Tuesday, April 05, 2011

The Onion Reports the End of Neoclassical Economics.

Upending more than two centuries of free-market theory, leading economists across the globe announced Thursday that the fundamental principles of capitalism had been "irrefutably disproved" by the continued existence of the designer fruit-basket company Edible Arrangements.

According to experts, the Connecticut-based franchise, which arranges skewered pieces of fruit into displays vaguely resembling floral bouquets, has defied all modern economic models, expanding continuously for the past decade despite its complete lack of any discernible consumer appeal.


"To understand this enigma, we must discard the naïve notion that free-market prices reflect what consumers are willing to pay," Nobel laureate Joseph Stiglitz said. "Otherwise, how else are we to rationalize the phenomenon of a human being willingly spending 84 bucks on 18 green apple wedges and a Mylar balloon?"

I take this as a challenge. I claim I can develop an economic model which fits any fact. This one isn't very hard. The point is that "edible arrangements" are gifts. Only a very rich and very stupid personwould buy one for him or herself.
Gifts are a form of costly signalline (google scholar Michael Spence). A practical thrifty good buy gift just doesn't work. An extravagant gift must be extravagant to work.

Now there used to be two extravagant gifts -- cut flowers which will soon wilt and expensive chocolates. OK now we need to bring gender in to it. These gifts are given by men to women. (Pretending to be a hard core neolassical economist, I will pretend that men understand women,but to let a bit of sanity in come on give me a break claiming that men understand women is like claiming that chickens understand quantum mechanics ?) Anyway the point sometimes is to give an extraordinary gift. So it has to be crazy.

In this case waste in the biolical sense (more cut fruit than you can eat) is needed for the desired communication and social interaction (same way there better be food left over after a wedding reception). Edible arrangements fill the key niche between flowers and chocolate. They appeal to women on diets. These women are very hungry and appreciate something edible. Also these women are on diets and can be very irritated by tempting high calorie food.

Why didn't I think of such an obvious idea ? (said the chicken to Heisenberg).

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