My granddaughter won money in a music composition contest and wanted to spend $4 of it on some artificial fingernails.? I accompanied her to the store; being a proud grandfather, I’d like to reward her for winning the contest.? So after she picked out the nails and we walked to the cashier, I offered to pay half.
I figure this way I am transferring income, showing pride, but not lowering the price of fake nails and not giving her an?incentive to spend more on fancier junky fake nails. This little?strategy seems sensible for a one-shot game; but in a?repeated game I know that she will catch on and spend more next time, expecting a subsidy from me.??I like to transfer income, but I don’t want to subsidize specific purchases. I need to cook up a new strategy for the next similar situation.
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Why don’t you do the responsible thing and tell her to save her money until she has enough to buy them herself? A gift is one thing but subsidizing a purchase in cruel to the effect that she will not understand how to deal with money responsibly.
i have a 10 year old daughter and i cannot tell you how badly i want grandparents to stop buying knicky knack gifts for my kids, but that’s not really what this story is about.
i am assuming she won more than $4 in the contest so she could have spent more if she had wanted to spend more and it was allowed, no? if your granddaughter already won $$$ in a contest then i would just let that naturally be the reward and you allowing her to buy what she wants is gift enough from you, i’d think.
I think you need to understand what really drives your granddaughter. Maybe you are overestimating the money issue as a reward program. What if she would rather spend some time with you than getting money?
I know this is a behavioural economy blog, but, remember, economy is not just about money… I believe you would get some good ideas from Hayek or Skinner…
Next time — who said anything about next time?
Randomly subsidize her purchases. This will prevent her from catching on and picking out more expensive items expecting to be subsidized and still give you the utility of subsidizing her now and then.
You have the wrong question. Once you gratuitously gave her the $2, you were not acting rationally or in the course of a game. You were acting as a grandparent. One of your jobs as a grandparent is to enforce feelings of love and self worth. Of course, the satisfaction that you got far exceeded the cost.
So get used to acting like a grandparent and don’t worry about the consequences. Let the parents teach, thrift, hard work, etc. Don’t get me wrong, you should reinforce their efforts in those areas but your first priority should be in building a warm relationship with your granddaughter.
@ Alan Dambrov:
I agree with you that the first priority should be building a warm relationship, but your initial statement – that Daniel was not acting rationally – is incorrect by your own logic. If the feelings of love and self worth that Daniel experienced “far exceeded the cost”, then he made a rational purchasing decision and picked up a little consumer surplus on the way.
That is what economics (and Freakonomics in particular) is all about.
I say foster a passion in her for something you are passionate about — fishing or birdwatching or something, I dunno — by paying 100% for a fishing rod or binoculars. It may not take, but then again, maybe it will.