Consumers Aren't Rational

In The Voices in My Head Say ‘Buy It!’ Why Argue?, New York Times reporter John Tierney argues that recent fMRI studies show that consumers make purchasing decisions based on anticipated feelings of reward (or of upset), rather than on a more rational cost-benefit analysis.

First, these findings don't alone show that (at least, not in the way described in the above article). That there is an emotional component associated with the perception of "I should buy this" (or, "this is a terrible purchase!") is not surprising. But does that emotional reaction correlate with a rational one, or is it itself irrational?

In other words, is emotion merely the means by which the more rational decision is perceived, or, as the article suggests, is the emotional reaction itself fundamentally irrational? Presumably, in most cases, there is at least some correlation between the emotional perception of a purchase and the rational reality. When these two diverge is undoubtedly when we see compulsive buying habits.

Of course, there are a host of other experiments and anecdotes that show how easily consumers can be fooled. Advertisers thrive on the practice, of course, and many of us are no doubt familiar with Barry Schwartz's now-famous jam-stand experiment (in which an overload of jam-buying choices caused customers to shy away from making a purchase). But Tierney's article raises a more interesting question: is Tierney's "lazy insula" an indication of an emotional malfunction, or a logical one?

[I actually just linked to the article because I thought it was funny. The above text is just a rationalization. --ed]

The Voices in My Head Say ‘Buy It!’ Why Argue?
by John Tierney
January 16, 2007
The New York Times

Redaction Is Sometimes a Vote of Confidence

Pretty much any news piece that's had portions of it redacted by the CIA is guaranteed to be good reading. Well, it's guaranteed to have once been good reading. Fortunately, this particular piece, in the New York Times, hasn't been entirely de-fanged by the process.

Redacted Version of Original Op-Ed
What We Wanted to Tell You About Iran
By Flynt Leverett and Hillary Mann
December 22, 2006
The New York Times

Discount Coupons, Shopping Around, and Declining Marginal Utility

In Wednesday's edition of KUOW's morning program "Weekday," host Steve Scher talked with Tim Hartford of the Financial Times about how retailers manipulate pricing in order to differentially price goods for different groups of buyers (for instance, senior citizens, for whom shopping around has more value due to both living on fixed income and being retired and having more time on their hands, are given discounts to combat that shopping around tendency).

A number of callers, however, seemed to feel that these strategies were not just unjust--some even implied this behavior on part of retailers to be outright trickery--but that a shopper derives a certain moral superiority from shopping around and sticking it to the man.

One might question, however, to what degree these same individuals pore over their bank statements to determine if they are getting the best interest rate, or calculate the relative return on investment from replacing their spark plugs, thus getting better gas mileage, versus sitting on it to save the cost of new parts.

More to the point, I think, is the observation that declining marginal utility makes it possible for retailers to extract significant extra profit from insignificant price hikes aimed at unaware consumers. This doesn't make these retailers cruel; they are merely intelligent. As for the consumer, those in the classes for whom the extra cost is significant are able to shop around. Those who do not shop around for every purchase are not necessarily stupid or frivolous, they simply know the value of their own time (this being why, as Hartford pointed out, Americans bargain over cars and real estate, but not over daily groceries, whereas in poorer countries with higher rates of unemployment (or partial employment), such haggling is common over even the most trivial of items).

Holiday Shopping Secrets with the Undercover Economist
December 20, 2006
KUOW's "Weekday"

To Sketch a Thief

Noah Charney, a PhD candidate at Cambridge University, is profiled in this New York Times article about his pursuit (or creation) of an academic discipline devoted to studying, understanding, and preventing fine art theft.

To Sketch a Thief
By Tom Mueller
December 17, 2006
The New York Times Magazine