A Curious Little Blog

I like reading books about mistakes people commonly make:  logical fallacies, bad mental shortcuts, tricks that advertisers use, and so forth.  It is obvious that our minds are not perfectly logical, and I like to be aware of my illogical inclinations so I can prepare for them.  Economists, psychologists, and mathematicians are among the people who write books on this sort of thing. The economic angle gets a lot of attention these days because of the work of Daniel Kahneman, Nobel-prize winning economist who studied ways that people behave irrationally, allegedly contrary to economic principles.  I say "allegedly" because I believe that consumers are not expected to behave rationally according to an absolute standard of maximizing utility, because consumers define utility by their choices.  If I buy a cheap product that falls apart in a year rather than a somewhat more expensive product that will last for ten years, it may appear irrational to a neutral obser...

Going back to my youth, I have been concerned that the main sides in the political debate do not talk to each other.  They produce articles and books arguing in favour of their own position, and sometimes arguing against their opponents, but almost never approaching their opponents' arguments with the seriousness that they would want for their own.  It is generally enough to find one person making a bad version of an argument, and refute that; no one feels obligated to refute the best arguments that their opponents have to offer.  The result of this is obvious for all to see, but I find it was nicely anticipated some 600 years ago by Christine de Pisane, who wrote, Those who plead their cause in the absence of an opponent can invent to their heart's content, can pontificate without taking into account the opposite point of view and keep the best arguments for themselves, for aggressors are always quick to attack those who have no means of defence. (from The Letter o...

There is a staple of a certain kind of movie in which two people who are basically opposite of each other are forced to spend time together because of one circumstance or another.  They start off hating each other, but by the end of the movie they have become tolerant of one another, maybe even friends.  Does that happen in real life? I think it does.  Consider married couples, for instance.  Studies show that couples in arranged marriages are no less happy than those who chose their own spouse.  There could be several reasons for this phenomenon.  The fact that married couples go through so many shared experiences is certainly one of them.  "Shared experience" is a sort of psychological buzzword, but I have found that it is a powerful force in my own life.  It's something that you can look back on and talk about, and some time that you probably experienced similar emotions with another person.  I have even read that taking a date to a sca...

Some time not too long ago, maybe 30 years or so, psychologists discovered that people value things they already have over things they don't have.  One big experiment took place in a classroom where students were given coffee mugs and asked how much they would be willing to sell them for.  Let's say the average was $5 (though I don't remember exactly).  They then asked students how much they would buy the identical mug for, and the average was $2.  So here was a mug that students valued at $5 when they owned it, but only $2 when they didn't own it, which is contrary to economic theory that identical things should have identical value.  They called "the Endowment Effect." The Endowment Effect seems like an amazingly good thing for society.  It makes everyone happier with what he has than what he doesn't have.  In other words, the net happiness of everyone is higher when they all own things because they will value their things beyond their utility....

The political part of this book is much smaller and less convincing than the theological part.  Spinoza tries to outline an entire theory of politics in far too little space.  He begins with a Hobbesian state of nature in which everyone has a "right" to do anything: every individual has sovereign right to do all that he can; in other words, the rights of an individual extend to the utmost limits of his power as it has been conditioned. (16:8) Now it is the sovereign law and right of nature that each individual should endeavour to preserve itself as it is, without regard to anything but itself. It seems odd to assign everyone a "right" to do whatever they want.  What is the point of such a right?  If I have a right to shoot you, and you have a right to shoot me, then it seems to me that rights are pointless.  Of course, this is a pre-social setting, so there is no judge to decide rights in any case; but it seems like a more sensible starting point w...

I have a new idea for a business:  I will borrow tractors from farmers when they don't need them, paying them a small fee.  Then, I will lend them out to farmers who do need them, collecting enough to cover the fee I pay plus to make a profit for myself.  After borrowing one tractor, I don't think it will be safe to lend it out, because I don't know if the owner will want it back in a short time or a long time.  Therefore, I will just store the first tractor I borrow, and lend out the next nine, keeping the one in reserve. Question:  after I have borrowed ten tractors and lent nine, how many tractors are in existence?  The answer seems obvious:  ten, one in my reserve and nine out on loan.  But while this seems obvious when dealing with tractors, when it comes to money I get a quite different answer.  After borrowing $10 and lending $9, I am told that there are $19 in existence.  This troubles me. I used to think I understood the cre...

"How Markets Fail" by John Cassidy The first two-thirds of this book cover the history of economic thought.  It is interesting, and useful, but the author has some fundamental misunderstandings about market theory that undermine his argument. The idea of the efficient market does not mean -- and would be stupid if it did mean -- that every stock is priced correctly.  Humans don't know the future, so they cannot be expected to anticipate the future of a corporation.  What the efficient market theory says is that the price of a stock reflects all information available at any given time.  This doesn't even mean that the price is the "correct" one for a given stock (if one could distill a correct cost based on a company's future profits).  It only means that, were any more information to come to light, people would adjust the price they would pay for a stock to account for it.  This is basically true by definition.  If someone thinks a s...

A recent article draws attention to several high-end restaurants that have eliminated tipping, and suggests that this might become a trend.  If so, I say good riddance. I'm glad to have the restaurant increase its prices and eliminate tips.  It's not the money; it's having to figure out how much to leave.  Not the arithmatic, of course, but the psychological burden of deciding how much a person deserves for bringing me food.  The whole server-servee relationship is awkward in America , where no one wants to be a servant and all but the very wealthy feel uncomfortable being served. The practice of tipping goes back to actual servants, whom masters offered additional incentives for difficult tasks or rewards for a job well done.  Americans originally didn't like the implied master-servant relationship when tipping was introduced from Europe, and the practice was fought on several levels:  some private citizens formed an Anti-Tipping League, while a numbe...

