Wonka's Two Rules of Economics
When I was young I had an aunt who owned a sweet shop. When you are six years old, things don't get better than that.
Aunt Hatty was my very favourite aunt in the whole whole world -- and she was smart. She was always reading stuff and improving herself. She keenly felt her lack of formal education and wanted to make up for it.
She decided to teach me applied and behavioural economics, at the age of six. She probably taught me many things which I promptly forgot or never figured out in the first place. But two lessons remain with me to this day.
Lesson One
Whenever I visited Hatty, she would give me a choice between two sorts of sweet: I could pick either.
I knew those were the rules, and she always picked pretty good sweets. Then one day she changed the rules. I could pick any two sorts of sweet from the entire shop. Brilliant! My eyes grew as large as saucers as I contemplated the cornucopia of options. I must have taken ages to decide, because I could sense Hatty was becoming a little impatient. Eventually, I picked two and immediately regretted my choice. I was sure that I must have missed the best choice somewhere. I had missed out. I had lost. It was a disaster.
I had discovered the principle of restricted choice and regret. If we have too much choice, we will always fear that we have not made the best choice. With a restricted choice it is much simpler to decide which of two is the better. To this day when I am selling, I use the principle of restricted choice.
Give the buyer a simple, but limited choice. The more choice they have, the harder they will find it to make a decision and they often fail to make any decision at all. Less choice is better than more.
Lesson two
On one trip to her shop in Newark, she said I could have as much of any one type of chocolate bar I could eat. I had learned from lesson one and was prepared. I knew what I wanted. I wanted to eat her shop clean of Milky Bars, because the Milky Bar kid was really cool (despite his spots).
The first two or three Milky Bars went down so fast I could have won a speed eating competition. By the fourth I was slowing down. Somewhere around the sixth or seventh Milky Bar I was wondering whether I had had enough.
The heretical concept of "too many" began to trace its way across my consciousness. I banished the thought: I was not going to be defeated by the Milky Bar kid. No way, never.
To this day, there are family arguments about how many Milky Bars it took to defeat me. With each passing year, the total mysteriously seems to increase.
All I know is that by the end of the day, I never wanted to see another Milky Bar again. And I really hated the snotty Milky Bar kid. Hatty had very successfully introduced me to the ideas of utility and scarcity.
We value the scarce over the common; and the marginal value of extra anything decreases. The first £20,000 of income or spending is highly valued and well used. Adding £20,000 to a £1m budget or to an executive earning £1m a year, and the money simply disappears down a black hole. Once again, less is more.