one another’s prices until the price came down to the cost of production. And if chocolate cost less to produce than tofu does, then, no matter how much people prefer chocolate, it would cost less than tofu. The reason chocolate is actually more expensive is that it costs more to produce.

This analysis raises the broader question of why good things generally seem to cost more than not-so-good things. I have several answers. First, to a large extent, the premise isn’t even true. Most people, most of the time, would rather watch TV than eat tofu, and yet broadcast TV is essentially free (except for the amortized cost of the TV set) whereas tofu has a nontrivial cost. Second, many good things – for example, the best Belgian chocolate – are in fact supplied monopolistically.

But the main reason, I think, is this: it’s not so much that good things are expensive as that expensive things are good. Gilbert in fact makes this point in his next sentence, but my reasoning is different than his. A basic premise of economics is the idea of diminishing marginal utility: the more you already have of something, the less additional happiness you get from an incremental amount. Things that don’t cost much, we already have plenty of, so an additional unit is not that good. Things that cost a lot, we don’t have much of, so an additional unit is very good. So, for example, why is going to a professional theatrical production better than going to a movie? Of course there are many who will say that the theatre is an inherently better art form, but for most people, I think, the answer is this: going to a play is better because we don’t get to do it as often. In other words, theatre is better than cinema specifically because theatre is more expensive.