Economists have long been divided by a simple problem. When you go to the movie theater, soda and popcorn costs a totally unfair price compared with other locations. This just tortures economists. At least 1 million man-hours have gone into trying to solve this problem. Economists understand that a first-class ticket on an airplane costs more than coach. They get that one. Its marginal utility. But they cant figure out the movie theater to save their lives.
Here’s the Munger approach to the problem. In the auto world, a car manufacturer will sell a car for $40,000, and charge $200 for the extra gizmo. No one cares about the extra $200 when you’re already spending $40,000. Its insignificant. The movie theater is basically the same thing. People are OK paying that much for a soda after they’ve paid so much for an admission ticket.
Now, psychologists can explain this clearly. Economists can’t for the life of them. Its so simple what happens when you think beyond your trained field. Its amusing to see someone spend 1 million man-hours on something I can solve with my left hand.
– Charlie Munger
I dig the guy. He’s a little angry-cynical, but often right. I wonder about his million man-hour claim on the above problem.
You can read both parts of his last annual meeting by going through Google (to get around the registration process Motley Fool has): http://www.google.com/search?q=charlie+mungers+thoughts+on+the+world+part+motley+fool