My kids, Amit (5) and Neta (2, yesterday) …

The New York Times today had a story about Jennifer Buettner, who is trying to make a placebo pill for kids, but maybe for all of us.

Is this a good idea?

We know that in many cases placebos do work, and we also know that they have very few side effects — a point for placebo pills! (more…)

Imagine that you worked for me, and as your year-end bonus, I offered you a choice between $1,000 in cash or an all expense paid weekend in the Bahamas, also worth $1,000.

Which option would you chose? (more…)

Jennifer Sharpe knows how to sell Girl Scout cookies. In fact, she managed to sell 17.323 boxes for $3.50 each! (see full story)

As she said: “I know how to get people to buy more,” said Jennifer, a sophomore at Edsel Ford High School . “If they buy two boxes and they hand me a 10, I’d be like, ‘For 50 cents more, you can get three”

Why is this trick likely to work (it reminds me a bit of the movie paper moon)?  Why is it likely to work better than simply offering people to buy 3 packages for $10.50

First, it is possible that making an initial offer below $10 (compared to one above $10) causes more people to be willing to buy — so it increases the market size.

Second, it is possible that once people had out their $10 they don’t think about the change they are about to get and as a consequence Jennifer’s offer of “just another 50 cents” does not register as another $3.50 for another box!

In any case, I suspect that Jennifer’s trip to Europe (which is what she collected the money for) will give her new ideas about new approaches to framing.

The market for medicine is incredibly interesting. Almost every day we learn something new about a treatment that we thought would work but does not, or about a treatment that we didn’t think would work but does. Beyond the particular fascination, I think that the medicine market can also teach us important lessons about rationality, economics, and by analogy, also about the stock market. (more…)

Dan,

My son (9 years) and I are huge fans of yours.
We have both read your book and gotten hours of pleasure discussing your experiments with friends and family.

My son came up with an interesting example of irrationality I would like to share with you: Every morning, I take him to school via subway from downtown Manhattan to the Upper Westside. We take the D train to Columbus Circle then switch to the 1 train headed uptown. He noticed that when switching, we leave the D train, walk to the 1 train platform, and then if we see that the train is there or just arriving, we immediately start running to catch the train. (more…)

An interesting  analysis of the rationality of the stock market, from a British perspective

In my mind we have learned three main lessons in these two sub-fields: 1) that the environment has a large, yet unrecognized, effect on our behavior, 2) that our intuitions about what drives our behaviors are flawed, 3) and that emotions play a large role in our decision making. Let me give some examples. (more…)

Ezra Klein just posted an interesting observation about the new proposal by Burger King to serve up the world’s most expensive burger that will cost a whopping £85.

This burger will contain top-quality Kobe beef from Japan. And instead of ketchup and cheddar, it will be garnished with foie gras and rare blue cheese.

What Ezra suggests is that while it is clear that almost no one will buy the burger, the very fact that Burger King has it on the menu could make people think more highly of the quality of the burgers at Burger King—even the 99 cent burgers.

One other effect of this expensive burger could be that it will shift people’s willingness to spend money at Burger King. If the standard for spending before this new up-scale product was £5, perhaps after this introduction, spending £7.5 will seem much more reasonable (at least relative to the £85 burger).

I would love to see the effect of this new offer.

Irrationally yours,

Dan

It is hard to know if the relatively changes we see in gas consumption are “sufficient” from an economic perspective. After all, we don’t know what it should be.

Here are some speculations on why we might not see much reaction to increased gas prices…