Class #3, 1/26/12

• Altruism is when I do something for someone else's benefit and it ends up hurting me. Economists call this irrational behavior. 
• An example: I place $1000000 in front of someone's door anonymously for no other reason than to give that person money. Because of doing this, I hurt myself in some way (less money for food, clothes, etc.)
• We also discussed rational behavior. Prof. Rizzo pointed out how truthfully, no behavior is completely irrational. No one, or very few, people can be truly altruistic. Let's say someone donates money to a college. Sure, they are helping someone out, but there is a reason behind why they are doing such a thing. Maybe the person gets a school named after him for donating.
• Another example Rizzo gave is this: if a beggar comes to your front door asking for money, it is proven that most people give him money not because they want to help him, but rather because they want him to get away from their house.
• There is something that limits our ability to be irrational, which keeps in effect the demand curve sloping down (as a cost increases, there is less of a demand). Consider hunger and one's stomach. The more you eat, the less hunger you have. You could continue eating, but there is something that prevents us from doing this: our stomach becomes so full that it hurts to eat more (the cost of eating is getting higher) and then we go on to stop eating. Thus we are acting rationally thanks to a natural phenomenon of our body.
• Rizzo also spoke about paternalism, which is when people act in a fatherly matter to help us (i.e., enacting a policy to help society improve). Example of governmental paternalism is the many policies the government has enacted, such as its rules on cigarettes, sugar regulations on food, etc.
• Just because the government enacts these rules doesn't mean all of the changes will provide solutions to the problems. You have to consider unintended consequences.
• A policy may be sensible for many people, but unintended consequences can come into play, causing other issues.
• Bottom line: you can't prevent every bad decision of society. It is a waste of resources to try to enact so many policies.
• Rizzo says that paternalists decide on policies based on their own preferences
• In short, there are no truly irrational behaviors unless someone is truly altruistic. If someone drinks and drives, they very well could be doing it for a specific reason that is at least rational to themselves. It may seem irrational to the majority of society.
• This course of Price Theory will show us to consider benefits and costs of decision making and figure out why decisions have been made.
• A nudger, as defined by Rizzo, is a person who tells others what to do because that is what works best for the nudger. The nudger tries to act like they are trying to help in the best interest of others, but really, they have a separate agenda. Consider companies that are trying to manipulate consumers to make extra money.