Economics is incomplete.

One fundamental principle that many economic models build on, that we are all rational agents with clear preferences, is flawed.

Economics does not account for, among our many cognitive biases, our natural impulse of drawing comparisons, to a degree that irrelevant factors may influence our decisions.

Imagine this, say you are buying a $20 book, would you walk 15 minutes to another store if the other store is selling at $10? I would imagine most people would join me on this 15-minute walk.

But now say you are buying a 20,000 car, would you walk 15 minutes to another dealer if it is selling at 19,990, that is $10 bucks less? I would imagine most people would not care much about $10 of a $20,000 spending.

This is one of our many irrational behaviours. Being a rational agent, we should give the same answer in both situations. You are spending the same amount of time to save the same amount of money. Your decision should be made with respect to your income, that is the value of your time. What you are buying or how much you are spending, is irrelevant.

Economics does not account for, among our many cognitive biases, our natural impulse of drawing comparisons, to a degree that irrelevant factors may influence our decisions.

There are certain moral and civic goods that market allocation would demean the intrinsic value of the goods

And that is not it. At the core of economics is market. It is a fantastic tool to allocate goods and services. People want bread so people make bread. The more people buy bread, the less bread there is for people to buy, hence the more valuable each loaf of bread is, and so the more people make bread. This is beautifully efficient and these days we seem to use it for everything, even when the underlying good is not something as ordinary as bread.

But there are certain moral and civic goods that market allocation would demean the intrinsic value of the goods. How would you feel if I tell you that you can pay to kill to an endangered rhino, that you can pay someone to say your apology, that you can pay for an advertisement on a police car, that you can bet on whether a country will face terrorist attack, and as awkward as it sounds, that people are using the odds to predict where the next terrorist attack will be.

Maybe we have gone too far with market. As Michael Sandel said in his book, What Money Can’t Buy, we have drifted from having a market economy to being a market society.

I don’t think this is what Adam Smith envisioned when he wrote his magnum opus, The Wealth of Nations, and founded economics.