History UsefulNotes / Economics

4th Jun '17 2:04:37 AM MAI742
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Our brains are hardwired to use logic in the service of our emotional desires and minimise our need for hard thinking. This was perfectly attuned to the needs of proto-humans who needed to advance and maintain their social standing within groups of up to 250 proto-humans, but is remarkably ill-suited to our needs when sound happiness-related decision-making requires so much logical thought. Our brains often lead us to using our money and time in ways that make us unhappy, not least because the marketing staffs of the world have been making Herculean efforts to understand and optimally exploit our flaws for profit. So here's a list of our most fundamental cognitive flaws:

* '''We think that we are smarter than the average person''' and don't make as many silly mistakes as they do - even though this complacency is part of why "the average person" makes so many mistakes in the first place.

to:

Our brains are hardwired to use logic in the service of our emotional desires and minimise our need for hard thinking. This was perfectly attuned to the needs of proto-humans who needed to advance and maintain their social standing within groups of up to 250 proto-humans, but is remarkably ill-suited to our needs when sound happiness-related decision-making requires so much logical thought. Our brains often lead us to using our money and time in ways that make us unhappy, not least because the marketing staffs of the world have been making Herculean efforts to understand and optimally exploit our flaws for profit. So here's

Many of the problems stem from our instinctual conception of the world in terms of narratives. These enable us to near-instantly judge situations and peoples by matching them with pre-existing templates. These narratives include the legitimating ideologies of our whole societies (meta-), those which structure the social groups which we feel we belong to (social-), and those which we use to order the stories of our lives (personal-). However, these narratives are often inaccurate in Real Life, and are subject to internal drift and external influence. This is especially true of our personal narratives, which are generally what we are most interested in yet least equipped to assess objectively. The stories that we tell ourselves about why we do certain things and not others are, for the most part, soothing lies which bundle
a list mass of inconsistencies and contradictions.

Some
of our most fundamental cognitive flaws:

flaws include:

* '''We think default to using pre-existing narratives instead of actually assessing things''', especially when we're tired or indifferent to the consequences. Our species evolved by ''generally'' benefiting from this, but this doesn't mean ''specific'' individuals can't make catastrophic mistakes by doing this. Police killings of unarmed people from minority groups stereotyped as violent (Caucasians in Russia, Uighurs in China, Blacks in America) are quite notoriously attributable to this flaw.
* '''We feel that we have better willpower than the average person''' and don't fail to control ourselves as much as they do. This stems from our personal narratives, in which we tell ourselves that we are exceptional in all sorts of ways - particularly those which are not regularly or objectively assessed. 'Diet' and 'Exercise' companies are sustained by systemic self-discipline failure.
* '''We feel
that we are smarter than the average person''' and don't make as many silly mistakes as they do - even though this complacency is part of why "the average person" makes so many mistakes in the first place.
20th Mar '17 10:05:55 AM TheBigBopper
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This page lists the few points which the widely divergent schools of economic thought can agree upon. Each school starts from a different set of philosophical assumptions, has different goals, and uses different methods. This one of the myriad reasons why economics is sometimes called "the dismal science". [[note]]The origin of the term, "the dismal science" for economics, is from how during the time of slavery, John Stuart Mill and his fellow economists supported the equality between all men and the abolishment of the slavery, and Thomas Carlyle was afraid that the economics would cause the decadence of the society. [[http://aprendeenlinea.udea.edu.co/revistas/index.php/lecturasdeeconomia/article/viewFile/7874/7415 Source (in Spanish)]][[/note]].

to:

This page lists the few points which the widely divergent schools of economic thought can agree upon. Each school starts from a different set of philosophical assumptions, has different goals, and uses different methods. This one of the myriad reasons why economics is sometimes called "the dismal science". [[note]]The origin of the term, "the dismal science" for economics, term is from how during the time of slavery, John Stuart Mill and his fellow economists supported the equality between all men and the abolishment abolition of the slavery, and Thomas Carlyle was afraid that the economics would cause lead to the decadence decline of the society. [[http://aprendeenlinea.udea.edu.co/revistas/index.php/lecturasdeeconomia/article/viewFile/7874/7415 Source (in Spanish)]][[/note]].
5th Mar '17 3:03:06 AM MAI742
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* '''We feel that things we own are more valuable''' than things we don't - even if their objective value is identical. This can even apply to things that we only ''imagine'' ourselves owning, such as a vivid fantasy of us winning the lottery. This is one bias which drives us to the SunkCostFallacy, along with...

