Sound Economics

Last week I talked about ambiguity aversion; how we prefer known risks to unknown risks. Although guilt aversion does not revolve as much around probability, it does play a large role in gift giving and shopping. To put this idea into context, behavioral economist Dan Ariely describes a scenario in which you encounter a coat at a store that you would like to buy, but realize it’s twice as expensive as you originally guessed and decide you cannot justify buying it. You get home to see that your significant other has bought you the exact same coat out of your Continue reading Is Amazon Prime a Method of Guilt Aversion?→

It seems like one can’t go anywhere on the internet without being exposed to some sort of obnoxiously catchy title that is practically begging to be clicked on. Whether it’s a slideshow of before-and-after weight loss pictures that will “blow your mind,” or an article talking about an obsolete cultural phenomenon that “only 90s kids will understand,” these links have permeated nearly every social media site and search engine. These attention-seeking articles are known as linkbait. Linkbait (also known as clickbait, although some people argue that they are different), is a type of digital advertising technique that showcases a story with a provocative Continue reading The Economics of Buzzfeed→

At first blush, Jeopardy and spreadsheets might seem like they don’t have a lot in common. However, together they illustrate the quantum leap economic automation is poised to take. NPR’s Planet Money recently ran a great episode on the genesis of computer spreadsheets. In a nutshell, before computer spreadsheets accounting clerks kept giant paper spreadsheets by hand. This was a laborious, error-prone system. Once computer spreadsheets arrived on the market, those clerical positions began to evaporate. However, non-clerical accounting positions expanded rapidly. The computer spreadsheet also allowed the financial sector to grow rapidly. So there was a loss of jobs due to automation, Continue reading Spreadsheets, Jeopardy, and Automation→

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→