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Economic actors act, at best, on expectations. So it's all about managing the expectations. Psychological barriers like $100/barrel tend to be repellers: prices will "resist" approaching them from below and then race away once they are above.

And I don't think Jerome's point implies people are not rational. What he's saying is that it's the rate of change of the price that matters, not the price. And that makes sense. If you're going to buy a car that you'll have to fuel for the next 10 years, it probably matters more what the rate of inflation for fuel is than the absolute price level. Again, expectations.

Because, despite textbook economics always happening at a single point in time, or at equilibrium (which is just a single point in time, too, the point at infinity), time considerations at various time scales are essential to economic actions. And economic games are not only played once, but are repeated over and over again, which also changes the optimal strategies.

Can the last politician to go out the revolving door please turn the lights off?

by Migeru (migeru at eurotrib dot com) on Wed Jun 20th, 2007 at 08:39:17 AM EST
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