to:

* '''We feel that things we own are more valuable''' than things we don't - even if their objective value is identical. This can even apply to things that we only ''imagine'' ourselves owning, such as a vivid fantasy of us winning the lottery.becoming rich - a key part of most sales pitches for Pyramid/Ponzi Schemes. This is one bias which drives us to the SunkCostFallacy, along with...
4th Mar '17 3:23:05 AM MAI742
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AsYouKnow, this list doesn't even begin to touch the shortcomings in our perception [[note]] Hold out your thumb at arm's-length. See your thumbnail? That's the portion of your field of view which you actually see in sufficient detail for these words to be legible. Everything else you think you can see? That's just your brain combining (1) eye-signals giving a vague sense of motion and shape and colour with (2) your working memory of what you expect to see there [[/note]], our mental perception (e.g. ConfirmationBias), and our memories themselves. See UsefulNotes/Psychology for more details or, better yet, get your hands on some actual books on it.

to:

AsYouKnow, this list doesn't even begin to touch the shortcomings in our perception [[note]] Hold out your thumb at arm's-length. See your thumbnail? That's the portion of your field of view which you actually see in sufficient detail for these words to be legible. Everything else you think you can see? That's just your brain combining (1) eye-signals giving a vague sense of motion and shape and colour with (2) your working memory of what you expect to see there [[/note]], our mental perception (e.g. ConfirmationBias), and our memories themselves. See UsefulNotes/Psychology UsefulNotes/{{Psychology}} for more details or, better yet, get your hands on some actual books on it.
4th Mar '17 3:21:04 AM MAI742
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Our brains are hardwired to use logic in the service of our emotional desires and minimise our need for hard thinking. This was perfectly attuned to the needs of proto-humans who needed to advance and maintain their social standing within groups of up to 250 proto-humans, but is remarkably ill-suited to our needs when sound happiness-related decision-making requires so much logical thought. Our brains often lead us to using our money and time in ways that make us unhappy, and so we've compiled a list of our most fundamental cognitive flaws to help you (and us) out.

to:

Our brains are hardwired to use logic in the service of our emotional desires and minimise our need for hard thinking. This was perfectly attuned to the needs of proto-humans who needed to advance and maintain their social standing within groups of up to 250 proto-humans, but is remarkably ill-suited to our needs when sound happiness-related decision-making requires so much logical thought. Our brains often lead us to using our money and time in ways that make us unhappy, not least because the marketing staffs of the world have been making Herculean efforts to understand and so we've compiled optimally exploit our flaws for profit. So here's a list of our most fundamental cognitive flaws to help you (and us) out.
flaws:


Added DiffLines:

AsYouKnow, this list doesn't even begin to touch the shortcomings in our perception [[note]] Hold out your thumb at arm's-length. See your thumbnail? That's the portion of your field of view which you actually see in sufficient detail for these words to be legible. Everything else you think you can see? That's just your brain combining (1) eye-signals giving a vague sense of motion and shape and colour with (2) your working memory of what you expect to see there [[/note]], our mental perception (e.g. ConfirmationBias), and our memories themselves. See UsefulNotes/Psychology for more details or, better yet, get your hands on some actual books on it.
1st Mar '17 2:52:28 AM MAI742
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* '''We instinctively like 'Free' things''', even when there is an objective hidden cost to acquiring them. This is why "Buy one get one FREE" works so well.

to:

* '''We instinctively like 'Free' things''', even when there is an objective hidden cost to acquiring them. This marketing strategy works because we are not wired to think about the objective costs of actually acquiring that thing, and we are inclined to acquire FREE things even if we don't ordinarily want them. This is why "Buy one get one FREE" works so well.
1st Mar '17 2:43:55 AM MAI742
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* '''The more effort it takes to get something, the more we value it'''. This includes our enjoyment of that thing, which increases relative to that effort. This is related to...

