## The Denomination Effect

To a rational decision-maker, the possession of \$20 translates exactly to the ability to buy \$20 worth of goods. The form of the \$20 should not matter—whether it is one \$20 bill, two \$10s, four \$5s, twenty \$1s, or any configuration of change, the purchasing power is the same. However, humans are rarely perfectly rational, and this case is no exception. In the event that a person is given \$20, that person is more likely to spend it if it is given in smaller denominations (for example, \$1 bills or change) than if it is given in larger denominations (especially Continue reading The Denomination Effect

## Post-Purchase Rationalization

Imagine this: A customer walk into a store looking for a new coat. In this store, she has two coats from which to choose. They have a few differences: they are each a different color, say green and blue; the blue one is made from thinner material; the green one has a larger, more obnoxious logo; the blue one has smaller pockets; the green one is a bit more expensive. Eventually, the customer decides she just has to pick one, so she does. Imagine she chooses the green one. Later, she wonders if she made the right choice, if she Continue reading Post-Purchase Rationalization

## Econometrics: A Difficult Tool

Econometrics an important tool for economists to explore relationships between different aspects in society and measure causality. I like to think it is more than a way to confuse new econ majors and scare off the less mathematical inclined ones. But by combining statistical and mathematical methods, econometrics can be used to answer economic questions such as the progress of African Americans. Russ Roberts and James Heckman discuss this topic as related to econometrics on Econtalk and how this method can be trouble for more than just undergraduates. Heckman sheds light on the African American progress measurement and brings up the issue Continue reading Econometrics: A Difficult Tool