Monday, 2 May 2022

"Why do consumers, who interact with markets every day, have essentially no idea where prices come from?"


"Why do consumers, who interact with markets every day, have essentially no idea where prices come from? I think it’s because they have zero incentive to learn. If I’m a price-taking customer buying in a competitive spot market, then all that matters to me is the price. I could have a crazy theory about where the price comes from that involves the phases of the moon and the appetite of my pet cat. Or I could have a sophisticated theory based on supply and demand analysis. The market won’t punish me for my crazy theory any more than it will reward me for my sophisticated theory. In many areas, knowing something makes you better at it. Knowing about ocean currents and weather patterns makes you a better sailor. Knowing about chemistry and physiology makes you a better pharmacist. But knowing about supply and demand does nothing to make you better at grocery shopping. This is one of the virtues of free markets–they require precious little economic knowledge from their participants. On the other hand, this is one of the great challenges of economic education. People have little tangible incentive to learn and understand economics."
~ Washington Uni economist Ian Fillmore, quoted in 'People Don't Understand Prices'


No comments:

Post a Comment

We welcome thoughtful disagreement.
Thanks to a few abusers however, we (ir)regularly moderate comments.
We *will* delete comments with insulting or abusive language, unless they're entertaining. We will also delete totally inane comments. Try to make some sense. We are much more likely to allow critical comments if you have the honesty and courage to use your real name.