Wednesday, February 29, 2012

Does high social class lead to unethical behaviors?

See New Studies Determine Which Social Class More Likely to Behave Unethically from the National Science Foundation. Excerpts are below but George Mason University economist Tyler Cowen had some interesting counterpoints. See How good are the upper classes?
"A series of studies conducted by psychologists at the University of California, Berkeley and the University of Toronto in Canada reveal something the well off may not want to hear. Individuals who are relatively high in social class are more likely to engage in a variety of unethical behaviors.

That is the finding of new research published in today's Proceedings of the National Academy of Sciences and it's a doozy.

"Our studies suggest that more positive attitudes toward greed and the pursuit of self-interest among upper-class individuals, in part, drive their tendencies toward increased unethical behavior," said lead researcher Paul Piff of UC Berkeley."

"Participants then played a "game of chance" in which a computer "randomly" presented them with one side of a six-sided die on five separate rolls. Researchers told participants higher rolls would increase their chances of winning a cash prize and were asked to report their total score at the end of the game. In fact, die rolls were pre-determined to sum up to 12. The extent to which participants reported a total exceeding 12 served as a direct behavioral measure of cheating.

Greed "is a robust determinant of unethical behavior," the researchers write in the report. "Plato and Aristotle deemed greed to be at the root of personal immorality, arguing that greed drives desires for material gain at the expense of ethical standards." For this study, the researchers conclude that, in part, due to their more favorable beliefs about greed, upper-class individuals are more willing to deceive and cheat others for personal gain."

(Hat Tip: Bruce Norton)

Sunday, February 26, 2012

Sale Of The Nike All-Star Collection Sneakers Causes A Riot

See Riot erupts at Florida Mall during Nike All Star collection sneaker release event. Excerpt:
"A riot erupted late Thursday night at the Florida Mall as hundreds of people became disordelry vying to buy special NBA All Star sneakers at a special event at the Foot Locker. It was so bad police with riot shields and on horseback had to be called in."

"The full name of the sneakers is the Foamposite One Galaxy. It has a constellation-like print with a glow-in-the-dark sole and they were set to go on sale for the first time in stores at midnight Thursday at a retail price of $220.00. One thing that may have led to the increased demand at the store is that Nike decided not to sell the shoes online."

It seems like even $220 is below the equilibrium price if the quantity demanded is greater than the quantity supplied (at least on the first day or two). Perhaps part of what people are buying is being first. So any time price is too low you get a shortage and some other allocation method besides price takes over (like waiting in line).

If stores are so concerned about safety, they should consider selling it at a much higher price on the first day (with things like Play Stations, they end up getting sold for much more than the retail price on eBay very soon after the first day anyway). If some people object to such a high price or claim gouging, the store can remind people that they are trying to keep the peace and keep consumers safe. They could also pledge to donate some of the extra profit to charity. That could create some good will.

Back in 2006, police officers were allowed to go to the head of the line when the Play Station 3 came out. See If Prices Are Not Used, Other Allocation Methods Emerge: Police Officers Get PS3's First

See also How to Stop the PlayStation Violence

Friday, February 24, 2012

What’s an Oscar Really Worth?

Click here to read this CNBC article by Julia Boorstin. Excerpt:
"Oscar winners bring in 7.6 percent higher box office return on average than nominees that don’t win, according to IBIS world. On average, winners of Best Picture earned 57 percent of their total revenue before the nominees were announced, 27 percent once they were nominated and more than 15 percent after winning an Oscar. Nominees that didn’t bring home the gold earn just 5 percent of their total take after the awards show."

That means that, for example, “Extremely Loud and Incredibly Close,” which has grossed $31 million so far (not very much by Hollywood standards), would end up making about $36.5 million if it wins and $32.6 if it does not. So about an extra $4 million at stake.

It is not quite clear to me if those percentages are right. For winners we have 57 + 27 + 15 = 99, which is pretty close to 100% and it could just be a rounding issue. But for losers, it only adds up to 89%. Since they only get 5% after the awards show, the earlier numbers have to be higher than 57 and 27. If the earlier 95% has a 57/27 ratio, it would be something like 64% and 31%.

