Determine whether prices increases or price decreaese more salient? (that is, which do we more readily remember)? Why?
The overall CPI is an average, that includes considerable variance. The price of lamb and mutton, for example, is down over 13 percent on the past year. But the price of beef is up 10 percent. The upshot is that most of the rising prices are rising at a rate that's faster than 2 percent. And when you think about inflation, you're probably thinking about the prices that are going up â not the prices that aren't. And you're not wrong to think that most of the goods that are becoming more expensive are becoming more expensive at a faster rate than that. It's just that those price increases are offset by price declines elsewhere.
Another issue is that when firms cut prices, they generally do so a bit on the sly. Sales will be 20 percent off rather than 15 percent off. Or the sale will last two weeks instead of one. Or the markdown will be extended to a larger number of items.
These discounting tactics are designed to maximize revenue from less-thrifty shoppers. But they're also meant to make you feel subjectively like you got a good deal through your own personal thrift and diligence. That same feeling, however, tends to blind you to the reality that if you are finding more great deals lately probably everyone else is too. Prices are falling and you just don't realize it.
Source: http://www.vox.com/2014/7/22/5926079/inflation-perceptions-frequency-bias
Determine whether prices increases or price decreaese more salient? (that is, which do we more readily remember)? Why?
The overall CPI is an average, that includes considerable variance. The price of lamb and mutton, for example, is down over 13 percent on the past year. But the price of beef is up 10 percent. The upshot is that most of the rising prices are rising at a rate that's faster than 2 percent. And when you think about inflation, you're probably thinking about the prices that are going up â not the prices that aren't. And you're not wrong to think that most of the goods that are becoming more expensive are becoming more expensive at a faster rate than that. It's just that those price increases are offset by price declines elsewhere.
Another issue is that when firms cut prices, they generally do so a bit on the sly. Sales will be 20 percent off rather than 15 percent off. Or the sale will last two weeks instead of one. Or the markdown will be extended to a larger number of items.
These discounting tactics are designed to maximize revenue from less-thrifty shoppers. But they're also meant to make you feel subjectively like you got a good deal through your own personal thrift and diligence. That same feeling, however, tends to blind you to the reality that if you are finding more great deals lately probably everyone else is too. Prices are falling and you just don't realize it.
Source: http://www.vox.com/2014/7/22/5926079/inflation-perceptions-frequency-bias
