Links for 15th February, 2019

  1. “This sounds boring, you might conclude. It sounds like work, and it sounds like life. Perhaps we should get used to it again, and use it to our benefit. Perhaps in an incessant, up-the-ante world, we could do with a little less excitement.”
    And also…
    “In a much-read story in The Times, “The Relentlessness of Modern Parenting,” Claire Cain Miller cited a recent study that found that regardless of class, income or race, parents believed that “children who were bored after school should be enrolled in extracurricular activities, and that parents who were busy should stop their task and draw with their children if asked.”
    An article written in praise of boredom, and I couldn’t agree more. Every now and then, it makes sense to get a little (or plenty) bored.
  2. “Back in November, Instacart changed how it paid its delivery workers, saying that it would provide them with an “earnings estimate, and a minimum $10 payment for their work. The controversy arose when it became clear that part of that $10 minimum payment was coming from tips that customers left for their Shoppers, allowing the company to pay less towards that minimum payment. Faced with lower weekly earnings, Shoppers complained, and the company said that it would keep tips separate from that minimum payment.Amazon and DoorDash have similar policies, and despite that outcry at Instacart, they have indicated that they’re sticking with them.”
    Not only a PR disaster, which it is. But also a great way to work through your understanding of elasticities of supply and demand.
  3. “More to the point, having big aircraft puts downward pressure on ticket prices. Carriers typically like to fill up at least four-fifths of their seats to maximize the revenue on each flight. The bigger the aircraft, the more discounting and promotions sales teams need to do to hit this target — one reason that the trend elsewhere in the industry has been away from the A380 and Boeing 747.”
    And if the second link above whetted your appetite about using concepts of elasticity in the world outside – then this article about large airplanes, availability of alternatives and changing partnerships will be quite useful.
  4. “The economy of favours that he describes in long, carefully researched chapters on the genesis of the Genco Pura Olive Oil company was familiar, too, because that was how much of New Delhi and north India’s business clans worked and still work, stepping in to dispense justice, protection, retribution where the government either failed or was absent.”
    There is always a rule of law in society – that may well be a definition of society. That law need not always come from government – where governments are weak, other institutions will step in to form, change and enforce the law. That’s the Godfather, and that’s why it is such a great read.
  5. “A welfare state makes sense if it means the state providing education and health care for all. Alternatively, handouts are affordable in a lower-middle income economy if you divert money from the less deserving, or if the promised benefits are not open-ended so that you don’t get a runaway bill. Without any of these, the old question begs an answer: Should you give a man fish, or teach him how to fish? Lurking hidden in the new bout of welfarism seems to be an admission that the state can’t deliver for the poor anything other than cash.”
    The earlier part of the article points out statistics that show how much India has grown over the past decade and a half. But competitive politics and botched policies mean that we’re once again in dole-out season. The more things change…
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Update from Day 1, Beh Econ

Teaching undergraduates is a whole lot of fun, because generally speaking, their curiosity hasn’t been completely killed just yet. And this seems to be true with the people who have chosen to attend the behavioral economics workshop as well – they’ve (hopefully voluntarily) chosen to spend their afternoons attending a workshop over the course of every workday this week. Catch ’em young!

We kickstarted things yesterday by speaking about ways and means to think about microeconomics in a rather conventional sense. I chose to not bore them to death by talking about utility functions and all of that, firstly because it is the worst way on the planet to get people thinking about economics, and secondly because they are all economics students to begin with – the indoctrination has been done by their colleges already.

I spoke instead about the Choices, Costs, Incentives and Horizons framework, which I have spoken about earlier on the blog. Within each of these concepts, however, I added a sprinkling of behavioral economics. What, for example, are your choices when confronted with a buffet spread?

And how long before you realize, if at all, that not eating it is also a choice? Sometimes, being presented with a choice to consume blinds us to the option of not doing so – which explains why checkout counters at supermarkets tend to have chewing gum on sale.

When it comes to costs, we spoke about opportunity costs and how it is often misunderstood – the people attending the workshop are paying me the fees of the program, plus they are paying fifteen hours of their time. Fifteen hours that they could have spent doing something else.

In addition, we spoke about sunk costs. My favorite example is of how I and my wife were finally able to go out for a movie together after the birth of our daughter – and we ended up watching Happy New Year. And yet, even though the movie was tripe of exceptional quality, we chose to sit through the whole thing. Neither of us enjoyed the movie, and by the end, every second was exquisite torture, but we went through the whole experience. This after I’ve been teaching the concept of the sunk cost fallacy for over a decade.

Incentives are both fairly well understood and applied in conventional economics – but how about negative incentives? Rather than reward yourself with a nice shirt if you lose weight, how about allowing a friend of yours to post a picture of you on Facebook where the paunch is especially noticeable? Which is likelier to be more effective?

Finally, horizons: exercise today evening, or finish an episode of your favorite series on Netflix? We tend to go for short term pleasure over long term gains – and that is to our detriment in the long run. But our brain, unfortunately, is not trained to think about long term consequences.

Finally, we spoke a little bit about signaling and it’s importance to us. That’s a topic deserving of a separate blog post entirely, but I will ask you guys a question I asked everybody in class:

Imagine you are able to attend the best college in the world, and are able to handpick the people who will teach you whatever courses you want. The ideal education, structured just the way you want it. The only problem is, you won’t get a degree at the end of it. Or, you could get, right here and now, a degree of your choice from whichever college you like – but you will not be able to attend a single class. Which of these options would you pick?

The question is based, of course, on a question that Bryan Caplan asks in his excellent book: The Case Against Education. Let me know your answer, I am genuinely interested.

Finally, we spoke about Kahneman’s “fast and slow” thinking. How and why it evolved the way it did, why it may have been of help in the fast, but isn’t much use in the world we live in today.

It was an exceptionally fun session, and hopefully it will continue in a similar vein for the rest of the week.