Wednesday, April 2, 2008

Rational Economics

Are people rational or irrational when making economic choices. People are rational, individuals are frequently not. Though ration is in the eye of the rationalizer. People make decisions on their perceived values and costs of the alternatives. Perceptions are easily fooled, especially when facts are too complex to evaluate. I just read The Logic of Life, by Tim Hartford. He exposes some non-obivous but rational decisions groups of people make. The threat of higher cigarette taxes causes more smokers to quit than higher cost - society would be better off with repeating small tax increases than one large increase every several years. On the other hand, the availability of over the counter anti-smoking drugs has led to an increase in new smokers - teens figure they'll have the tools to quit when they're ready to.

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