Is Experimental Economics Irrational?

http://wmbriggs.com/blog/?p=2305 ^ | William M. Briggs

[mattstat]

Everybody knows there’s no such thing as money. So how come everybody acts like it’s real?

In particular, why do economists and other similar creatures find the lack of “rationality” curious when reviewing the transactions, and game-theory simulations of transactions, between real people?

There do exist bits of shiny metal, certain organic byproducts, and slips of paper that are called “money.” But these objects have no intrinsic value. Money is a concept, not a thing. It is a proxy for agreements between people, a mechanism to ease the trading of things that do have value.

Like I said, everybody knows this. So why has it been so difficult—why did it take so long—to see the logical consequences of this truth? Why, that is, is there the consternation over the lack of “rationality” when it comes to theories of money.

Use an example of buying a six-pack of beer from a bodega in New York City. Not some homeopathic brew like Coors Light. Real beer, like Brooklyn Brewery’s IPA.

The Korean lady in charge can announce that the beer is “Regular price $10; Today 10% off” or she can say “Regular price $8, plus New York City health tax surcharge of $1.” (This example is not fictional: NYC is always pegging up its sin taxes.)

Which would you prefer? According to classic economic and game theories, you’re not supposed to have a preference. Any deviation from indifference is considered “irrational” because, either way, you’re out nine bucks. Either way gets you the six-pack.

But nobody buys ..

[allmost]

Dude. Beligerant bump ;)