choice
I started shopping at Aldi a couple of months ago because it's cheap as heck.
So, to set the scene: a couple of weeks ago, when writing in another place, I commented upon a piece in the New York Times. It seems that researchers have shown that we use a certain part of our brain when thinking about valuations of things which we normally think about the valuations of; things that we value and purchase in …
"I started shopping at Aldi a couple of months ago because it's cheap as heck."
I rarely shop at Aldi because it isn't necessarily as economical as it looks.
They never water the plants once they have arrived - leaving them to wither in the sun outside. Such poor attention to the state of their stock does not augur well for the things that are not as visible to the customer.
An astute observation. My father likes shopping there (opposite side of the pond) and he ALWAYS checks the sell by dates on the stock. He has found things on the shelf a full month out of date. Mind you, as stock boy was my dad's first job and he was taught how to do it properly he spot checks things in all grocery stores and on occasion finds things out of date in all of them. Also, he'd buy the out of date cans and boxes too as long as it was marked down at least half.
I'm probably going to have to start shopping at Lidl for some things because the town-centre Tesco has just been closed. It's a 15 minute walk to the out of town Tesco or 20 minutes to the nearest Co-op. I prefer the 5 minute walk for all the bulky and heavy items. So, location wins out over any consideration of quality or cost. If I lived 10 minutes further south or 5 minutes further west (interestingly, both have been true in the past) my choice would be different.
The Git has a number of characteristics:
He spends more time involved with objects and physical systems than with people;
He communicates less than others do;
He tends to follow his own desires and beliefs rather than paying attention to, or being easily influenced by, others' desires and beliefs;
He shows relatively little interest in what the social group is doing, or being a part of it;
He has strong, persistent interests;
He is very accurate at perceiving the details of information;
He notices and recalls things other people do not;
His view of what is relevant and important in a situation often fails to coincide with others;
He is fascinated by patterns and systems in the world -- visual, numeric, alphanumeric, etc;
He collects things: books and records (music) mainly, but also certain types of information;
He has a strong preference for experiences that are controllable rather than unpredictable;
He has an IQ that places him in the top 2% of the population;
He's happier in his own company than with crowds;
He is naive;
He has a strong sense of justice;
He takes what people say literally; that is, he's relatively impervious to irony, double-meaning, subtext etc.
Stated in this fashion (after Simon Baron-Cohen), it might seem a little ho-hum! However, most experts in the field of psychological disorders refer to The Git's behavioural features as Asperger Disorder. You will find his maladaptations listed in the International Statistical Classification of Diseases and Related Health Problems (ICD-10), and in the Diagnostic and Statistical Manual of Mental Disorders (DSM-IV).
The cause of The Git's "problems" appears to be a physiological brain difference. Rita Carter, in her book Mapping the Mind, notes that "Asperger's subjects" (Aspies) work out what's happening in other people's heads using a brain module that NeuroTypicals use only for for logic processing. NeuroTypical subjects instinctively interpret subtleties of expression that Asperger's mostly either do not notice at all, or have to deduce by sheer intellectual processing power. The latter is hard work! Worse, it doesn't always pay much in the way of dividends.
So the question arises: have these researchers assumed that we all process information in the same way?
"So the question arises: have these researchers assumed that we all process information in the same way"
Of course; doesn't everyone? (heh)
"Would you like your water in a bag, sir?"
"Leave it in the bottles -- the bags leak."
Yes, since you ask.
"I can't seem to get my head around the concept of "nothing" having any value whatsoever..."
Speaking as an ex-physicist who spent a lot of time doing research that needed a very high quality vacuum(*), getting nothing in a can can be bloody expensive and time consuming.
(*) No, not a Dyson or a Henry.
"Speaking as someone who has nothing more than a mild curiosity about physics, how close can you get to a total vacuum in a lab?"
That depends on how much money you're prepared to spend and how long you can wait. Take a look at this article from CERN:
http://home.web.cern.ch/about/engineering/vacuum-empty-interstellar-space
TL;DR version: 10^-10 millibar (or 10^-13 atmospheres).
"I can't seem to get my head around the concept of "nothing" having any value whatsoever..."