to:

* '''The more effort it takes to get something, the more we value it'''. This includes our enjoyment relationships with other people, our points of that thing, view, our jobs, and even our appreciation/enjoyment of the thing which we have obtained - which increases relative to that effort. This is related to...
1st Mar '17 2:20:33 AM MAI742
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[[folder: Our Brains and Microeconomic]]

to:

[[folder: Our Brains and Microeconomic]]
Brains]]
1st Mar '17 2:19:30 AM MAI742
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[[folder: Our Brains and Microeconomic]]

Our brains are hardwired to use logic in the service of our emotional desires and minimise our need for hard thinking. This was perfectly attuned to the needs of proto-humans who needed to advance and maintain their social standing within groups of up to 250 proto-humans, but is remarkably ill-suited to our needs when sound happiness-related decision-making requires so much logical thought. Our brains often lead us to using our money and time in ways that make us unhappy, and so we've compiled a list of our most fundamental cognitive flaws to help you (and us) out.

* '''We think that we are smarter than the average person''' and don't make as many silly mistakes as they do - even though this complacency is part of why "the average person" makes so many mistakes in the first place.
* '''We feel that if we are smarter than average person, we must also be more rational than they are''' when in fact, greater intelligence just makes us better at ''rationalising'' - finding rational-sounding excuses for why we did irrational things. Failing to appreciate this makes us [[TooCleverByHalf even more vulnerable to mistakes]] [[KansasCityShuffle and cons]] than "the average person".
* '''We prefer forgetting or misremembering our mistakes to actually thinking about them''' and how to fix them or avoid them in future. After all, that would require admitting that we've made a mistake. [[AndThatsTerrible And that would make us feel bad.]]
* '''We are poor predictors of how we will act when in a different emotional state'''. Calm people significantly underpedict their chances of doing sexually taboo or immoral things when aroused, and so on. This is part of why "abstinence-only education" has such poor sexual activity prevention outcomes.
* '''We feel more strongly about things affecting us right now than those in the past or the future''', even when we felt or will feel more strongly about them at the time. This is why so many of us struggle with procrastination - the future payoff of not procrastinating may be tremendous, but in that moment the payoff of procrastinating feels like it is bigger.
* '''We feel that things we own are more valuable''' than things we don't - even if their objective value is identical. This can even apply to things that we only ''imagine'' ourselves owning, such as a vivid fantasy of us winning the lottery. This is one bias which drives us to the SunkCostFallacy, along with...
* '''The more effort it takes to get something, the more we value it'''. This includes our enjoyment of that thing, which increases relative to that effort. This is related to...
* '''We experience what we expect to''', to the extent that we can convince ourselves that enjoyable sensations are unpleasant and vice versa. This is why producers invest in expensive packaging for edible products, among other things. It's also why expensive placebo medicines and treatments are more effective than cheap ones.
* '''We instinctively latch on to the first price we see''' (the "Anchor/Reference Price") and judge all subsequent prices for similar products with reference to that number. This is why certain products are arrayed at eye-height and take up more or less space on shelves in stores, why multi-buy sales specify a certain number of products, and why the first party to specify a price during negotiations usually gets the better deal.
* '''We instinctively like 'Free' things''', even when there is an objective hidden cost to acquiring them. This is why "Buy one get one FREE" works so well.
* '''We tend to judge things in relation to similar things, regardless of how meaningful that comparison is.''' If we choose between three comparable products, one of which ('''A1''') is good in attribute '''A''' and the other two of which ('''B1''' and '''B2''') are good in the different but equally attractive attribute '''B''', most people choose the better product of the pair ('''B1'''). We instinctively feel that '''B1''' must not just be better than '''B2''', but that it is better than '''A1''' as well.
* '''We are guided more by our social norms than our individual values or morality'''. This applies to all people and organisations. Egregious illegality and abuses of power are generally the products of promotional, or at least tolerant, organisational norms. This is not to say that, for instance, the executives of Enron were not scumbags - just that they were the mere tip of a foetid iceberg.

