Behavioral evidence for sticky price theory

If we lived in paradise, firms could update their prices instantaneously with the blowing, turbulent winds of demand. In paradise, fundamentals — the skills of workers and availability of inputs to production — would drive variation of incomes and if we were in an especially happy paradise, increases in efficiency would overwhelm any occasional negative supply shock.

But no. We do not live in paradise. Prices are sticky and aggregate supply curves slope upwards.

Why? Because of those damned Apple fanatics! I have always hated them and now Tyler Cowen is especially mad:

OK, people, it’s no more Mr. Nice Guy. I’m fed up! No more moderation, no more namby-pamby conciliations to those I disagree with, at least not today. I am plain, hopping mad. And who has pushed me over the edge?…

iPhone early adopters. (I’m one of them, though a virtuous one.) You may have heard, they just cut the price on iPhones… It is you people, you who resent Coase (1972), you people who induce wage and price stickiness and widen the Okun gap. You people, who don’t know what it means to sit back and enjoy your consumer surplus. You beasts!

Tyler, in a comment, says “p.s. I’m not mad anymore”. But I, a true believer in Real Business Cycles, am still hopping mad.

4 thoughts on “Behavioral evidence for sticky price theory”

  1. Why get angry at Apple? They’ve built a spectacular business model around enthralling technophobic cash-flush morons, and I applaud their success. Apple keeps these idiots out of my hair. That’s worth the high price, especially when they’re paying.

  2. Its not Apple I hate… Its those damn technophobic cash-flush morons I dislike. They ruin it for the rest of us by crying so loudly when they insist Apple (and I’m sure other companies… those bastards) keep their prices artificially high. I suspect this is because they have reference point dependent preferences and loss aversion.

    Having a behavior anomaly that creates sticky prices is a cardinal sin in the Church of the Real Business Cycle!

  3. They’re all Smart People(TM), as evidenced by their Apple ownership and bursting pockets. I’m sure they would see reason if you clearly explained that to them.

    I dislike the smarmy media types who gush over every Apple announcement and hail every tiny feature/nonfeature as a world changing innovation that’s spilled like sunshine from Steve Jobs’ every orifice.

    I just had a flash of insight. You anti-green types might see Al Gore the same way I see Steve Jobs. Must speculate on this some more…

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