When I became a parent I discovered the true meaning of "silence is golden". Trust me on this: when raising toddlers, a moment of nothing has immense value.
Actually they are straight lines. The bit that gets confusing is we assume they are continuous straight lines. Also they are arranged in at least a three dimensional arrangement while most of our analysis is two dimensions. Finally as the lines are the medium through which the "force" is transmitted, it sometimes seems as if the thinking is discontinuous.
... this could be one reason that Apple does so well since St Jobs came along and axed dozens of indistinguishable models of computer and replaced them with the 4-way desktop/laptop vs consumer/pro matrix of models. (plus choice of RAM and disk sizes within each model)
They've continued this with iPods, iPhones and iPads. There are currently five models of iPhone (5s, 6, 6+, 6s, 6s+) and five of iPad.
I don't even know where to start when someone asks me to help them decide on a Windows computer or Android phone. And I'm a computer processional working on the guts of Android (the Java compiler/runtime) for a major Android phone manufacturer!
For Windows you can treat it like buying a car.
Pick a manufacturer - based on the ones your friends and acquaintances have/haven't had problems with - then see what combination of engine size (CPU) and body-style/number of doors (RAM/HDD) you can afford. Regret later when you find out the trim level means you don't get fully electric rear-view mirrors (DVD drive)...
Good analogy, and one that I've used myself when talking to non-techie friends about their choice of PC. I always say consider the choice to be similar to buying a car: I always buy cheap old bangers and consider them to be disposable items but pay careful attention to the specs that matter to me as well as likely reliability of the marque. Use 'em, abuse 'em and throw 'em away.
"nowhere in the nervous system are the objective value of consumable rewards encoded"
Clearly the man has never been sent out by a SWMBO with a shopping list. In connection with which, and to pick up the point of Aldi & Lidl having fewer SKUs my interpretation of "Lidl surprises" is going there & finding what was on the list.
"As a subset of that, we can work out the statistical value of a life: look at how people are willing to pay to avoid – or need to be paid to accept – risks to life and limb on a statistical basis."
Huh? That would be dependent almost entirely upon how much the subject values wealth right? Try another angle.
This is just about cold, hard cash. I'd guess that all subjective considerations are incorporated into the monetary value as a market function of what people are willing to pay/be paid. Also, the valuation of wealth is indeed likely subjective but at an aggregate level all of these inputs have a standard value. Individuals may have different weightings with the aggregate value being the decisive point.
Take working in a hazardous environment: if the pay for that is double the national minimum wage and you are on the minimum then the hazardous option is more tempting than if you are on 1.75 x national minimum. If you are on >= 2 x national minimum then it's not a consideration.
Given two individuals on the national minimum, one may be more likely to accept the risk than the other, based on their own personal weightings.
This suggests that some regulation may be desirable to mitigate risk because we are generally bad at weighing these things up. It would be interesting to see how perceived and actual risk are processed by the different areas of the brain in respect of decision making.
"This is just about cold, hard cash."
Actually, it's not. The mathematical and statistical model is about cold,hard cash which imposes a definition of rationality on behaviours and also an axiomatic definition of value, which in turn will give an "answer" to - for example - "How much would people pay to save a life" - type questions.
If the model indicates that people's valuations do not converge with the model's ascribed "value" in those cases, then per definition it is the model that is bollox.
In the context of the discussion at hand it is just about cold, hard cash. You can disagree with the price and choose not to pay it/be paid it and I'm sure there are those who make that choice but ultimately the price is determined by the market. If enough people choose not to make that deal then the price will change in a free market.
Economics is an attempt to model markets. If the model doesn't fit then it is wrong but that doesn't mean that the market-derived price is wrong.
"Economics is an attempt to model markets. If the model doesn't fit then it is wrong but that doesn't mean that the market-derived price is wrong."
It's an attempt to model markets until it suddenly isn't. Then it decides it's an attempt to model all human behaviour through the lens of markets, along the way failing elementary "is-ought" tests of the sort that trashed objectivism 300 years before it was even conceived.
