I would like to propose that one reason people oppose the government bailout is because they want revenge on the companies that helped lead us into this disaster. Even though they know they will lose money and it doesn’t help them at all, at a very basic level a part of them want to see the companies suffer. (more…)

A recent study conducted by Zillow finds what they call a “Not My House! Sentiment,” where despite the evidence that 77% of U.S. homes actually declined in value in the past year, 62% of homeowners believe their own home’s value has increased or stayed the same.

How can this be? (more…)

Why are Americans so gloomy? It may be all about the yoked dog and ‘learned helplessness.’

We have a market paradox on our hands. Consumer confidence is close to a 40-year low, suggesting that the economy is in worse shape now than in times that seemed far darker, such as the early 1980s, when both inflation and unemployment crept into double digits. Yet many of the current economic indicators, including inflation and unemployment, are rather positive — or at least not as negative as consumer sentiment implies. (more…)

AS I stand at the gas station filling my tank, the meter tallies how much it’s going to cost me. At this station, a gallon is $4.26, and as the meter passes the $20 mark, then the $30, I realize that I am paying too much attention to the price of gasoline. I bet you are too.Looking back at my family’s expenses over the past few years, I see big increases in our health care costs and in how much we pay for food. The rise in what we spend on gas is not nearly as extreme as our increases in categories like electricity and telephone. So why does the amount we spend on gasoline feel so enormous? I think it is because of the way we buy gas. (more…)

As it turns out (see promotion below), automobile manufacturers are not the only ones trying to entice consumers with free gas — the Shady Lady brothel has just joined this new trend (see a story about this). I am guessing that free gas is effective in getting people to buy cars — at least relative to direct discount — but I am wondering what is the sense in discounting brothel related services. Perhaps it is meant to give people the feeling that their drive to and from the place is free!

Dear Dan,
In 1996 at the age of 50 my wife and I built a new house, which contained everything we always said we wanted to have. It was larger than we really needed since the children had grown and left home.

During the 6 to 8 month building period, we continually made choices and decisions that led to the spending of large amounts of money. In fact, when you are building a house and negotiating with builders and suppliers spending in the thousands becomes a normal part of life. (more…)

Consider the following scenario:
You have two cars, one is a very inefficient van (giving you on average 5 MPG) and one is a relatively efficient sedan (giving you on average 20 MPG). Due to your work and obligations you have to drive each of them the same distance every month. (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.

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…)

Tax Season is here and cheating is in the air. We are all trying to find receipts, and figure out what we can reasonably claim as deductions. Did we end up talking about work last summer when we invited our co-workers for a BBQ?

Let me tell you about an experiment we did at MIT on cheating with some unsuspecting students. (more…)