Why my students dump their boyfriends: The 3 most eye-opening ideas in economics
learnliberty.org
learnliberty.org
Click around...project of IHS...
https://en.wikipedia.org/wiki/Institute_for_Humane_Studies#O...
None of the concepts are wrong, but things are more complicated. For a short summary on the idea of Inequality of Bargaining and consequential hollowing of the "voluntary" transaction you can check out https://en.wikipedia.org/wiki/Inequality_of_bargaining_power
Interestingly, one area where this is taken into account, is study design (i.e. thinking about when a reward will skew the results/be unethical towards participants)
For some discussion see: https://www.ncbi.nlm.nih.gov/pmc/articles/PMC3646546/ https://www.ncbi.nlm.nih.gov/pmc/articles/PMC2600442/ https://www.ncbi.nlm.nih.gov/pmc/articles/PMC2600442/#S2titl...
But on the other hand, I always have the feeling, relationships go better if they aren't emotionally evaluated too much.
Sunk Costs
I've seen relationships go to shit but people are like "we are together for 10 years now, I can't leave them!" even in face of domestic violence or general abuse.
Yes the 10 years were nice and you paid them with your lifetime, but do you want to pay the shitty part too or just leave it by the 10 nice years?
Nothing is Free
I've seen relationships between people who simply don't fit together, but one part wanted to keep the other around, because of ... reasons? The other was way out of their league, attractive wise, and knew it. The other part was rich, and knew it.
Sometimes the other part was even the almost perfect fit, but didn't get their life in order.
Revealed Preferences
I've seen so many people who say A and do B. Especially in relationships. Talk is cheap and I did it too, in the past, but if you always say you want kids and never have them, time is over someday.
Offtopic I know, but twice in my life I've walked out of a terrible movie at the theater within the first 30 minutes and gotten a refund from the manager. Don't think you have to sit through terrible movies!
"My point is that if the exchange is voluntary and there is no fraud or misrepresentation, then it is a win-win transaction." Though maybe it can be argued that with abusive loans and getting Windows on most computers the exchange is not voluntary?
The person getting the loan obviously values money now more than total amount of money, for some reason (which may or may not make this preference entirely voluntary).
The person providing the loan values total money more than having constant availability of all their money (ie. they're investors). And I'm sure you would argue they also value more money more than ethics/decency.
Ie. the reason the economy works is that while price may be the same between buyers and sellers, value is subjective. Therefore it is a win-win in that both parties increase their perceived value through this transaction. This is also how a mortgage works, for instance.
Usually because the borrower is not in a rational state of mind, and because we as humans focus more on today than tomorrow. Payday loans (like the loan sharks of old) take advantages of this in order to put borrowers in positions that a rational, future conscious person would never get into.
Economics say one thing, but it's the humans in the equation which muck up these otherwise ideal economic principals. Ultimately, economics should be there to serve people, not the other way around; payday loans are there to exploit people in need, not serve those who are in tough situations.
Payday loans serve a pretty specific purpose: covering short-term cash flow when you can easily pay off the interest in the next term. This is a fairly common problem for people on the low-income scale with little emergency savings. If a car breaks down, it may cost $350 to fix it, and that money is necessary now and not 10 days from now. It used to be that people would ask for advances from their employers, but this is a solution that sidesteps that.
But enough of beliefs. There is plenty of documentation about the costs to society available, including formal studies, which shows that even taking the time to better educate people about about the long term effects significantly reduces the uptake of payday loans.
Yes, in a few cases, they are useful as replacement for emergency funds. But I'm convinced by the literature and studies done about payday loans that if this kind of use is even a majority - it's barely such.
But don't take my word for it. Do a search for the "psychology of payday loans" and read some of the first party sources yourself.
The only thing I'd like to add is that you cannot design a system that allows for individualism and yet somehow does not require individuals "to be in a rational state of mind".
Besides, that is like attempting to "protect" a drug addict from the consequences of their actions. It is the one thing in the world that is worse for them than letting them suffer.
Great analogy.
For the movie for instance people could stick on hoping things will get better and things could.
For relationships most are loaded with emotions that make us irrational and decisions to make or break would also involve a multitude of other factors well beyond the scope of economic theories of sunk costs and self interest.
Listen but make your own decisions. You learn by listening to yourself, making your own mistakes and taking responsibility for them.
Given how prevalent the so called sunk cost fallacy is in humans, you would think smart people would give a bit more thought to its darwinian origins.