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Money makes people happy only to a certain extent, and increasing the price of a product often leads to an increase in its sales. Fear of loss makes us act irrationally and shell out $200 for a twenty-dollar bill. Paradoxes? Yes. Economic.

Easterlin's paradox

Easterlin's paradox is that in prosperous countries with fast or not very fast rapid growth economy, when the well-being of people also grows, the level of happiness (well-being) of the population increases, but up to a certain point.

After 10-15 years, even if the economic level and well-being of the population grows, the level of happiness stops increasing. That is, money makes people happy only to a certain extent.

• This pattern was discovered in 1974 by Professor Richard Easterlin from the University of Southern California, as a result of which the paradox received his name.

Veblen's Paradox

Veblen's paradox (snob effect) is a situation where a decrease in the price of a product worsens its quality and prestige in the eyes of buyers, and an increase in price, on the contrary, makes the product more desirable and attractive. This type of purchasing behavior is called a paradox because it contradicts the basic law of demand, according to which an increase in the price of a product leads to a decrease in its consumption.

All Veblen’s products belong to the premium segment, and as their prices rise, so does the target audience’s desire to own them. Veblen's paradox was discovered American sociologist, economist, publicist and futurologist Thorstein Bunde Veblen, author of the books “The Theory of the Leisure Class”, “The Theory of Entrepreneurship” and others. Veblen also introduced the concept of “prestigious and conspicuous consumption” into economics and sociology.

Giffen's paradox

The Giffen Paradox, named after the English economist Robert Giffen, refers to consumer reactions to economic or political situations and applies to consumer goods. The economist drew attention to the fact that during the famine in Ireland in mid-19th century, the volume of demand for potatoes, the price of which has increased, has increased significantly.

Giffen linked this to the fact that in the budget of poor families, expenses for potatoes occupied a significant share. The rise in prices for this product led to the fact that the real incomes of these strata fell. They were forced to reduce purchases of other goods, increasing their consumption of potatoes in order to survive. Because of this, the demand curve for potatoes increased.

• The Giffen effect is observed when the masses feel instability or are subject to manipulation (the threat of an economic crisis, a change in political course, rumors of a crop failure, etc.).

The different behavior of buyers in relation to goods made it possible to formulate the division of goods into two groups: ordinary goods and “Giffen goods”. Typical examples Giffen goods can be considered inexpensive consumer goods: cereals, pasta, bread; a short-term effect is observed when gasoline prices increase.

Bazerman's paradox

The Bazerman Paradox is named after Harvard Business School professor Max Bazerman. Every year Max Bazerman sells his students a twenty dollar bill well above its face value. His record is selling $20 for $204. And he does it like this. He shows the class a bill and says that he will give $20 to the person who gives the most money for it. True, there is a small condition.

The person who will be immediately behind the winner must give the professor the amount that he was willing to give for $20. That is, if the two highest bids were $15 and $16, then the winner gets $20 for $16, and the second person gives the professor $15. Bidding starts at one dollar and quickly reaches $12-16. At this point, most students drop out of the auction, leaving only the two highest bidders.

Slowly but surely the auction is approaching the figure of $20. It is clear that it is no longer possible to win, but the auction continues and quickly reaches $50 and above. Why do people always pay for $20? more money? Because a person has a weak point - fear of loss, and he behaves extremely irrationally when he starts losing money.

So, once the bidding reaches $12-$16, the second person realizes that he is in danger of losing, so he begins to bid more than he intended until the auction reaches $21. At this stage, both participants will lose money, but some will lose only a dollar, and some will lose twenty. To minimize losses, each person tries to win back, and this race leads to even greater losses.

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Giffen effect (Giffen effect, Giffen's paradox) - price reduction by individual species goods leads to a decrease in demand for them. The opposite is also true: an increase in the price of certain types of goods leads to an increase in demand for them.

Giffen effect refers to the reaction of buyers to an economic or political situation and applies to essential goods. The different behavior of buyers in relation to goods made it possible to formulate the division of goods into two groups: ordinary goods and “Giffen goods”.

Giffen product- a good, the consumption of which (other things being equal) increases with an increase in price. For most goods, when the price increases, consumption decreases. For Giffen goods, the opposite is true - when the price of a product rises, people begin to buy more of this product. This is the paradoxical Giffen effect. Typical examples of Giffen goods include: rice, pasta, bread; a short-term effect is observed when gasoline prices increase.

Characteristics of Giffen goods:

• goods of low value;
• occupy a significant place in the consumer budget;
• there is no equivalent substitute product;
• consumers of the product are, to a large extent, people with low and middle incomes.

Basic law of supply/demand proclaimed the postulate: “an increase in the price of a product, other things being equal, leads to a decrease in demand for it and vice versa.” However, the Giffen phenomenon is not an exception to the totality of all economic laws. The Giffen effect does not contradict the basic law of supply/demand, since for it to occur, external conditions must change for the worse. The Giffen effect is observed in unfavorable economic conditions, when people buy goods, fearing their further rise in price, but at the same time reducing spending on more expensive products in favor of cheaper ones. For example, they buy more bread and pasta, with a decrease in purchases of meat and fruit. In other words, there is an effect of replacing some goods with others (usually with goods from the consumer basket).

