a basic public good game consists of a group playing together where each person has some money and can give some to the public kitty. the sum amount is then multiplied and divided back amongst the group. it creates a dilemma where you really should not contribute, keeping all of your money, but let everyone else contribute and get some of their money. of course, if everyone did this, no one would contribute and everyone would earn less than if they all contributed everything.

the game has been done a million times with many different manipulations. one manipulation is to allow others to punish free riders - those that didn't contribute - by reducing their earnings. this tends to increase contributions, maintaining them at a higher level than without punishment, and generally increase efficiency of the system.

but what of well-being? perhaps people prefer to live in a world without punishment? not the case, says a new study:

...harsher punishment possibilities lead to signifcantly [sic] higher well-being, controlling for earnings and other relevant variables. People derive independent satisfaction from interacting under the protection of strong punishment possibilities.

what does this say about humans? do we enjoy living in an environment where we can punish? or are punished? or can injure lazy people? a follow-up should separate satisfaction from punishing from satisfaction and reducing the incomes of their opponents... they attempted it with the hard vs. soft punishment (hard punishment reduced the punished's income much more at the same cost), and it seems to indicate that more than anything they enjoyed the hard punishment - that is, the more they could reduced the free rider's income, the more they enjoyed the game. and, although they controlled for income, can income really be completely separated from punishment when it increases along with income, and "causes" that increase?

Labels: economics, social

it seems a natural conclusion from the theory of temporal discounting is that individuals that expect to die soon should have high discount rates. that is, people in poor health will want things now, as opposed to in the future, even if the benifit now is slightly smaller. afterall, they may die before getting the future reward.

a new working paper suggests this is the case, but with a twist. they found high discount rates in the sick, but also in the very healthy. this is how they explain the high discount rate for health individuals:

according to Trostel & Taylor (2002) and Olsho (2006), the ability to enjoy consumption depends on an individual’s health, and the healthier an individual, the greater the enjoyment of the same commodity bundle. Because health generally declines over the life cycle, individuals should have a high subjective discount rate when healthy and, thus, enjoy the consumption while they still can.

also interesting, age was found to be significant for discount rate, but only until health was entered into the regression.

it's worth a read, although there are problems with the study such biased sample selection (mostly younger business owners).

related post on neural correlates of discounting

Labels: decision making, economics

a working paper indicates that the neurodegeneration involved in the early stages of alzheimer's disease does not alter typical behaviors in a dictator game.

in the dictator game, the patient had a certain amount of money and is given the option to allot some to another player. most people give at least some money to the other participant. it's a simple game, and the researchers were trying to see whether alzheimer's induces loss of "social" memory along with other memory losses.

results show no significant difference between alzheimer's and normal subjects, indicating that they (paraphrasing the researchers) continue to be bound by the same learned social norms despite loss of other types of memory.

how interesting is this for economics? probably not very. however, it's a good illustration of how economic games are now being used for other purposes, for better or worse. that is, it's still an open debate whether the dictator game says anything about norms (e.g. list 2007). saying a subpopulation conforms to social norms based on this game misleads their audience, who likely knows nothing of the dictator game literature.

Labels: economics, misc. psych

p.j. o'rourke has a great piece on adam smith's wealth of nations... on NPR, of all places. it's worth a listen.

Smith's logical demonstration of how productivity is increased through self-interest, division of labor, and trade disproved the thesis (still dearly held by leftists and everyone's little brother) that bettering the condition of one person necessarily worsens the condition of another. Wealth is not a pizza. If I have too many slices, you don't have to eat the Domino's box.

By proving that there was no fixed amount of wealth in a nation, Smith also proved that a nation cannot be said to have a certain horde of treasure. Wealth must be measured by the volume of trades in goods and services - what goes on in the castle's kitchens and stables, not what's locked in strongboxes in the castle's tower.

