The economics of being stupid: a note on (ir)rationality in economics

In oduc ion In oking he issue o a ionali y in economics is jus abou as in ellec ually unique, no el and exci ing as an a emp o disco e he eal message o Keynes’s Gene al Theo y. Fo many economis s, and – ankly – one canno blame hem, he a ionali y assump ion is a i e ques ion ha wa an s almos no a en ion. To compensa e o ha , one canno help bu o use ap e en ious i le. In he ollowing ex , I acknowledge he impo - ance o a ionali y assump ion o any economic heo izing, bu p opose ha economis s, in an a emp a explaining a seemingly i a ional beha io in a ional e ms, a e o en engaging in a scien i ically no e y use ul logical exe cise. I ollow some ypical examples o such solu ions and p esen a mic o-su ey o illus a e hei possible inapplicabili y. I hen a gue ha his s a e o a ai s is caused by, and u he con ibu es o, a neglec o he possibili y o i a ional beha io , and conclude by emphasizing he impo ance o allowing he possibili y o olly. Les he pu pose o his a icle be misunde - s ood, i is no conce ned wi h he p ecise meaning o con en o he a ionali y assump ion (as e.g. Sen does [15]), nei he does i c i icize he employmen o such assump ion in economic heo izing. I a he belongs o a adi ion o a icles eminding us abou de ia ions o lesh- and-blood economic agen s om he homo oeconomicus model – a adi ion made wide, long and e i able by Kahneman (see e.g. [9]) and o he s. My aspi a ion wi hin his adi ion is modes a bes : o poin o a possible me hodological slip in he way economis explica e ce ain phenomena and he economic consequences o i . 1. The Ra ionali y Assump ion Economics, i is widely g an ed, is a science abou he way people make choices and abou consequences o such choices (e.g. [10]). Any decision, as opposed o non- oli ional beha io , implies a use o eason o jux apose he p os and cons o a gi en ou e o conduc . This, howe e , does no mean ha one’s easoning mus necessa ily be a all imes co ec . The decision-make may use all his eason, and ye his decision may none heless u n ou w ong – bo h ex an e and ex pos . One commonly acknowledged sou ce o such e o s is unce ain y. Due o necessa ily impe ec knowledge o he p esen and u u e s a es o he wo ld, e e y decision is based on expec a ions and hese may p o e w ong, hus making he decision – one ha seemed pe ec ly co ec ex an e – e oneous ex pos . The e is, howe e , a di e en cause o e o . E en i one co ec ly pe cei es bo h p esen and u u e s a es o he wo ld (i.e. his expec a ion will ma ch eali y), a decision can s ill be w ong due o he indi idual being undamen ally mis aken abou he means p ope o he achie emen o his ends (i.e. abou causal ela ions be ween di e en s a es). His eason may well be elling him ha ce ain means will lead o he desi ed ends, and hus his decision is conscious and hough ul, and – no doub – pe cei ed by he decision- make as a ional. Ye , he may be mis aken, con used o simply w ong abou a pa icula means-ends ela ionship. This is he kind o si ua ion ha economis s ha e in mind when hey p oclaim a beha io i a ional – w ong om he e y beginning, e en ex an e. And, pe haps, his is p ecisely such beha io ha o he people would e nacula ly call s upid. Ekonomie 42014, XVII, 2 DOI: 10.15240/ ul/001/2014-2-001 THE ECONOMICS OF BEING STUPID: A NOTE ON (IR)RATIONALITY IN ECONOMICS Dan ·Èas n˘ EM_02_14_zlom 4.6.2014 8:53 S ánka 4 Economics 52, XVII, 2014 E en hough economis s ecognize he possibili y ha people can make e o s, mos o hem p e e o in e p e human beha io in a ional – e o - ee – e ms. The e is a e y good eason o doing so. In oking he possibili y o e o is a i ial explana ion heo e ically applicable in i ually all cases. I is an an i- scien i ic solu ion, an answe equi ing and p oducing no use ul knowledge wha soe e . To any ques ion, “Why is he doing ha ?”, he uni e sally co ec answe may be ha “He is jus being s upid!” The idea o a ionali y is hen an o e ly impo an one o economics, a leas o i s main s eam. No because economis s could no a hom an i a ional decision, bu because i is a s a ing poin o wha economis s do: adding o i ial explana ions o phenomena some non- i ial ones. Thus, wi hou he concep o a ionali y he e would be no science o economics. On he o he hand, i would be mis aken o suppose ha economics is applicable only o si ua ions whe e people do indeed ac a ionally, while ha ing no hing o say abou cases o people ac ing e oneously. Fi s , hanks o economics, we a e o en able o sugges some hing abou he a ionali y o he choice in he i s place: wi hou economics we would no be able o ell a a ional om an i a ional one. This is wha economis s do when hey claim ha A is no a means ha leads o he achie emen o he end B. Second, economics being he science abou consequences o human decisions, i can poin ou consequences o i a ional beha io oo. I can claim no only ha A does no lead o B, bu ha in ac i leads o C. And ha oo is a use ul knowledge. The e o e, he p esence o i a ionali y in human decision making does no s ip economics o i s use ulness and impo ance. The a ionali y assump ion only enables economis s o say much mo e han hey would be able o wi hou i . 