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

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…)

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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Clinton recently suggested that if she wins the Democratic primaries, she would select Obama as her vice president. Was this a good move on her part? How should Obama have reacted to this? (more…)

Dear Irrational –

Our daughter graduated from college last winter and decided to move back home until she found a job. She is bright and full of potential. However, she is having trouble deciding on what kind of career she should pursue. Her problem is not that nothing interests her, it’s that she is interested in too many things and is having trouble deciding which path she should choose.

While my husband and I love her and are happy that we are able to support her, we are becoming frustrated with her indecisiveness. She has gone on several job interviews but is reluctant to accept any offers for fear that she’ll make the wrong decision.

What advice can you give us that might help her make a decision?

Thank you,

J. H, California
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The US government is clearly under some pressure to take action in an attempt to stabilize the economy, and as a consequence, recently announced a $150 billion (more or less) stimulus packages that is supposed to rejuvenate the economy and stabilize the market (H.R. 5140 — the Economic Stimulus Act of 2008).

Will the current plan achieve the government’s goals? (more…)

Zubin Jelveh just posted a very interesting blog post relating to Alan Greenspan’s recent piece in the Financial Times.Zubin ends the post by saying:”Just last month, Steve Levitt and John List of the University of Chicago wrote that as neat as the findings of behavioral economics have been over the past two-and-a-half decades, their practical usefulness has remained marginal:

Perhaps the greatest challenge facing behavioral economics is demonstrating its applicability in the real world. In nearly every instance, the strongest empirical evidence in favor of behavioral anomalies emerges from the lab. Yet, there are many reasons to suspect that these laboratory findings might fail to generalize to real markets.

I’d like to add the financial collapse of 2007-08 as Exhibit A.” I am not sure if this is Exhibit A (I think we had a few before), but I do think that it deserves some serious attention and some serious consideration of how to prevent this from happening again. Irrationally yours, Dan

If (as is often the case) talking about sex makes people more interested in having it, does that mean that the current talk about a recession could actually be creating one? Well, maybe.

Or so one general finding of behavioral economics would have us believe. With all this chatter about a recession, consumers might, for example, hold off on buying that new dishwasher because of the “bad economy,” or pass up the more expensive restaurant because “we’re in a recession.” Without any discussion about recession, we’re unlikely to change our pattern of behavior. But talking about it can be a force that affects our decisions and alters our consumption habits.What makes me think that we’re such creatures of habit? Consider the experience of eating a Godiva truffle: The chocolate is melting in your mouth, the aroma penetrates your nose, there is a small nut inside. . . . Now think about this familiar experience and try to determine how much it’s worth to you. A quarter? $0.50? $0.75? $1.25? $2.50? While the experience of eating a truffle is very familiar, figuring out what we would be willing to pay for it proves difficult. So what do we do when we make purchasing decisions? (more…)