The Fallacy of Supply and Demand?

[Heraclitus]

Do the proponents of capitalism misjudge human nature?
We often hear about Communist misjudging human nature but what about capitalists?


One of the assumptions of why market forces are supposedly the most efficient way to allocate resources is that the people who make up the market make rational choices. The fact is they don't.



Link to Predictably/irrational

Wiki article on the book by Dan Ariley

[BeBMan]

Don't have time to read it all now, but I thought it's long clear that our decisions are to a good part *not* "based on rational thought". RC stuff is used to model behaviour in certain situations and there they assume rational decisions for their purpose. Doesn't mean we always act like that rational in real life.

My 0.00000000000001 ct.

[FrostyBoy]

I buy things without looking at the price. Unless it's quite expensive.

People will buy products based entirely on how well packaged it is. Human stupidity at work; but without it, Japan and Korea wouldn't have a market for many of it's products. So it's a debatable issue.

Don't be too concerned about the level of intelligence of all people in the world. Unfortunately, in order to sustain such a high population and create higher probabilities of intelligent/skilled people, we need a lot of stupid people, or rather, people just being stupid now and then. (*cough* women *cough*).

[Kidlicious]

I don't think that I think like that, but other people might. It really doesn't matter much.

[Dry]

Re: The Fallacy of Supply and Demand?

Originally posted by Heraclitus
Do the proponents of capitalism misjudge human nature?
We often hear about Communist misjudging human nature but what about capitalists?


One of the assumptions of why market forces are supposedly the most efficient way to allocate resources is that the people who make up the market make rational choices. The fact is they don't.



Link to Predictably/irrational

Wiki article on the book by Dan Ariley

I think you are confusing capitalism and free market.

The articles you link are talking more about free market then capitalism.
The price of a good being the balance between how low the seller is ready to go to sell it and how high the buyer is ready to pay (vs a communist centralized organism deciding how much a good is supposed to be 'worth').

The free market makes no assumption on the rationality of any of the parties. It just let the price be decided on 'free agreement'. If one party is irrational (and advertisement tries to make sure the buyers are), so be it.

Proponents of free market did not misjudge human (ir)rationality. Rationality is just irrelevant in price making. And on the contrary, I would say, advertisement companies DO COUNT on irrationality, their business is based on it.

[Heraclitus]

I said proponents of capitalism. I never said the economy can't thrive on irrationality. The people who try to find an intellectual excuse for market failure are often tempted to ascribe to individual rationality.

Also how can there be capitalism if there is no free market?


In my opinion human irrationality is a strong argument for some institution deciding how much something is really worth since they can be objective.

[Dry]

Originally posted by Heraclitus
Also how can there be capitalism if there is no free market?

I see no problem there.
Everyone being free to own their production means, to start a new business, but super strict control on the prices.
Happens often here, in Europe.

In my opinion human irrationality is a strong argument for some institution deciding how much something is really worth since they can be objective.

THAT is, according to me, the delusion.
Not only, is there no such thing as a 'fair price', or a 'true value' of things, but fixing the prices to some kind 'least unfair value' leads to economic failure. It simply doesn't work.

The 'least unfair system', is, according to me, the free market.

[Imran Siddiqui]

Originally posted by BeBro
Don't have time to read it all now, but I thought it's long clear that our decisions are to a good part *not* "based on rational thought". RC stuff is used to model behaviour in certain situations and there they assume rational decisions for their purpose. Doesn't mean we always act like that rational in real life.

My 0.00000000000001 ct.

Indeed. The principal of rational decision making is simply there so that models can be made. It is assumed that the masses of humanity will make rational decisions, even if certain individuals do not. It is hard to make any predictive models if you have to account for all sorts of irrational behavior.

[Agathon]

Originally posted by Heraclitus
I said proponents of capitalism. I never said the economy can't thrive on irrationality. The people who try to find an intellectual excuse for market failure are often tempted to ascribe to individual rationality.

Also how can there be capitalism if there is no free market?

That is capitalism in theory, not capitalism in practice. Everyone knows that people don't act the way that economists often supposed them to (even economists are waking up to this with the increase in behavioural economics).

Capitalism as it actually exists is simply a hotch potch of institutions designed to sustain a market and to preserve a hierarchical society with just enough mobility to prevent ambitious people from starting revolts and enough control to keep the authoritarians happy.

If you want to know if this is true, just wait for the next bailout of rich people and institutions, and then try asking your government to pay off your credit card.

[Zkribbler]

Re: The Fallacy of Supply and Demand?

Originally posted by Heraclitus
....
One of the assumptions of why market forces are supposedly the most efficient way to allocate resources is that the people who make up the market make rational choices. The fact is they don't.

But I really do need a larger penis!

[Maniac]

Originally posted by Heraclitus
Also how can there be capitalism if there is no free market?

Soviet 'communism' == state capitalism