2. The Ques o Ra ional In e p e a ion: Ra ional Riddles A emp s o ind a ional explana ion o human beha io ha e long been pa o good economics and he p o ided explana ions a e a guably one o he mos imp essi e kinds o economics’ ou pu o laymen and he mos enjoyable ones o economis s hemsel es. In he absence o a s aigh o wa d maximizing explana ion, one can alk abou a ional iddles, a e m coined by Landsbu g [10, chap e 2]. Howe e , in his ques o a ional explana ions, some economis s seem o go as a as o implici ly assume ha he e mus be a a ional explana ion o e e y human beha io we obse e and hey de o e g ea ime and ene gy owa ds disco e ing i . In his way, an economic, o a ional, iddle was bo n and i emains o be economis s’ pas ime agenda – some hing o alk abou e en when hey ge i ed o wo king on hei eg essions o o calib a ing hei models. The a ional iddles esea ch p og am is ascina ing in mo e aspec s han jus in i s sophis ica ion and in en i eness. I wan o poin ou wo o hem ha ela e o he scien i ic alue o he solu ion and i s a ailabili y and es abili y. 2.1 Value o Solu ion The solu ion o a a ional iddle has a peculia s a us among answe s ha economic science can o e . I onically, despi e all he impeccable economic logic o hese solu ions, hey a e no likely o be e y aluable o unde s anding how ou wo ld wo ks. This is because each and e e y such solu ion (assuming i is o mally co ec ) can u n ou o be empi ically ei he co ec o inco ec . I he solu ion is co ec i means people whose beha io was examined by economis s indeed do beha e he way economis s hypo hesized. This may appea as a g ea achie emen . In a way, i is and i su ely demons a es he ingeniousness and in ui ion o he economis who made ha disco e y. Bu ha disco e y is ce ainly no as new as one would assume eal disco e y o be. And his is because, as ollows om he p emise ha i is empi ically co ec solu ion o he iddle, he economic logic o ha beha io (as a p o i - maximizing s a egy) mus ha e been known all along o hose who ha e beha ed like ha and whose beha io only caugh a en ion o acu ious economis . (I should be clea ha i agen s we e igno an o he logic, i could no hen be claimed ha hey a e ac ing acco ding o i .) The p ac ical use ulness o such solu ion hen may no ex end much beyond economis s’ men al aining o a signal o an economis ’s capabili y. EM_02_14_zlom 4.6.2014 8:53 S ánka 5 Ekonomie 62014, XVII, 2 On he o he hand, i he p oposed solu ion is no empi ically co ec , i means ha people do no beha e he way hey do o he eason economis s p opose. Despi e being empi ically inapplicable i s use ulness may be jus abou he same as he use ulness o he co ec solu ions (logical exe cise and b ain- easing). Ei he way, empi ically co ec bu no new, o jus empi ically inco ec , he same conclusion applies: wha hese economis s p oduce is an in ellec ual ea ha adds e y li le o he knowledge abou how eal-wo ld people beha e. (The e is one impo an way in which his conclusion may be sub e ed: i economis s – ins ead o asking why people do wha hey do – accep ed om he e y beginning ha people may ac on i a ional belie s abou means and unde ook o explain why people’s beha io s ill su i es. In his se up, economis s migh indeed disco e how people’s beha io is in ac e ec i e in b inging abou he desi ed end, e en i people a e unawa e o i . People may o cou se imi a e beha io hey ound success ul wi hou knowing why i wo ks, o , mo e o en, may ha e e oneous belie s abou why i wo ks. E olu ion – he na u al selec ion (su i al) on he ma ke – will p omo e hose who imi a e such beha io and punish hose who de ia e om i [1, pp. 217–220], and economis s may in such cases make uly aluable con ibu ion by explaining why he mechanism eally wo ks.) 2.2 A ailabili y o a Solu ion Ano he peculia ea u e o a a ional iddle solu ion is he ela i e ease wi h which i can be e i ied, es ed and e en disco e ed in he i s place. When ackling he iddles economis s a e ying o disco e he s a egy o some decision- make s. When hey p oduce a solu ion, when hey hink hey did puzzle ou he alleged pa adox, one would expec hem o double- check ha hypo hesis wi h he decision-make s o acknowledge i s co ec ness. I empi ically co ec , hey would ecei e an a i ma i e answe (some hing like “yes, you ha e guessed i !”