beer and free lunches
Standard economics assumes that we are rational— that we know all the pertinent information about out decisions, that we can calculate the value of the different options we face, and that we are cognitively unhindered in weighing the ramifications of each potential choice. The result is that we are presumed to be making logical and sensible decisions. And even if we make a wrong decision from time to time, the standard economics perspective is that we will learn from our mistakes either on our own or with the help of ‘market forces.’ On the basis of these assumptions, economists draw far-reaching conclusions about everything from shopping trends to law to public policy. (239)
Under these assumptions, everyone in the marketplace is trying to maximize profit and striving to optimize his experiences. As a consequence, economic theory asserts that there are no free lunches— if there were any, someone would have already found them and extracted their value.
Behavioral economists, on the other hand, believe that people are susceptible to irrelevant influences from their immediate environment (which we call context effects), irrelevant emotions, shortsightedness, and other forms or irrationality.
The good news is these mistakes provide opportunities for improvement…there are tools, methods, and policies that can help all of us make better decisions and as a consequence achieve what we desire. (240) [saving for retirement, health care, etc.]
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