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Do coupons help us save money? This very question may seem counterintuitive, but it is one worth entertaining. Coupons certainly help us save money if they are for purchases that were planned expenses. Such as regularly purchased necessities, for example, a coupon for broccoli at the local grocery store. A nutritious food item that is frequently purchased by Mr. Jones. In this instance, it would be awfully difficult to argue against the fact that Mr. Jones is saving money through using a coupon. The same could also be applicable for luxury items that are planned expenses. Let’s say Mr. Jones takes his wife out to dinner every third Thursday of the month. Mr. Jones and his wife dine regularly at the same chain-restaurant every month. Mr. Jones finds a coupon in the local paper for 25% off his next meal for this very same eatery. Even though dining in a restaurant is not a necessity Jones is still saving money because this luxury was a planned expense. He is not going out of his way to obtain a product or service he hasn’t budgeted for.

So when does use a coupon or taking advantage of a sale not result in the patron saving money? It should be stated that there is a lot of subtlety and nuance in addressing this question. From a prima facie standpoint, using a coupon always results in savings. Why? Because the customer is receiving a discounted price on the specified product or service. This superficial assumption only analyzes one single transaction. If we are assessing Mr. Jones’s total finances on the hyper-microlevel, then yes, he has saved money by using a coupon. However,  the thin line distinguishing between a budgeted purchase and an impulsive one is where the difference truly lies. The discount provided by a coupon saves money on a single purchase. If the customer goes out of their way to purchase an impulse item that was not planned for they are not genuinely saving any money. Perhaps they are on a single transaction. The allure of saving money with no consideration given to whether they want or need the product or service is not conducive to the overall conservation of money. The individual who is a spendthrift is still spending money recklessly even if they are saving a few dollars on a single transaction. The real metric that measures true savings is the comparison of typical spending to average income. If an individual can retain more of their income and curtail their previous consumption habits, they are truly saving money. The intentions behind clipping coupons are thwarted if it leads to an increase in overall consumption.

How we are seduced by the opportunity to save money even on frivolous purchases has deeper psychological implications than being the victim of an illusion or flawed logic. For some people, they get a dopamine hit when they are hunting down a deal. Mirroring the same neurochemical reaction that a gambler experience when they allow their ex-ante perceptions to override their better judgment. As they dispense with probability as they continue to feed quarters into the slot machine. Making these deal hunters as much of a slave to the reward centers of the human brain as a junkie or gambling addict.

There is another explanation providing some insights into why we are often overvaluing the benefit of coupons. That would be the theory of Time Preference. Per the Austrian School of Economics,  Time Preference is the immutable fact that people value present consumption over future consumption. The  Austrian economist Eugen von Böhm-Bawerk applied this concept of valuing present consumption over future consumption to interest rates. Bohm-Barwerk postulated that people are willing to pay interest to obtain access to present goods for two reasons. For one, they anticipate having more income in the future.  Also, the perceived value of a good tends to diminish over time. Through considering these two variables Bohm-Barwerk added a temporal element to the economic theory of interest.  When time plays a factor in how people assess the value of goods and services it is fair to assume if you need to pay your mortgage tomorrow and happen to be $500.00 short you would be willing to pay more than the sum borrowed to have the money today. Meaning receiving that $500.00 today is worth more than the total sum loaned. It could be speculated that this is due to two factors. The fact that the individual receives the value of the money loaned plus the value of receiving itexpediently. The other factor isthat the individual receiving the loan enjoys the value of the $500.00 and the benefit of avoiding the penalties for making a late mortgage payment.

If the theory of time preference provides us with the precepts for understanding interest rates, how does this pertain to coupons? Time preference relates to coupons in the sense that sales, discounts, promotional codes, and coupons all influence our evaluation of goods. A coupon operates as a purported signal of a price reduction to the customer. If the customer perceives the value of the good or service to be higher than the discounted price, they will purchase it. Lowering the price of a commodity below market value makes the prospect of purchasing it more appealing to the customer. It could be argued that coupons can subjectively serve as a means of increasing an individual’s time preference. In other words, making them less apt to delay consumption and purchase the item that is on sale. Through lowering the price of a good it realigns the incentives of purchasing the item by providing a quantified value below the customer’s perception of expected value. Signaling to the customer that maybe that 12-pack of Guinness is worth pick-up from the grocery store. While $7.99 is an absolute steal. It is still $7.99 more than you had originally intended to spend. 

4 thoughts on “The Paradox of Coupons

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