In Chapter 9 and 10 (I combined them as they’re quite similar) of “Predictably Irrational” by Dan Ariely, the concept of how are expectations affect our decision making is discussed. We are not rational actors making choices in a vacuum but rather we are deeply affected by our expectations. If we expect a movie to be good, then it often is. This placebo effect is always to be found with prices. If we pay more for something, we value it more and get more from it. This creates serious problems for those who claim that market distortions will be corrected by market forces pushing a return to equilibrium. Ariely conducted an experiment involving free beer (I knew that would get … Continue reading “Predictably Irrational Chapters 9 & 10 – The Effect Of Expectation & The Power Of Price”
Predictably Irrational Chapter 3 – The Cost Of Zero Cost
To a neo-classical economist zero is just another price. To the average consumer it brings the magical connotations of free. We are always trying to get something for nothing so if something is free then consumers impulsively take the option. Ariely shows how this impulse comes with hidden costs that debunk the myth of rational consumers. Whether it’s from eating too much free food or accumulating worthless free pens, clickers etc, people are always trying to get a free lunch. As usual (this is what is so great about the book) Ariely did an experiment to find the answer (neo-classical economists take note). He set up a stall with offering (one per customer) two piles of chocolates, the first being … Continue reading “Predictably Irrational Chapter 3 – The Cost Of Zero Cost”
Predictably Irrational Chapter 1 – The Truth About Relativity
Predictably Irrational by Dan Ariely is a fascinating and deeply insightful book that is a pleasure to read and full of gems. It is bursting with interesting and ground breaking experiments that completely debunk many of the assumptions of economics. It will reshape how you view economics and how consumers react in real life, as opposed to in economics textbooks. It is a book I would highly recommend and should be considered a behavioural economics classic. In fact it’s so great that I couldn’t fit all I wanted to say about it into one post (or three) so instead I will summarise my favourite chapters (which is most of them) and highlight the important points they make. What is particularly interesting is … Continue reading “Predictably Irrational Chapter 1 – The Truth About Relativity”
The Flaw Of The Invisible Hand
Introductions to economics usually start with gushing tales about the magic of the free market. It is usually stated that the free market allows everyone to get the best quality goods at the cheapest prices. The magical invisible hand guides everyone to the best place without any unnecessary government intervention. Below is a link to a video typical of the kind. (I’ll ignore for the moment that it completely misrepresents what Adam Smith said). Its short and simple, but it is a simple argument. This is the typical free market argument with its claim that left alone it will bring the best world for everyone. So in the video it compares two bakers offering bread and the consumer chooses either … Continue reading “The Flaw Of The Invisible Hand”
Unarmed Police
The recent shootings in Sandy Hook, Newtown, Connecticut have made many question the role of guns in American society. This is a sharp contrast the Ireland where we have so few guns that even the police are unarmed. To an American this must seem like madness or liberalism run wild, but it actually works very well. In fact it is a policy that is universally supported across the political spectrum and among commentators. Instead of relying on the threat of violence, they rely upon their authority and consent of the people. As a result, the police force is one of the few institutions in Irish society that people still trust and respect. The reason the Irish police (generally referred to … Continue reading “Unarmed Police”
Irish Soviets 1919-23
Workers throwing out the boss, hoisting a red flag and proclaiming a Soviet are not something that you would normally associate with Irish history. That sort of stuff is normally presumed to have happened in Europe but not Ireland. Most history books describe all Irish people as being united with the sole aim of driving the British out. Yet Ireland was caught in a wave of Socialism similar to that in Italy and France. During the War of Independence over 100 Soviets were set up in Ireland. Although it is now forgotten, many thought Bolshevism was a greater threat to British rule than Sinn Fein. All across Europe there were strikes and revolutions. The mass slaughter of the First World … Continue reading “Irish Soviets 1919-23”