My wife and I are a big fan of your book. I run a (fairly) successful financial planning practice. Your book has inspired me to return to school and obtain my Ph.D. in economics (use the rest of that GI Bill money).

I think you are accurate on a number of accounts (most, in fact).

However, lack of regulation has not been the problem. Regulation of the wrong sort has.

Lending requirements were slackened because they were deemed racist. This led to more purchasing of homes. More mortgages. More mortgage-backed securities. More leverage. Market forces responded to the huge increase in mortgages, creating many different derivative type instruments. And so on, so forth, snowball from hell, etc.

This of course, is just my opinion. Hopefully, on my way to this Ph.D., I’ll end up a little smarter. But definitely your book has made me question further. Thank you for that.

I will caution that Ed Castranova intended to do this, but discovered that creating a game from scratch is neither easy nor cheap. Perhaps if a group of economists banded together with interested game developers, you might be able to create your experimental economics sandbox.

In your example of the Economist ad, I kept waiting for you further to assess it, yet, you never stated what was obvious to me: that the “useless option” was NOT useless. It was crucial in revealing the cost of “Print”. If the Print cost $125 and “both” (web and print) cost $125, then, the “web” is free; do the math. I’d like to see The Economist squirm out of my claim that they even provided the evidence for this. Even though the first offer was $59 for “web”, it was only a first offer. Subsequent, better offers were revealed as we read further. If anything, the “useless offer” is the first one (not the second) because the information given was ultimately proven inaccurate.

In your second ad, when you removed the cost of “Print”, (the alleged “useless option”), the math proves that the cost of “print” has, now, become $66 because both web and print cost $125 and the known factor, from the only other offer, – the “web” cost – is $59. So, the reason that the choice shifted from “both” to “web only” is because: why pay $66 for “print” when no one really wants print … and never did – particularly considering that the “web” option offered access to all back issues; they were simply going for what appeared to be a bargain (2 for the price of 1), in the original ad, yet, it was not a bargain when one considers that they could have gotten the “web” edition at no cost at all. If you read the offers from last to first, you’ll see that each stands alone and one can easily see the best offer.

With all due respect, the alleged “useless option” did not assist anyone in choosing, by including “what nobody wants”; rather, it proves that people are just looking for a bargain which, in this case, was only superficial. The real bargain was not evident. One would have to be very astute to see the real bargain.

You might enjoy my book: How I Clobbered Every Bureaucratic Cash-Confiscatory Agency Known to Man: … A Spiritual Economics Book on $$$ and Remembering Who You Are.
http://www.spiritualeconomicsnow.net/solutions/How_I_08.pdf

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I would think that our propensity to behave irrationally is directly proportional to our belief that we can avoid the consequences of our decisions. One might play better golf when it is understood that mulligans are off the table. The corporate do-over may not exist, but cushions do, as do escape plans that are intended to get the irrational grasshopper out of town before the snow hits the fan.
The argument that regulations might have contributed to the banking crisis is irrelevant. If existing regulations did contribute to the problem it is because they were faulty. The fact that faulty regulations exist does not mean that there is no need for proper regulation, but it may mean that there is a need for better regulators. Any one for civil service exams? They could be self corrected.

Regards,

W.R.

BUT, I DID actually READ Greenspan’s “Age of Turbulence,” and though it looks like a monstrously boring book, it’s actually filled with a great deal of faithful historical analysis.

And the title does it justice.

I know that the Greenspan you’re talking about is a foil, so I don’t attack you for attacking him.

But if you read the man’s own words, you’ll find that he is still right.

He was bulldozer-ed by the Bush administration. He was not in favor of the tax cuts and the wild spending.

As for deregulation, it remains to be seen whether bailing out the casino/banks really does create terrible moral hazard in the future, and whether it will not have been better to just let many of them fail.

In which case a terrible depression would have ensued, but the market certainly would have corrected itself, like disaster corrects the foolhardy, like mother nature is going to correct her naughty babes

Yours,
Lilian

I have read your book in its German translation (Denken hilft zwar….)and found it highly interesting. With regard to dishonesty you left aside what I would call ‘preemptive retaliation’. Take insurance claims. Insurance companies are widely seen as dishonest. Most of us could probably tell stories of insurers treating us shabbily. Consequence: Next time we claim with a ‘premium’ so that after the insurer’s expected dishonesty we may be even.

Similar with travel expense claims. I can see a certain correlation between the inconvenience of travelling, the employer’s misery and our degreee of dishonesty.

And what about taxes we should pay but try to avoid and the Governements’ and buerocracies’ attitudes re spending and having their snouts deep in the trough?

Some of these arguments are, no doubt, attempts to rationalise our dishonesty. But still, life experience has some justified influence, I believe.

I am looking forward to your next publication.

Kind regards

Karl

In any case, I think that we may be over-reacting that insufficient regulation caused the financial crises. I think that whatever little regulation was in place itself was a problem that prevented customers from seeking sufficient transparency through market means. Also I don’t think it is necessary to assume rationality of all actors in a market to achieve an optimal economy. In the absence of regulation, the market would punish irrational or uninformed actors and those who fail to learn (self-accountability) are the losers. Having regulators protect such people from themselves has the opposite effect of stifling innovation and slowing market advancement. These are my observable opinions.

Thanks for letting me comment on your blog.

Taiwo