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…

Not sure if this is worth a post but I am turning 41 today.

I did have one observation related to birthday practices. A few days ago I got a gift in the mail from Jim Levine and on it in big letters was a warning not to open it before today. I did not.

The interesting thing was that I was very happy to get the gift a few days ago and I was happy again today to open it and realize what a nice gift it is. In fact I expect that this approach almost doubled my overall happiness. (more…)

Sumi (my lovely wife) and I are currently house hunting. So we’ve been thinking about how difficult it is to calculate the optimal amount of money we should spend on a house. And how much of it should we take as a mortgage? To work this out, we need to take into account our current income, our expected future income, our predictions for the stock market and the housing market, and the interest rate of mortgages today and in the future. On top of that, we need to consider the amount of happiness different houses will provide us, and how that level of happiness measures up against the lifetime costs of these homes. 41 years of education between us does not seem to be enough to figure this out. (more…)

Over the past few weeks many people told me that they were experiencing difficulties viewing the videos (a quicktime issue), so after trying to solve it for a while I gave up and, instead, I am now using YouTube to show the videos.I hope this approach will work for everyone. There is one video per chapter (for the first 6 chapters), and we will add one more video every 2 weeks or so. The videos are under “demonstrations”, or you can follow this linkPlease let me know if this does not work for you.

Dear Irrational,I dearly love your book. I now have a question.When my father passed away, I only had my mother left. I started to make more trips to Davenport, Iowa, to visit her on the weekends. I felt that I didn’t want to not know her in her old age when she died. (more…)

An interesting story about research on well-being and our understanding of it was published today in the NYT. The issue is whether people get used to new life circumstances and, as a consequence, their long-term happiness (well-being) is not affected. Basically, a large body of research on well-being suggests that people in general become used to new circumstances to an extent that is beyond their, and others’, initial estimates (Diener and Diener 1996; Diener and Suh 1997; Gilbert et al. 1998; Kahneman 1999; Schkade and Kahneman 1998). For example, it has even been suggested that people who sustain a substantial injury are not much worse off than people who have not (Brickman, Coates, and Janoff-Bulman 1978). The story in the NYT describes some new research that questions these findings.

Here are some personal reflections on this topic:
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