Labels: economics, well being

the BBC tells us that "braces 'may not boost happiness'." the study is published in british journal of health psychology, and claims that orthodontics scarcely impact future mental health.

although this is an interesting idea, i'm not sure it holds water because those who do and don't get braces differ in many ways. there are likely certain kinds of parents who push getting braces and certain kinds of kids who whine until they are allowed them. there are also, potentially, certain kinds of parents and kids who just don't think it's worth it. such individuals may not be worse off later in life, whereas the group who cares would be unhappy later if denied braces. psychology has shown that your concern for others' perception of you colors all social interactions.

since circumstances between the two groups differ, this means it is difficult to measure psychological impact of bad teeth. a better study would control for such confounding variables as preference, income, and insurance. perhaps looking at individuals who wanted but couldn't get braces for some medical/income/insurance/parental reason would be a good place to start. can't we get an economist to do the study?

Labels: economics, well being

today i attended milton friedman's memorial service at rockerfeller chapel on the university of chicago campus. here are my audio files from the event, in the order given. sorry for the low quality, i just used my ipod.

• introduction by robert zimmer, president of university of chicago, with a statement from alan greenspan


• vaclav klaus, president of czech republic


• leo melamed, former chairman of the chicago mercantile exchange and founding chairman of the international monetary market


• arnold harberger, economics scholar and former student


• michael walker, former director of the fraser institute and former student


• gary becker, economics scholar, nobel prize winner, and former student

it was heartening to hear the warm things such friends & colleagues had to say about friedman. he must have truly been an exceptional man in all respects. equally moving was the tribute of president vaclav klaus, who lived through communism and its fall. although not close to friedman, his tale was incredibly moving and demonstrated how important ideas can be in transforming the lives of everyday people.

"it doesn't matter who said what. what matters is what's right"
-- friedman quoted by a. harberger

Labels: economics

trust has been suggested as one factor in variations in individual economic behaviors. i just came across this really cool study on the link between trust, social memory, and social stress. the hypothesis was that social stress decreases social memory, which in turn has impact on trading behaviors, but that trust may modulate this effect.

taiki takahashi of hokkaido university induced socially stressful situations using the trier stress test. cortisol (a stress hormone) levels, memory, and trust-related personality traits were also measured.

takahashi found that social stress hampers memory (as opposed to emotional stress, which enhances it). perhaps more interestingly, individuals with high levels of trust were correlated with reduced stress (cortisol) levels. this makes sense in some ways; more trusting individuals probably does make interactions with them less stressful.

therefore, takahashi concludes that "interpersonal trust may modulate economic behaviors via stress hormone's action on social cognition-related brain regions."

Labels: economics, neuroscience

check out my post over at neuroeconomics, where i talk about a new study that illustrates that we're pretty good at coping from monetary losses (in meaningless games, at least), but not at predicting these wonderful skills. i'd like to see the results where effort - therefore ego - are involved, as well.

check out the links, too - esp. the self-affirmation one.

Labels: economics, neuroscience

read my most recent post over at neuroeconomics to learn why the hippocampus is the brain's learning system bully, and what drug to administer to more effectively brainwash someone.

Labels: economics, neuroscience

more than a year after my post on mexoryl, the best UVA filter available, and how to obtain it from canada or europe, the FDA has given it their all-powerful stamp of approval. rather, approval to advertise - but only SPF 15.

although it's good news, i'm still glad i stocked up in toronto a couple weeks ago; SPF 15, i'm afraid, just won't do it for my irish self.

Labels: drugs, economics, political

i'll tell you over at the neuroeconomics blog.

Labels: economics, neuroscience

check out my first post over at neuroeconomics.

Labels: economics, neuroscience

it appears that our brains may be set up to discourage pursuit of short-term gains and selfishness.

brain scans conducted during a prisoner's dilemma game with women indicates that pleasure centers are activated during cooperation. as the game progressed, the women continued to cooperate with other cooperators, likely because of the reinforcing nature of this pleasure circuit. this makes sense evolutionarily - those who continued to cooperate with other honest, cooperating individuals our groups would likely prosper.

interestingly, this process is partly human-specific. when playing with a computer, much less of the reinforcing "pleasure brain" was utilized.

article on the article
more on neural studies in economic games (PDF)

ref: James Rilling, David A. Gutman , Thorsten R. Zeh , Giuseppe Pagnoni , Gregory S. Berns and Clinton D. Kilts. "A Neural Basis for Social Cooperation" Neuron vol. 35 issue 2

Labels: economics, neuroscience

agoraphilia is blogging the IHS summer seminar, liberty & society, going on right now in claremont, california. all the seminar faculty are co-bloggers for the week. check it out.

