:Fixed Point

Tim Harford points out that there is a shortage of Wii consoles (again). Tim dwells on why the price doesn’t rise, but I want to use the story to explain something of the mystery and usefulness of markets.

My wife and I are thinking of buying a Wii this year. We’ve talked about it and we’re sure we’d enjoy it, but we’re naturally cautious people - neither of us got an Ipod until they were over a year old, and even then we only purchased the mini.

So, though we’re confident we’d enjoy the Wii, uncertainty remains. My wife has never been into computer games for example, so is basing her belief on what she’s read. Apart from a slight obsession with Quake 10 years ago, I haven’t been into computer games since I was a teenager. Though I did receive a Nintendo DS console as a gift for my birthday, which is very enjoyable.

Any remaining uncertainty I don’t think is going to be reduced by reading any more information. And we don’t have time to go and hire a console to try it out. But on hearing the news that the Wii continues to be popular, we are more likely to buy it. Why? Because its price, and the fact is in short supply over a year after its launch, convey very useful information.

If the Wii had been priced to make supply equal demand (say £500), there would have been no shortage and it’s likely only the committed would have bought it. These would typically be early adopters of technology (rich geeks); gaming fanatics (geeks) and people who just like to jump on any bandwagon going (stupid and rich geeks). It isn’t so much the expensive price in itself that is off-putting to us, but the interferences we draw from the observed market behaviour that tells us “this product isn’t for us”, i.e. we aren’t geeks.

Now the Wii isn’t sold at a high price, and there is still a shortage. That kind of tells me that lots of ordinary people are probably after it. We are like ordinary people so the actual market behaviour now tells me I’m likely to enjoy this product. Nothing anyone told me reduced my uncertainty; it was simply looking at what’s happening in the market. If there’s a benefit of free markets that’s often overlooked, it’s their power to tease out information and reduce uncertainty in our lives.

Of course, we may still be disappointed, but, and this is my rather random lesson for happiness theory. I’m sure a large part of enjoying life is having consumer surplus, i.e. getting more value out of a product than you paid for it. Now you can’t control the price, but you can, sort of, control value because it’s a function partly of expectation as well as actual use of a good. Excitable and enthusiastic queuers are likely to have very high expectations which can’t possibly be matched. They also probably haven’t given much time as to whether they really need the product.

I tend to wait. Bitter experience has taught me there’s not value to being an early adopter. I knew I’d never really use 40GB of Ipod memory, despite having over 250 albums, so I waited. I waited until the excitement had worn off and Apple bought out a product more clearly matched to my needs. The Wii hasn’t changed, but in this case, the market has helped shape our preferences more clearly. I am more confident today that if we buy it, we’ll enjoy it more than if we’d bought it last year.

There are apparently two inscriptions at the Temple in Delphi: ‘know thyself’ and ‘nothing to excess’. Taken together they form eminently sensible advice for anyone who wants to solve the happiness problem without interfering with markets.