Category Archives: Economics

If you are familiar with the idea of risk aversion, our innate preference for a sure outcome over a gamble that would result in an equivalent or higher expected value, the concept of ambiguity aversion is very similar. It claims that people show a preference for known risks over unknown risks. Ambiguity aversion differs from risk aversion because it applies to situations in which probabilities of outcomes are unknown, while risk aversion is based on scenarios where a probability can be assigned to each possible outcome. The famous experiment used to describe this idea, the Ellsberg paradox, begins by presenting Continue reading Ambiguity Aversion: Avoidance of the Unknown→

Most stores have strict rules and regulations they follow when it comes to shoplifting. The purpose of loss prevention departments is to spot thieves and recover stolen items. When a person is caught or suspected of using the five-finger discount, many stores have the very limited right to make citizen’s arrests and/or search the individual (e.g. shopkeeper’s privilege). However, some stores are no longer arresting or searching suspected shoplifters, but instead giving people a choice: they can take a $320 class and walk out scot-free, or the store calls the cops. The Corrective Education Company (or CEC) is a Utah-based business founded Continue reading The Shoplifting Fee→

Twitch.com is a website where people watch other people play video games, which apparently has a large market. The reason why I am writing about Twitch.com is because of an experiment they are currently running on their public forums. A group of users has started a crowd sourced stock portfolio over the website. The portfolio strategy essentially is determined by a voting system over the forum. The mechanism for stock purchases is a random selection of the suggestions from the group on what stock to buy. A stock-picking robot will randomly select one stock that was voted for in the past 5 minutes and spend $10,000 Continue reading Crowd Sourced Stock Portfolio→

Anybody who has taken an economics course is familiar with the term “Perfect Competition.” It is a market structure in which there are many buyers and sellers, there is free entry and exit into the industry, firms sell an identical product, buyers have perfect information about the product being sold, and most importantly, firms are price takers, meaning that firms cannot control the market price of their product because of their equally small market share. Anybody who has taken an economics course also knows that perfectly competitive markets are virtually hypothetical and are basically just a benchmark to compare real-world Continue reading Mitumba and Perfect Competition→

I gave blood in the campus blood drive yesterday. On my way to the blood mobile, I was wondering (in a slightly apprehensive state) why am I doing this? What is my real incentive for going through with such an inconvenient and uncomfortable hassle? That question inspired me to look into these two Freakonomics articles (link 1, link 2) that investigate exactly that question. I was interested to find that Chinese citizens are paid, about $12 a go, for their donations. Interestingly, there are conflicting findings about the effect of incentives on US blood donations. An older study actually indicated Continue reading “A Pint for a Pint”→

Most people remember Beanie Babies: the cute floppy animals stuffed with beans. There were hundreds of kinds at the height of their time: dogs, cats, bears, fish, squirrels, etc. They were a huge part of late 90’s culture, and many Americans were desperate to have them. American adults… not children. In 1998, Beanie Babies had sales of $1.4 billion. Stores that carried Beanie Babies were being mobbed by collectors and sold out in days. People were investing their childrens’ college funds into them, and dedicating their time to day trading stuffed animals. It was madness. Why were people pouring their life savings Continue reading When the Beanie Baby Bubble Burst→

Although you might be the only person you’re thinking about when you buy bubblebath online with two day delivery from Amazon, it turns out that the speedy and time-guaranteed delivery of your soap is part of a pervasive  trend that’s having huge effects on the global economy. Last week, I stumbled upon two stories that really show how important the just-in-time delivery paradigm has become. The first, from NPR’s Planet Money, the supply chain that perishable roses follow to get from halfway across the world, where it’s the growing season, to flower shops in anticipation of Valentine’s day. For just this one day, prices can spike to Continue reading Two Stories about Just-In-Time Delivery… from Last Week→