Labels: economics

internet users are punishing websites that lob spyware and adware at their visitors, a new study from pew research center says.

the study states that "three-quarters of Internet users do not always read user agreements and other disclaimers where spyware and adware are sometimes disclosed." despite this ignorance, the study indicates that nearly all (91%) internet users have made some kind of behavioral change to avoid deleterious unsolicited programs. half of all surveyed users have stopped visiting sites they feel may harbor such programs and a quarter no longer use file-sharing software for the same reason. many have made a switch to mozilla firefox or other IE alternatives, and 81% are cautious about email attachments.

Labels: economics

help cuce-skywalker and obi-wan cannoli battle darktater and the dark side of the farm in grocery store wars, a short by the organic trade association hawking organic produce. it's really pretty funny.

one question though: how does non-organic produce have "artifically lower prices?"

thanks go to j-hawk for the tip.

update: cannoli is spelled with two n's, nikki.

Labels: economics, social

i just got an old email forward that begins:

Gas rationing in the 80's worked even though we grumbled about it. It might even be good for us! The Saudis are boycotting American goods. We should return the favor.

prepared for a rant on how awesome it would be for the government to forbid trade between consensual parties, i was instead pleasantly surprised to find it a call to voluntary action. the email proposed boycott of companies importing middle eastern oil and went on to list companies who do, and those that don't:

Shell............................. 205,742,000 barrels
Chevron/Texaco......... 144,332,000 barrels
Exxon /Mobil............... 130,082,000 barrels
Marathon/Speedway... 117,740,000 barrels
Amoco............................ 62,231,000 barrels

Citgo....................... 0 barrels
Sunoco...................0 barrels
Conoco...................0 barrels
Sinclair.................... 0 barrels
BP/Phillips..............0 barrels
Hess........................ 0 barrels

it seems the prevailing assumption is that most US oil comes from the middle east, so i was skeptical of these numbers. courtesy of uncle sam google i found that the information above is wildly inaccurate (snopes debunked it long ago anyway), but it's true that many companies don't import from the middle east at all, and those that do import much less than i expected. persian gulf imports made up only 24% of last year's oil supply.

would the free market alone provide such transparency? certainly not. however, it may allow us to make the same decisions. companies seeing a niche in pandering to those who don't want to support inhumane regimes would make their imports public knowledge. there we are - at nearly same place - without paying for a bureaucracy to record it.

Labels: economics

i don’t know much about william f. buckley, but my impression has always been that he's a laissez faire kind of guy. his rant on high corporate salaries confuses this understanding:

That money was taken, directly, from company shareholders. But the loss, viewed on a larger scale, is a loss to the community of people who believe in the capitalist free-market system. Because extortions of that size tell us, really, that the market system is not working in respect of executive remuneration. What is going on is phony. It is shoddy, it is contemptible, and it is philosophically blasphemous.

buckley’s concerns are common, and understandably so for those unconvinced that market mechanisms shake out efficiently. admittedly, the situation is complicated and may involve government sneakery. however, in essence he’s probably right - not linking executive compensation to company performance seems like a bad idea. practices such as market-based management are likely much better. however, as with most theories, we can’t be certain.

on the assumption that there is actually one right way to structure executive compensation, it seems that evolution is the best way to give us an answer. if rewarding on a performance basis actually improved performance, companies with such a policy would outlast (or at least outperform) less wisely run enterprises.

buckley says that any losses due to the prevalent system are a “loss to the community of people who believe in the capitalist free-market system,” and goes on to say that clearly, here, the market system is not working. this is where he’s wrong. failure means the market is working. it's is a vital market signal that tells us what doesn’t work, something we can only know experientially via this evolutionary process. the information contained within failure will prevent others from making the same mistakes, improve business practice, and - i believe - ameliorate the problem he decries.