The article also discusses the economics of the cost of ads and ratings issues.

Wednesday, February 22, 2012

Struggling Cities Turn to a Crop for Cash

Click here to read this New York Times article by Michael Cooper. The crop is marijuana. Excerpt:
"As the stubborn economic downturn has forced this city to take painful steps to balance its budget in recent years, it has increasingly turned to one of its newer industries to raise much-needed revenues: medical marijuana dispensaries.

The city has raised taxes on marijuana dispensaries several times in the past few years, and last year it collected $1.4 million in taxes from them — nearly 3 percent of all the business taxes it collected. Now Oakland plans to double the number of dispensaries it licenses, to eight from the current four, in the hopes that it can collect even more revenue.

“This is general fund revenue — it all goes into the melting pot,” said David McPherson, the city’s tax and revenue administrator. “When you’re making decisions about what to continue keeping or not, it goes into that decision process. If you don’t have that money, then you’re making other decisions about ‘Are we going to close the libraries on Monday?’ ‘Are you going to end up cutting a cop?’ ‘Are you not giving funds to our arts and things that help our kids?’ ”

Sometimes lost in the discussion of medical marijuana is the extent to which it has become a small but growing source of new tax collections for cities and states that have been struggling to balance their budgets for more than four years now."

It could be that cities have recognized that the demand for marijuana is inelastic. When government taxes products like this they tend to get more revenue than if the tax products with elastic demand (the more elastic the demand the more quantity demanded changes when price changes).

Click here to see a simple, graphical explanation of what is going on

Click here to read a paper on this topic by Harvard economist Jeffrey Miron. He found that the elasticity for marijuana is -0.5. When it is less than 1 in absolute value, it is said to be inelastic. It means that if price goes up 10% quantity demanded only goes down 5%.

Sunday, February 19, 2012

The Ethics of Incentives

Do incentives always work? If so, what kind of incentives? There is a new book out that discusses these issues called Strings Attached: Untangling the Ethics of Incentives by Ruth W. Grant. Here is a link to The New York Times book review: When Life Is a Bunch of Carrots by NANCY F. KOEHN. Excerpts:
"“How can legitimate uses of incentives be distinguished from illegitimate ones — bribery or blackmail, for example?” she asks. She puts forth three standards for evaluating incentives: legitimacy of purpose, the autonomy involved in choosing to accept an incentive, and the effect on the character of the parties involved.

She explains that the current notion of incentives emerged in three spheres in the early 20th century. The first was the young field of scientific management, in which Frederick Taylor experimented with paying workers by the task to increase productivity and reduce idleness.

Incentives also became an issue in the emergence of socialist economies: Would people be motivated to work if they weren’t rewarded according to effort? And, finally, the developing discipline of behavioral psychology also relied on incentives, in the form of outside action meant to “shift behavior from its usual paths,” Professor Grant writes."

"...incentives often undermine intrinsic motivation.

For example, British women who were offered cash in exchange for their blood were almost 50 percent less likely to accept the offer than women who were just asked to donate blood. This suggests that when both ethical and self-interested motives are present, they don’t act independently, Professor Grant says. “Instead, introducing self-interested incentives has negative effects,” she writes, “ ‘crowding out’ ethical motives while failing in themselves to produce the desired behavior.”

She says that paying children to elicit certain behavior may have destructive consequences in developing character, potentially nurturing self-interest at the expense of kinder motives. “Where students work in an environment that values only extrinsic rewards for learning,” she writes, “cheating goes up.”"

Friday, February 17, 2012

Are You More Likely To Be Successful If You Do Something You Love?

I thought of this when I read a book review in The Wall Street Journal last Saturday. See Never Too Late to Learn. The book reviewed was Guitar Zero by Gary Marcus. Here is the passage:
"Brain scans show that musicians' new neuronal connections vary according to the instrument they play. Violinists have their signature brain changes, brass players theirs. Loving what we do helps to form these new connections, because the same dopamine chemistry that gives us the pleasurable rush of reward consolidates new brain connections."

