Tags:
Journalism of Courage
What is the similarity between a person emerging from an airport, getting into a cab and ending up being charged more than he should, and a person who dines at an up-market restaurant and pays more than the amount on the menu card? Both are puppets in the psycho game played by the taxi driver and the restaurant.
The driver knows that when you are coming out of the airport, you would not haggle if he overcharges. Also you would typically not fix the rate before the start of the journey. You are either charging it to your company or really indifferent to the amount charged. So he wins the game once you step into his cab. The same holds for the diner, who shies away from asking the waiter if the dish that costs Rs 150 on the menu would end up at Rs 225 with all the taxes. The principle at work is that we, as human beings, are hesitant to raise the issue of money when we are in a certain environment. All salesmen use the same principle to get you to pay more than you intended. The salesman will extol the virtues of a high-end TV set and would strongly recommend it to you when you would have been better off with a basic model. These are examples of how psychology dominates the economics of life.
Psychology also works in medium-end restaurants where the focus is on full capacity utilisation. The order is taken quickly as the waiter comes back to you in a jiffy, assuming you know what you want. You actually do not get time to go through the menu card. The food arrives in a flash and even as you are finishing it, the waiter asks you whether you want dessert and, if there is no nod of acquiescence, offers to bring the bill. The idea is that you should not sit for longer than is required and he has to ensure that the capacity utilisation rate is always close to optimal.
Economic theory assumes rational human behaviour, which more often than not is an exception. Most economic activity is carried out, using rudimentary principles of game theory where psychology dominates reason.
The writer is chief economist, NCDEX Ltd
