Behavioral Economics

If you want to read a long (and I mean looong) article on behavioral economics, then I suggest this 10,000-word opus by Alan Wolfe for The New Republic. The article is a look at two books, Happiness: A Revolution in Economics and Predictably Irrational: The Hidden Forces that Shape Our Decisions, but it will tell you a lot of the emergence of behavioral economics. I disagree with some parts and I think he frames the issues in an oversimplified way. Still, it’s an interesting read.
Here’s a sample:

Ariely and his colleagues set up a stand and offer Lindt truffles for 15 cents and Hershey’s Kisses for a penny: 73 percent of their customers choose the former, 27 percent the latter. Then they lower the price of the truffle to 14 cents and offer the Hershey Kiss for free, and now 69 percent choose the Kiss and only 31 percent the truffle. Calculating utility cannot explain this result. In both cases, the cost difference is identical. So it seems that we attach an almost mystical meaning to the idea of getting something for nothing. Zero is not just another number. It plays tricks with our rational minds.

Posted by on June 30th, 2008 at 11:53 am


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