Mental Accounting

I spent the Diwali weekend in Chennai. I decided to make the trip only a week in advance, and was frantically searching every damn website for the cheapest fare, but found nothing below 10K return. Out of sheer luck, I stumbled upon Indian Airlines, which was offering a return trip for 5K. I couldn’t believe my eyes and booked my tickets without a second thought. In the rush to save money, I booked my return for Sunday night despite Monday being a holiday. By the time I realized this and wanted to make the change, the fares had gone up by 3K so I let it be.

inThe magnitude of the fare sunk in only when I saw the credit card statement. 5K is not a small amount. Of course, it's hard to deny that the deal was a sweet one "under the circumstances”. So I set about analyzing what the circumstances were. First, how badly did I want to be in Chennai? My mom had gone there a week ago and would be there during Diwali. Most of my extended family lives there, and I had not visited them for more than a year. Neither did I have any alternate plans of celebrating Diwali in Mumbai. So, yes, I wanted to go badly. But I think there is another factor that tipped my decision in favor of going.

I came across the expensive fares first. I saw 10K, thought the airlines were crazy, and decided it was best to spend some money on beer and the weekend in bed. But when I saw a fare half that number, the temptation to save 5K was overpowering. Would I have made the trip had the fare been 5K uniformly across airlines? Or even if the going fare was, say 7K, and I was getting it for 5K. Maybe not. The incentive to save 2K is not as irresistible. To give you an example, I shopped at Pantaloons this weekend. At checkout, the sales guy asked me to enrol into their rewards program. I had to pay Rs. 100 to get into the club, and would be immediately rewarded with a gift voucher for Rs. 200. Without hesitation, I declined the offer.

What's my point? I am trying to analyze the trip financially. Did I spend 5K - a loss, save 5K - profit, or spent 5K to save 5K – net net? (In the second case, I think I definitely saved Rs. 100 by not going for the card.)