The deviant economist...

cmartinez

Joined Jan 17, 2007
7,242
Once again, human nature makes a fascinating subject for discussion:

Most economics in the 1970s was a discipline of rules, rooted in the idea of "homo economicus" - an assumed rational person whose actions and decisions are based on the optimisation of any choice presented to him or her. Hyper rationalism, Prof Thaler calls it. Mathematical.

#12

Joined Nov 30, 2010
18,217
Several ideas come to me.
1) Someone has explained in public why I refused to study the 1970's view of economics. It was so obviously flawed that I was instinctively repulsed from wasting my precious college years on it.
2) When the filthy rich use Harvard Business School math to create boom and bust cycles like, "The Housing Bubble", it is impossible for blue collar workers to optimize the purchase of, for instance, a home.

Papabravo

Joined Feb 24, 2006
15,030
The most stunning contradictions of all are:

People will spend hours clipping coupons and sale shopping to save dimes and nickles, but lack the patience and discipline to live below their means so as to build wealth slowly over a long time horizon.
But, they will drop large sums of money on phony get rich quick schemes. Greed will almost always trump rational thought.
Then, if they win the lottery, rather than engaging in rational behavior they proceed to piss away their fortune in very short order, ruining their lives in the process.

mxg2579

Joined Jun 10, 2015
15
The most stunning contradictions of all are:

People will spend hours clipping coupons and sale shopping to save dimes and nickles, but lack the patience and discipline to live below their means so as to build wealth slowly over a long time horizon.
But, they will drop large sums of money on phony get rich quick schemes. Greed will almost always trump rational thought.
Then, if they win the lottery, rather than engaging in rational behavior they proceed to piss away their fortune in very short order, ruining their lives in the process.

This is so true, especially the part about lacking patience to live below their means. Where I'm from, you see people who live in slums and trailers and run-down places, but have a shiny new Camero or Mustang all decked out. It's crazy to see this stuff and makes you wonder if people are really just that un-motivated. It seems the world is full of people who have no motivation for a better standard of living. Lord knows what it will be like in 15+ years.

wayneh

Joined Sep 9, 2010
16,763
I found this topic one of the most interesting parts of my MBA studies. The idea of the self-acting, rational person is a useful abstraction. It was never really expected to describe real people. But the idea was; let's make some simplifying assumptions, apply some math, and see if we can model some economic observations.

This approach worked very well. It did explain - and still explains - a wide variety of economic phenomena. It's the "Newtonian physics" of economics. It works most of the time for everyday use.

But smart young researchers like Thaler realized that the simplifying assumption sometimes contradicts everyday experience, and went looking for the exceptions to the rule. They came up with the "quantum mechanics" of economics. They realized that people use heuristics - mental shortcuts we're usually not even aware of - to simplify decision making under uncertainty. Only rarely do we actually make an analytical decision using logic. Some of these mental heuristic shortcuts can be consistently exploited to cause humans to make the "wrong" decisions, to not act rationally in their own best interests.

One we see all the time is anchoring. Lawyers in civil suits always ask for huge damage awards. The hope is that by starting at $10M they might end up at$1M, which the jury might never get to on their own. But there are many more ways to manipulate us fallible humans. The excellent book Nudge describes many of them, and is being used by the Obama administration to help advance their goals. (No comment.)

Just one word in defense of MBAs: The housing bubble was a direct result of politics and policy. It was effectively mandated to occur - there was no way out of it given the federal policies in place. Smart people saw the problem and figured out ways to avoid or even profit from it, both legally and otherwise, but they didn't cause it.

JoeJester

Joined Apr 26, 2005
4,390
Just one word in defense of MBAs: The housing bubble was a direct result of politics and policy. It was effectively mandated to occur - there was no way out of it given the federal policies in place. Smart people saw the problem and figured out ways to avoid or even profit from it, both legally and otherwise, but they didn't cause it.
I concur. Too bad they didn't defend themselves by pointing the media in the direction of the true failure.

#12

Joined Nov 30, 2010
18,217
This is so true, especially the part about lacking patience to live below their means. It's crazy to see this stuff and makes you wonder if people are really just that un-motivated. Lord knows what it will be like in 15+ years.
I used to have a wife who believed the proper way to live was to carry all the credit card debt you can service with your cash flow. The key words in that sentence are, "used to".

tcmtech

Joined Nov 4, 2013
2,867
Sounds like my wife. With her nothings impossible when it's someone else is doing the work and paying the bills.