- ype o a esponse), i no hey would go ahead guessing. A e all, asking he e y people whose beha io is he subjec o examina ion whe he he explana ion o hei beha io is co ec , is su ely he easies way o ind ou jus how ele an and applicable ha explana ion is. Ye , he economis s do no seem o be much in e es ed in aking ha s ep. Ins ead, hey submi he explana ion as independen om wha he decision-make s hink and many o hose alleged pa adoxes a e conside ed by economis s as un esol ed and wai ing o s ill mo e ingenious solu ion. This is oughly wha Dei d e McCloskey calls “Samuelsonian Vice” [13, pp. 63–69]. In ac , as was poin ed ou abo e, as long as he iddles ha e a ional solu ions, he e is no eason o ely on economic scien is s o come up wi h hem, no ma e how icky and ingenious i may be. I mus al eady exis in he heads o hose a ional decision-make s hemsel es – hey a e beha ing in his way now. I economis s ha e ha d imes e ealing wha i is o keep a guing abou me i s o hei espec i e explana ions, all hey would need o do o se le he a gumen is o ask he people who do know. This is a undamen ally di e en scien i ic p oblem han he one ackled by na u al scien is s. They ne e enjoy he possibili y o ac ually asking he subjec s o hei inqui y abou why hey beha e he way hey do. Economis s, on he o he hand, a id o unde s and people’s beha io , almos always could. T ying o disco e he answe p io o, and independen ly o , asking he people whose beha io economis s s udy could ce ainly cons i u e an in e es ing discipline in a “bes economis con es ”, bu may ail o con ibu e much o unde s anding he ue eali y. (I is ue ha people may no always speak u h, and may e en be mo i a ed no o e eal he u h o p o ec hei business echnology. The pheno- mena desc ibed as a ional iddles a e so widesp ead hough ha i would be an as ic o assume ha an a emp o all i s p ac i ione s o keep i sec e would e e wo k, much less o so long. Unbelie able as i is, i is p ecisely his scena io ha is implied by he economis s’ neglec o con as ing hei ideas o wha people say.) 3. Riddles Sol ed To illus a e and subs an ia e such claims I hink i necessa y o suppo i by looking a some a ional explana ions o seemingly i a ional beha io . I ha e chosen h ee popula economic iddles and oughly mapped he solu ions o hem sugges ed in economic li e a u e. EM_02_14_zlom 4.6.2014 8:53 S ánka 6 Economics 72, XVII, 2014 All cases ha e o do wi h p icing. This is because he e is a common p ejudice ha as business decisions hey a e mos likely o be unde aken a ionally as a means o p o i maximiza ion. The e o e hey cons i u e cases whe e i makes he bes sense on he pa o economis s o sea ch o a ional explana ions. 3.1 Popco n O e p icing Some economis s keep being in igued by he ac ha popco n cos s allegedly oo much in mo ie hea es. This is because he p o i maximiza ion s a egy in his si ua ion would unde con en ional assump ions en ail jus ma ginal cos p icing o popco n combined wi h an acco dingly highe en ance ee. (The con en ional assump ions include e.g. iden ical cos ume s’ p e e ences [11, p. 369].) The au ho s hen look o easons why selling popco n so dea ac ually secu es highe p o i s han ma ginal cos p icing o he con en ional heo y. All explana ions o his de ia ion om he expec ed beha io e ol e ound p ice disc imina ion. They a gue he e is a posi i e co ela ion be ween p e e ence o popco n and willingness o pay o he en e ainmen in he hea e (i.e. o he bundle o wa ching he mo ies and consump ion o snacks om concession s ands). Examples o such easoning a e p o ided by e. g. F iedman [6, pp. 51–53] o Landsbu g [10, pp. 159–161]. In o de o cha ge mo e o hose who alue coming o he hea e mo e, i is ound na u al ha p ice o popco n (soda o o he snacks) will be aised abo e ma ginal cos while he en ance ee lowe ed in o de o a ac hose, who would no o he wise come. (Mo e o mal analysis is p o ided by Luis Locay and Al a o Rod iguez [12, pp. 959–960].) Thus, he puzzling high p ice o popco n is a e all a a ional p o i -maximiza ion. The one explana ion he au ho s exp essly deny happens o be he one ou inely o e ed by lay people when con on ed wi h his ques ion: ha he hea e owne jus akes ad an age o his monopoly on he popco n ma ke wi hin he hea e . Bu hea e owne s a e lay people, and he e seems no hing an as ic abou hem doing i o he same – e oneous – eason as o he people assume owne s o beha e like ha . 