One can't prove that a true market-derived price is wrong for obvious reasons. However asserting that any individual market-derived price is correct in the absence of a mathematical proof - or worse that the market-value of something has any relation whatsoever to what actual humans value is what El-Reg would refer to as "trick-cycling"
I'm not entirely certain that I agree with the first sentence:
"Economics is an attempt to model markets. If the model doesn't fit then it is wrong but that doesn't mean that the market-derived price is wrong"
Because it's actually "humans" that we're attempting to model. But the second sentence contains, I feel, great wisdom.
"As a subset of that, we can work out the statistical value of a life: look at how people are willing to pay to avoid – or need to be paid to accept – risks to life and limb on a statistical basis."
I interpret that as; how much extra am I willing to pay Waitrose to avoid the people who shop at Lidl and Aldi.
If, as Tim suggests for pensions, regulation is more desirable in areas where we have few points of reference because we process those decisions differently and less rationally? Does this mean that such markets are less rational and therefore pricing is more likely to be skewed? This might also apply to house prices, as alluded to by Tim when he mentions pensions. I think it's fair to say that housing costs are a little out of kilter in the UK.
I guess a lot of this boils down to externalised costs and how they are unlikely to figure in our real-world decisions.
You can still have a free market with regulations. The free market bit is that the prices are not controlled. The product can be though. That might lead to some external factors on the price (regulations are a cost) but businesses are free to set the price as they wish and in competition with others.
That is indeed the implication, that certain markets can be left to themselves and others perhaps should not be. Although I would argue here that it's the terms of a mortgage that we might regulate, not the houses themselves nor their prices (because price regulation really, really, doesn't work well).
And this neuroeconomics is aiding in delineating the line between the two.
That sounds sensible. I've often had the feeling that the proliferation of buy to let mortgages during the boom period has had a significant (negative) effect on the housing market. All those baby boomers leveraging the equity in their own houses to get cheap university accommodation for their kids and provide a cash cow for the future. I certainly feel that regulation of the mortgage market might have headed this off. Similarly the way that local rates on holiday homes could be used to reduce the temptation to skew rural housing markets away from affordability, whereas currently they act the other way (by being reduced for part-time occupancy).
It seems to me that the deregulation of the sector did not have adequate balances in place to prevent this during the nineties.
In some ways the mortgage rules define the housing market. Since the majority of house owners have a mortgage at some point, the criteria for giving them will pretty much determine who gets to buy a house.
Now depending on your country, you can either get a BTL mortgage and the bank won't blink, or BTL is only available on commercial property, and has a bunch more hoops to jump through (business plan etc).
I'm till trying to find out if that is because the law is different (UK vs Netherlands) or if it's just a cultural thing.
Certainly mortgagee sales are more tightly regulated here, in general they must be sold as "homes" (ie to someone who will live in them) rather than to investors.
There is also more general regulation about the rental market, but that seems to be because Dutch landlords are evil*, even on the international scale of scummy landlords.
* Yeah yeah, I'm sure there are nice ones. Just never encountered any, nor have any friends and family. And the clever ones have found ways around the legislation too...
I'd be curious as to how the relative importance of the decision affects rationality :
We only take out a few mortgages, but they do tend to be a significant portion of our outlay.
We don't buy laptops that often (mostly...) but once bought tend to invest quite a lot of time using them.
We buy apples pretty often, but if they turn out to be 'bad' it's not the end of the world.
Haven't read it but were there any analyses on the basis of sex? Yeah, yeah, supposedly there are no differences between the semester on a neurological basis. Except there are and differences right up in the comparison/shopping behaviors.
I won't even start on the Aspies vs. Neurotypicals.
"I take this to be proof that Marx's labour theory of value is wrong and Smith's theory of use value is right. Our nervous system simply does not store anything as an absolute value. Everything is always a relative value. Furthermore, all storage is as a subjective, not an objective, value."
I would take it as proof that people can hold opposing views of value sepending on their relationship with the product.
If I, as a consumer, pay nothing for an economic opinion piece, when the author has spent simply hours researching and composing it, does it stand that the piece is valueless since I don't value it?
Alternatively, if the author tosses off his opinions, but I take a great deal from them, enduring eye-scraping ads, taking the time to comment etc. then clearly I value it. Does that make it valuable?
