I am going to flip a coin, and if it comes up heads, I will give you the coin. Does that sound like a good deal?
Perhaps it is if I can do it in an entertaining way, but viewed strictly in financial terms, probably not. That’s because the time it takes you to watch me flip the coin may be worth more than the coin itself.
If you have the opportunity to work in a U.S. minimum-wage job, you get paid 1 cent approximately every 6 seconds. If I pick a penny to flip, and it takes me more than 3 seconds to flip it, with a 1 in 2 chance that you get the coin in the end, the expected rate of return on your time from my coin-flip offer is less than you get at work.
Despite this, almost everyone gets caught up in deals that are no better than the coin-flip offer. It is not that people lack financial sense or are not aware of the value of time. The reason it happens is that money is a potent distractor. It is not hard to contrive a situation in which the appearance of money is used to take people’s attention away from what they are doing.
When I was very young, my relatives took me into a Texas bar. There was a coin, a nickel I think, on the floor near the entrance. When I pointed it out, they invited me to take a closer look at it. As I did, I discovered that the coin was nailed to the floor. It was put there, they explained, as a sort of test for people who were new to the place. Anyone who tried to pick up the coin was a person who had never been there before.
That is how easy it is to distract people with money. You can easily think of less benign examples.
Imagine if your employer paid you in real time, with a machine that dispensed pennies at your workstation. You wouldn’t be able to get much work done, having to stop every few seconds to collect your pay. We think of money as an incentive to focus on work, yet as this thought experiment shows, money also serves to distract from work. Money is, in general, one of the most potent ways to distract people.