Archive forBehavioral economics

Incentives of spending your own money

http://www.moneyweek.com/investment-advice/how-to-invest/getting-started/money-morning-take-control-of-your-own-money-61800

While not traditionally an article, I think this little blog post says a lot about people and how they spend their money. How the rational consumer will seek to spend their money in the best way possible to maximize gain. Yet when your money is in someone else’s hands, that incentive is lost and corners are cut. This could possibly be applied to how people view the government, collecting taxes and not providing the return as expected.

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Wall Street Job Reductions Seen Persisting After Citigroup Cuts

This article has been published in Bloomberg Businessweek by Michael J. Moore, Christine Harper and Ambereen Choudhury. I found the article interesting, because it evaluates the situation of the job market in Wall street. Basically, Wall street job reductions have been persistent during the last two years, erasing more than 300,000 financial industry jobs. I find it interesting to see how the stiffed economy in general reflects the labor demand and supply on Wall street. The article points out that the cuts and reductions have most probably been the result of  a “market slowdown, stiffer capital rules and weak economic growth” Unless the situation returns to normal and the markets pick up, there will be even more job reductions. It seems like Wall street, and everyone else in the financial industry sector is preparing for a transition, as the industry is likely to shrink as the analysts predict.

http://www.businessweek.com/news/2012-12-05/wall-street-job-reductions-seen-persisting-after-citigroup-cuts#r=bloomberg

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Europe’s Avoidable Collision Course

http://www.nytimes.com/2012/12/02/business/euro-zone-keeps-playing-a-dangerous-game.html?adxnnl=1&ref=business&adxnnlx=1354507282-X7o21w0ZjwrlOSUtt4wx8A

 

This article discusses game theory in a different way then we ever have in class.  It talks about the debt crisis in Europe and the aid that the better countries are providing to worse off countries   What i found interesting is how the author (Cowen our textbook author), categorizes the constant cycle of bailouts and spending prisoner’s dilemma of sorts.  It also discuses the potential outcomes of these constants bailouts, which could ultimately cause a crash in multiple economies in the Euro zone, which could in turn effect markets in all parts of the globe.

 

 

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The Economics of Love

http://www.economist.com/news/finance-and-economics/21564836-alvin-roth-and-lloyd-shapley-have-won-year%E2%80%99s-nobel-economics

As a hopeless romantic I found the above article at first very shocking (how could a money system be placed on true love?!) and then very interesting. The article goes over this years Nobel Prize winners for economics, Alvin Roth and Lloyd Shapely. Through economics research the pair found and derived algorithms that were both very useful and very shocking. These systems were then applied towards various markets and situations (not just choosing a partner) and turned out to be quite successful in some areas.

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Obesity: a positive externality or a negative externality?

Obesity is a positive externality.

http://www.economist.com/blogs/freeexchange/2007/07/a_positive_externality_of_obes

 

Obesity is a negative externality.

http://www.nber.org/papers/w11529.pdf?new_window=1

 

I just discovered a super interesting argument that the academic world has been arguing over a long term about whether obesity is a positive externality or a negative in terms of social welfare of our society.

The article in the Economist states a phenomenon that when you look at your friend become obese, you will probably exercise more and decide to avoid obesity, because your friend doesn’t look good, which acts as a signal to alert you not to become obese. The fundamental of this effect is that you are a rational person so that you compare the cost and benefit when you will decide whether or not you will eat more and become obese. When your friend who is obese doesn’t look good around you, you will consider that the cost of being obese is high enough for you to go out and exercise.

As a research doctor said:

Dr. Nicholas A. Christakis…a principal investigator in the new study, said one explanation was that friends affected each others’ perception of fatness. When a close friend becomes obese, obesity may not look so bad.  ‘You change your idea of what is an acceptable body type by looking at the people around you,’ Dr. Christakis said.

 

But how your perception of your friend being obese affect your decision depends on so many psychological factors, it is inconclusive to make an conclusion that the obesity negatively influences society as a whole.

 

Another paper analyzes the obesity is a negative social externality in terms of the health insurance. Obesity induces the social cost that other members will bear to the health insurance market. The reason is that the obese consume significantly more medical resource than the non-obese, but they all pay the same amount of health insurance premium. In the aggregated insurance pool, the obese impose a negative externality to the normal-weight individuals.

As far as I concerned, there are so many psychological conditions and decisions involved that it is hard to come to a absolute conclusion that whether or not obesity is a negative externality.

However, avoiding obesity is great and healthy style of life that we should all pick up.

 

Francis, Zixian Lin

 

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SLOW Economic Recovery

http://abcnews.go.com/blogs/business/2012/09/its-a-slow-economic-recovery-more-data-show/

 

Caroline Blank

section: 05

 

I think this is a pretty good assertion of the U.S. economy right now before going into the big election period. It’s pretty straightforward and even talks about unemployment, trade, and several topics we have been discussing in class. Growth appears to be slowing very much in China, Europe, and the U.S. as of recent. Our economy, in short, is moving at a slow pace due to the uncertainty that accompanies all of our spending decisions concerning taxes, policy, regulations, etc. Please comment if you have more recent information that would add to these assertions or that would be helpful in furthering our understanding of our current economic situation!

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Is TOMS a good economic model?

http://www.fastcoexist.com/1679628/the-broken-buy-one-give-one-model-three-ways-to-save-toms-shoes

While this article is a few months old, I feel like the topic is a perfect way for young students like myself to relate to economics. TOMS, which makes cloth shoes under the buy-one, give-one model, is a very popular charitable company today. I see a multitude of TOMS shoes on the feet of students here every day. However, this article argues that TOMS may not be as beneficial for the receivers of the shoes as it seems on the surface. The author states that shoes are merely a “band-aid” for the problem, not a real solution to any of the issues that face the people living in such a state of poverty that they have no shoes. A better solution would be to provide some way for the local economies to grow, diversify, or produce more effectively, leading to better health, sanitation, and education. Donation of shoes is symptomatic treatment, when the communities really need causal treatment.

Even though I agree that the TOMS ideology is really designed to make consumers feel better about themselves and their choices, the overall attack on such a charitable company seems a bit vicious to me. I see a clear reason for why TOMS are more popular than the other company mentioned, Oliberté footwear. Money generated for the building of economy or infrastructure in less-developed areas would be extremely useful, but yet it does not provide the same tangible benefit that a consumer can practically see when shoes are purchased. It is hard to look at a pair of $40 shoes and say, “A portion of the money I paid for these went to maybe a school or a hospital,” versus, “Because I have these shoes, a child in Argentina is not barefoot.” The issue really targets the issue of social interest vs. self interest.

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China’s Cutest, Scarcest Resource

Dexter Roberts is the Asia News Editor and China bureau chief for Bloomberg Businessweek.  In the following article he is dicsussing China’s one-child policy where each family is allowed to have only one child. An additional child would cost an average family about a close estimate to one’s annual salary(!). Some demographers, sociologists and economists argue against that policy. Others assure that the policy is vital for China’s economy and country as a whole.

http://www.businessweek.com/articles/2012-04-19/the-end-of-chinas-one-child-policy#p1

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Should the Government ‘nudge’ us to socially beneficial behavior?

The UK government has created a Behavioural Insight Team (or Nudge Unit) to search for ways to encourage people to act in ways that are more socially beneficial and will prevent them from regretting their choices.

http://www.guardian.co.uk/society/2010/sep/09/cameron-nudge-unit-economic-behaviour

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