[[/folder]]



[[folder: Common Personal Economic Biases]]

The human mind uses a vast array of shortcuts to cut down on the amount of hard thinking we need to do in everyday life. Unfortunately, these often let us down by causing us to make sub-optimal choices. Here are some of the most common shortcomings.

* '''We think that we are smarter than the average person''' and don't make as many silly mistakes as they do - even though this complacency is part of why "the average person" makes so many mistakes in the first place.
* '''We feel that if we are smarter than average person, we must also be more rational than they are''' when in fact, greater intelligence just makes us better at ''rationalising'' - finding rational-sounding excuses for why we did irrational things. Failing to appreciate this makes us [[TooCleverByHalf even more vulnerable to mistakes]] [[KansasCityShuffle and cons]] than "the average person".
* '''We prefer forgetting or misremembering our mistakes to actually thinking about them''' and how to fix them or avoid them in future. After all, that would require admitting that we've made a mistake. [[AndThatsTerrible And that would make us feel bad.]]
* '''We are poor predictors of how we will act when in a different emotional state'''. Calm people significantly underpedict their chances of doing sexually taboo or immoral things when aroused, and so on. This is part of why "abstinence-only education" has such poor sexual activity prevention outcomes.
* '''We feel more strongly about things affecting us right now than those in the past or the future''', even when we felt or will feel more strongly about them at the time. This is why so many of us struggle with procrastination - the future payoff of not procrastinating may be tremendous, but in that moment the payoff of procrastinating feels like it is bigger.
* '''We feel that things we own are more valuable''' than things we don't - even if their objective value is identical. This can even apply to things that we only ''imagine'' ourselves owning, such as a vivid fantasy of us winning the lottery. This is one bias which drives us to the SunkCostFallacy, along with...
* '''The more effort it takes to get something, the more we value it'''. This includes our enjoyment of that thing, which increases relative to that effort. This is related to...
* '''We experience what we expect to''', to the extent that we can convince ourselves that enjoyable sensations are unpleasant and vice versa. This is why producers invest in expensive packaging for edible products, among other things. It's also why expensive placebo medicines and treatments are more effective than cheap ones.
* '''We instinctively latch on to the first price we see''' (the "Anchor/Reference Price") and judge all subsequent prices for similar products with reference to that number. This is why certain products are arrayed at eye-height and take up more or less space on shelves in stores, why multi-buy sales specify a certain number of products, and why the first party to specify a price during negotiations usually gets the better deal.
* '''We instinctively like 'Free' things''', even when there is an objective hidden cost to acquiring them. This is why "Buy one get one FREE" works so well.
* '''We tend to judge things in relation to similar things, regardless of how meaningful that comparison is.''' If we choose between three comparable products, one of which ('''A1''') is good in attribute '''A''' and the other two of which ('''B1''' and '''B2''') are good in the different but equally attractive attribute '''B''', most people choose the better product of the pair ('''B1'''). We instinctively feel that '''B1''' must not just be better than '''B2''', but that it is better than '''A1''' as well.
* '''We are guided more by our social norms than our individual values or morality'''. This applies to all people and organisations. Egregious illegality and abuses of power are generally the products of promotional, or at least tolerant, organisational norms. This is not to say that, for instance, the executives of Enron were not scumbags - just that they were the mere tip of a foetid iceberg.

[[/folder]]
20th Feb '17 4:13:01 PM MAI742
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* '''We feel that smarter people must be more rational, when actually it just makes us better at rationalising''' - finding rational-sounding excuses for why we did irrational things. Failing to appreciate this makes us [[TooCleverByHalf even more vulnerable to mistakes]] [[KansasCityShuffle and cons]] than "the average person".

to:

* '''We feel that if we are smarter people than average person, we must also be more rational, rational than they are''' when actually it in fact, greater intelligence just makes us better at rationalising''' ''rationalising'' - finding rational-sounding excuses for why we did irrational things. Failing to appreciate this makes us [[TooCleverByHalf even more vulnerable to mistakes]] [[KansasCityShuffle and cons]] than "the average person".
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