The Weird Economics of Apple Upsell
Apple provides a good example of a strange economic phenomenon
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A lot of economic theories, predictions, and policies are based on the assumption that people are essentially rational. But is that a reasonable assumption? Naturally, that will depend on exactly what we mean when we say people are rational.
Sometimes, assuming rationality means assuming that people make decisions in their own best interests. They optimize. They choose and pursue options that maximize their welfare.
At first thought, this seems like an odd assumption, because people often make decisions that certainly appear to be irrational and against their own best interests.
Some people smoke, for example. And you or I might consider that to be a bad decision.
The smoker themselves, however, might consider the enjoyment they gain from smoking to be more important than the increased risk of cancer and early death.
And, given that perspective, it can be argued that they are still behaving rationally and maximizing their own welfare by continuing to smoke.
As you can imagine, some economists think it’s unrealistic to assume people maximize their own welfare, even from the perspective of their own peculiar value systems. They might even say such an assumption is just wishful thinking based on a bone-headed determination to ignore reality.
In real life, people have irrational fears and prejudices that affect their decision-making processes. They make all sorts of decisions that work against their own best interests. And many people will admit as much. They know, for example, that they drink, eat, or smoke more than is good for them, but they do it anyway.
But even when the more realistic economists construct economic models and make predictions about people’s behavior, they usually still assume that people are “rational”— just in a rather narrower sense of the word.
Mainly what economists mean when we say people are rational
is that people aren’t just making decisions at random. There’s a pattern to their decisions because they follow some decision-making rules. And this is what gives their decisions some degree of predictability.
