mind over money (& tulips)

[lektrode]

caught an interesting show on nova last night:

http://www.pbs.org/wgbh/nova/body/mind-over-money.html

In the aftermath of the worst financial crisis since the Great Depression, NOVA presents "Mind Over Money"—an entertaining and penetrating exploration of why mainstream economists failed to predict the crash of 2008 and why we so often make irrational financial decisions. The program reveals how our emotions interfere with our decision-making and explores controversial new arguments about the world of finance. In the face of the recent crash, can a new science that aims to incorporate human psychology into finance—behavioral economics—help us make better financial decisions?

and one of the things they focused on was the science of 'bubbles' beginning with the first one:

[shiny!]

Re: mind over money (& tulips)

That was a very interesting show about why the economists from the Chicago school are dead wrong in their belief that people behave rationally when it comes to money. They make their economic forecasts based upon this belief, and this is why they fail to see bubbles.

There was an auction for a $20 bill that went up to $29, I think, with the rule being that the person who made the next highest bid would not get the $20, but would have to pay the winning bid minus $1.

They asked people if they would take $100 in a year, or $102 in a year plus a day, and everybody was willing to wait the extra day for the extra money. But when they offered people $100 today or $102 tomorrow, almost everybody wanted the instant gratification of $100 today.

They showed an item to a room full of people, was it a travel mug? They had each person write the last two digits of their SS# on a piece of paper, then write down how much they thought the item was worth. The people with a higher SS# thought the item was worth more money than the people with a lower SS#. Just having a random number on a piece of paper influenced their perception when it came to money.