Economics Semiotics Idiotics

Tim Harford in the FT today pondered an eternal enigma: why do prices so rarely rise in the face of a shortage. For example, if there are more UK fuel disruptions, then it would be logical for petrol stations to increase prices instead of allowing huge queues to build up for tiny rations of fuel.

He does not give a complete answer, hence the use of the word "enigma" in his title. But he offers: The intuitive explanation, of course, is that we irrationally object to high prices even when the alternative is rationing, long queues, and uncertainty over whether we can buy what we really want.

I agree, but the "irrational objection" is just the part of human nature that would prefer to see "everyone" suffer equally instead of distributing critical products by financial capability. It appears that the son of the noted monetarist Milton Friedman also suggests evolutionary psychology could explain this sub-optimal behaviour.

But the whole article talked only of price rises. Remember that a previous price is only a signal, I still think consumer reaction to price cuts is equally idiotic.

Variable Marketing Offers

You see something advertised as so many pounds or dollars or per cent off the original price. Does that fact make any difference whatsoever to your decision to purchase it?

Unless you are a complete alien to that shopping environment then the answer is clearly no. The offer should make bugger-all difference to your decision to purchase. When you are shopping then the two main factors are "I have this much time and money to spend" and "I have this much value to obtain". The third factor of "this is how much I have 'saved' versus some totally notional figure made up by the retailer" is completely irrelevant.

Nobody has the complete information of free market economic theory. But we generally have enough information to decide whether something is worth buying.

I know the things stated here are sometimes very obvious. But then I look around and see people who really do seem to choose on the basis of what they think they are saving instead of what they think they are buying. When describing a purchase some people really do glory in how much they have "saved".

There is no absolute line, we all take many factors into account. But some are just lunatic.