Friday, October 13, 2017

The Space Alien Explains Economics

Your Editor was going over the Space Alien Gazette financial statements when the Space Alien came whooshing in the door wearing a brand new hat.
The Space Alien Returns from Sweden

"Where have you been," cried Your Editor.  "You've been missing for days, and what is that hat you're wearing?"

"I've been in Sweden," said the Space Alien, "and I had a wonderful time.  The food was great and they put it all out on a table for you to have as much as you want!   They call it 'smorgasbord' and I call it perfect!"  
The Space Alien Enjoys Smorgasbord

"Is that all you did in Sweden?" asked Your Editor.

"Oh no, I met the King.  His name is Carl XIV Gustaf and he very much wanted to give me a Nobel Prize, but could not figure out which category because so many would have been appropriate.  But I got to watch the ceremonies!"

The Space Alien Greets King Carl XIV Gustaf of Sweden

"The Nobel Prize in Economics," continued the Space Alien, "went to Professor Richard Thaler, a Behavioral Economist at the University of Chicago, who explored the interplay between economics and psychology.  It was all very exciting and of course I offered Professor Thaler my warmest congratulations!"

(You, loyal reader, may read more about Richard Thaler's exciting work here:,)

"Here's my selfie with Professor Thaler at a big party they gave him when he got back to the University of Chicago.  I was his special invited guest!"

The Space Alien is Professor Thaler's Guest at the 
University of Chicago

"Really!" huffed Your Editor.  "I studied at the University of Chicago with another Nobel Laureate in Economics but I was never invited to a special party!"

"Well, don't grumble about it," said the Space Alien.  "Your I.Q. probably isn't as high as mine but I know you got along as best you could!  I'm sure you were a perfectly adequate student."

This did not sit well with Your Editor, but the Space Alien hardly noticed.

"Let me ask you a question," said the Space Alien.  "If we raised the price of the Space Alien Gazette would our Loyal Readers complain?"  

"Of course they would!" answered Your Editor. "I would too!"

"But what if we charged the same price but printed fewer pages.  Would as many complain?"

"Most likely not; I don't think most of our Loyal Readers would even notice!"

"Is that rational?" asked the Space Alien.

"I guess not," answered Your Editor.

The Space Alien continued:

"What if you paid a lot of money to see a show but the weather was terrible, and there were no refunds on tickets.  Would you manage to get there anyway no matter what?"

"Of course!  I paid for it so I'd want to see it no matter how hard it was to get there!"

"What if you had been given free tickets for the same show?"

"Well, then I might stay home!"  

"Is that rational?" asked the Space Alien.

"I guess not," said Your Editor.

"What if it were raining and the umbrella dealer on the corner raised the price of umbrellas that day."

"That would be so unfair!" cried Your Editor.  "I'd be angry and would never want to buy anything from him again!"

"But what if his price was always a few dollars higher but he had special 'sunny day' sales when it wasn't raining?"

"Oh that would be ok," answered Your Editor.  "I'd welcome a chance to buy a nice umbrella at a discount!"

"Is that rational?" asked the Space Alien.

"I guess not," said Your Editor.  "I see what you mean - we make economic choices based on irrational factors, and maybe that 'rational man' we learned about in our economics classes doesn't even exist!"

"Exactly," said the Space Alien, "and Professor Thaler has studied the effects of psychological factors on economic decisions.  But now I must leave because Professor Thaler is waiting for me to work with him on his next book!"

The Space Alien Consults with Nobelist Richard Thaler