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Why behavioral economics misses the point...

Behavioral economics has a number of unexamined assumptions but certainly one of the most obvious is the assumption that rationality is identifiable and distinguishable from irrationality. But what is rationality?
Can it be deconstructed into a series of rational decisions and choices or perhaps it emerges complete and seamlessly integrated as the rational individual? Are there levels of rationality? Do we give the individual a pass if they are children or from a different culture. Is Sherlock Holmes rational (perhaps hyper-rational?) in his ability to extract information out of what are to the reader (and Dr. Watson) unconnected observations?

Is rationality only defined after we have indexed an individual's beliefs and mental habits?

Before the analysis that precedes a decision can be done, the individual must make some distinctions as to what information to use and what information to ignore. Much of what passes for behavioral economics asserts that there is an irrational element to this selection process. Leaving aside the issue of how filtering data can be characterized as irrational, behavioral economists often assert that individuals don't use the correct time frame, overuse easily accessible and understandable data, and combine data from irreconcilable data sources. In summary, they don't act like academic economists. But wait, do theoretical physicists pooh-pooh adults who don't understand the logic of string theory. No, they recognize that they have acquired specialized set of beliefs that are not relevant to life outside of the sub-atomic. So why do economists, having studied academic models for decades then deride non-economists for being overly affected by information from their immediate environment; for not being sceptical enough about their information sources; for being impulsive in their decision making; and short-sighted in estimating the future.
Oddly enough, behavioral economists borrow heavily from both mathematicians and psychologists to come up with a set of ideas that only make sense to those whose motives are generally self-serving, e.g. I need justification for exploitation (let me manage your money for a fee and you will still be better off) institutional power( you are short-sighted and childish and need to be protected from yourself). . Read more!

WIFI at Starbucks

WiFi at Starbucks requires sharing wireless access among customers spending time at the cafe.
Once customers sit down at a table, they access one of the channels on the router which must use some algorithm for deciding how to allocate capacity. In the new model what will this be?

from Starbucks news release on Feb. 11, 2008 — AT&T and Starbucks today announced plans to deliver AT&T Wi-Fi service at more than 7,000 company-operated Starbucks locations across the United States... Starbucks and AT&T will offer a mix of free and paid Wi-Fi offerings at Starbucks stores to meet the needs of both frequent and occasional Starbucks Wi-Fi customers...Beginning this spring, Starbucks Card holders can enjoy up to two hours of free Wi-Fi service per day at Starbucks locations offering Wi-Fi access, while more than 12 million qualifying AT&T broadband and AT&T Internet customers will have unlimited free access to the Wi-Fi service. In addition, more than 5 million of AT&T’s remote access services business customers will be able to access Wi-Fi service at Starbucks locations... Read more!

Total Starbucks Revenue

Starbucks is the world leading retailer and roaster for brand coffee and the company’s revenue continues to grow as well as the world-wide total number of stores. Its strategy of blanketing metro areas with stores may have reached a point of declining returns in some areas but there is still a lot of room to grow, particularly as a broader range of customers frequent the stores. (perhaps 30+ million each week).

Possible contribution of a Starbucks Customer over 20 years:

Average expenditure/visit $5.00
Visits/week 4
Yearly Total $1000
Profit Margin 20%
Total Profits over 20 years $4000 (non-discounted)

With 10 million customers total revenue would = $40 bil..

This suggests Starbucks should provide infinite service to keep the visit frequency as high as possible.
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Cafe Times Blog

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