The relativity of values causes us to use money irrationally. I go to the supermarket to buy a $15 pen, and the clerk smiles and says, “You can buy this pen for $7 if you walk 5 minutes from here.” Then, most people walk five minutes and buy a $15 pen for $7. But if you want to buy a $1,000 jacket and the clerk smiles and says, “You can get a $992 jacket in five minutes from here,” most people simply buy the $1,000 jacket. Reasonably, walking for 5 minutes equals the effort, and the profit of $8 is the same. However, people might go to a store that sells pens cheaper, but not for the jacket, because the discount rate is too low. In other words, the relativity of comparing values makes us act irrationally. The pen’s discount rate is 55%, and the jacket’s is only 0.8%. Yet, the total amount is the same for all $8, and the effort to gain that profit is identical. Attitudes and misconceptions about consumption influence how we build wealth. - Joseph’s “just my thoughts”
One reason for the Dutch’s wealth was the strong trust between the merchants and sailors responsible for trade. Captain Willem Barentsz failed in 1596 while attempting to open a northeast route to the Far East via Novaya Zemlya in the Arctic Ocean. An accident occurred in which 8 out of 18 sailors died after being trapped in glaciers at temperatures of -40 degrees for 8 months, marking a setback for the development of a new maritime route. However, the captain and crew did not disturb the cargo, and on June 13, 1597, they split into two small ships and escaped the glacier. Fifty days later, they were rescued by a Russian merchant ship. Captain Barentsz died on the journey home, but the crew returned the consigned cargo to its owners intact after getting home. Trust means taking your life as collateral. Business is built on this trust. - Joseph’s “just my thoughts”