Friday, February 24, 2017

Water Price Raising - Psychological Feeling vs. Mathematical Analysis

One announcement Minister Heng Swee Keat made with the Budget 2017 that created strong reaction from Singaporeans was the raising of water price by 30% in two years. Radio stations made talk show on it and invited listeners to give their view. One of the callers suggested that the authority should have raised water price "gradually" over the past 10 years instead of making this "quantum" price jump at one go. The invited guest, one MP concurred to this opinion and said he would bring it up in the parliament during the budget debate.

A gradual price increase is psychologically easier to be accepted by consumers than a price jump of 30%. However, a mathematical analysis shows this is not necessarily advantageous to them in term of the money paid.

let's make a simple analogy. Say, a certain necessity commodity cost $1,000 for the past ten years, and the price jumped to $2,000 on the 11th year.

Now instead of this price jump on the 11th year, the price increased by $100 each year from the 2nd year onwards. So on the 11th year the price is $2,000, same as the first scenario.

Do you see that you actually pay more in the second case?

Now is it really better to pay more with the gradual increase? You decide.

Now I understand the Chinese saying 温水煮青蛙。

5 comments:

Anonymous said...

Mathematically it does not make sense to increase gradually, but it makes sense if it makes people easier to adjust for the price increase. Not just psychologically, but adjusting their spending,saving and earning resources/habits for the small increase rather than a sudden big increase.

M

Anonymous said...

Your analogy is rather flawed in my opinion. Mainly because you are counting the increment backwards by altering what you would have already paid.

A more representative analogy imho would be Case 1 vs Case 2 where;

Case 1
1st 10 years, 1k. 11th year jump to 2k (and 2k every year until the 20th year)

Case 2
1st 10 years, 1k. 11th years, 1.1k, 12th year 1.2k, until 2k on the 20th year.

I felt that this is more representative of the current situation than your example.

Sanye ◎ 三页 said...

Hi Anonymous,

Your analogy represents the case if the authority had raised the price 10 years ago, which is not the suggestion made by the caller and concurred by the MP.

The gentleman lamented that the authority has been "sleeping" and should have raised the price earlier but in a gradual manner.

Of course if the authority starts the gradual increase of the price NOW, everyone would be happier.

Singapore Man of Leisure said...

Sanye,

Yes, the one responsible for this water increase has been sleeping on the job... 17 years!? LOL!

Now only realise water is a strategic resource?


The one responsible for GST introduction starting from 3% has done a better job in marketing spin ;)

Boil the frogs slowly!




Anonymous said...

Personally, I hate to think that some critical political issue may have cropped up at our neighbour side. Look at all the massive development in Johor, where do we think the water will come from to feed them .. the poor depleting reservoir ?
Who scare about the 2061 agreement to singapore if I cannot feed my own citizens/interests First and Fast... water is just a step away upon open/close the tap... same goes at the source.

Scorp