Fundamental Attribution Error

You should read this post by Greg Mankiw (economics professor at Harvard).

Here is an excerpt:

"In the psych class I've been auditing, Steven Pinker yesterday talked about a phenomenon called the fundamental attribution error. When evaluating others, people have a tendency to overestimate the importance of personal characteristics and underestimate the role of situation.

Example:Why am I smiling? Because it is a sunny day.
Why is he smiling? Because he is a cheerful person.

I wonder if this common error can help explain some unfortunate impulses in economic policy.

Example:Why did I raise my price? Because demand increased more than supply.
Why did the gasoline station raise its price? Because oil companies are greedy price gougers."

This is an especially big problem among a growing swath of anti-market, anti-understanding-anything-about-economics lawmakers. It is also the main flaw of those who rail against price gouging and globalization, and protest in favor of fair-trade, "living" wages and more government regulation of prices. These people fundamentally believe that prices are not determined by marketplace forces, but rather by greedy people taking advantage of others. With that sort of mindset, who wouldn't support passing a law that would cause people to be more generous and kind-hearted?