The Logic of Choice


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Dan Ariely, author of Predictably Irrational, looks at the attraction of "free," arguing that we do not act rationally when the word "free" catches our attention. If people were logical in the way economics says they are, would we react this way? Can you think of other examples? The logic of choice assumes that people are economically rational, but what if they are not?

The demand curve is based on the idea that people have a certain amount that they are willing to pay for a good or service, and that they will buy it if it costs less but not buy it if it costs more. Dan Ariely, author of Predictably Irrational, argues that our willingness to pay is can be set capriciously, but once it is set, it is slow to change. His view is an attack on the traditional view of economists. However, it does not undermine the demand curve--even if our willingness to pay is often arbitrary, we will still buy more when price falls and less when price rises.

The Budget Line

In "School House Rock, Where The Money Goes," a kid wants to go on a band trip. His father explains that income is limited but suggests a solution. How would you explain his suggested solution in terms of a budget line?

The Equimarginal Principle

Inputs can be substituted for one another, as this short clip from Britain during the First World War shows. Women replace men on the farm. A similar substitution that is better known took place in World War II in the United States. Could we also see a guns and butter trade-off in this clip?

Rational Ignorance

Does this clip from Ferris Bueller's Day Off illustrate rational ignorance? Take a position and defend it. Also, what is the Hawley-Smoot Tariff? And can you draw the Laffer Curve, which is mentioned in the clip? Why does the Laffer Curve matter when we discuss government tax policy?

Can you do better than the contestants on this clip from the show Jeopardy? Are the contestants on this episode rationally ignornant, or are they just ignorant? Is there any reason why someone who is not an economist should know who the important economists are?

These links were checked on Sept 10, 2009.
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Copyright Robert Schenk