the principle of comparative advantage says it's better for a country to specialize in the products it's best at producing.
This is not quite right, just as saying "evolution changes organisms so that they act to preserve the species" is not quite right.
The reason it is called comparative advantage rather than absolute advantage is that a country could be better at everything and benefit from trade. The classic example is a high powered executive who is better at typing than his* secretary. It may still be better for him to to employ a secretary than to do his own typing. He could lose more by spending time typing letters - time that could be better spent making lucrative deals - than the cost of the secretary.
*An old example, reproduced in original form.
Subscribe to RSS Feed
= f037147d6e6c911a85753b9abdedda8d)
Regarding the "status quo bias" example with the utility company, I think it's fallacious, or at least misleading. For realistic typical humans with all their intellectual limitations, it is rational to favor the status quo when someone offers to change a deal that has so far worked tolerably well in ways that, for all you know, could have all sorts of unintended consequences. (And not to mention the swindles that might be hiding in the fine print.)
Moreover, if the utility company had actually started selling different deals rather than just conducting a survey about hypotheticals, it's not like typical folks would have stubbornly held to unfavorable deals for years. What happens in such situations is that a clever minority figures out that the new deal is indeed more favorable and switches -- and word about their good experience quickly spreads and soon becomes conventional wisdom, which everyone else then follows.
This is how human society works normally -- what you call "status quo bias" is a highly beneficial heuristic that prevents people from ruining their lives. It makes them stick to what's worked well so far instead of embarking on attractive-looking, but potentially dangerous innovations. When this mechanism breaks down, all kinds of collective madness can follow (speculative bubbles and Ponzi schemes being the prime examples). Generally, it is completely rational to favor a tolerably good status quo even if some calculation tells you that an unconventional change might be beneficial, unless you're very confident in your competence to do that calculation, or you know of other people's experiences that have confirmed it.
This exact thing happened to me last year. I signed up for a great new deal and now it has blown up in my face. The cost of safely switching from a fairly satisfactory status quo can be high - high R&D costs - especially when you are dealing with crooks and charlatans.