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Ch. 2 - The Fallacy of Supply and Demand 
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Post Ch. 2 - The Fallacy of Supply and Demand
Ch. 2 - The Fallacy of Supply and Demand

Fri May 28, 2010 6:11 pm
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Post Re: Ch. 2 - The Fallacy of Supply and Demand
I don't have the new & improved, revised & expanded version of Dan's book, but I'm enjoying it anyway. I wonder if, with the new & improved bit, Dan is trying to appeal to our irrational insecurities about having all the latest and best :roll: (Chris: Ariely would be great to have in a live author chat.)

If anyone's trying to decide whether to read this book, it's fun and light, reads quickly, very conversational, a little in the mode of Freakonomics or Malcolm Gladwell's books. It's not so much a book that tells you what you didn't know, but one that brings things to your attention in a novel form, making you realize you didn't know what you know. Throughout much of it, of course, Ariely is trying to show how standard economic theory, which is based on rational choices people make, doesn't cut it.

In this chapter, he talks about the influence of anchoring on the price we're willing to pay. It's all in how we're indoctrinated toward a given product, and marketers have a lot of fun--and make a lot of profits--in getting us to set a high initial anchor price for a product. Then we have nowhere to go but up from this price, and marketers make even more money. As Ariely says, "our first decisions resonate over a long sequence of decisions."

Anchoring originates in the same basic mental structure that enables goslings to imprint on the first moving thing they see. We also imprint on the first price we pay for something, and moving the anchor can be slow and difficult for us. We might not be willing to pay more than what we first paid, or pay it grudgingly. On the other hand, if the price of something goes down, our anchoring price causes us great excitement as we rush to take advantage of a bargain. This is the prime reason that consumer electronics have come to rule over our lives, I think. The prices of machines that can do ever greater things continue to go down, so it seems foolish for us not to take advantage of such a bonanza. We might be still anchored to the memory of paying $1,000 for an early computer, so why not pay much less for something that can do much more?

Ariely points out the scientific basis of anchoring, in memory and ultimately in physiology, and sticks closely to the matter of prices, but we can view the phenomenon philosophically as well. In areas other than pricing, anchoring does much to determine how we react to the world, especially in times of change. If we hold very fast to our the anchors of our early socialization, we probably become adult conservatives (not here used negatively), whereas if we reset our anchors with the times, we identify more with liberalism (here used neutrally).

Sun Jun 06, 2010 9:00 am
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Post Re: Ch. 2 - The Fallacy of Supply and Demand
Thinking about the writer's claim that supply and demand is a fallacy, I have to conclude that he doesn't prove this. He seems to chip away at the margins of that principle, but in a macro sense, at least, I can't see that supply and demand is a fallacy. Dan says when each of us go into the marketplace, we really don't know what we want, unlike what classical supply & demand assumes. We are easily influenced by the people marketing the goods and often change our not-made-up minds. So the suppliers can, to a degree, determine what we buy. This is true, but if we go out looking for a TV in a certain price range and are seduced into buying a more expensive one, it doesn't mean that supply & demand is a fallacy. It just means that we've shifted our decision a bit. We still are acting as a demand force that has caused suppliers to make TVs. Similarly, when entrepreneurs bring out totally new products and essentially create a demand for them, such as for black pearls, that doesn't negate the whole principle of supply and demand. Capitalists always take chances on interesting consumers in new things, and this is done at first without apparent demand for the product. Once the ball gets rolling, consumer demand kicks in.

Mon Jun 21, 2010 3:29 pm
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