Labels: economics, ideology

a new study reveals circumstances when money does buy happiness. it turns out that although psychologists claim that wealth above a minimal threshold has no impact on well-being, it certainly does after one suffers tragedy, such as illness or disability:

The analysis showed that those whose financial assets had been above the median before they were disabled suffered a much smaller drop in self-reported well-being than those who had been below the median. A second analysis confirmed that there was a relationship between a person's net worth and the drop in their well-being after disability.

of course those with more cash reserves are better equipped to handle disaster. although these reserves themselves, during good times, do not improve well-being, they certainly will cushion the fall during crisis. earlier i wrote on money's tangential effects on well-being during natural disaster:

the market has the best record of meeting the most essential levels of maslow's hierarchy of needs, even during times of crisis. for market pessimists, we can think of it as an insurance system. although we may pay in a certain percentage of happiness for materialism due to markets (a debatable premise), we gain when disaster strikes. and the gain may make it worth it.

wealth, then, becomes much more significant than psychologists claim. as wealth promotes well-being during crisis, and this well-being in turn facilitates not only healing, but accumulation of more wealth, the balance in your bank account is no laughing matter.

Labels: economics, well being

mary eberstadt writes in policy review (via arts & letters daily):

If yesterday’s rock was the music of abandon, today’s is that of abandonment. The odd truth about contemporary teenage music — the characteristic that most separates it from what has gone before — is its compulsive insistence on the damage wrought by broken homes, family dysfunction, checked-out parents, and (especially) absent fathers.

eberstadt points out that analyzing the effect of today's music without understanding why kids love it is wrong-headed. she argues that current artists are simply answering "to what ails the modern teenager." her point has been made before and is worth repeating: we should examine both cause and effect of popular music. via the free market kids selected this particular type of music to identify with and be wildly popular, which could be evidence of a collective dysfunctional childhood experience.

Where parents and entertainers disagree is over who exactly bears responsibility for this moral chaos. ... [T]he music idols who point the finger away from themselves and toward the emptied-out homes of America are telling a truth that some adults would rather not hear. In this limited sense at least, Eminem is right.

the cause/effect is not clear. it's been well documented that media can influence a child's behavior, but only to a limited extent and only if there is little parental involvement. from a 1999 study:

The data also revealed that parental mediation works by first influencing either how important children perceive violent TV to be or how much attention they grant this content, which, in turn, influence aggressive tendencies. Hence, parental mediation seems to socialize children into an orientation toward TV that makes them less vulnerable to negative effects.

so it seems bad parenting causes not only affinity for, but also vulnerability to, the negative influence of media violence.

Labels: economics

the pacific research institute just came out with their index of economic freedom for states (similar to heritage's index for countries). i'd like to note that my home state of ohio ranks an impressive 43 out of 50. way to go, ohio! it seems from just briefly glancing at their map that economic freedom and population might have weak inverse correlation, excluding the south and a few other outliers:

and it's also interesting, but not surprising, to compare this to the red/blue election map:

read more about what pri considers economic freedom to be, and why they feel it's important. to quote:

Economic freedom is the right of individuals to pursue their interests through voluntary exchange of private property under a rule of law, and this freedom forms the foundation of all market economies. We start from the position that freedom requires that people be safe and secure in body, home, and property. We assume the necessity of a "minimal state" that provides a rule of law in order to have any freedom.

Labels: economics

a book i’m reading now, the paradox of choice by barry schwartz, discusses two types of consumers. his theory contends that there are those who must find the best possible item at the best possible price (“maximizers”), and those who take a more measured approach by settling on a “good enough” item because they don’t want to waste their time analyzing seemingly infinite alternatives (“satisficers”). after reading this, i began to think about my last post on shopping around, i thought i’d bring a bit of it to bear on the subject.
the ncc laments that many poor people cannot afford to be maximizers, searching for the best price to cut costs. however, schwartz suggests that this strategy may not be psychologically rewarding. he cites studies backing up his claim that maximizers “get less satisfaction out of” and “feel less positive about” their purchases than do those who look at few options. one study indicates that the more options we examine, the less satisfied we are with our final choice. interestingly, but not surprisingly, maximizers are also less satisfied with life in general and tend to be more depressed.
i’m not going to claim that being poor increases happiness, but i am going to suggest that perhaps having to choose among fewer options may not be as bad as it may seem, and is not necessarily something society needs to fix.

