Hedge funds aren't a commodity and banks do make razor thin margins on deposits - their big margins come from other parts of the business that are more idiosynratic and subjective, like sales and trading & investment banking.
A carpenter, at the end of the day, will have the product: A, and a lot of wood shavings: A-- (A-- is significantly less than A). You as a customer almost never will care what he is going to do with A--, although you paid the product, the materials.
That is what happens with banking. He promises to give you x% more money each year, which is A, and you wont care much about the % that he gets, A--, in comparison.
A-- is dwarfed in comparison to A, but actually is exceptionally high.
It's a powerful question - one that I suspect Elizabeth Warren could have run into looking at it from the consumer protection side, if she had been confirmed as head of the CFPB. If her campaign for Senate is successful, I (and many others) would be grateful if you would ask her that question, as the beginning of a useful inquiry is an understanding of the structural flaws that promote gaming the system.
I don't like banks as just a commodity. One of the biggest things a bank sells is security and trust. Do people often switch to an unknown bank if the bank is paying CD rates just a fraction higher? No, because they don't have the trust of the other bank. I know when I got to my bank the teller knows my name. It is familiar. People pay for that trust and familarity.
Consumers feel shifting gas prices in their gut. Gas prices are displayed clearly. When gas prices rise by $0.25/litre, it hurts & we can measure the hurt by the amount of cash leaving our wallet or our Visa bill rising. Gas has a gut-smacking price.
Consumers and investors do NOT feel shifting mutual fund management expense ratios (MERs) in their gut. Increasing MERs from 1% to 3% will be hidden in fine print in our mutual fund reports. No gut-smacking pain here.
I used to follow the banks in the UK and the their price to earnings ratios was quite mediocre. About 10-12 (this was pre 2008) - So I don't believe you can rationally just glance at the headline profit number. As the person below says, we can look forward to your research on this topic ? One factor that is prohibitive in the competition problem u do outline is the barriers to entry - legislation, technical knowledge - businesses can learn not to go after mkt share in this situation.
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Hedge funds aren't a commodity and banks do make razor thin margins on deposits - their big margins come from other parts of the business that are more idiosynratic and subjective, like sales and trading & investment banking.
enzoslashslash 3 months ago
Comment removed
enzoslashslash 3 months ago
Can you run for president please.
quakerninja 3 months ago in playlist More videos from danariely
A carpenter, at the end of the day, will have the product: A, and a lot of wood shavings: A-- (A-- is significantly less than A). You as a customer almost never will care what he is going to do with A--, although you paid the product, the materials.
That is what happens with banking. He promises to give you x% more money each year, which is A, and you wont care much about the % that he gets, A--, in comparison.
A-- is dwarfed in comparison to A, but actually is exceptionally high.
ultraverydeepfield 5 months ago
Comment removed
ultraverydeepfield 5 months ago
My interpretation. You described already that humans compare things to each other like A to A-. B is left out. This is also crucial here.
ultraverydeepfield 5 months ago
It's a powerful question - one that I suspect Elizabeth Warren could have run into looking at it from the consumer protection side, if she had been confirmed as head of the CFPB. If her campaign for Senate is successful, I (and many others) would be grateful if you would ask her that question, as the beginning of a useful inquiry is an understanding of the structural flaws that promote gaming the system.
Thank you!
theinnerbadger 6 months ago
I don't like banks as just a commodity. One of the biggest things a bank sells is security and trust. Do people often switch to an unknown bank if the bank is paying CD rates just a fraction higher? No, because they don't have the trust of the other bank. I know when I got to my bank the teller knows my name. It is familiar. People pay for that trust and familarity.
hometv1970 6 months ago
Consumers feel shifting gas prices in their gut. Gas prices are displayed clearly. When gas prices rise by $0.25/litre, it hurts & we can measure the hurt by the amount of cash leaving our wallet or our Visa bill rising. Gas has a gut-smacking price.
Consumers and investors do NOT feel shifting mutual fund management expense ratios (MERs) in their gut. Increasing MERs from 1% to 3% will be hidden in fine print in our mutual fund reports. No gut-smacking pain here.
jakejones111 6 months ago
Dan Ariely telling it like it is. I think we all know the answer to those questions, but I like the diplomatic approach.
DJGelbart 6 months ago
I used to follow the banks in the UK and the their price to earnings ratios was quite mediocre. About 10-12 (this was pre 2008) - So I don't believe you can rationally just glance at the headline profit number. As the person below says, we can look forward to your research on this topic ? One factor that is prohibitive in the competition problem u do outline is the barriers to entry - legislation, technical knowledge - businesses can learn not to go after mkt share in this situation.
Hythloday71 6 months ago
I'm looking forward to seeing your research on this topic.
syzforever 6 months ago
thought provoking
Keylimedelight 6 months ago