The bloggers at Sound Economics would like to thank all of the readers who have picked up on our musings and perspectives on the world of economics over the last few weeks. This coming January, we will be picking up right where we left off! See you there!
Have you ever tried to help someone but by intervening you just made everyone worse off? Though your intentions were good, your actions had unforeseen and unintended consequences? Are you ever left wondering how your plan could have gone so poorly? If you answered yes to the above questions, then join the club of those who have fallen victim to the cobra effect. The cobra effect refers to instances when the solution to the problem actually makes the problem worse. This is not to say the solutions were shortsighted or based on poor logic. It is merely that people react Continue reading The Cobra Effect
Janet Yellen—recently nominated to be the next Chairperson the Federal Reserve—is certainly breaking new ground. If her nomination is confirmed by the senate, she will be the first woman to lead the institution in its history. Her likely rise is especially significant in the field of central banking. According to CNN,12 of the world’s 160 central banks, only about 6%, had female governors last year. But although her gender shatters the historical norm of Fed chairs, she also carries on a curious pattern in that office—through her stature. It seems that our head central bankers keep getting smaller and smaller. Paul Continue reading Fed Chair Zero Bound
In Simpler: The Future of Government, Cass Sunstein sets the behavioral economics stage by framing the impacts of either staying the course or effortfully taking an action. Often, the choices we make can be thought of as either “do nothing” (and stay the course) or “do something” and decide to engage in a particular action. So the decision to eat a brownie might be a decision between saying the course (not eating because I’m ok with the status quo) and taking the action (chowing down). Many of us are particularly inclined to do … well … nothing. This effect, the status quo bias, has been well-documented. Since it Continue reading The Wrong Track
I stumbled upon this interesting Freakonomics podcast that discusses the effects of video games and the internet. Dubner and Levitt would like to argue that playing video games may reduce the level of outward violence seen in adolescent males. This may happen because they are “getting it out of their system” by playing a violent game. If an adolescent boy (as the example goes in the podcast) is playing video games, then he cannot be out doing anything else, including violent crimes. The extreme case is that the child does not have time to commit any violent crime. The podcast Continue reading Getting it out of your System
The way we develop our own ideas of the likelihood of an event happening can be greatly influenced by the environment around us. These “subjective probabilities” then form the basis of decisions we make when there is risk involved – but if these probabilities are off, we can end up making decisions that are off the mark. The concept of availability bias describes how new or recently observed information can skew your perception of an event’s probability. This can occur subtly and surprisingly easily. Imagine your decision whether or not to purchase a lottery ticket. Most tickets have the odds right on Continue reading What is Availability Bias?
Registration and advising appointments for second semester are on the docket here at Puget Sound. In fact, I just signed up for one myself. I expect to discuss what classes I want to take next semester and how they fit into my overall academic plan. We will probably touch on my intended major and make sure I’m still on track to achieve it. In discussing my academic plan, I expect to be asked about how well I am doing in my classes and how much I enjoy them. This is how the discussion went in September. And also, judging from Continue reading A Major Decision
In 2010, the DOW Jones industrial average took a sharp dive in what is referred to as the “flash crash”. In a matter of minutes, the DOW Jones dropped by about 600 points. High Frequency Trading seems to be one problem that exacerbated the sudden price swings. But what is High Frequency Trading? As pointed out in Jonathan A. Brogaard’s paper, it doesn’t exactly have one: “Even the Securities and Exchange recognizes this and says that high frequency trading ‘does not have a settled deﬁnition and may encompass a variety of strategies in addition to passive market making’”. Essentially, though, it Continue reading Recent Thoughts on High Frequency Trading
In a world that wastes one-third of its food each year, how is it that hunger is still one of the leading preventable causes of death worldwide? Apparently, according to an article in Foreign Policy, how food gets wasted depends on where you live. In developing countries, consumers tend to not waste much food because food consumes a much larger portion of personal income. Much of the waste comes from the production side where “crops are inefficiently farmed with outdated tools, and often harvested early because farmers are under economic and climactic duress. To get meat, fruits, vegetables and Continue reading Food for Thought
Gender discrimination can be see in a number of ways, and often times these social barriers lead to market failures. Gender inequality in education has been shown to stunt economic growth and development. A recent article in the Economist provides empirical findings from Britain’s Department of International Development that show that an increase in enrollment for women in education caused and increase in annual income per head. Björkman-Nyqvist claims that in times of economic hardship, girls are more likely to be removed from schooling than boys. The author uses evidence from Uganda showing a relationship between average rainfall and school enrollment Continue reading Gender Inequality in Education