Bryan Caplan  

A Failure of Introspection

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I've learned a lot more about the economy from introspection than I have from statistics. If someone shows me statistical evidence that people buy more chocolate when its price goes up, my reaction will be "I've bought lots of chocolate, and I would buy less if the price went up. Wouldn't you? Come on."

But introspection, like statistics, has its problems. A case in point: When you're in a store, introspection typically reveals that you are not very price sensitive. If you go to the store to buy some carrots, how high does the store's price have to get before you cross carrots off your list? The usual answer is: Pretty high. If you repeat this exercise for your whole grocery list, you're likely to conclude that your demand curves are highly inelastic, and markets are a lot less competitive than most economists would have you believe.

The problem with this exercise: It assumes you're already at a particular store. Yes, if you get to a store and see high prices, you're probably pay. But are you going to return to that store? Or - let's introspect again - are you going to think "That store's a rip-off, I'll go somewhere else"? At least that's my reaction - how about yours?

The lesson: Just as the solution to sloppy statistics is better statistics, the solution to sloppy introspection is better introspection.

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COMMENTS (3 to date)
Jody writes:

Actually, more often than not I will not buy a grocery item if it's more costly than I expect. I think there are a few factors that cause me to behave this way:

1) I am rarely in a grocery store to buy groceries for that day (I have a large pantry and a large fridge).
2) I typically see the item for the price I expected within a couple days (generally at a different store).
3) When I come across an item for much less than I expect, I stock up (for example I picked up 40 liters of Pepsi a couple weeks ago and 30 lean pockets last week).

However, there are the rare occasions where I am stuck buying something because I need it right then, but that's atypical.

anon writes:

So, one experience of paying a higher price than you want might lead you to go somewhere else. But what if everywhere else had the same price or close to it? Then you might cut back expenditure on that one item.

For example, when soda isnt on sale at Giant it costs something like $4.40 cents for a 12 pack of Coke brand sodas. I believe the regular price at Wegmans is $3.(sale price $2.50 or so?) So yes, I'll definitely go to Wegmans(there's plenty of other reasons to go to Wegmans instead of Giant, but I'll just stick to this one example). But if Wegman's, Safeway, Food Lion, etc all bumped their price up to $4 I don't think I'd buy 12 packs of Fresca anymore. I'd either switch to water or look for a substitute good. My demand is probably relatively inelastic at a given store, but has relatively high elasticity in the aggregate.

I like having Wegmans/Whole Foods/Trader Joes/Giant to choose from. It's the people in those "red states" who say that Super Wal Mart is the only place they can buy groceries that really has me scratching my head.

Introspection of this sort can help one understand statistics, cause and effect, etc, much better than just seeing raw data, imo

Tracy W writes:

Actually my price-cut offs for items are reasonably low.

For lettuce, it is $1 per head. Once lettuce goes above $1 we don't have any until it's back in season again.

For carrots it's $2/kg. I like carrots more than lettuce and they last longer if you forget to do anything with them for a few days.

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