If someone said you could ‘manufacture’ utility (or the ‘happiness’ gained from consuming a good) without actually consuming it, would you believe them? If all of us had this ability, what would happen to the global economy?
Psychologist Dan Gilbert talks about synthetic happiness, and how paraplegics and lottery winners can both become equally happy after a set time. He also describes a series of experiments based on how being given a reversible choice can dramatically change our happiness levels, and provides evidence on how all of us can manufacture happiness.
Behavioural economics is gathering pace particularly in light of The Great Recession. How can we summarise behavioural economics? If we use the start point that traditional economic theory assumes people always maximise their utility by making rational decisions, we can say that behavioural economics uses psychology to criticise this assumption. This field of economics believes that ‘we’ do not react like robots on pure logic alone but have considerable emotional influences on our decision making. We have all experienced the feeling we get when we over eat yet how many times have we subjected ourselves to this feeling? Have you ever succumbed to an emotive advertisement or an appealing offer only to realise after that maybe you shouldn’t have purchased that product OR after realising this, you still justify the purchase knowing that it was an emotional purchase and not a rational one? Take the classical assumption, of rationality, further and see how markets ultimately clearing to the desired equilibrium is inherently incorrect, according to behavioural economists. Not from the social cost/benefit perspective but from the consumer behaving in an irrational manner one. Below are some links for you to peruse and get a taste of what this branch of economics is about. Also go the to Behavioural Economics page of Mark Johnston’s indispensable blog, firstname.lastname@example.org and you will find some fascinating reading including the ílliquid cow’ article below.