Predictably Irrational

Do you know why we still have a headache after taking a one-cent aspirin, but why that same headache vanishes when the aspirin costs 50 cents?

 This is a very interesting book

Ariely_Predictably_Irrational_The_Hidden_Forces_That_Shape_Our_Decisions

"Anchoring influences all kinds of purchases. Uri Simonsohn (a professor at the University of Pennsylvania) and George Loewenstein, for example, found that people who move to a new city generally remain anchored to the prices they paid for housing in their former city. In their study they found that people who move from inexpensive markets (say, Lubbock, 30 the fallacy of supply and demand The result was not due to wealth, taxes, or other financial reasons. 31 Texas) to moderately priced cities (say, Pittsburgh) don't increase their spending to fit the new market. Rather, these people spend an amount similar to what they were used to in the previous market, even if this means having to squeeze themselves and their families into smaller or less comfortable homes. Likewise, transplants from more expensive cities sink the same dollars into their new housing situation as they did in the past. People who move from Los Angeles to Pittsburgh, in other words, don't generally downsize their spending much once they hit Pennsylvania: they spend an amount similar to what they used to spend in Los Angeles. It seems that we get used to the particularities of our housing markets and don't readily change. The only way out of this box, in fact, is to rent a home in the new location for a year or so. That way, we adjust to the new environment— and, after a while, we are able to make a purchase that aligns with the local market."

 We were Paying 1200 $  per month in Del Rio for a 3 bedroom independent house and had  a contract which was renewable month to month.

when  we had to move to  Big spring which was actually a smaller place we expected  prices to be  cheaper  but in fact thing wee more costly very few houses were  for rent and  we  had  to settle for a smaller house for 1500$ Per month and a 12  month  contract.

"I suspect that the price changes would make a huge impact on demand if people remembered the previous prices and noticed the price increases; but I also suspect that without a memory for past prices, these price changes would have a trivial effect, if any, on demand. If people had no memory of past prices, the consumption of milk and wine would remain essentially the same, as if the prices had not changed. In other words, the sensitivity we show to price changes might in fact be largely a result of our memory for the prices we have paid in the past and our desire for coherence with our past decisions—not at all a reflection of our true preferences or our level of demand."

This is true for  every  new immigrant who lands  in USA  from  India and probably  other lower and  Middle income countries.

We automatically convert the US $ prices in to Indian rupees and will be quite stingy  with our spending for a number of years,which makes it very frustrating  for  our  kids who were born and bought up here and who are used to spending much more than we did .

"So, WHERE DOES this leave us? If we can't rely on the market forces of supply and demand to set optimal market prices, and we can't count on free-market mechanisms to help us maximize our utility, then we may need to look elsewhere. This is especially the case with society's essentials, such as health care, medicine, water, electricity, education, and other critical resources. If you accept the premise that market forces and free markets will not always regulate the market for the best, then you may find yourself among those who believe that the government (we hope a reasonable and thoughtful government) must play a larger role in regulating some market activities, even if this limits free enterprise. Yes, a free market based on supply, demand, and no friction would be the ideal if we were truly rational. Yet when we are not rational but irrational, policies should take this important factor into account"
 I think this is something  Arun Jaitely the finance minister of India needs to take in to consideration. Indian Government needs to look closely at the exorbitant prices demanded by the various Arms suppliers and even the  commodities and energy suppliers and their demanded prices