Secret to survival: Short memory

 


I am currently reading Richard Thaler's book, Misbehaving: The Making of Behavioral Economics.  I am only about a quarter of the way through the book so I am in no position to offer a review.  Also the book is rich with concepts, so rich that I will need more than one reading to fully comprehend them all.  However I have read enough to endorse it.  Richard Thaler takes to task economic theories that are based on human beings making rational decisions.  Most economic theories are based on the premise that an individual will optimize their economic situation.  Thaler encountered many situations where is just not the case.  I mentioned one in my July 12th post.  This was the story regarding cab drivers on rainy days.  On rainy days demand for cabs are high.  Traditional economic theory would predict that the cabbies would actually work longer to maximize revenue on rainy days.  Thaler realized through observation and speaking with cab drivers that this was not the case.  As a quick recap, Thaler discovered that cab drivers set a maximum daily revenue target.  This target is self imposed.  On busy rainy days drivers will reach this self imposed revenue maximum quickly and call it a day.  This makes it difficult to get a cab on a rainy day.  As you can see the drivers do not abide by the economic theory of optimization.  Thaler considers the human being that perfectly optimizes their financial situation as a mythical character.  He even has a name for them, he calls them "econs".

I will have more to say about Thaler's book once I finish reading it (as I said it may take a couple of readings).  His book as well as a few others started me thinking about decisions and the logical and rational processes we may go through to make those decisions.  Not just economic decisions but all decisions.  Right now I am questioning the logic of deciding to live in Texas.  It has been 100 + degrees for more than a week and is likely to continue for another week.  We are only half way through the summer!  Come October and I am sitting on our porch in 70 degree weather this heat wave will be a distant memory.  I guess this selective memory we all possess hinders our logical thinking.  If it wasn't for our selective memory we would also not have more than one child.  Would anyone look forward to another 2 years of sleepless nights and smelly diapers?  We have 2 wonderful children (both adults with their own little rug rats) so thank goodness for my selective memory.

The catalyst that started this blog was the covid pandemic and deciding whether or not it was safe to go into town.  I think I read somewhere that the pandemic is officially over.  Whether or not that is true I seem to be behaving as if it is.  I actually took a mask to my doctor's appointment last week.  I took it because the my appointment was rescheduled from the previous week due to illnesses in the doctor's office.  I was not told what illness had infected the office so I decided to err on the side of caution and bring a mask.  Other than this I have not worn a mask for some time.  I assume that the last time I did wear a mask was a previous doctor's appointment.  Now the decision about going anywhere is determined more by the probability of getting heat stroke than covid.  However checking the CDC covid tracker there does seem to be an uptick in the number of covid hospitalizations in the last week.  I guess for the most part covid is a distant memory as well.  We just need to worry about the heat.  Well at least the humidity is low (not sure how that helps).

While writing this I have also been looking at the markets and hoping my memory gets really short.  After a week of gains the markets are falling today.  Was it logical to invest our retirement in the market.  We do use the services of an "expert" to manage our retirement savings so I can adjust my memory to be as long or as short as I wish.  In fact the market watch tool on msn allows you select a graph of different time frames.  I just select the time frame that looks best and I stay with that (LOL).

I wonder if our short memories keep us from being perfect econs?

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