The Giffen effect in history. This phenomenon was first noted and described in the 19th century. Robert Giffen discovered a paradox during the Irish famine of 1845-1849, when the population responded by increasing demand to rising potato prices. While analyzing the consumer budgets of British coal workers, R. Giffen also discovered that with each increase in the price of a relatively cheap, but permanent required product food - bread, the effective demand for it did not decrease, but increased.

Concept " Giffen effect"was entrenched in the minds of economists and marketers thanks to Alfred Marshall, who in 1895 associated the name of R. Giffen with this recurring economic phenomenon.

Giffen goods (Giffen goods)- an item of sale/purchase, the demand for which may increase as their price rises, which is possible in cases where these items occupy too large a share in the consumer budget, which is too small. As a result, the income effect outweighs the substitution effect. For example, an increase in the price of potatoes, which makes up the main share of the budget, will lead to the fact that the family will not be able to afford anything else and will completely switch to consuming potatoes, despite the fact that its price has increased.

English Giffen effect] is an outwardly paradoxical in comparison with the traditional, but economically justified dependence of the amount of demand on changes in the price of a product, when a decrease in price leads to a decrease in demand for certain goods that are fundamentally important for human existence, and an increase in price leads to an increase in demand for this particular product due to the sharply limited solvency of the consumer as a whole. In domestic texts you can sometimes find the spelling “Jiffen”; the synonym “Giffen's paradox” is also found; people often talk about Giffen goods, Giffen goods, “inferior” goods. The effect was first discovered and described by the English statistician and economist, deputy editor of the famous magazine “Economist” R. Giffen (1837-1910), one of the pioneers of applied economic theory, who warned fellow economists about the danger of a theory without measurements. He drew attention to the fact that during the famine in Ireland in the mid-19th century. The volume of demand for potatoes increased significantly as prices for them rose, which completely contradicts the classical formulation of the law of demand - as the price of a product rises, the volume of purchased goods must decrease. However, in other sources the same story is found, only not with potatoes, but with bread or even with bread and lamb, but R. Giffen spoke specifically about potatoes. After this, economic theory began to distinguish between “normal” goods and “Giffen goods” (precisely in plural, since there are several such products). G. e. observed in relation to both goods that are most important for maintaining life (these goods are called “lower-order goods”, “core goods”), and for items of a status nature (although this is already the Veblen effect). G. e. manifests itself in a violation of the law of demand, since the quantity of goods consumed changes in the same direction as the price. It is associated with changes in relative prices, rather than with an increase in the general price level. As R. Giffen noted, an increase in the price of a staple product makes such a large hole in the budget of the poorest working families and so increases the marginal utility of money for them that they are forced to reduce their consumption of meat and the most expensive flour foods; since potatoes or bread continue to be the cheapest product that they are able to buy and will buy, they consume it not less, but more. One could say that this is the most famous paradox in economic theory. The paradox operates in a specific economic situation, namely in conditions of sharp impoverishment of a significant mass of the population, with an increase in the price of one essential product, especially the so-called. "core" product, such as potatoes or bread. At the same time, people refuse to buy meat or fruits, which are even more expensive, even if their prices decrease, and thus the demand for bread increases despite its rise in price. An increase in the price of a certain product, which makes up the main share of the family budget, leads to the fact that the family can no longer afford anything else (more expensive) and almost completely switches to this product. Giffen goods are goods for which demand can increase as their price increases due to the fact that these goods occupy too large a share of the limited consumer budget. When the price of bread decreases, the demand for other products appears, and the demand for bread decreases. As a result, the income effect outweighs the substitution effect. However, some experts reasonably believe that consumer behavior “in the Giffen style” is not a paradox in a market economy, but a very real pattern that complements the classical behavior of demand, and therefore it should not be called a “paradox.” The “Veblen effect” and the “snob effect” are from the same category of additions to the classical, but, alas, not comprehensive model of demand. This important additions to economics from the field of psychology, since the model of a purely “economic” person can only exist as a scientific abstraction. According to psychologists, in the study of this category it is important to see a number of other aspects, first of all, that the perception of a changed price is a process of fixation in the human consciousness new information. It gives rise to elements of knowledge, reflection, and encourages further action. This perception is nonlinear and cannot be described, much less explained, from the standpoint of classical economics. Today, it is quite difficult to identify goods exposed to the effects of gas pollution - with the growth of social welfare, there is practically no product in the budget of an increasing number of consumers that occupies a large share of effective demand. It is even less likely that new “Giffen products” will emerge. A.P. Pankrukhin Berezin I.S. Marketing analysis // Personnel management. M.: 2004. P. 74-86. Nagle T. Pricing strategy and tactics: A guide to making profitable decisions. 3rd ed. St. Petersburg: Peter, 2004. Marshall A. Principles of political economy. M., 1983. T. 1. Svetunkov S.G. Models of supply and demand in the space price – volume – income. Ulyanovsk: Ulyanovsk State University, 1999. §1.5 // http://www.marketing.spb.ru/read/sci/m2/3.htm. Theory of consumer behavior and demand / ed. V.M. Galperin. M.: 2000. T. 1.