Posts Tagged: Economics

May 10

Fines Can Make “Bad” Behavior Happen More Often (Instead Of Less Often)

From an article on daycares and late fees

The fines that most child-care centres now charge – typically $1 per minute – to discourage adults from being tardy may actually promote lateness, researchers have found.

“Certain cues can switch moral behaviour on or off,” says Samuel Bowles, director of the Behavioural Sciences Program at the Santa Fe Institute in New Mexico. “Charging for things often switches off moral behaviour.”

Bowles concluded that fines can undermine a parent’s sense of ethical obligation to be on time for the teachers. And lateness becomes “just another commodity” to purchase.

Bowles’s research assigns a moral measure to the incentive principle raised in Freakonomics, which cited a groundbreaking study on daycare fines in Israel. Shortly after six centres in Haifa began charging late parents, the experiment backfired spectacularly. Parents reacted by coming even later.

If you are interested in reading the paper this is based on it is "A Fine is a Price", by Uri Gneezy and Aldo Rustichini.

May 10

Ambiguity Aversion

A nice quote from Stephen J. Dubner and Steven D. Levitt

[Frank Knight] made a distinction between two key factors in decision making: risk and uncertainty. The cardinal difference, Knight declared, is that risk — however great — can be measured, whereas uncertainty cannot.

How do people weigh risk versus uncertainty? Consider a famous experiment that illustrates what is known as the Ellsberg Paradox. There are two urns. The first urn, you are told, contains 50 red balls and 50 black balls. The second one also contains 100 red and black balls, but the number of each color is unknown. If your task is to pick a red ball out of either urn, which urn do you choose?

Most people pick the first urn, which suggests that they prefer a measurable risk to an immeasurable uncertainty. (This condition is known to economists as ambiguity aversion.) Could it be that nuclear energy, risks and all, is now seen as preferable to the uncertainties of global warming?

If you are interested in reading the late Frank Hyneman Knight‘s "Risk, Uncertainty & Profit", you can read it here.

May 10

Light Physical Touch From Female Can Increase Financial Risk Taking

This doesn’t seem to be a sexual thing that only affects men. But seems to be something similar to the affect of a mother’s touch, that affects both men and women.

From ScienceDaily

A woman’s touch is all it takes for people to throw caution to the wind. [...] If a female experimenter patted a participant on the back, they’d risk more money than if she just talked to them, or if a man did the patting. The researchers think this comes from the way that mothers use touch to make their babies feel secure.
The researchers found that participants who were touched felt more secure and took bigger risks than those who weren’t — but only if they were touched by a woman. The effect was stronger for a touch on the back than for a handshake, but went away entirely for participants who were touched by a man.

The results suggest that a woman’s touch works the same on adults as it does on infants: making them feel more secure and more willing to take risks.

From the actual paper…

Physical Contact and Financial Risk Taking

Jonathan Levav and Jennifer J. Argo


We show that minimal physical contact can increase people’s sense of security and consequently lead them to increased risk-taking behavior. In three experiments, with both hypothetical and real payoffs, a female experimenter’s light, comforting pat on the shoulder led participants to greater financial risk taking. Further, this effect was both mediated and moderated by feelings of security in both male and female participants. Finally, we established the boundary conditions for the impact of physical contact on risk-taking behaviors by demonstrating that the effect does not occur when the touching is performed by a male and is attenuated when the touch consists of a handshake. The results suggest that subtle physical contact can be strongly influential in decision making and the willingness to accept risk.


Feb 10

Mood And Purchasing Behavior

Seems that a person’s mood can affect their purchasing behavior.

The paper is called "The Many Shades of Rose-Colored Glasses: How Positive Emotions Influence Desire for Consumer Products". Here’s an excerpt from ScienceDaily about it….

The authors studied how product preferences changed depending on whether a person was feeling pride, contentment, or a neutral emotional state. Some participants read a short story in which they imagined doing well on an exam, which is known to elicit pride. “We found that pride enhanced desire for public display products,” the authors write. “Feeling pride led people to want nice watches, shoes, and clothing for going out. However, pride did not enhance desire for home products.”

In contrast, the emotion of contentment led people to want products for their homes. “When people felt contentment, they were more attracted to products such as beds, dishwashers, and clothing for lounging around the house,” the authors write. They were less enthusiastic about public display products.

“Our findings suggest that shoppers are likely to want to buy different products depending on the specific emotions that they are feeling,” the authors write. “If a retailer is selling products that allow the consumer to ‘show off’ to other people, this retailer may want to induce feelings of pride through store atmospherics or advertising. In contrast, a retailer selling primarily home furnishings might want to try to induce feelings of contentment.”

