AMUSINGLY TRUE

One can easily notice the spurt in the common man's interest in the fields of economics and 

finance in the past decade or so, which has been fuelled by a number of factors. One of the 

important attributable factors among them is the relatively simplified economic theories 

presented these days by the contemporary economists such as Thomas Friedman, 

Malcolm Gladwell, Steven levitt,Nassim Taleb et al, who rather classify themselves as popular economists.

 

Among those theories, some of the most interesting or rather amusing ones have been compiled 

below. Amusing though, one cannot deny the veracity of the logics upon which these theories are 

based:

1.Latte Factor:- The latte factor derives it's name from the famous hot coffee drink and has 

been given by David Bach. It is used to describe the seemingly small daily expenses like 

latte,cigarettes,magazines etc. which add up to a significant amounts over time.David further 

argues that one can end rich, just by taking care of these small daily expenses. 

2.Big Mac index:- The Big Mac index is a measure of the purchasing power parity between two 

currencies(in simple words, to measure the currency conversion ratio of two economies).The 

index is based on the assumption that the Big Mac burger sold at McDonald's is a uniform 

product worldwide and therefore the ratio of the prices of the Big Mac burger sold in two 

countries should be the same as the relative value of their currencies.

3.Greater Fool theory:- The greater fool theory explains the irrational high price of a stock 

purchase, which the buyer buys not because he believes that the stock is worth it but because 

he believes that there must be a bigger fool in the market who would purchase the stock from 

him at an even higher price.

4.Golden Arches theory:- The golden arches theory of conflict prevention given by Thomas 

Friedman in his bestselling book "The World is Flat" states that no two countries went to a war 

with each other after each got a McDonald's. The logic behind this goes as that when a country

has reached an economic status where it's middle class is strong enough to support a McDonald's 

network, it will not be interested in fighting wars anymore. 

5.Dell theory of conflict prevention:- It could be said to be a predecessor of the golden 

arches theory and was given by Friedman in his earlier, rather less famous book "The Olive And 

The Lexus Tree". Going on the same lines, it states that no two nations that are both part of a 

major global supply chain like Dell’s, will ever fight a war against each other as long as they 

are both part of the same global supply chain. 

6.The wisdom of crowds:- James Surowiecki argues in the book titled by the same name that a 

group of people can better guess the weight of a cow or an oscar winner than even the experts 

can do,individually. The "Dumb Agent Theory" corroborates the theory further by stating that 

the selling and buying decisions of a large number of people will better reflect the true value 

of a stock than the selling-buying decision of an individual.