So Dan Ariely wrote this book recently. "Predictably Irrational: The Hidden Forces that Shape Our Decisions." And it's a pretty interesting read.
The basic gist is pretty simple. While a lot of free market models of economics presume that humans always act rationally when dealing with their money, this is not always the case. And while this isn't particularly surprising, a lot of people figure that the these mistakes are mostly random in nature, and therefore there will be no aggregate effect. Or at the very least, "market forces" (or that magic "invisible hand") will push these discrepancies back towards equilibrium or whatever.
However, Ariely says that these occasional irrational actions are not simply random in nature, but rather occur in predictable and repeatable ways. And this can result in a relatively noticeable net effect on the economy. For instance, he blames the subprime mortgage crisis on a failure to recognize these "predictably irrational" actions.
But all that economics stuff is pretty boring (unless you're into that sort of thing). It's the real life, everyday examples of this sort of irrational behavior that really struck me as interesting.
For a really brief and relatively entertaining summary, check out this video.
http://www.wimp.com/ourdecisions/Some other interesting points he makes:
-Where the concept of supply and demand fails. Supply and demand more or less assumes that people know how much they're willing to pay for a certain good/service. If the actual price is higher than that, it is no longer worth buying, so they don't pay for it. Businesses then price their goods/services at the right level so that they optimize their profit. In reality, people really don't know how much money things are worth. Instead, they have a (usually arbitrary) price imprinted early on, and they base everything off that. For instance, if you see some Tahitian black pearls prices at X thousand dollars, you assume they're worth that much. Experiments show that extremely arbitrary things affect how much one is willing to pay for an object or service. Or even if they should be paid for the same service.
-People are enamored by the idea of "free." In one experiment, between given the option of paying 15 cents for a delicious Lindt truffle, or 1 cent for a regular Hersheys Kiss, most people chose the truffle. But lower those prices to 14 cents and 0 cents, and people overwhelmingly choose the Kiss. Similarly, asked to choose between a free 10$ gift card, and paying 7$ for a 20$ gift card, most people chose the former, despite being a lesser profit.
-People get what they expect. A famous violinist busking in a subway station doesn't get nearly the praise he does when playing the exact same pieces in Carnegie Hall. This ties into the importance presentation in cooking, and even those famous Coke vs. Pepsi taste tests. A lot of what we perceive is simply based on what we internally expect to perceive, and not the actual physical stimuli.
-Similar story: the placebo effect. If you pay ten times the price for some cold medicine, it generally works better than if you bought the exact same thing for cheaper. Mostly because you expect it to. A lot of surgical procedures have been shown to be exactly as effective as "placebo surgeries." Which leads to the interesting ethical/economic question: if placebos can actually produce a real physiological benefit, is it wrong to prescribe them?
-Other weird things, like how we believe our possessions are worth more than they actual are, how we refuse to "close doors," or shut out options/possibilities even when it's favorable to, and how even "honest" people will cheat/steal if given the opportunity, but only a little bit. Even if you ensure a 0% chance of them being caught. But if suddenly they're not directly cheating someone else out of money, they're much more likely to be dishonest. People will steal a can of Coke out of a communal fridge, but not a dollar bill.
So yeah. Discuss that, I guess? I mean, it's not like a real topic to be debated, but there's lots of interesting stuff in there. Share stories, contemplate the consequences/validity of whatever findings. I don't know.
Talk.