Ask somebody who has a relative who works in car manufacture of the relative value of cars versus jam. The labour that goes in to the manufacture of a car will be known to them, so when it comes to the wages that the car manufacturer makes, they have an opinion (assuming they like the relative). On the other hand, they don't see jam as other than a commodity.
So what I mean is that at the fine-grained level, people hold wildly distinct views of what constitutes the value of a product depending on their relationship with how it is produced. On a site populated by IT people, you're not going to find many who say their product that took thousands of hours to construct is 'worth' the equivalent of hundreds of hours... (whether that's what's charged for it or not).
If you were the only person who had the option to read this article then what you say might have some element of truth, but the value is cumulative, not individual. You might see no value in this article, but a lot of value in his next article, or vice versa.
What is individual is the relative value - you chose to read this article versus the millions of other things you could have found in the internet to spend several minutes of your Sunday morning on. Thus you valued it more than something you could have read at the Guardian's web site, or the time you could have spent using google to find something of even greater personal value to you.
@DougS
Indeed, yet all that reading is worth what? The market decides that such content be provided for free, or at least be capable of being consumed for free. The value I place on it is intellectual amusement. The value others place is up to them, but I disagree that it's cumulative. Not if we're all using ad blockers anyway... (or we have different relative values. Some of them will be contradictory... what do you make of it? Well, a hat, a paper plane...).
I'm not sure that this takes away from my point that Marx's theory of value, the idea of a real price of a commodity, is valid depending on where you are looking from.
Let's go back to software - project x has a cost of y hours (labour value). It has a marketable value of z. If y > z, then it should not be commenced. Yet we all know of projects that do get the go ahead despite that. Why? Sometimes it's foundational, sometimes it has intangible benefits, sometimes ego. Still, though, the software will be capitalised at the cost value (the real price) and depreciated as such, but it will be 'sold' for the market price (the market value).
That different perception of cost and marketability lies at the heart of the problem - if you understand the components of the cost, I reckon you're more likely to accept a higher market price, e.g. if you think the end product is difficult or complex. Hence how smartphones can command margins of hundreds of percent.
PS the other bit of the labour theory of capital, the reason for the structure of the theory at all, that margin goes to the capitalist seems to be inarguable?
Smith explicitly said that commodities are an exception where some may have an exchange value but no use value like gold or diamonds (strictly speaking they do have some uses now they didn't have in his time, so their use value is no longer zero)
Others may have a very high use value but no exchange value - air being the perfect example (again true in his time, not exactly true today in China where clean air is sold in polluted cities)
commodities are an exception where some may have an exchange value but no use value like gold or diamonds
The exception may be unnecessary, because even in Smith's time gold and diamonds, to take that example, did have use value. They were used for decoration, which satisfies a psychological need in some people; as status symbols, which satisfies psychological and political needs; and so on.
I can't offhand think of a single commodity which demonstrably has no use value. Indeed, I might claim that the act of exchange in itself proves a use value, because the buyer is demonstrating that some psychological cathexis is being exercised.
Of course at this point the whole concept of "use value" starts looking pretty weak, or at least secondary - it's an imputed attribute calculated under some artificial model of "use".
But that explanation is sure to be objectionable to many.
"For example, there's a famous experiment where people are invited to taste jam in a supermarket. When there's 24 varieties everyone says “Oooh, yes, that's lovely!” but almost none of them buy any. When there's only six, then more people buy one or other of them."
Is this controlled for the fact that someone who's just tried 24 (even if they're using a tiny spoon) samples of jam is probably done with jam for that day?
On a more serious note, when I notice myself trying to eliminate options when making a decision, I'm now going to try and determine if some sort of "switch" happens when I get the options to <=6.
//Is this controlled for the fact that someone who's just tried 24//
I recently read most of a popular book by the scientist who performed that experiment. Apparently people given 24 choices would go to the jam aisle then dither for a while before giving up, so I think the answer is effectively : yes. They wanted the jam, but couldn't decide which one.
Spends half an hour looking at the vast selection of crisps and such. Moves onto the cereal section and spends another half an hour before selecting the box of Bran-Flakes. Comes to the till with his purchase.