This reminded me of something the Freakonomics guys, Steven Levitt and Stephen Dubner, wrote about a few years ago. See A Star Is Made. Here are some excerpts:
"Anders Ericsson, a 58-year-old psychology professor at Florida State University. He is the ringleader of what might be called the Expert Performance Movement, a loose coalition of scholars trying to answer an important and seemingly primordial question: When someone is very good at a given thing, what is it that actually makes him good?"

He believes in "deliberate practice" which
"... entails more than simply repeating a task — playing a C-minor scale 100 times, for instance, or hitting tennis serves until your shoulder pops out of its socket. Rather, it involves setting specific goals, obtaining immediate feedback and concentrating as much on technique as on outcome."
"[Ericsson] makes a rather startling assertion: the trait we commonly call talent is highly overrated. Or, put another way, expert performers — whether in memory or surgery, ballet or computer programming — are nearly always made, not born. And yes, practice does make perfect. These may be the sort of clichés that parents are fond of whispering to their children. But these particular clichés just happen to be true.

Ericsson's research suggests a third cliché as well: when it comes to choosing a life path, you should do what you love — because if you don't love it, you are unlikely to work hard enough to get very good. Most people naturally don't like to do things they aren't "good" at. So they often give up, telling themselves they simply don't possess the talent for math or skiing or the violin. But what they really lack is the desire to be good and to undertake the deliberate practice that would make them better."

"Ericsson's conclusions, if accurate, would seem to have broad applications. Students should be taught to follow their interests earlier in their schooling, the better to build up their skills and acquire meaningful feedback."

Wednesday, February 15, 2012

What's In A Name? Money? Success?

See Easy To Pronounce Names Help Win Friends And Influence People by Catharine Paddock, PhD, in Medical News Today. Excerpts:

"...having a name that is easy to pronounce appears to confer a subtle advantage."

"Lead author of the study, Dr Simon Laham from the University of Melbourne in Australia told the press last week that people are often not aware of subtle biases when they make decisions and choices. He and his colleagues write about their findings in the Journal of Experimental Social Psychology."

"In particular they found that:

  • Candidates with more pronounceable names were more likely to be be favoured for job promotion and political office.

  • In a mock ballot, political candidates whose names were easier to pronounce were more likely to win than counterparts whose names were not so easy to say.

  • Attorneys with easy to pronounce names ascended more quickly to senior positions in their firms."

  • by Catharine Paddock PhD in Medical News Today

    Sunday, February 12, 2012

    A Special Valentine's Message On Romantic Love

    Below is a repeat of last year's Valentine's day post. I am not sure if the links are still working:

    The first one is Kisses unleash chemicals that ease stress levels. The following quote gives you an idea of what it is all about: "Kissing, it turns out, unleashes chemicals that ease stress hormones in both sexes and encourage bonding in men, though not so much in women." I guess economists call this "interdependent utility functions." Meaning that what brings one person pleasure brings brings the other person pleasure, and vice-versa.

    The other is Cocoa Prices Create Chocolate Dilemma. The article opens with "Soaring cocoa prices are creating a Valentine's Day dilemma for chocolate makers. They don't want to raise retail prices when recession-weary consumers are trying to limit their spending." The problem is crop diseases in Ivory Coast and Ghana. You might need to be a WSJ subscriber to read the whole article.

    Here is a new article from yesterday's San Antonio Express-News (2-13-2011). Romance in bloom at workplace: Survey indicates 59% have taken the risk-filled leap. It seems like many people admit to having a romance at work and/or meeting their spouse at work. So what starts out as economic activity leads to some other needs being met.

    Now the economic definition of romantic love.

    Abstract: "Romantic love is characterized by a preoccupation with a deliberately restricted set of perceived characteristics in the love object which are viewed as means to some ideal ends. In the process of selecting the set of perceived characteristics and the process of determining the ideal ends, there is also a systematic failure to assess the accuracy of the perceived characteristics and the feasibility of achieving the ideal ends given the selected set of means and other pre-existing ends.