Feb 10

Why Do Some Guys Work Hard At School And Career? To Impress Women!

An interesting paper from Eric D. Gould. Although not a surprising result. And shows there may be “some truth” to the claim that: men have built civilizations in order to impress women.

Of course, not all guys work hard at school and career. But some do. And with those guys who work hard at school and careers, it seems their motivation tends to be to impress women. (Just to be specific, my impression is that this doesn’t imply they will take just any women. But that they are trying to impress and get their “ideal” women.)

Marriage and Career: The Dynamic Decisions of Young Men

Eric D. Gould

Hebrew University, Shalem Center, Centre for Economic Policy Research, and Institute for the Study of Labor

This paper examines the extent to which human capital and career decisions are affected by their potential returns in the marriage market. Although schooling and career decisions often are made before getting married, these decisions are likely to affect the future chances of receiving a marriage offer, the type of offer, and the probability of getting divorced. Therefore, I estimate a forwardlooking model of the marriage and career decisions of young men between the ages of 16 and 39. The results show that if there were no returns to career choices in the marriage market, men would tend to work less, study less, and choose blue-collar jobs over white-collar jobs. These findings suggest that the existing literature underestimates the true returns to human capital investments by ignoring their returns in the marriage market.

(Emphasis mine.)


(H/T Eric Barker)

Jan 10

Hayek vs. Keynes Rap Video

Funny :-)



Jan 10

Minimum Wage destroying jobs again. This time in Samoa

In reading and blogging about Samoans and Football I noticed an excerpt from the article, that is yet another example of minimum wage laws destroying jobs.

Football has never been more important to the island than right now, because this season there’s been more than the usual trouble in paradise. The island may lose its tuna industry. One cannery, Chicken of the Sea, has left. And because the U.S. Congress wanted to help Samoa by imposing American minimum wage, Governor Tulafono is worried that the last cannery, Starkist, could look to other shores.

Tulafono said that some economists have estimated that 80 percent of the Samoan economy is wrapped up in tuna canneries.

“Eighty percent of everything that goes on around here,” he stressed, “is dependent on the prescence of the canneries.”

And they just lost one of those canneries on Sept. 30.

“What does that mean to you?” Pelley asked.

“Devastation,” Tulafono sighed.


UPDATE: There’s a video for this available. (H/T David Henderson)

Jan 10

How Do You Justify Theft (in France)

How do you justify theft? What if it is legal theft?

Well here’s how a member of the Government in France is justifying legal theft, in the form of taxation, on the revenue from online ads of technology companies like Google, Facebook, Microsoft, AOL, and Yahoo!….

The effort would aim to put an end to “the endless enrichment without payback,”


Nice rationalization. This seems to be an attempt appeal to people’s sense of “fairness” (in terms of moral instinct and moral psychology) except the only problem is, just what is it that these companies are suppose to be giving “payback” (to the Government in France) for? As far as I can see, they don’t owe the Government in France anything.

Jan 10

Camels vs Roads

A reoccurring theme in many fields of study (such as economics, genetics, memetics, and others) is that no one will ever have enough information to centrally plan things. The book “The 10,000 Year Explosion” provides another example of this….

Somewhere back in late classical times, the use of the camel was perfected — a better saddle was developed, for example, one that allowed camels to carry heavy leads efficiently. Throughout most of the Middle East and North Africa, camels were (after those developments) a superior means of land transportation: They were cheaper than ox-drawn wagons and not dependent upon roads. Over a few centuries, people in areas where camels were available abandoned wheeled vehicles and roads almost entirely. You can still see the effects in the oldest sections of some cities in the Arab world, where the alleys are far too narrow to have ever passed a cart of wagon. Europeans, not having camels, had to stick with wheeled vehicles, which were clearly more expensive, given the infrastructure they required. But as it turned out, wheeled vehicles — in fact, the whole road/wheeled vehicle system — could be improved. Back then, when the camels seemed so much better, who knew that someday there would be horse collars and nailed horseshoes, then improved bridge construction, suspensions that reduced road shock, macadamized roads, stream power, internal combustion engines, and ultimately the nuclear Delorean. The motto here is that sometimes the apparently interior choice has a better upgrade path [...]

Or put another way, the “invisible hand” tends to perform better than any form of central planning.

UPDATE: This passage was sourced from the book: “The Camel and the Wheel”, by Richard W. Bulliet.