What Are Behavioral Economics? Or Why Johnny Lingo Paid Eight Cows for His Wife

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From a Human Resources standpoint, Behavioral Economics occurs when an employer pays its workers more than what the current market demands, on the premise that the more valued the workers feel, the better they will perform.

Patricia McGrerr‘s  famous short story “Johnny Lingo’s Eight-Cow Wife” (Women’s Day, November 1965) is a good example of this principal. On the Pacific island where Johnny Lingo lived, a man could purchase a decent wife for two to three cows. A highly satisfactory wife could be had for four to five cows.  Sarita, the woman Johnny wanted to marry, was plain and skinny and, in the opinion of most islanders, worth only two cows, three at most.  To everyone’s amazement, Johnny paid eight cows for her.

After Johnny and Sarita wed, she became a beautiful, charming woman, one of the finest in the village. Johnny attributed her transformation to the price he had paid for her.

“Do you ever think,” he asked, “what it must mean to a woman to know that her husband has settled on the lowest price for which she can be bought? … I wanted Sarita to be happy, yes. But I wanted more than that. … Many things can change a woman. Things happen inside, things happen outside. But the thing that matters most is what she thinks of herself. In Kiniwata, Sarita believed she was worth nothing. Now she knows she is worth more than any other woman in the islands.”  

In theory, the more valued your employees feel (as reflected by their salaries), the more they will value themselves and their skills and the more likely they are to live up to your high expectations.

This is just one aspect of Behavioral Economics, the main gist of which is that humans do not always behave in an economically rational way.  Johnny Lingo’s decision to pay eight cows for a wife who was originally worth no more than two or three was anything but rational.

The sometimes irrational and, therefore, unpredictable decisions people make in regards to finances and economics can be a force for good (the transformation of Johnny’s wife) or for evil. Many economists blame the crash of 2008 on the irrational decisions made by banks and other organizations.

This theory of Behavior Economics plays an important role in Janet Yellen, our newly appointed Chairman of the Federal Reserve’s, approach to economics.

If this post is the first time you’ve heard of Behavioral Economics, it’s not likely to be the last, as Ms. Yellen takes over our nation’s economic reigns.

Only time will tell how many cows she is truly worth.

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