"Want some milk with that?"
Rather than waiting for him to spend another half an hour in front of the milk deciding which one to buy I get a 1 litre bottle of full fat for him.
"Oh, and a packet of Rizzlas and half an ounce of GV.."
I resist the temptation to blurt 'Marmite, Butter and Toast' at him just in case it provokes another quarter hour catatonic fit with excessive drooling.
Sold!
"Thanks. Enjoy the rest of your Evening."
" if there's three possible choices, then three areas will “warm up”. It's when one of them passes the trigger level that the action is, umm, triggered and that triggering in itself suppresses the activity in the other potential areas."
So, we have little modelling/imagining areas in our brains. rather like splitting a training class into groups to go off and discuss some point. If one then gets really excited then end of discussion.
You might also like to note that some of this has been noticed before:
The Magical Number Seven, Plus or Minus Two: Some Limits on Our Capacity for Processing Information George A. Miller. The Psychological Review, 1956, vol. 63, pp. 81-97
Much surprised that the huge problem choosing a Linux desktop among the huge number of Linux desktops was not mentioned. I have decided, as an European, to use an European distro (I am lying), so right now it's Mageia but it could also be Sabayon or Suse (and others). What has surprised me is when some commentards suggest it would be better if there was less to choose from. Do they actually believe that there is some Linux Inc who decides about such things.
I still hope there was some manufacturer out there who decided to deliver PCs in any format with the choice to boot into either Windows or Linux. Perhaps Lenovo had the balls for that. I am sure MS would not restrict the free market in any way.
It's sunday after all.
What the logical person does is to organise all the choices into sets of manageable sizes - each having some common factor. Then you eliminate some of the items in each set according to chosen criteria. Then you repeat the process until you have only one small set left - in theory the best of their classes.
Come to think of it - that's how book prizes are supposedly decided - with a penultimate long list and finally a short list where the criteria are more exacting.However the problem with human criteria is that we change their weighting at the final stage of the process - so really need to start all over again.
An algorithm like a Bubble Sort would be far more likely to find the best one.
My algorithm:
Sort the list into three piles: good, bad, indifferent.
Sort each of the three piles into three piles: good, bad, indifferent.
You now have 9 piles which should be in roughly graded in quality. They may not be of equal size.
If piles adjacent in rank are small merge them.
Work through the piles again in rank order and swap around any outliers etc.
A couple of years ago we decided to buy a new 7-seater car. First thing I did was to google for a list of all available 7-seater cars. Turns out there were a whopping 49 different 7-seater cars on the market at the time! (We have a lot of car manufacturers selling here in Australia).
So I started whittling down the list: first chuck out all the huge 4x4 offroaders (e.g. Landcruiser etc), then chuck out the expensive luxury marques, and so on. Eventually I'd got the list down to a number that I felt I could realistically test-drive and then make a choice on. You've already guessed it: that number was 6.
p.s. the car I bought is great, I'm very happy with my choice.
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Writer Worstall needs to rethink his future in journalism. Perhaps song-writing, or real estate would be a better fit.
"It seems that researchers have shown that we use a certain part of our brain when thinking about valuations of things which we normally think about the valuations of; things that we value and purchase in the normal course of life. "
As supervising editor, I'd have a talk with Worstall to see if he's really serious about journalism.
I don't think he is.
"This is the old thing about revealed preferences versus expressed preferences once more. "
"That is, revealed expectations – what people actually do – are frequently different from expressed expectations, or what people say about things they've not had that direct experience of valuing. The reason for this is that people are using different parts of their brains to do those two different types of valuations."
The use of the word "expectations" changes the meanings here, versus the word "Preferences". Was wording of this deliberate? For me, preferences refere to a "choice", whereas expectations are a future value that you are expecting to happen.
Apparently science sez that human beings don't really understand the value of some things unless they try really hard, and therefore, somehow, left-wing politics and Karl Marx's understanding of capitalism are wrong.
I don't think this argument works. Does it mean that if people did understand the value of things, then Marx would be right?
Well - now we can work out the values of things on computers, which we all have!
Marx wins! Again!