Wednesday, November 21, 2012

Wants, Needs, BATNA

Perhaps it's my training in economics, but I tend to flinch when I hear the word "need". A careful consideration of the nature of opportunity cost renders "need" pleonastic. Its use seems to imply unacceptable consequences of failure to trade. Our pal in the desert needs water in that failure to strike a bargain with Jorge will result in death. I need sandbags for my front door or else my basement will flood. Absent a new anchor, Locke's sea captain founders in heavy weather--he needs that hunk of bent iron.

But daaa-aaad, you don't understand... I neeeeeed an iPhone.

To the economic tin-ear, "wants" are frivolous or selfish; "needs" are simply the unfortunate consequences of this grievous life. Children grasp this and employ the word artlessly, a source of much gentle snickering among the world's parents. Grown adults grasp this too, employing the word with a bit more art, a source of much exasperation among the world's economists. Workers need a living wage, the environment needs stewardship, "we" need to "invest" in "public" infrastructure. The word "need" in many of these cases nixes useful conversations about opportunity cost. Yes, perhaps all these things are useful, desirable, good, but by classifying them as "needs" implies that the consequences of failing to divert resources to them are simply intolerable. End of discussion.

The potential for semantic abuse is clear. Using "need" implies non-euvoluntarity, lending credibility to third-party intervention, whether or not it might be justifiable using careful cost-benefit analysis.

So how to respond to its use? I'm not really sure. it's sort of a trigger word for me. I directly challenge people when I hear it, but I'm a social knobbthicke. Maybe there's a better way to bring considerations of opportunity cost back into discussions. Please share any ideas you might have in the comments section.

I also see it as my parental duty to carefully explain the idea of cost to my daughter so on those occasions when "need" might be warranted, she will know how to use it appropriately. If I end up teaching, it will probably also be part of the first few lectures of the semester.

As for the rest of the time, beware cries of "need". Someone's usually trying to sell you a free lunch.


  1. "Need" means elasticity of demand between 0 and 1, "want" means elasticity greater than 1.

  2. Vlan, the problem with tying "need" to elasticity is that need is often applied to situations where we wish to spend other people's money (OPM): A teenager who "needs" an iPod, a charity that "needs" to raise money to help starving Africans, or a school that "needs" to hire better teachers, etc. Elasticity of demand will be very different depending on whether we are spending OPM or our own money.

    I've been thinking about "needs". On Tuesday I attended a webinar with Art Carden and asked how to respond to people who conflate the idea of demand with "needs", and he said economists don't believe in the idea of "needs". For every "need", there has to be a cost point at which a person will forgo having that "need" satisfied. Most people don't think of it that way, but then most people only consider the monetary price, not the cost. A "need" that was truly beyond all consideration of opportunity cost would be something that was so important that one would sacrifice one's firstborn, name, honor, time, fortune, life, and very soul to obtain, but "for what is a man profited, if he shall gain the whole world, and lose his own soul?" Such a good never was.

    I like the idea that "using 'need' implies non-euvoluntarity". That's probably a good way to think about it as an economist, that "need" is not purely pleonastic, but is a non-economist flag for a non-euvoluntary situation. For any particular good, if a prospective buyer is willing to pay $A and a prospective seller is willing to take $B, then there is the possibility of voluntary trade and mutual benefit if A>B for a whole range of prices x such that A>x>B. In my intermediate micro class it was stipulated that we don't care which x the parties arrive at, nor can we calculate it. It depends on other factors, such as the relative bargaining skills of the parties involved. A desperate party that "needs" to either buy or sell opens up the range between A and B, making a possible trade more likely, but also tending to lower the bargaining power of the needy party. Isn't it a strange result that for a very large A-B, we have both the possibility of a very large mutual benefit and also the large BATNA disparity which causes us to find this mutual benefit unfair?


Do you have suggestions on where we could find more examples of this phenomenon?