3.2 9-p icing One o he p ice s a egies ha s ill a ac s some a en ion among economis s is he p ac ice o cha ging p ices ending in 9: $5.99 ins ead o $6.00, $79 ins ead o $80 o simila . (While his iddle also appea s in Landsbu g’s popula book [10, pp. 10–19], i was inaugu- a ed in he hall o iddles as ea ly as 1936 [7]. Anecdo ally, such p ac ice is supposed o ha e o igina ed wi h a Czech shoe p oduce TomበBaÈa. This may ha e been local in en ion o in oduc ion, bu , gene ally, hese “jus -below p ices” i s appea ed in 19 h cen u y a e he in en ion o a cash egis e .) Highe equency o 9’s a he end o p ices is su ely suspec in awo ld o con en ional a ional p icing models. Wha hen could, acco ding o some econo- mis s, make businesses choose his pa e n o p icing o e mo e con en ional – and in a ional e ms explainable – p icing s a egies? One eason, p esen ed by Landsbu g, is an elimina ion o he agency p oblem: employees a e less likely no o egis e sales i he p ice is such as o equi e gi ing change back o he cus ome [10, pp. 15–16]. O he au ho s specula e e.g. abou quali y signaling p ope ies o he 9-ending e sus 0-ending p ices [16]. The eason o economis s being puzzled he e is hei unwillingness o accep he man- on- he-s ee explana ion: ha 9-ending p ices a e pe cei ed by consume s as lowe han hey eally a e, which is why hey buy subs an ially highe quan i ies. While i is su ely su p ising and ha d o squa e wi h plain a ionali y ha people would ou inely ze o in on he numbe s o he le om he 9 and ound he p ice downwa d, we should no lose sigh o he ac ha cus ome s a e men-on- he-s ee . And i his is wha consume s do, hey may indeed be doing i o p ecisely his unbelie able eason. (In ac , s udies o consume choice admi bo h he possibili y o his beha io on he pa o consume s [14], and he possibili y o illusion on he pa o businesses abou he ex en o which consume s indeed beha e ha way, hus indica ing an e o on he business side [2].) 3.3 Ticke Unde p icing Pe haps he mos compelling and impo an o all iddles a e ins ances o sub-equilib ium p ices implying sho ages and queues on some ma ke s. This pu pose ul non-p ice a ioning akes place o ins ance in selling admission EM_02_14_zlom 4.6.2014 8:53 S ánka 7 Ekonomie 82014, XVII, 2 icke s. Why do hea e owne s, conce p oduce s and o he s cha ge some imes so li le despi e he ac ha he e is an excess demand and i seems hey could inc ease he p ice wi hou selling less and hus inc ease hei p o i s? He e is wha economis s submi as gene al solu ions o he selle -induced excess demand puzzle. Pe haps mos simply, he e is a conjec u e ha consume s may pe cei e a ce ain limi o he p ice beyond which hey would conside he p ice “un ai ” [8]. Selle s may hen be a aid o c ossing such h eshold, and choose o li e wi h he queues. O , i has been p oposed ha c ea ing an excess demand may cause a “buying enzy” wi h consume s being d i en o pu chase soone han hey o he wise would. This means ha consume s make less in o med pu chasing decisions and ha he p oduce can cha ge highe p ice o people who would no mally pos pone hei pu chase o become mo e in o med [5]. Fu he , i has been asse ed ha , in some cases, inducing an excess demand may be away o in luence he composi ion o he audience. As he exis ence o complemen a y goods o a ending an e en a ies ac oss he audience, he selle may ind i p o i able o ade o lowe eceip s om he box o ice o highe sales o complemen a y goods (CD’s, ideos, T-shi s and o he pa aphe nalia). P o ided he a endees who end o buy mo e complemen a y goods han o he s a e hose who a e also willing o incu ex a cos o ge ing hold o he icke s (s anding in line, buying om scalpe s e c.), selling a lowe - han-ma ke -clea ing p ice may be a p o i able s a egy. (This a gumen is a ibu ed o Kenne h McLaughlin [10, p. 13].) Finally, and pe haps mos con olu edly, i is sugges ed ha in case o some goods, he indi idual demand is dependen on he o al quan i y demanded on he ma ke . This is said o lead o a possibili y o an upwa d sloping demand (wi hin ce ain quan i ies) and a p o i - maximizing equilib ium a a p ice ha gene a es excess demand. Such equilib ium is uns able, howe e , and may be upse by a p ice hike. In such case, he educ ion o quan i y demanded migh cause he indi idual demands o al e and he ma ke o e e o a s anda d equilib ium a bo h lowe p ice and lowe quan i y and, consequen ly, lowe he le el o p o i [3]. An implici assump ion behind all hese a ionaliza ions is ha , su ely, he selle s ha e good, p o i -maximizing easons no o aise p ices, no as he con en ional wisdom would ha e i : ha lines a e a consequence o he p oduc o be o limi ed a ailabili y. Bu would i be impossible o he icke selle s o sha e such con en ional wisdom? 