First, I would like to comment on a journal article "Irrational economic behavior" by Raphael Sassower. In this article, the writer talks about irrational economic behavior of humans.
The article says "the world around us makes no sense, and no rational economic models of rational consumers can provide a clear road map in this turbulent market." This can be a shock to us as it seems to mean that there is no order in our world and we cannot do what we intend to. The article says that the reason we could not make a perfect model to predict all situations in the market is because humans are not completely rational - as opposed to what economists have assumed. I think so, too. We also need to analyze the economy in the psychological aspect.
We must not assume that humans are always rational. Humans act emotionally contrary to reason; this often results in loss of benefits for themselves - for example, some people sell(or buy) stocks immediately after seeing the price of the stocks dropping(or rising), without considering for the long-term.
The article also says that economics is rather like "a complex system in which environmental cues affect marketplace behavior". With the fact that humans sometime make a irrational decision, this explains well to me why there are cases which nobody actually predict, such as panic buying after a natural disaster or terror. If most people make a decision which is against self-interest in response to just one cue, such cases could happen according to multiply-effect.
The article also says that "if we study human behavior in its broadest context, we might learn how to protect ourselves from preventable mistakes." I think that means if we totally understand ourselves including our irrationality, we can make a rational decision which gives the best benefit to ourselves, at least better than when we do not know ourselves.
One of humans' major irrational behaviors is that we sacrifice practical benefits just to try to justify our previous decisions that are actually mistakes. The article talks about the "sunk cost fallacy" for the example of this. A sunk cost is the cost that cannot be recovered by any of the choices that one have now, i.e. already lost. When making a decision, people often consider that they can recover the sunk cost by the next choice, without actually realizing what a sunk cost is at that time. For example, gamblers often bet more money after losing the previous game, motivated by the fact that they lost money. They do so, thinking they should recover the lost money. However, the lost money is a sunk cost, and they would probably lose more money.
I have learned from the article that we can improve ourselves by knowing our irrationality or uncertainty, and that we should overcome our mistakes by admitting them and not sticking to them in order to make a better future.
Second, I would like to comment on an article "What is Opportunity Cost?" by Paul Hoang. In the article, the writer explains what opportunity cost is, with a lot of examples.
The article defines opportunity cost as “the best alternative that is foregone when making a decision”. I know the concept of opportunity cost as some (or all?) of the other students since we have taken economics in IGCSE and studied opportunity cost in during the course.
The article applies the concept of opportunity cost to having and raising children and time spending. It gives many example that businesses try to minimize consumers’ bad feeling of waiting or wasting time when they wait something. For example, when they wait in line, amusement parks turn on the music and supermarkets show them ‘bins’. Public transport shows them TV, and women’s retail outlets provide newspapers and men’s magazines for their husbands or boyfriends. And supermarkets open on Sundays.
I have learnt that services like above provided by businesses are not just for customers but also for their revenues.
This is a link related to sunk cost.
http://www.standard.net/stories/2013/08/09/mind-sunk-cost-fallacy-life-and-law
Jinho
The article says "the world around us makes no sense, and no rational economic models of rational consumers can provide a clear road map in this turbulent market." This can be a shock to us as it seems to mean that there is no order in our world and we cannot do what we intend to. The article says that the reason we could not make a perfect model to predict all situations in the market is because humans are not completely rational - as opposed to what economists have assumed. I think so, too. We also need to analyze the economy in the psychological aspect.
We must not assume that humans are always rational. Humans act emotionally contrary to reason; this often results in loss of benefits for themselves - for example, some people sell(or buy) stocks immediately after seeing the price of the stocks dropping(or rising), without considering for the long-term.
The article also says that economics is rather like "a complex system in which environmental cues affect marketplace behavior". With the fact that humans sometime make a irrational decision, this explains well to me why there are cases which nobody actually predict, such as panic buying after a natural disaster or terror. If most people make a decision which is against self-interest in response to just one cue, such cases could happen according to multiply-effect.
The article also says that "if we study human behavior in its broadest context, we might learn how to protect ourselves from preventable mistakes." I think that means if we totally understand ourselves including our irrationality, we can make a rational decision which gives the best benefit to ourselves, at least better than when we do not know ourselves.
One of humans' major irrational behaviors is that we sacrifice practical benefits just to try to justify our previous decisions that are actually mistakes. The article talks about the "sunk cost fallacy" for the example of this. A sunk cost is the cost that cannot be recovered by any of the choices that one have now, i.e. already lost. When making a decision, people often consider that they can recover the sunk cost by the next choice, without actually realizing what a sunk cost is at that time. For example, gamblers often bet more money after losing the previous game, motivated by the fact that they lost money. They do so, thinking they should recover the lost money. However, the lost money is a sunk cost, and they would probably lose more money.
I have learned from the article that we can improve ourselves by knowing our irrationality or uncertainty, and that we should overcome our mistakes by admitting them and not sticking to them in order to make a better future.
Second, I would like to comment on an article "What is Opportunity Cost?" by Paul Hoang. In the article, the writer explains what opportunity cost is, with a lot of examples.
The article defines opportunity cost as “the best alternative that is foregone when making a decision”. I know the concept of opportunity cost as some (or all?) of the other students since we have taken economics in IGCSE and studied opportunity cost in during the course.
The article applies the concept of opportunity cost to having and raising children and time spending. It gives many example that businesses try to minimize consumers’ bad feeling of waiting or wasting time when they wait something. For example, when they wait in line, amusement parks turn on the music and supermarkets show them ‘bins’. Public transport shows them TV, and women’s retail outlets provide newspapers and men’s magazines for their husbands or boyfriends. And supermarkets open on Sundays.
I have learnt that services like above provided by businesses are not just for customers but also for their revenues.
This is a link related to sunk cost.
http://www.standard.net/stories/2013/08/09/mind-sunk-cost-fallacy-life-and-law
Jinho