    The study of romantic love can provide insight into the general process of introducing novelty into a system of interacting variables. Novelty, however, is functional only in an open system characterized by uncertainty where the variables have not all been functionally looped and system slacks are readily available to accommodate new things. In a closed system where all the objective functions and variables must be compatible to achieve stability and viability, adjustments in the value of some variables through romantic idealization may be dysfunctional if they represent merely residual responses to the creative combination of the variables in the open sub-system."

    The author was K. K. Fung of the Department of Economics, Memphis State University, Memphis. It was from a journal article in 1979. More info on it is at this link. The entire article, which is not too long, can be found at this link.

    Then there was this related article: Love really is blind, U.S. study finds. Here is an exerpt:

    "Love really is blind, at least when it comes to looking at others, U.S. researchers reported on Tuesday.

    College students who reported they were in love were less likely to take careful notice of other attractive men or women, the team at the University of California Los Angeles and dating Web site eHarmony found.

    "Feeling love for your romantic partner appears to make everybody else less attractive, and the emotion appears to work in very specific ways in enabling you to push thoughts of that tempting other out of your mind," said Gian Gonzaga of eHarmony, whose study is published in the journal Evolution and Human Behavior.

    "It's almost like love puts blinders on people," added Martie Haselton, an associate professor of psychology and communication studies at UCLA."

    Friday, February 10, 2012

    Who Is The World's Richest Primatologist?

    Facebook founder Mark Zuckerberg. See Zuckerberg: The World's Richest Primatologist: People want to know about this town and that other town too. It's their nature by LIONEL TIGER in the WSJ. Excerpts:
    "Primates always want to know what is going on. If it's over the hill where you can't see for sure what's up, that's even more stimulating and important to secure long-range survival."

    " some ground-living species, members of the group glanced at the lead primate every 20 or 30 seconds. Think Louis Quatorze or Mick Jagger."

    "The human who has most adroitly—if at first innocently, and in the next weeks most profitably—capitalized on this is Facebook founder Mark Zuckerberg."

    "We know that many users' first and classical impulse was acquiring convivial acquaintance with young women. Facebook married that ancient Darwinian urgency to a cheap, brilliantly lucid, and endlessly replicable technology."

    "Nearly one-sixth of homo sapiens are on Facebook. Half of Americans over age 12 are on it."

    "His product costs him virtually nothing to produce—it is simply us. We enter his shop, display ourselves as attractively or interestingly as we can,..."

    "And why? Just because we're primates with endlessly deep interest in each other, with a knack and need to groom each other..."

    "There is much to transmit between towns and between people."

    "...the consumer is not someone who wants something necessary, but rather one who seeks to assert simply what he is."

    "The technology is new but the passion for connection isn't. In Paris a hundred years ago pneumatic tubes ran all the through the parts of town that could afford them so messages could be written and sent as if by courier."

    "Mr. Zuckerberg became the richest primatologist in the world because he gave his customers nothing new, except the chance to be their old ape selves."

    Wednesday, February 08, 2012

    What Do Wall Street Traders Need Just The Right Amount Of?

    See The Wall Street Gene by JONAH LEHRER of the WSJ.

    In my classes I talk about how in economics the key question is often getting the right amount of something. Not too much or too little. For example, I used the Supply and Demand Game to show how markets, by reaching equilibrium, produce just the right amount of a good. Also, it comes up when I discuss Allocative Efficiency, when the amount of a public good produced makes the marginal cost equal the marginal benefit and social welfare is maximized. Any other quantity would be sub-optimal.

    But in this case of Wall Street traders, it inolves brain chemistry and neuroeconomics. Key excerpts:
    "A different approach to reducing the irrationality of Wall Street can be found in new research led by Steve Sapra and Paul Zak, neuroeconomists at Claremont Graduate University. Dr. Zak got the idea for the paper after spending time with leading analysts and traders at a conference. "These guys are a pretty weird bunch," he says. "They're very rational and very competitive."

    Dr. Zak wanted to see if he could find the genetic signature of this personality type. Did certain genes correlate with investment success? What's the difference between the prudent decisions of somebody like Warren Buffett—he's famously unwilling to invest in bubbles—and the reckless bets that cause so many other traders to lose vast sums of money?