In her mind we should be living in a multi million dollar mansion by now but since I expect her to pitch in financially and do some of the actual work as well we are still living in a partially remodeled 1974 trailer house while there is a big hole in the yard, for the third summer in a row now, where her mansion is supposed to sit.

#12

Joined Nov 30, 2010
18,217
Just wait for the next Prince Charming to come along and offer her the mansion. Your work load will decrease by 90% when she follows him home.

tcmtech

Joined Nov 4, 2013
2,867
As far as I know prince charmings don't go for demanding old crabby witches.

#12

Joined Nov 30, 2010
18,217
They can all act like a Princess until they realize this Prince Charming is just the next toad.

tcmtech

Joined Nov 4, 2013
2,867
I warned mine ahead of time that I am a terrible person and I likely won't change being I spent most of my life working to get to that point.

Looking back I knew I should have put it in writing and had her sign and date it with a notary public present then had it laminated and hung on the wall in the living room.

#12

Joined Nov 30, 2010
18,217
I tried that with my wife, but when I brought it to her attention, she said, "That's my signature, but I don't know how you got it on that piece of paper".

Like I said, key words are, "used to".

cmartinez

Joined Jan 17, 2007
7,242
... "That's my signature, but I don't know how you got it on that piece of paper". ...
Witnesses, man... that's what witnesses are for...

#12

WBahn

Joined Mar 31, 2012
26,398
Witnesses, man... that's what witnesses are for...
Then the response would be, "Yeah, but so what? Of course they're going to lie for YOU!"

WBahn

Joined Mar 31, 2012
26,398
I concur. Too bad they didn't defend themselves by pointing the media in the direction of the true failure.
They do -- you see brief hints of it on a recurring basis. But the media has its storyline and it is not going to give anything beyond marginal play to anything that opposes it.

WBahn

Joined Mar 31, 2012
26,398
I used to have a wife who believed the proper way to live was to carry all the credit card debt you can service with your cash flow. The key words in that sentence are, "used to".
A LOT of people not only do that, but believe it is a good idea.

If I can by $20,000 of crap and pay$200 a month, then I can enjoy $20,000 of crap for only$200 a month. How is that different from paying a $200/mo lease on a$20,000 car? And if I pay my $200 a month regularly then I get a great credit score and get soon get another$20,000 of crap and only pay \$400 a month for it. I can go on expensive vacations and do other things that leave me with nothing to show for it (and which, therefore, can't be taken away). About every ten years I'll file bankruptcy so that I get to keep all my useless crap and can stop making my payments. After all, it's only the evil rich creditors that get hurt -- no real person suffers when I screw them out of money that they loaned me in good faith.

I've know several people over the years that operate on this mentality and plan their lives around when they will be able to file bankruptcy the next time.

cmartinez

Joined Jan 17, 2007
7,242
I've know several people over the years that operate on this mentality and plan their lives around when they will be able to file bankruptcy the next time.
It's sad, but I know people like that too... and the sin is always the same, to try to live a life beyond your means.
And the worst part is that there's always going to be a life beyond your means, even for the likes of Mr Trump (don't like the guy, BTW) or Mr Buffett... (I like him much better)

WBahn

Joined Mar 31, 2012
26,398
It's sad, but I know people like that too... and the sin is always the same, to try to live a life beyond your means.
And the worst part is that there's always going to be a life beyond your means, even for the likes of Mr Trump (don't like the guy, BTW) or Mr Buffett... (I like him much better)
Trump's a shining example of this mentality. As far as I know he's built up maga companies, living large on the investments and borrowed money and revenues way beyond the sustainable means of the company, and then filed bankruptcy leaving the investors and creditors high and dry. He's done that not once, but four times.

tcmtech

Joined Nov 4, 2013
2,867
People like that are very common. Every community has them and even most families.

For me growing up it was one of our local big time farmers that everyone kissed up to since they were 'so rich'.

Well the truth was they had a lot of stuff but when grandpa files bankruptcy about the same time son 2 becomes a pro bankruptcy lawyer (No connection really!) and son 1 takes over only to file about ten years later, passing things onto son 3 who does it again passing things to son 4 (Still all coincidental that one family member is a bankruptcy lawyer) and eventually thing go down again and grandsons XYZ take over........

Yea you can accumulate a pile of farmland and equipment if you have enough bankruptcies planed into your long term game set at just the right spacings.