Wednesday, August 3, 2011

Left-Brain Values

They say the stock market is rational, but I doubt it. It's been proven many times that emotions play into our decisions. While else would we pay:

$10.32/gal for bottled water and think it's cheap at a convenience store
$  3.85/gal for gasoline that moves our loaded car 25 miles and think it's expensive

$19.36/lb for steak that lasts for 24-36 hrs in our bodies
$  1.41/lb for roof shingles that we want to endure 175,000 hrs of blazing sun, rain, snow, etc

With regards to risks, we avoid lightning and think nothing of riding in cars even though the chances of dying in a car accident are 500 times worse. On the reward side, just as many people play the lottery as invest in 401(k) plans. Neither one is a sure-thing but a small gain can be had through mutual funds while the payout is huge but rare on the lottery.

Most people would pay double the health insurance premiums to reduce their deductible to $1,000, even though only 1% of the insured population has claims over $1,000. Most people would rather have the certainty of paying an extra $1,000/yr (in a company subsidized plan) to avoid the 1% chance of paying up to $4,000 extra in claims.

Depending on the source of information, 60-90% of heart patients don't change their behaviors that led to their disease. It's no different for people on any part of the organizational chart. CEO's are just as likely to be irrational as the custodian.

Is there any hope for our corporations to make sound decisions that will lead to prosperity and security in the long run, when we can't rationally make pricing decisions or understand risks and rewards?

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