4. Solu ions Tes ed Some o he abo e explana ions may ha e hei me i s and p esumably may be applicable as solu ions o he pa icula iddles, e en i on alimi ed scale: ai ness cons ain s ela e mos ly o si ua ions o p ice gouging; buying enzies a e es ic ed o new p oduc s; complemen a y goods may be impo an in case o some conce s o spo s games, bu a e ha dly p esen e e ywhe e whe e he e a e lines. Many o hem, howe e , a e based on such complex economic easoning ha he e seems o be some g ounds o doub ing hei eal-wo ld plausibili y. I would be ai hen o pu hese solu ions o es , pa icula ly i he es is easie han i seems – all ha needs o be done o sol e hese mys e ies once and o all is o go and ask he people whose beha io economis s specula e abou . Now, su p isingly, his is no happening. Economis s keep ying o cons uc heo e ical explana ions, bu nobody seems o ha e gone o mo ie hea e owne s o ask hem o wha deg ee hey conside hei cus ome s di e en and wha hey hough o he co ela ion be ween willingness o pay o seeing mo ies and consump ion o popco n. Has someone asked he selle s wha hey signal wi h he “jus - below” p ices hey cha ge? Has anybody gone o he Becke ’s Palo Al o sea ood es au an and con i med ha he owne indeed assumes he indi idual quan i y o his p oduc s demanded depends on he agg ega e quan i y demanded? (The e we e s udies asking he selle s whe he hey cha ge such p ices, bu , as onishingly, no why. In ac , S i ing s a s by ci ing a mul i ude o s udies om 1954 ill 1997 ha es ablish he ac ha such p ices a e indeed cha ged by asking he company manage s [16, p. 1618], and hen spends his whole a icle on hypo hesizing when and why hey do so. Landsbu g, on he o he hand, EM_02_14_zlom 4.6.2014 8:53 S ánka 8 Economics 92, XVII, 2014 sugges s o es his idea abou agency p oblem by es ing he hypo hesis ha “99-cen p icing should be less common in s o es whe e he owne s wo k he cash egis e ” [10, p. 16].) In o de o close his empi ical oid, we ocused on he p oblem o icke unde p icing, and in e iewed head manage s o h ee pe o mance hea e s in P ague. All o he hea es a e in amous o lines a hei box o ices, anging om single hou s o o e nigh wai ing ime. We asked all o hem abou he causes o he lines, abou he in luence o p ice on hei p o i and easons o no inc easing he p ice. The su ey was conduc ed in No embe and Decembe 2007 as in e iews in pe son (wi h one excep ion). Besides h ee hea es i included o he businesses as well: 2 es au an s, 2 hai s udios, 1 ice-hockey club and 1 conce p oduce (in e iewed o e phone). The common denomina o o all he non- hea e cases was ha he lines seemed o be a p oduc o impe ec o esigh and isk a e sion and would hus no be classed as a ional iddles. Fo his eason I do no ep oduce he in e iews he e and limi mysel o hea es only. 4.1 Thea e A In he i s hea e (A), he managemen pe cei es lines as a p oblem and epea edly i ies o add ess hem. In ac , he head manage admi ed ha had she been a egula hea e isi o , she would ha e ne e a ended any o he pe o mances he e as she ha ed s anding in lines (emphasis added). The answe o a s aigh o wa d ques ion abou he causes o lines was, unwa e ingly, ha he numbe o sea s is oo small o accommoda e all he people who would like o come. The way hey ha e deal wi h he lines was o a) keep hei box o ice as he only icke dis ibu ion channel, and b) limi he numbe o icke s an indi idual is allowed o pu chase o 4. Bo h a) and b) we e designed o p e en second-hand dealings wi h pu chased icke s, which was expec ed o make su e “ he pe o mance would be a ended by as many people who wan o come as possible”. As his numbe can ha dly change due o he ixed numbe o sea s, she migh ha e possibly mean ha he audience composi ion would be a ec ed by he p ice. Indeed, la e in he in e iew she b ie ly men ions hey “a e no in e es ed in snobbish audience.” Only when explici ly cued, he head manage eluc an ly admi ed he possible ole o icke p ices bu poin ed ou immedia ely ha people could no a o d i hen. She commended he ac people had ne e complained abou p ices and hough ha aising he icke p ices would o ce hei cus ome s o limi he numbe o icke s hey buy in hei li e ime. And his, as she emphasized, was no he goal o he hea e . 