Books
I am currently near the end of Predictably Irrational by Dan Ariely. He is a behaviour economist and through empirical work presents the case that people’s actions in the market place are affected by irrational but predictable behaviour and therefore economic principles established by neoclassical economists need to be re-examined.
More importantly he attempts to help readers think about how this affects our daily lives.One of the many tests he performs regards the fallacy that prices are determined by the equal forces of supply and demand. In fact, prices are merely presented to us and are anchored in our brain affecting our decision making.
The test he performed was asking a group of students to write down the last two digits of their Social Security number. Then he presented the group with a variety of products and asked them to put the maximum price they were willing to pay for each one. Students who had Social Security numbers from 0-19 had the lowest average in their maximum prices they were willing to pay. On the other hand students whose numbers ended 80-99 had the highest.
He then goes further by claiming that since this irrational behaviour is systematic and therefore predictable can be used towards improving health care system, increasing savings rate, reducing fraud etc.
A very interesting, thought provoking and accessible book. Recommend it!
The New Yorker has a very thorough review of the book here. Link.