weekly quote #20: Ofer H. Azar February 20, 2008
Posted by ocmpoma in : economics , trackbackI just read “Relative thinking theory”, Ofer H. Azar’s paper from the 2007 (#36) issue of The Journal of Socio-Economics. the following is from pages 18-19 of the .pdf version, in section 5 (Is relative thinking beneficial today?):
“Thinking about absolute levels allows us to implicitly think also about ratios and percentages when this is relevant; but thinking automatically about percentages regardless of the context leads to non-optimal decisions, for example, making too little effort to save money on high-price goods, and too much effort to save on low-price goods…
The conclusion that relative thinking is not beneficial, however, might change if we introduce various sorts of bounded rationality, such as deliberation costs, limited ability to analyze problems, and limited memory capacity…”
‘Thinking about absolute levels’ here means taking an absolute value into consideration; for example, saving $10 on a purchase. ‘Thinking about relative levels’ would mean that one would consider saving that $10 based on whether the purchased good cost $50 or $500.
Tags for this article: economics , quotation
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