And there I was. Midway through junior high, riding the last waves of puberty and a little bit more of a freak that I was now. Somehow, however, I fenagled a seller post at the school recess store (a paradise for junk food lovers and single-parent children alike-- yes, about 98% of the student population). And here is where my experiments in economics started. I raised and lowered the prices arbitrarily to see what would happen, on desired items. I created artificial scarcity, and later flooded the market. I started rumors of future flavors or candies not yet in the store. You haven't a clue of what the words 'Monopoly Power' mean until you're able to sell commodities at a profit simply because your customers can't purchase anywhere else. Later in life, I saw the forces of economics at play while trading and selling Magic cards (a slimy leech I still haven't been able to unhook from my wallet), but around this time it became apparent that supply and demand didn't really apply all the time, and that people would do things that would seem nonsensical, like paying extra for value-less add-ons like brand names or prestige, or choosing the item everybody chooses, or incurring large incidental costs to acquire 'free' gifts.
Traditional economic theory assumes that everybody in a market is 'rational', that is, that they will seek to maximize their benefit and minimize their costs at all times. However, human beings are also affected by their evolutionary heritage and the reptilian brain still has a pretty good grip in us, alarming and nudging us in directions that don't represent threats anymore, even though they might have for our cave-dwelling ancestors. This alone makes our economic dealings with each other a non zero-sum game. And it is from these automatic responses that our irrationality seems to stem. Dan Ariely's book,
Predictably Irrational presents, in neatly themed chapters, the results of lots of studies he's made through the years on the field of 'behavioral' economics- the behavior of people when presented with specific situations related to value and choice. Some chapters I found interesting were the following:
1) The type of behavior mentioned in the book that would be the most immediate to most of us is the one related to 'Free' stuff. Why spend $10 in gas to redeem a $5 coupon? Why do people choose the 'Free' option when low-cost, higher-value ones are available?
2) We have a very marked disposition to not let choices go away. Keeping options open, even when it becomes more costly than to let some go-- not throwing away the clothes you'll never wear, for example, or taking up too many activities and never becoming good at any.
3) Prices are arbitrary, but once anchored they're hard to break. Nothing has a god-given price, and the value that someone can derive out of an item is entirely relative and independent of someone else's. But once the price for something is established in your mind, it becomes a pattern of comparison, and our brains are hardwired to take advantage of comparison shortcuts- that's the way we manage to do a lot of things in autopilot mode, without having to evaluate consciously whether or not a choice is optimal. The disadvantage, of course, is that we end up paying too much for some things once we're used to a high price on them-- sports shoes, perfume and
magic cards coffee come to mind.
Other chapters deal with how we are unable to predict our choices when under different emotional states, why we procrastinate, how society keeps dishonesty in check, and why it's never a good thing to give money as a gift. Thinkers and cynics alike will derive insight from this book, since in its pages it provides with a lot of answers we clamor for ("why won't people realize they're being ripped off?"), while at the same time amass some pretty hot conversation topics for the coffee table. People don't like to hear their choices aren't exactly what they like, but being aware of these mechanisms at play can give one both the edge in dealings with others, as well as self-awareness to not fall prey to them.