A cute Keynesian Experiment

NPR Money points to this interesting experiment it has conducted which looks at Keynesian thinking (HT: WSJ Econ Blog).

Last month, we asked you to participate in our economics experiment. On today’s podcast, we dive into the results.

Everybody who participated saw the same three animal videos. But people were randomly assigned to two different groups. One group was asked to pick the animal they thought was the cutest. The other group was asked to pick the animal that they thought was most likely to be voted cutest by other participants.

The results show 50% think the kitten video is cutest but 76% think others would votes for the kitten as well.

The inspiration for the experiment comes from John Maynard Keynes. He famously compared the stock market to a contest where a newspaper shows photographs of several different women, and readers try to guess which woman will be voted most attractive. So it winds up being all about guessing what other people will think.

This kind of thinking can contribute to bubbles. If everybody’s buying a stock just because they think everybody else is going to buy it too, the price can go through the ceiling — even if no one thinks the stock has any fundamental value.

So, some of the 50% may have said so because they think others would find it cute as well.

A cute experiment on Keynesian thinking…

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