Think Economically

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Maximum understanding, minimum average total cost.

How do people decide what they like? Atlanta commute with and without train tracks and decision under risk and uncertainty.

So I’m trying to put something together here with some coauthors and I thought it might be useful to put down some really back-of-the-envelope thoughts to see if I can get some of this articulated, as well as any comments or criticisms anybody might like to offer.

The question I/we are grappling with is this: how do people decide what they like?

The anecdote that got me interested in this particular question is this: when I lived in Atlanta, I would regularly (2x a week) have to drive from my friends’ house in Clarkston, where my daughter would stay for the day, to the train station at Edgewood/Candler Park. There are two routes between the two locations (clearly there are more, but let’s say there are two routes). One of the routes is shorter but has a set of train tracks across it. The other is longer, but manages to circumvent the train tracks by going under a railway bridge.

So which should you take? Assume that I don’t care about the mileage on my car; I just want to get there fastest. Well, what does that mean? If the train isn’t there on this particular morning, the shorter route is faster. If it is, the longer route is faster. The key here: when you decide which route to take, you don’t know whether the train will be there or not.

So microeconomists model this kind of decision all the time, and that’s what I’m trying to do these days.

Charlie Plott has advanced the discovered preferences hypothesis, asserting that underlying preferences are stable but that people have to iterate their way to understanding and expressing their own preferences. It has some problems, though.

Other examples of this:
– Your favorite falafel restaurant has bad fish one day, and you never go back to try the falafel.

– Your soul mate throws up on you at the first date. There is, understandably, no second date.

– Your favorite (unbeknownst to you, as the kid is only 3) child is not a Mets fan. You let your relationship with that child wither and die while fostering a relationship with your other children.

So yeah, I’m reading up on my math skills to try to model some of this. Any feedback would be awesome.

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March 2012
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