(Behavioural) economics through sunglasses
When you’ve embraced economic thinking, even a summer break from work doesn’t stop you seeing how profoundly we humans truly are economic beings
This summer I have once again been wearing my trusted economics sunglasses. As before they supplied some interesting observations, confirming how good economics is at describing and explaining a lot of our behaviour.
1. The weather
In my home town (and much of England), we would on average get 8 rainy days per month in June and July. That’s two a week. Of the other days, not all are warm and sunny, so really nice days are generally quite scarce. Not so this year: we had 41 consecutive dry days between the middle of June and the end of July. Most of these were genuine summer days (30 with a temperature above 25 degrees C). In June we had 75 hours more sunshine than average, and in July that was nearly 100 extra hours.
Scarcity is a core concept in economics: when a resource becomes relatively scarcer, market prices tend to go up. This helps ensure that the resource is allocated to those who value it the most, and encourages suppliers to increase their supply. We cannot buy or sell good weather, of course. But scarcity is also an important factor in behavioural economics: we tend to be attracted to, and overvalue what is scarce (and undervalue what is abundant). Shrewd suppliers exploit this, for example by telling us only a few hotel rooms remain available at a bargain price, and thus making us buy.
And scarcity along with abundance in weather patterns too influence our behaviour. During an ordinary summer, a forecast of a couple of warm, dry and sunny days would easily encourage us to plan a day out, to maximize enjoyment from a relatively rare opportunity. But this year every day was a summer day …and as a result we didn’t go away even once. This shows how a sense of abundance can make us more likely to be wasteful. If you can get away any day, in the end you don’t get away at all, and so all the nice days are lost.
The unusual weather has also reset the benchmark against which we rate summer days (in a process similar to anchoring). It’s late August now and while the…