Thursday, October 06, 2005

The vast gap between action and insight - US homeowner edition

The gap between action and insight is a fundamental tenet of anthropology and of sociology. When you ask someone what they do, or why they do what they do, their honest responses are often contradictory or nonsensical. The anthropologist's task is to understand the fundamental cause for behavior and to reconcile that with the stated explanation.

Nowadays economists wrestle with this topic. DeLong provides a delightful example:
Brad DeLong's Website: What Do Homeowners Expect

Its fair to observe (as a commentor did at Matrix) that 'only 10% said their spending had increased with the value of real estate, yet 50% had taken out loans against their equity. Is there a contradiction here?'

That's more than a contradiction; Its the entire underlying premise for why I believe a) Real Estate has been the key driver to the US economy; and 2) why so many people -- professionals included -- do not have a firm grasp on the underlying economy.
If the respondents were self-aware and rational, then at least 50% (more, since spending may increase even if one doesn't take out an equity loan) would have answered that real estate values had increaed their spending. That awareness gap is very human, but also worrisome.

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