Price: Just a Great Heuristic

• John Vandivier

This article argues that price is a great heuristic, perhaps even <a href="http://econpapers.repec.org/bookchap/elgeechap/12822_5f5.htm">the ultimate heuristic, but it is just a great heuristic. It is not impossible to optimize allocation, act rationally, or solve economic problems without price. I argue first from theory and later using empirical data.

Theory

 

Data

My approach here is to present evidence that some people prefer in-kind gifts to monetary gifts. I will consider such proof in principle as having established that in some cases transactions are efficiently conducted without money.

  1. People value surprise for it's own sake, so always giving money isn't cool.
  2. People usually value money over gifts, but not always. Sometimes gifts produce more utility.
  3. People don't randomly prefer gifts to money. They systematically prefer gifts to money. My Mom doesn't want me to send her money on her birthday. I know this with high confidence for reasons having to do with signals sent outside of the price system.
  4. Sometimes people say they want money more, but they demonstrate more reciprocity when receiving a gift.