Labels: economics, well being

the uk's national consumer council (ncc) has just released a report claiming that the impoverished pay more for their goods than do the well-healed. they claim that:

The poor pay more because life on a cash budget is more expensive. You pay more if you can't bulk buy or afford a weekly shop. And if you can't get around because of a disability or limited transport, you can't shop around for the best deal.

although intuitively it makes sense that those with the luxury to bargain-hunt will get better prices, it may not play out that way in most cases. from my experience, few people actually go to several grocery stores to compare the price of asparagus. on large purchases such as cars and appliances wealthier consumers may actually spend the time and money to shop around, but on general items i doubt they do – they may have the time but value it more than the extra dollar they’ll save.
even when one wants to comparison-shop, there are many ways to do so other than physically driving from one store to the next, something many cannot do. with everyday items as well as larger ones, prices are listed in a number of publications accessible to both the rich and poor alike, and many listings come directly to those with mailboxes or doorsteps. prices are also a phone call or internet café away, and word of mouth is another important method to discovering the cheapest vendors.
even in cases where the very poor and very rich pay different prices for the same goods, what is a “fair” price is determined solely by the amount one is willing to pay, and that is perhaps a different price for different classes of people. we live our lives by comparison; because one person is getting a better deal, others feel cheated, but in reality if you’re paying what it’s worth to you, you’re getting the best deal possible.

Complex mobile phone and utility price packages are also cited as being particularly difficult for many poorer Britons to understand.

i’m not quite sure what the ncc’s prescription is. complex matters, as many financial affairs are, are by definition difficult to understand. first, it’s insulting to equate being poor with being unable (or unwilling) to understand complex matters. second, i hate leaving this with “well, that just life” but it’s true; those unable to comprehend the complexities of the world will pay more, and likely that’s the least of their troubles.

Labels: economics, well being

dov charney owns a t-shirt factory that doesn't use sweatshop labor, but he doesn't market it that way. he chooses to market his shirts based on their sex appeal instead. when asked why he doesn't appeal to customers' sense of ethics and mercy, he says:

''That's the problem with the antisweatshop movement,'' he says, snapping the book closed. ''You're not going to get customers walking into stores by asking for mercy and gratitude. Appeal to people's self-interest.''

this comment speaks for itself, but just let me say: sweatshop activists are movivated by the same interest as the rest of us: their own. and, in this case in particular, we're not the worse off for it (unless you have a moral opposition to sexy t's, that is)

Labels: economics

the u.s. post office apparently can't keep its head above water. congress, the general accounting office, and a presidential commission, say it's going to need drastic rate increases or a taxpayer bailout (but the postal worker labor union leader is in denial, and "does not accept the notion that the Postal Service is failing").

the internet has largely been blamed for the post office's dire condition, although it wasn't doing too great before that. it seems folks are so happy with the conveniece of the internet, but are unwilling to shift our idea of how society should work - of course now we can pay bills online, that's great! just scale down post office services and raise rates.

that's one solution. but why is privatization never discussed? an association representing folks who market via mail said that "In short, a viable Postal Service is vital to the future of [our] members and our industry." NO, actually, a mail system is vital to the industry, just as an email system is vital to spamers. that does not have to be a government monopoly like the postal service.

as a monopoly the post office didn't react to changing technological trends and customer preferences. should we reward such behaviour?

Labels: economics

even dead bodies...

now what's wrong with allowing a family to benefit from selling your body (with your consent, signed before your death) for profit? it's grotesque, but imagine the benefit to a poor family that can't pay for the funeral: not only can they now afford a nice ceremony, they don't have all the expense of an actual burial.

seems the gov't has banned this for the wrong reasons- too many squishy people out there don't like the idea.

and, come on! like anyone really buys the argument that suddenly people will be murdered for their bodies! contracts and laws against murder (!) solve that easily.

Labels: economics