4.2 Thea e B In he second hea e (B), oo, he manage has a“simple” explana ion o he lines: he numbe o people in e es ed in coming is g ea e han he hea e capaci y and “people ha e o, na u ally, come ahead o ime”. He hough his sys em is jus bu es ic i e a he same ime as i elies on limi s on pu chases and does no allow ese a ions, which, he admi ed, is pa icula ly exing o people ou side o P ague. They a e no awa e o , and hus a e no conce ned abou , second hand dealings wi h icke s. When asked wha hey would do i hey knew i was happening, he head manage poin ed o possible way o inc easing he anspa ency such as “in o ming he people abou he numbe o icke s”. The ques ion o icke p ices had o be b ough up explici ly by he in e iewe . The answe was unce ain, indica i e o no p io conside a ion and o con usion be ween all possible e ec s. P ices, on he one hand, he asse ed, “would ha e no e ec on he numbe o people who buy he icke s”. This should no be oo su p ising as he numbe o sea s is ixed. Wha he p obably mean was ha he quan i y demanded ( he numbe o people who wan o buy) would no be a ec ed.) E en i hey had an e ec , he wen on, people would esen seeing p ices inc eased. On he o he hand, almos immedia ely, he added he e migh be some oom o p ice inc eases. A he end, he low p ices (and he lines) we e a ionalized as a means o secu ing a “g ass- oo ” composi ion o he audience. 4.3 Thea e C Las ly, he in e iew wi h he ope a ions di ec o o he hi d hea e (C) had almos an iden ical plo . She claimed hey ha e lines because people like wha hey do and hei audi o ium space is limi ed. When maneu e ed o he EM_02_14_zlom 4.6.2014 8:53 S ánka 9 Ekonomie 10 2014, XVII, 2 possible ole o p ices, she hough i was o seconda y impo ance. On he o he hand, she e ealed ha hey had inc eased hei p ices and do so e e y yea , and admi ed hey y o e lec he demand o hei pe o mances. On ye ano he hand, hough, she added ha he p ice inc eases we e necessa y due o he ope a ion cos and ha he g owing demand was some hing ha enabled hem o pass he cos o he audience, mo e han being amo i a ion o p ice inc eases. Finally, she con adic ed his by admi ing ha e.g. be o e Ch is mas hey o e gi icke s a highe p ices and cha ge highe p ices o pe o mances no o ious o he lines. She no ed ha he lines ha e been educed by “almos a hal ” o hei p e ious leng hs, and a ibu es his mainly o he p ice inc eases, possibly suppo ed by asys em o in e ne ese a ions. I would be wholly imp ope o conside his mic o-su ey as obus ly exploding he whole iddle-solu ion- esea ch p og am. I s esul s a e, howe e , s ill o in e es as hey do no exac ly pain a pic u e o he hea e manage- men doing some hing e en emo ely as sophis ica ed as he economic heo is s sugges . And i is no he lack o igo ous economic hinking on he pa o he hea e manage s and hei ailu e o use he e y language and concep s o p o essional economis s. I is ha he in e iews e eal p ecisely he ype o economic hinking economis s ule ou be o e hey s a hei hinking abou he p oblem, which is why hey no only end up, bu al eady s a wo king in, a di e en wo ld. No esponden s on hei own e en linked he exis ence o lines wi h he p ices, much less wi h p ices being “ oo low”. Ins ead, all o hem hough i had o wi h sca ci y, as i o he hings in he wo ld besides hea e icke s we e no sca ce. E en when p omp ed abou he p ices, he immedia e eac ion was – wi h he possible excep ion o C – ha his would no wo k because people would no be able o a o d i , as i he low p ice made he icke s somehow gene ally mo e a ailable. (Gi en he ac ha hea e C showed subs an ially less puzzling beha io – hey do adjus p ices acco ding o demand, and e ec i ely manage o sho en hei lines – i may be o in e es o men ion ha he manage o C was a uni e si y g adua e wi h some economic educa ion. The o he manage s ( hose o A and B) we e non- business, a s educa ed pe sons. This would coincide wi h indings ci ed by B yan Caplan on he – qui e unsu p ising – nega i e co ela ion be ween economic educa ion and he le el o biases abou economics [4, pp. 50–93]). Some o he o he esponses seduce one o a ional in e p e a ion: e.g. he idea ha people would esen p ice inc eases may sound like Kahneman e al. and hei concep o ai ness cons ain [8]. O , he in luence o p ice on he audience composi ion ings a somewha a ional bell. Howe e , nei he o hese is asu icien eason o no aising he p ices and bo h a e much mo e likely o be ele an unde al