    The scientists focused on a short list of genes that are known to affect the activity of dopamine, a neurotransmitter in the brain.

    In recent years, it's become clear that dopamine helps to regulate decisions involving risk and reward, allowing us to experience both the thrill of getting what we want and the pain of losing it all.

    Consider the decision to invest in an initial public offering. As Dr. Zak notes, these investment offerings are pretty exciting, leading "to lots of dopamine activity," he says. "There's the thrill of novelty and the potential for a big future reward." The problem, however, is that 63% of newly public companies fail within 10 years.

    The challenge for investors, then, is to balance the allure of the new stock against the risk that the company might go bankrupt. Such calculations are often extremely difficult, even for experienced traders.

    So what did the scientists find? It turned out that successful traders—Drs. Zak and Sapra measured success in terms of longevity on Wall Street—tended to hit a sweet spot of dopamine activity; their genes kept them from experiencing either very high or very low levels of the molecule. These prosperous professionals were much more likely to have so-called Goldilocks genes, placing them solidly in the middle of the dopamine distribution.

    "The best traders are willing to take risks," Dr. Zak says. "They definitely want to make lots of money. But they're also able to take a long-term perspective and check their impulses. Being able to balance these competing interests seems to require a balanced dopamine system.""

    Related posts:

    Adam Smith vs. Bart Simpson (which has links to other related posts on neuroeconomics)

    Are Women Better At Investing Than Men? (which has links to other posts on how brain functioning affects the stock market)

    How Our Brains Help Create Financial Bubbles

    Did Economist Hyman Minsky Predict The Financial Crisis?

    Interesting Theory on Stock Market Fluctuations

    Can Testosterone Help Women Earn More Money?

    Male sex hormone may affect stock trades

    Sunday, February 05, 2012

    What Tax Rate Did Corporations Pay In 2011?

    See With Tax Break, Corporate Rate Is Lowest in Decades By DAMIAN PALETTA of the WSJ. Excerpts:
    "Total corporate federal taxes paid fell to 12.1% of profits earned from activities within the U.S. in fiscal 2011, which ended Sept. 30, according to the Congressional Budget Office. That's the lowest level since at least 1972. And well below the 25.6% companies paid on average from 1987 to 2008.

    Corporate income-tax receipts typically fall during recessions, and they declined sharply after the 2008 financial crisis, which wiped out big swaths of profits across the huge financial sector. But U.S. profits have rebounded sharply in recent quarters, while tax receipts have stayed low.

    So where is the money? There are a lot of moving pieces, budget watchers say, but one view shared inside Washington is that a temporary tax break—supported by both political parties—is a key reason.

    This tax break, known as "bonus depreciation," has allowed companies to write off investments in goods like industrial equipment, manufacturing machinery and computers in the year in which they're bought rather than over time."

    One thing this might relate to is the taxes rich people pay. Some of the highest earners pay 15% because their income comes from dividends and those get taxed at a lower rate. But some economists say that is misleading. They point out that those earnings were already taxed as corporate profits.

    The corporate tax rate is 35%. But as this article shows, it is not the same for all companies or industries, depending on what kinds of deductions they can make (like spending on new technology). And the rate changes over time, like with these temporary reductions in the rate.

    So let's take the 25% rate or the long term average. Suppose I own all the stock in a company which earns a $100 profit. So I only get $75 in income. But then I pay 15% of that on the dividend I got. That is $11.25. If you add that to the $25 already paid in corporate taxes, the total tax paid is $36.25. On $100 income, the rate is 36.25%.

    Friday, February 03, 2012

    Obesity Rates Unchanged Over The Last 12 Years

    This past week in my micro class we read a chapter about obesity in the book The Economics of Public Issues. It is good news that the rate has not gone up. But it is still very high. The book mentions two reasons why the rate is up so much in the last 40-50 years. One is that the relative wage rate of sedentary jobs has gone up (so we burn fewer calories) and the total cost of food (monetary price + preparation time) has fallen in real terms (so we consume more calories). It is so much easier to make and get food than it once was. We have microwaves, vending machines everywhere and drive up lanes for fast food restaurants. Those trends are not going away, so the obesity rate will not change easily.

