Thursday, August 19, 2004

Where's the Problem?

A contributor to Anarcho-Capitalist blog Catallarchy apparently has a problem with a human logical oddity noted by the Economics Nobelist Daniel Kahneman:

From an interview with psychologist Daniel Kahneman, the first psychologist to win the Nobel prize in economics. –
A shopper, for example, might drive across town to buy a $10 calculator instead of a $15 one, but forgo the same trip to purchase a $125 jacket for $5 less, illogically believing the greater percentage saved on the calculator makes the trip more worthwhile.
Is paying attention to percentages really illogical?

What if we substitute goods? Instead of the $10/$15 calculator, substitute a bottle of $10/$15 wine. Instead of a $120/$125 jacket, substitute a $115/$120 carton of 8 bottles of the same wine.
I'd say the answer is obvious - yes, it is illogical to pay attention to percentages, regardless of the goods at stake. The entire point of the example given by Kahneman is that if it's worth your time to go halfway across town to save $5 on a calculator, it ought to be worth your time to do so for any good whatsoever; $5 has the same purchasing power regardless of how it's earned or saved. What is it that anyone could possibly have a problem with here?