Two Very Interesting Theories

I simply love the kind of theories (or rather metaphors?) that explain human behavior in a cleaner fashion. Here are a couple from this pretty old post:

Keynesian Beauty Contest:

The contest will be won on popular vote, and people will vote in with their favorite choice.

On top of the winning contestant, there is a voter’s prize as well. If you vote for the winning contestant – you will then be eligible for a prize yourself. If you vote for a losing contestant, then you don’t stand a chance of winning anything.

If I am a voter in such a contest, I can do one of the two things:

I can vote for the prettiest contestant or
I can vote for that contestant who I think others will find most attractive. This will increase my chances for winning the voter’s prize.

The Greater Fools Theory:

I see a house in a dilapidated neighborhood, and the asking price for that house is half a million dollars. I know that the house is not worth that much, and I’d be a fool to buy it. However, if I can find a greater fool – who is willing to buy that house for more than half a million dollars, the deal won’t be so bad after all.

The Greater Fools theory happens very much in real estate. I have witnessed it myself. It also says to some extent that “people are fine with doing mistakes so long as others do the same mistakes” – collective intelligence, heh?

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