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Tuesday, March 18, 2008
 Behavioral economics 
According to traditional economics, when people purchase products, they consider their options, then make a rational decision to pick the one that maximizes the benefit to them. This sounds logical but according to the relatively new field of behavioral economics, it isn't true. Many factors affect our thinking process when making a decision, many of which are irrational. A recent New Yorker review of Predictably Irrational: The Hidden Forces That Shape Our Decisions by Dan Ariely discusses some of those factors.
In one example, Ariely and a colleague asked students at M.I.T.’s Sloan School of Management to write the last two digits of their Social Security number at the top of a piece of paper. They then told the students to record, on the same paper, whether they would be willing to pay that many dollars for a fancy bottle of wine, a not-so-fancy bottle of wine, a book, or a box of chocolates. Finally, the students were told to write down the maximum figure they would be willing to spend for each item. Once they had finished, Ariely asked them whether they thought that their Social Security numbers had had any influence on their bids.

The students dismissed this idea, but when Ariely tabulated the results he found that they were kidding themselves. The students whose Social Security number ended with the lowest figures—00 to 19—were the lowest bidders. For all the items combined, they were willing to offer, on average, sixty-seven dollars. The students in the second-lowest group—20 to 39—were somewhat more free-spending, offering, on average, a hundred and two dollars. The pattern continued up to the highest group—80 to 99—whose members were willing to spend an average of a hundred and ninety-eight dollars, or three times as much as those in the lowest group, for the same items.
Anyone selling anything should know about this effect, as should anyone buying anything.

As with many subjects that one first notices, references seem to abound afterwards. Behavioral economics was mentioned again recently in an article in the Post entitled Eliot Spitzer and the Price-Placebo Effect. People often receive more pleasure from an object for which they pay a high price, similar to the positive effects of taking a placebo.

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Saturday, March 01, 2008
 Peter Gabriel and his Moulton 
Peter Gabriel in concert singing Solsbury Hill, riding a folding bicycle. How cool is that?

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