The examples I gave in the last entry were clear-cut:  I'm pretty sure that, from the point of view of maximizing your personal pleasure (which is what economics is about), you should not consider the cost to the vendor in your calculations (unless for some reason hurting the vendor was part of your calculations -- but in that case, you would almost certainly be better off not buying from him at all).  The examples in this entry still puzzle me; I'm not sure where the correct logic lies. The first is from The Armchair Economist by Steven Landsburg, which I thoroughly recommend to everyone.  I found myself agreeing with almost everything in it, but one case still leaves me puzzled.  Suppose you are going to a show of some sort and have bought 2 tickets at $50 apiece for you and your guest.  When you get to the show, you can't find the tickets.  Should you buy more, or should you be unwilling to buy them because you don't want to pay for the same thing twi...

The discipline of economics is founded on the idea that people are rational, at least to the extent that they will buy less of a good the more it costs.  But people are not always rational, of course (see, e.g., Dan Ariely's Predictably Irrational ). Some economists, such as Ariely, think our enduring irrationality is a blow against traditional economics.  I don't agree, but that is a topic for another entry.  What I'm interested in is some examples of apparently irrational purchasing behaviour that I have observed. For example, I once heard someone discussing what toppings to put on a pizza.  "If I'm going to pay for extra toppings, I like to get meat so it's worth the money," he said.  At first, that seems to make sense:  all toppings typically cost the same, but meat is obviously more expensive than, e.g., mushrooms or onions.  But if you think about it, you're not trying to get the most expensive toppings for your money; you're trying to ge...

In my last post, I argued that Obama could win re-election -- and it wouldn't be miraculous -- if the economy only continues to improve gradually between now and next November.  But how is it possible for the economy to improve?  From what we've heard from Obama, Paul Krugman, and others, the economy is stuck in a rut that it cannot jump out of except by massive government debt spending -- more stimulus.  And since the last stimulus was too small, I can only assume that something as puny as Obama's latest jobs bill, which is only a fraction as large, would have even less of an effect. What, you think the economy might be able to recover on its own?  That is a very serious admission if you are a Keynesian.  That changes the argument from "We absolutely must have stimulus spending for the economy to improve" to "We need stimulus spending if we want the economy to improve fast enough."  Since even Keynesians (or many of them, anyway) admit that we have a ...

I'd like to be a venture capitalist who specializes in founding chains that copy the business idea of other chains. Not too long ago, I was introduced to Cold Stone's, an overpriced ice cream shop (on the order of $4 for a cone) that hand-mixes toppings such as sprinkles, M&M's, and oreo cookies into ice cream. I just recently discovered another chain called Maggie Moo's that uses the exact same technique. I'm not sure that Maggie Moo's copied Cold Stone's directly (it was founded slightly later), but I don't think two stores came up with this same idea independently. Another case of mirror-image chains are Cici's Pizza and Stevi B's, both of which feature excusively fixed-price buffet meals. Stevi B's is a little more open about copying Cici's (well, they don't mention Cici's by name , but they admit to copying someone, and Cici's seems the most likely). These little stores jump out at me because I have only learne...

"If a job is worth doing, it's worth doing poorly." I have always lived by these words of wisdom from G.K.Chesterton. You probably think he has it backwards, but I understand exactly what he means: it's better to do a job halfway than not at all. Imagine your car is covered in mud, and you rinse it off with a hose. That would be considered a poor excuse for a wash by most people, but you will have improved the appearance of your car drastically. If you go on to wash it carefully by hand, you will spend much more time and energy -- maybe 30 minutes instead of the 5 minutes to hose it down -- and your car will look only a little better. Some people probably won't notice the difference unless they look closely, but everyone will notice that you got the mud off. If this seems illogical to you, it might make more sense if you think of the 80/20 rule. This "rule" (more like a rule of thumb) states that 20% of the work on a project accomplishes 80% of...

I read recently that someone was proposing to abolish funding for libraries, on the grounds that they are not needed now that we have the internet around. It is true that much reference information is available on the internet, at significantly greater convenience than going to a library. However, the suggestion overlooks the fact that many people rely on the library for their internet access. It also misses the obvious point that libraries still lend out books, and very few new books are available for free online. I think the suggestion is flawed in thinking that the internet is (yet) a replacement for libraries, but it is worth considering on its own merits. Why do we need libraries? The obvious disadvantage to libraries is that they discourage people from buying books. I occasionally read about declining book sales in America, and surely having nice libraries only contributes to the trend. I am certain that I have read some books in the library that I would otherwise have bou...

I am fascinated by the idea of the dollar store. It would not have occurred to me that there would be so many products that one could sell for just $1. Some of the items really do cost a dollar (in other stores); many of them normally cost more, but the ones in a dollar store are junk. There are, however, some really good buys as well. I bought my kids some composition notebooks there; I couldn't even find them in other stores (because it was around the time school started), but there were plenty in the dollar store, and they seem just as good as far as I can tell. One year I also got a little soap dish with decorative soap that I gave out as gifts to people in the office. It is amazing to think that they can sell items for such a small amount and still be profitable. Not only that, but many of them seem to be located in malls, which I would assume means a higher than usual rent that they have to meet. The thing with dollar stores is that you'd have to think eventually inflatio...