Misbehaving
Economics is a lot more than just supply and demand. There is a part of economics called behavioral economics that goes into the behavior of humans and study how they behave with certain incentives. In this book Misbehaving by the University of Chicago professor Richard Thaler, he discusses very interesting examples of behavioral economics.
First off is the endowment effect. If you were given a free dollar, you would feel happy but not be that excited about it. However, if someone was to steal a dollar, you would feel very angry although it’s just a dollar. Why is this? When you lose something that has already been given to you, you have a tendency to feel a lot worse than when you didn’t even have it.
The happiness of a purchase is calculated by the quality of the deal and the price you purchase. What exactly price makes us want to purchase? If you walk into Walmart or browse on Amazon, almost every products have something in common. They all end with .99. Why? People like the feeling that they are not paying the full dollar. Although it’s technically only one cent that they are not paying, it makes people feel like they are paying less. JC Penney has tried to get rid of the .99 endings and replaced their pricing with rounded prices. Sure enough, their sales and stocks have dropped dramatically. These small things have a tendency to trick our brain to think that we are paying under what we are supposed to.
It’s hard to come up with the right price for a product. The “just” price of a product is determined by many things. One of them is the quality of the deal. A study shows that what we purchase isn’t mainly decided by the quality of the product. We make 70% of decisions on whether to purchase or not by who is selling the product. If we like the “sales” person of the company, we are a lot more inclined to purchase. For example, if we think of Apple, we get this image of Steve Jobs being charismatic and smart that contributed to the branding of Apple. What contributes to the price? What else contributes to the quality of the deal? The place we purchase also contributes to the amount of money we are willing to pay for a product. If we were to purchase a bottle of beer, a person would be willing to pay 4 dollars for a beer purchased from bodega. For the same exact bottle of beer, a person would be willing to pay 7 dollars if it was purchased from a hotel. It’s more likely for us to overpay for a product if it comes from a place we consider to be luxurious such as a hotel.
This book provides a very interesting perspective on economics. I learned how to look at things in a different view. This book was a very interesting read and it is packed with intriguing questions and situations. Above are just what I found to be intriguing as I was reading the book. I highly recommend you to read this book as Richard Thaler explains behavioral economics in a very interesting way.
Stay strong!
Economics is a lot more than just supply and demand. There is a part of economics called behavioral economics that goes into the behavior of humans and study how they behave with certain incentives. In this book Misbehaving by the University of Chicago professor Richard Thaler, he discusses very interesting examples of behavioral economics.
First off is the endowment effect. If you were given a free dollar, you would feel happy but not be that excited about it. However, if someone was to steal a dollar, you would feel very angry although it’s just a dollar. Why is this? When you lose something that has already been given to you, you have a tendency to feel a lot worse than when you didn’t even have it.
The happiness of a purchase is calculated by the quality of the deal and the price you purchase. What exactly price makes us want to purchase? If you walk into Walmart or browse on Amazon, almost every products have something in common. They all end with .99. Why? People like the feeling that they are not paying the full dollar. Although it’s technically only one cent that they are not paying, it makes people feel like they are paying less. JC Penney has tried to get rid of the .99 endings and replaced their pricing with rounded prices. Sure enough, their sales and stocks have dropped dramatically. These small things have a tendency to trick our brain to think that we are paying under what we are supposed to.
It’s hard to come up with the right price for a product. The “just” price of a product is determined by many things. One of them is the quality of the deal. A study shows that what we purchase isn’t mainly decided by the quality of the product. We make 70% of decisions on whether to purchase or not by who is selling the product. If we like the “sales” person of the company, we are a lot more inclined to purchase. For example, if we think of Apple, we get this image of Steve Jobs being charismatic and smart that contributed to the branding of Apple. What contributes to the price? What else contributes to the quality of the deal? The place we purchase also contributes to the amount of money we are willing to pay for a product. If we were to purchase a bottle of beer, a person would be willing to pay 4 dollars for a beer purchased from bodega. For the same exact bottle of beer, a person would be willing to pay 7 dollars if it was purchased from a hotel. It’s more likely for us to overpay for a product if it comes from a place we consider to be luxurious such as a hotel.
This book provides a very interesting perspective on economics. I learned how to look at things in a different view. This book was a very interesting read and it is packed with intriguing questions and situations. Above are just what I found to be intriguing as I was reading the book. I highly recommend you to read this book as Richard Thaler explains behavioral economics in a very interesting way.
Stay strong!