e na i e – non-p o i -maximiza ion – schemes. (The hea e manage s may know ha buye s will esen he p ice hikes, and s ill i may be mo e p o i able o do so. Simila ly, e en i he hea e manage s and ensemble p e e he so o audience made o people who can pu up wi h s anding in he line o e nigh , bu s ill i may be mo e p o i able o ha e highe p ices and “wo se” audience. In hese si ua ions, hei decision no o aise p ices will hen be economic only as long as hei u ili y unc ions include eel-good a gumen s such as public app o al, o ond ela ions wi h he audience.) As will be ecalled, howe e , he economis s’ solu ions o iddles a e p o ided as a ionaliza- ions o lines unde p o i -maximiza ion assump ion – o he wise he explana ions would be conside ed as i ial impu a ion o beha io (means) igh in o he goals (ends). Ei he way, uly sophis ica ed solu ions like he one o e ed by Becke [3] seem somewha i ele an in he con ex o he business hinking he in e iews a emp o documen . Unless, o cou se, one is o a gue ha he manage s did no wan o disclose hei eal s a egies, and jus “played s upid” ins ead. Unlikely as i is, i b ings me inally o he economics o being s upid. 5. When he S upid Comes In We ha e seen abo e ha he e is in ac an easy way o es he empi ical ele ance o economis s’ solu ion o a ional iddles: by asking he e y people whose mo i es hey ha e ied o second-guess. We also saw ha such su eys a e unbelie ably a e i no non- exis en . Bu e en i hese su eys we e unde aken, hey would a bes p oduce a logic ha was al eady known and p ac iced, e en i no o mally desc ibed on pages o an EM_02_14_zlom 4.6.2014 8:53 S ánka 10 Economics 112, XVII, 2014 economic jou nal. Tha migh no be exac ly he bes use o economis s’ in ellec ual capaci y, bu a leas i would p o e he empi ical powe o he discipline (and, p esumably, made some economis s p oude o hemsel es). When, on he o he hand, he solu ions p oposed by economis s a e ound empi ically i ele an , i may only mean one o he ollowing: a) no economis s co ec ly guessed wha businesses a e up o ( he game may p oceed), o b) no such u he solu ion exis s as he puzzling beha io is indeed and simply a p oduc o i a ional hinking he economis s e used o accep in he i s place. I s i iali y no wi hs anding, his e en uali y may be empi ically e y ele an and impo an . I economis s choose o banish he possibili y o i a ionali y, hei unde s anding o wha is going on is impai ed. Wha looks like an ou wi ing game wi h no social consequence is jus a ip o he icebe g – he economis s’ de e mina ion o insis on a ionali y may c ea e imagina y puzzles whe e he e a e none and hus di e hei sca ce in ellec ual esou ces om a eas whe e hey a e mo e needed. One a ea ha was hi pa icula ly ha d by esis ance o i a ionali y is he economics o policy-making. B yan Caplan’s book, compiling and w apping up his esea ch p ojec o he pas decade o so [4], shows qui e con incingly ha a emp s o explain pe sis ence o oolish public ha e sys ema ically shunned he possibili y o he elec o a e being mis aken in unde s a ing he impac o he policies. Poli ical p ocess, pe e ed as i may be, does no explain away all he public policy oolishness. I democ acy p oduced policy ha people eally liked, i would ha e been e en mo e oolish han i is. Caplan poin s ou how much he ideas o he public a e sys ema ically biased compa ed o wha economis s hink. Indeed, my indings in he hea e su ey – he lack o app ecia ion o he ole o p ices – allies di ec ly wi h he biases he was able o iden i y. He hus shows ha he olly o he elec o a e may be he missing piece in he puzzle. Tha he a emp s o s anda d public choice heo y o accoun o pe sis ence o bad policies ha e been ailing and ha e p oduced con olu ed and useless heo e ical wo k p ecisely because economis s in he pas cen u y – unlike some o he cen u y be o e ha – u ned a blind eye o he possibili y o human olly. As Caplan concludes his book: Social science has pu sued many blind alleys – and igno ed many p omising ones – ou o misguided insis ence ha e e y model be a“s o y wi hou ools,” e en in a eas like poli ics whe e olly is cen al. A p o e b ells us ha “a wise man lea ns mo e om a ool han a ool lea ns om a wise man.” By closing hei eyes o ools and olly, he wise men o social science ha e a i icially hobbled he ad ance o hei own lea ning. [4, p. 209] Conclusion The pu pose o his a icle was wo- old. Fi s , I wan ed o b ing a en ion o wo s ange ea u es o economis s’ esea ch p og am. When economis s specula e abou why people’s beha io is a ional (which is wha hey