Dec 122014
 

The reason economics is such an inexact science is that it’s so dismal at understanding the vagaries of human nature. Take pricing, about which people are supposed to be so sensitive. When I order two lattes, a banana and two paninis at Starbucks, I don’t run the calculations in my head, and I snap to attention only if the barista rings it up above a certain, call it the “alarm,” price point, in this case maybe $20. But anything in the teens sounds “about right” and I pay and leave without giving it further thought. And I think that’s how people are with most inexpensive purchases: they have a vague sense of the “right” amount of money to pay, within a certain range, and only above that do alarm bells sound.

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