From: ibshambat@gmail.com   
      
   I am going to tackle a very serious subject - one of the axioms that are   
   central to classical economic theory. Classical economics states that economic   
   decisions are driven by rational self-interest. I am parting with that axiom   
   and suggest the following:   
    That while some economic decisions are in fact based on rational factors,   
   many more are based on psychological and emotional factors. And the amount of   
   economic decisions based on these factors is vast.   
      
   I start here with the most obvious examples. A person who stuffs herself with   
   food until she becomes obese and diabetic, or a person who spends all his   
   money on gambling, is clearly not driven in consumption decisions by reason.   
   Such a person is driven    
   by factors that are not rational in any manner and that are in nature   
   psycho-pathological. It occurs to me that similar psychological factors extend   
   far beyond these obvious examples and apply to many people, including ones who   
   are not gambling addicts    
   or who are morbidly obese.   
      
   Here is an economic choice based in rational self-interest: A comfortable,   
   affordable, fuel efficient vehicle. Here is an economic choice not based in   
   rational self-interest: A hugely expensive, polluting vehicle such as the   
   Hummer. Here is an economic    
   choice based in rational self-interest: Nice looking affordable clothes. Here   
   is an economic choice not based in rational self-interest: Super-expensive   
   clothes that one buys because they are in fashion. Here is an economic choice   
   based in rational self-   
   interest: A functional, comfortable, affordable house or condo. Here is an   
   economic choice not based in rational self-interest: A vast house that one's   
   wife has to spend six hours a day cleaning. Here is an economic choice based   
   in rational self-interest:   
    Nice simple shoes. Here is an economic choice not based in rational   
   self-interest: Expensive trendy sneakers that one needs to sell drugs in order   
   to procure. Here is an economic choice based in rational self-interest: One   
   plastic surgery treatment when    
   one's features are disfigured. Here is not an economic choice based on   
   rational self-interest: Many plastic surgery treatments when one is already   
   beautiful.   
      
   Some economic choices are based in rational self-interest. They however do not   
   begin to include the total sum of economic choices that people make.   
      
   The biggest argument against the idea that all economic choice is based on   
   rational self-interest is not any of the above. Instead is the fact that many   
   products that are bought, are bought not because of the quality of the product   
   but because of the    
   quality of the marketing. A consumer driven by rational self-interest would   
   buy the superior product; but time and again - with Beta vs. VHS, with Borland   
   vs. Microsoft, with mom-and-pop shops vs. fast food chains - we see inferior   
   product dominating the    
   market. The reason that these inferior products dominate the market is that   
   their makers are better at marketing. And choices based on marketing are not   
   choices based on reason. They are choices based on psychology.   
      
   Why are these choices based on psychology? Because that is what is targeted by   
   most marketing campaigns. Very little of ads out there are simply and   
   rationally stating the benefits of the product. They use all sorts of   
   psychological devices to manipulate    
   people into buying the product. Advertising very rarely targets reason   
   exclusively; far more often it plays with people's emotions. Which makes these   
   emotions, as manipulated by the marketer, the centerpiece of a vast chunk of   
   economic choices that    
   people make.   
      
   Does this make most economic choices that people make wrong? No; but what it   
   does show is that many of these choices are not based on what classical   
   economic theory regard them to be based upon. Does this damn capitalism? No,   
   but it shows where one of    
   its major axioms is incomplete. Yes there are economic choices that are driven   
   by rational self-interest; but there are many economic choices that are not   
   driven by rational anything, and it's important to take such things into   
   account whether one is a    
   consumer, a producer or a policy maker.   
      
   The consumer on his part needs to learn more about psychology so as not to be   
   as vulnerable to psychological manipulation by marketers. The policy maker   
   needs to see where someone is taking advantage of people and do what he needs   
   to do to stop the    
   unscrupulous practices. And the honest producer, such as Borland and   
   mom-and-pop shops, need to see where their competition is using unethical ways   
   of marketing and respond with effective and intelligent marketing on their own   
   part. I do not advocate    
   Communism. I advocate a more ethical capitalism. And that means, first and   
   foremost, seeing where people are being taken advantage of and putting a stop   
   to the unethical economic practices that play them for fools.   
      
   Of course a large part of the burden for this lies with the consumers   
   themselves, who frequently are either not thinking or are thinking stupid.   
   Many of these problems stand to be solved by broad-based education that teach   
   people better thinking habits    
   so that it's not as easy to take advantage of them, and also so that they   
   exercise greater discretion and responsibility in their economic decisions.   
   The more choices are actually based on rational interest, the more the economy   
   functions as advertised;    
   the more they are based on psychological manipulation, the more the economy   
   turns into an unethical and irresponsible plutocracy that treats people as   
   idiots and laughs all the way to the bank.   
      
   At the very least it is important to make this clarification. An economic   
   theory that fails to see a vast chunk of the reasons for people's consumption   
   decisions is a theory that is incomplete. The role of psychology in   
   consumption decisions must be    
   examined and credited for the large chunk of consumption decisions for which   
   it is responsible. And based on that it can then be possible to determine   
   which economic practices lead to people's benefit and which economic practices   
   do not.   
      
   Ilya Shambat    
   https://sites.google.com/site/ilyashambatthought   
      
   --- SoupGate-Win32 v1.05   
    * Origin: you cannot sedate... all the things you hate (1:229/2)