do when c acking he a ional iddles), he esul o such scien i ic e o – all i s sophis ica ion, ingeniousness and o mal impeccabili y no wi hs anding – is ei he co ec , bu no new (i.e. i has been known be o e o he examined people), o simply w ong in he sense ha he solu ion does no apply (i.e. i is empi ically emp y). Ei he way, he signi icance o such science seems compelling bi limi ed. Mo eo e , his is jus as s ange as he way h ough which economis s ypically y o es he empi ical alidi y o hei esul s. Tes ing hypo heses implied by he esul s can, o cou se, shed much ligh on ha ques ion, bu since hei esul s ela e essen ially o a ques ion o why people do wha hey do, i is he examined people who can se le he issue. While da a can alk, so can he people. Second, I sugges economis s may be somewha uneconomical in hei esea ch e o s. By insis ing on models wi h a ional ac o s only, hey may emba k on a acuous a ional iddles esea ch p ojec in he i s place. And h ough hei isola ion om he people hey examine, hey ail o ind ou ha in many cases he a ional iddle solu ion does no exis , and ha he beha io hey specula e abou is a p oduc o con usion and olly, ha i is simply i a ional. This is in no way a plea o disca ding he a ionali y assump ion in economics. I is only aplea o emembe ing ha i is an assump ion ha may jus as well no be me . By heeding i , economis s can economize on hei sca ce esea ch esou ces, and pe haps de o e mo e EM_02_14_zlom 4.6.2014 8:53 S ánka 11 Ekonomie 12 2014, XVII, 2 o hem o, and do an e en be e job in, a eas whe e such assump ion holds. The au ho would like o hank Jose Mon ag o commen s and adminis a ing and p ocessing he mic o su ey, and o Da id Lipka and Ed S ingham o aluable commen s on p e ious e sions o he ex . O he s Ichoose o lea e unmen ioned les someone is le ou . The usual ca ea applies. Re e ences [1] ALCHIAN, A.A. Unce ain y, E olu ion, and Economic Theo y. The Jou nal o Poli ical Economy. 1950, Vol. 58, Iss. 3. ISSN 0022-3808. [2] ANDRESON, E.T., SIMESTER, D.I. E ec s o $9 P ice Endings on Re ail Sales: E idence om Field Expe imen s. Quan i a i e Ma ke ing and Economics. 2003, Vol. 1, Iss. 1, pp. 93-110. ISSN 1570-7156. [3] BECKER, G.S. A No e on Res au an P icing and O he Examples o Social In luences on P ices. The Jou nal o Poli ical Economy. 1991, Vol. 99, Iss. 5, pp. 1109-1016. ISSN 0022-3808. [4] CAPLAN, B. The My h o Ra ional Vo e : Why Democ acies Choose Bad Policies. P ince on: P ince on Uni e si y P ess, 2007. ISBN 978-0-691-129-426. [5] DeGRABA, P. Buying F enzies and Selle - Induced Excess Demand. RAND Jou nal o Economics. 1995, Vol. 26, Iss. 2, pp. 331-342. ISSN 1756-2171. [6] FRIEDMAN, D. Hidden O de : The Economics o E e yday Li e. New Yo k: Ha pe Collins Publishe s, 1997. ISBN 978-0-887-3088-57. [7] GINZBERG, E. Cus oma y P ices. The Ame ican Economic Re iew. 1936, Vol. 26, Iss. 2, pp. 296. ISSN 0002-8282. [8] KAHNEMAN, D., KNETSCH, J.L., THALER, R. Fai ness as a Cons ain on P o i Seeking: En i lemen s in he Ma ke . The Ame ican Eco- nomic Re iew. 1986, Vol. 76, Iss. 4, pp. 728-741. ISSN 0002-8282. [9] KAHNEMAN, D. New challenges o he a ionali y assump ion. Jou nal o Ins i u ional and Theo e ical Economics (JITE)/Zei sch i ü die gesam e S aa swissenscha . 1994, Vol. 150, Iss. 1, pp. 18-36. ISSN 0932-4569. [10] LANDSBURG, S.E. The A mchai Economis : Economics and E e yday Li e. New Yo k: The F ee P ess, 1993. ISBN 0-02-917776-6. [11] LANDSBURG, S.E. P ice Theo y and Applica ions. Cincinna i: Sou h-Wes e n (Thomson Lea ning), 2002. ISBN 0-324-05979-5. [12] LOCAY, L., RODRIGUEZ, A. P ice Disc imi- na ion in Compe i i e Ma ke s. Jou nal o Poli ical Economy. 1992, Vol. 100, Iss. 5, pp. 954-965. ISSN 0022-3808. [13] McCLOSKEY, D.N. The Vices o Economis s – The Vi ues o he Bou geoisie. Ams e dam: Ams e dam Uni e si y P ess, 1996. ISBN 978-9-053-562-444. [14] SCHINDLER, R.M., KIRBY, P.N. Pa e ns o Righ mos Digi s Used in Ad e ised P ices: Implica ions o Nine-Ending E ec s. Jou nal o Consume Resea ch. 1997, Vol. 24, Iss. 2, pp. 192-201. ISSN 0093-5301. [15] SEN, A.K. Ra ional ools: A c i ique o he beha io al ounda ions o economic heo y. Philosophy & Public A ai s. 1977, Vol. 6, Iss. 4, pp. 317-344. ISSN 0048-3915. [16] STIVING, M. P ice-Endings When P ices Signal Quali y. Managemen Science. 2000, Vol. 46, Iss. 12, pp. 1617-1629. ISSN 0025-1909. Dan ·Èas n˘ Jan E angelis a Pu kynû Uni e si y in Ús í nad Labem Facul y o Social and Economic S udies Depa men o Economics [email p o ec ed] EM_02_14_zlom 4.6.2014 8:53 S ánka 12