The Journey of Buying Hummus, and Bounded Rationality

Yesterday, I happened to be at Whole Foods (which is rare) and decided to get some hummus.

Out of the few brands that I saw at the section, the Whole Foods brand was obviously the cheapest one. I could not make a decision based on the taste because I had never tried any of those brands. So, I could only make a decision based on the price*. The Whole Foods brand had two sizes: one was $2.99 and the other one was $4.99. I know some people would put the two together to compare the size. But with our bare eyes, it is often inaccurate, especially if the packages are different. Or, you may think the bigger one must be cheaper, which is sometimes actually false.**I looked at the net volume, the smaller one is 8 oz and the other one is 16 oz. Obviously the smaller one is cheaper. Without a calculator, I could get to that conclusion because the smaller one is basically $3 and the bigger one basically $5. If I doubled the smaller one, it would be the same size as the bigger one while the price is $1 higher. If I did the math, I would get to the conclusion that every oz is approximately 0.06 cheaper per oz for the bigger one.

So did I decide to buy the bigger one? No. It was because I was afraid that 1) I would not be able to finish it, and 2) if I found it not tasty, it would only be a sunk cost for me since I would not cover the cost (the price that I pay) with the benefits (the joy I get eating it, and the health benefits).

If you already find your head spinning a little bit, there is more to the story. If you were there with me, we would also pass by the salad bar section and realized they have hummus there, which was sold at $8.99/lb. I am sure quite many would just refuse to think about it and hold on to whatever they have got in their hands already. As a rational junior economist, my reaction was: immediately ignore the salad bar. (Sorry to my economics and math professors.) There were simply too many other decisions to make and distractions. And honestly, I forgot that 1 lb was 16 oz, which would obviously be much more expensive. (sorry to my physics professor.)

More than what has been mentioned above, there are even many more other factors that should and could be taken into account in order to make an optimal decision. Before I even decided to buy hummus, I should have asked myself: why am I going to buy hummus? Is there no other substitutes for hummus that have the same or higher health benefits and/or better taste? Why don't I buy it at another store that is potentially cheaper? Should I buy one that is organic while the price is higher? (First, is organic really better?) If Brand A is $1 more expensive while the sodium is significantly lower than Brand B, which one should I go for? If I am being strict to myself now, I am sure I have made a lot of mistakes over the past year, and so have you.

When we talk about making a decision rationally, two things are very important: minimizing the disadvantage of limited accessible information and maximizing our ability to analyze information under certain limitations. It would be quite impossible for me to search the prices of all hummus in the city, but the price and the nutrition of the ones at Whole Foods are quite accessible to me. Still, in order to make the best decision under limited information, I must be able to do the calculation and reasoning, which is not necessarily easy for everyone and requires the process of learning.

Just buying one hummus, even for an economist, can be a tiny challenge. Imagine if you have to do all this information gathering, calculation and reasoning for everything that you grocery shop.***

You may wonder: grocery shopping is just a small part of our lives. It is not like buying a house or a car. What would it hurt if we were to make decisions that are comfortable but not optimal? Overall, if we bought the more expensive hummus once every week, then we only pay $48 more in a year. Does not seem like a big deal, right? The problem is, while grocery shopping does not seem important, it is an activity that we do very frequently, which makes the scale of it big. Constantly buying the more expensive products and/or the less healthy products is not good for our pocket nor our health in the long run. We do not see or feel the long term consequences easily so we tend to pay less attention to that.

Just grocery shopping has demonstrated to us how complicated and challenging gathering and analyzing information and making an optimal decision can be for many people. You might think that economists have been taking all these aspects in their studying of people’s shopping behaviors. However, they have been ignoring our bounded irrationality, which is the limitation of our ability to process information due to our biases, limited ability to reason and calculate, the limit of time available for the decision, etc. Classical economics for the past century assumes that everyone is rational and able to make an optimal decision. Fortunately, the field of behavioral economics has risen and new economists have been taking psychology seriously. This is what we should do, not just in economics, but whenever we study the behaviors of human. It is simply irrational to assume everyone is rational.

*I usually look at the ingredients and the nutrition label too but this time I forgot to.
**I looked at a university's meal plan for a semester and after calculation, it was actually even more expensive than buying every meal on-site separately.
***This is why I always spend a lot of time on grocery shopping.

Nationalization and the Flow of Ideas

(from NBC News)


The last election was a big reminder for us of how divided the United States is. More than just among groups of different religions and races, but also geographic regions. In general, states along coasts leaned towards Hillary Clinton, and central and southern states leaned towards Donald Trump. Of course, the divisiveness of ideologies between these regions is not new at all. But this time, the candidate on the red side in this election was considered very extreme. The two sides have probably never been more polarized than before. It has revealed how divided this country could be even more.

The states have been united politically by force since centuries ago but never socially. Different regions have had some fundamental differences in values and beliefs throughout the history. On many issues, including abortion, same-sex marriage, interracial marriage, racial segregation, gender equality, the coasts tend to be more liberal and the central and the south have been more conservative. 

Let us leave our positions on those issues aside for this article. Why do we have different opinions on different issues? I always remember that a few years ago, my friend from an African country told me that at first, she did not feel very comfortable with gay people, because she was in a culture that had strong aversion to and hate against gay people. But after she came to the U.S., she was more exposed to openly gay people, and she felt that gay people were actually just like anyone else, which was a big contrast to the depiction by her people. She is definitely not alone.