The Economics of Spite

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What are the motives behind spite? Why are individuals willing to take on large costs in order to exact “revenge” on other? Is spite unique to humans? In an episode of the Freakonomics radio show called Spite Happens, an economics approach is used to explain spite and takes a look at the trade-offs behind the spite mentality. Warning! The beginning of this show contains a graphic example that includes sexual violence. If you’d wish to skip this, jump to 4:12. Imagine an experiment where individuals sit down in front of computers and are randomly paired up with another player. The players do not know each other Continue reading The Economics of Spite→

Bringing Perfect Competition to Life

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Agriculture serves as a perennial example of a perfectly competitive market. This type of market trades in a homogenous product, which means one producer’s output cannot be easily distinguished from another’s. Additionally, a perfectly competitive market has low barriers to entry/exit; beginning or ending production must be cheap and quick. Also, a large set of buyers and sellers participate in these markets, so individual players cannot move the market. Ideal agriculture meets all these criteria: one sack of potatoes is essentially the same as any other, planting decisions are often flexible, and crop markets are mostly well populated. Last semester Continue reading Bringing Perfect Competition to Life→

Congestion May not be the Biggest Problem in Road Development

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Road development is important in ensuring transportation is fast and efficient inside and outside of country borders. In most of the developing world, it would seem speed takes precedence over safety. An article in the Economist, highlights that deaths from road traffic accidents surpassed deaths from Malaria and Tuberculosis in most recent years. This is not the case in the rich countries. In particular Sweden has cut road deaths in half since 2000 and by four fifths since 1970. Banks and donors will fund large road projects, but there is little emphasis on the safety of these roads.The European Union Continue reading Congestion May not be the Biggest Problem in Road Development→

The Cobra Effect

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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→

Fed Chair Zero Bound

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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→

The Wrong Track

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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→

Getting it out of your System

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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→

What is Availability Bias?

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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?→