Talk:Bestiary of Behavioral Economics/Money Illusion

last edits
Dear professor Dang, My last edits will probably be tonight so let me know if parts need explaination or improvement. Npetsas (discuss • contribs) 06:00, 1 May 2012 (UTC)

collected citations
I am not quite sure how to do the citations where they all collect together, even after reading the email. some clarity on that would help. Npetsas (discuss • contribs) 02:05, 15 May 2012 (UTC)
 * Check out Help:Editing, particularly on "Multiple citations of the same reference or footnote". TDang (discuss • contribs) 16:04, 17 May 2012 (UTC)

Mental Accounting Example is Wrong
The Mental Accounting section utilizes the example of two stores to illustrate bias towards nominal values.

Store A: Bought 100 goods for $20 each and sold them at $44 each -A Year Later- Store B: Bought 100 goods for $22 each and sold them at $45 each-while experiencing 10% inflation

An overwhelming majority when asked "who made the better deal?" selected Store A over Store B. This makes sense thinking in nominal terms as you multiply the quantity times the output price and subtract the quantity times the input price. Then you repeat for both stores...

It then claims that in real terms Store B got the better deal because after accounting for inflation, the $22 it paid for the goods is effectively the same as the $20 the first store paid for the goods. While that part is true, even in real terms the "overwhelming majority" is still right because the final value has to be reduced by a similar margin. After accounting for the 10% inflation, the $45 Store B sold each good for is effectively equivalent to $40.91 before the inflation. So in real terms, Store B bought its goods for the same value but sold them for a far lesser value. Whereas Store A ends up with a profit of $2400, in real values Store B ends up with only $2091 as opposed to the $2300 it made in nominal value. The "overwhelming majority" is right in both cases. Ironically enough, the point the example is trying to make about real and nominal values is reliant on forgetting to use real values for the sale price.

2606:A000:C8C4:4F00:1426:5BDA:FE94:D4A4 (discuss) 03:57, 14 November 2016 (UTC)