Here is a great documentary on behavioural economics from PBS – features Richard Thaler – University of Chicago and co-author of Nudge, Gary Becker Univerisity of Chicago, Jennifer Lerner – Harvard – social psychologist. The main model of consumer behaviour assumes that we never buy anything until we’ve calculated the impact on, for example, our retirement fund, and we’re so good at maths we use interest rates to compute our pleasure, over time, after buying something.
At the centre of all the rational models lies an unflinching belief in free markets. The idea is to keep regulation and government interference to a minimum, in both the every day consumer market and in the giant money markets of Wall Street. Rational economists believe that the increase in wealth, worldwide, over the last 30 years, is a triumph for free markets.
With the GFC, the rift in economics widens between the rationalists and the behaviouralists. So which side is right? Are we rational about money, or do our emotions and psychology play a much bigger role than previously realized?
The programme features loads of experiments:
$20 auction. People bid for the $20 but the second highest bidder receives nothing and pays the amount of the losing bid. See what happens.
Answer this question
a) Would you prefer $100 in a year’s time or $102 in a year one day?
b) Would you prefer $100 right now or $102 tomorrow?