An Economist's Guide to Picking a Travel Destination

I will soon be going on holiday to Istanbul with my sister and the most arduous task has been planning. And if you did know this about economists, we love to optimise things. More than that, we believe this mindset can be applied to every aspect of life, from business and markets to love and yes, travel. And you can do that too; you just need to think like an economist! In this blog post, I will attempt to reduce the anxiety of planning a trip by offering strategic tips through my economics goggles.

Time and Budget Constraints

Transport price: Begin by gauging your income and time available for tourism. Generally, longer airfare/train times are associated with higher transport costs. If you have a high salary and plenty of paid leave, you can afford longer trips with higher airfare and lavish tourist activities. While shorter vacation days and a frugal budget would warrant destinations which are closer to home.

Exchange Rate: Even with a sizeable budget it is important to consider the exchange rate between your home currency and the destinations. This will also determine how much you would pay on accommodation, food and activities while on holiday. A favourable exchange rate can could help stretch your money without sacrificing the quality of your experience. Now you know why I picked Turkey. P.S. it is not unethical if the country itself depreciates the currency to attract tourists.

Opportunity Costs: So, you have decided that you want to go on vacation, and you narrow it down to a few places. The decision is tough, but this is where your inner economist kicks in! Calculate (ideally, literally) the potential costs of choosing one place over another. For instance, consider the seasonal demand of the places shortlisted. Since demand increases in peak times while the supply of hotel rooms and attractions remains somewhat fixed, it does not only mean higher prices of accommodation but also longer wait times for popular activities.

Also, don’t forget about visas! Being of Indian origin, I require a visa to go almost everywhere in the world which is usually accompanied by hefty visa costs and paperwork. Turkey was no exception, but my UK residence permit reduced the expenditure and the hassle significantly.

Individual preferences

Beyond picking the type of holiday, individual preferences go much deeper in economics. Ever wonder why destinations like London, New York, Santorini etc. attract millions of tourists annually? Sure, it is the charm of these hotspots, but behavioural economics tells us there is more at play. Loss aversion or the increased sensitivity to losses can explain why people flock to these destinations or in conventional terms, the fear of missing out. Social media amplifies the effect, making these regions seem irresistible.

As research shows, tourists are prone to impulsive buying tendencies in these high-octane and highly-priced environments. If you would like to avoid this cognitive bias and explore more hidden gems, evidence suggests travelling in groups can make individuals make more budget-friendly decisions, as seen in standard economic models. Moreover,

interest in culture when choosing a destination lowers people’s loss aversion.

This guide was made for the ‘homo economicus’ or rational human(s), as Adam Smith would say, those who maximise satisfaction but are bound by budget. I hope these income, time, purchasing power parity and behavioural science considerations could streamline your travel itinerary or at the very least, inspire a detailed cost-benefit analysis. While this guide leans heavily on rational decision-making, remember that some of the best travel experiences come from unexpected detours and spontaneous choices. Even economists know that sometimes, you have to let loose!

What factors do you consider when planning a trip? Are there any economic theories you apply without even realizing it? Let me know in the comments! Happy travels!