The Boston Fed has put together a research center focused on the policy implications of behavioral econ (Mind over money). Of course, the most infamous of all behavioral econ results is the divergence between intentions and behavior (i.e., hypothetical bias). Also, related to hypothetical willingness to pay is the practice of bad -- very, very bad -- researchers to manipulate results for their own evil purposes. Here is the new center's spin on this sort of thing:
Dan Ariely, the center's visiting scholar and an MIT professor, is examining why people might pay prices greater than the intrinsic value of a good or service, which could have implications for policies that rely on market forces to deliver equitable results.
Ariely's research shows people often don't have a good idea of what something is worth, which makes them susceptible to manipulation. He calls it ''Tom's law," referring to the Mark Twain character, Tom Sawyer, who convinces friends to pay for a chance to do what would otherwise seem an unpleasant chore, whitewashing a fence.
''People's willingness to pay is not always determined by supply and demand," Ariely said. ''Sometimes, they just don't know what to pay."
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