    Here is a story about the obesity rate from the NY Times: Obesity Rates Stall, But No Decline by TARA PARKER-POPE. Here is an excerpt:

    "After two decades of steady increases, obesity rates in adults and children in the United States have remained largely unchanged during the past 12 years, a finding that suggests national efforts at promoting healthful eating and exercise are having little effect on the overweight.

    Over all, 35.7 percent of the adult population and 16.9 percent of children qualify as obese, according to data gathered by the federal Centers for Disease Control and Prevention and published online Tuesday by The Journal of the American Medical Association. While it is good news that the ranks of the obese in America are not growing, the data also point to the intractable nature of weight gain and signal that the country will be dealing with the health consequences of obesity for years to come."

    Here are some other posts on obesity:

    A Few Extra Pounds Might Bring Extra Years

    Should Overweight People Pay More For Health Insurance?

    Are Your Friends Making You Fat?

    Should We Pay People To Adopt A Healthy Lifestyle?

    Smokers and the obese cheaper to care for, study shows

    Wednesday, February 01, 2012

    Did the industrial revolution cause children to take on adult roles later and later?

    See What's Wrong With the Teenage Mind? by ALISON GOPNIK, professor of psychology at the University of California, Berkeley. From last Saturday's WSJ.

    In one of my classes this week, we read a chapter about poverty and capitalism from the book The Economics of Macro Issues. One thing it mentioned was:
    "In the 25 most capitalist countries around the world, fewer than 1 percent of children under the age of 15 are working rather than in school. In the 25 least capitalist countries, one child of every six under the age of 15 is working rather than in school."

    It is certainly good that we don't have children working long hours in factories, never getting an education. But it seems that people are becoming fully responsible adults at older ages now.

    It isn't just a social phenomena. It party has to do with biology. Here is part of the article:
    "Becoming an adult means leaving the world of your parents and starting to make your way toward the future that you will share with your peers.

    The second crucial system in our brains has to do with control; it channels and harnesses all that seething energy. In particular, the prefrontal cortex reaches out to guide other parts of the brain, including the parts that govern motivation and emotion. This is the system that inhibits impulses and guides decision-making, that encourages long-term planning and delays gratification.

    This control system depends much more on learning. It becomes increasingly effective throughout childhood and continues to develop during adolescence and adulthood, as we gain more experience. You come to make better decisions by making not-so-good decisions and then correcting them. You get to be a good planner by making plans, implementing them and seeing the results again and again. Expertise comes with experience. As the old joke has it, the answer to the tourist's question "How do you get to Carnegie Hall?" is "Practice, practice, practice."

    In the distant (and even the not-so-distant) historical past, these systems of motivation and control were largely in sync. In gatherer-hunter and farming societies, childhood education involves formal and informal apprenticeship. Children have lots of chances to practice the skills that they need to accomplish their goals as adults, and so to become expert planners and actors. The cultural psychologist Barbara Rogoff studied this kind of informal education in a Guatemalan Indian society, where she found that apprenticeship allowed even young children to become adept at difficult and dangerous tasks like using a machete.

    In the past, to become a good gatherer or hunter, cook or caregiver, you would actually practice gathering, hunting, cooking and taking care of children all through middle childhood and early adolescence—tuning up just the prefrontal wiring you'd need as an adult. But you'd do all that under expert adult supervision and in the protected world of childhood, where the impact of your inevitable failures would be blunted. When the motivational juice of puberty arrived, you'd be ready to go after the real rewards, in the world outside, with new intensity and exuberance, but you'd also have the skill and control to do it effectively and reasonably safely.

    At the same time, contemporary children have very little experience with the kinds of tasks that they'll have to perform as grown-ups. Children have increasingly little chance to practice even basic skills like cooking and caregiving. Contemporary adolescents and pre-adolescents often don't do much of anything except go to school. Even the paper route and the baby-sitting job have largely disappeared.

    The experience of trying to achieve a real goal in real time in the real world is increasingly delayed, and the growth of the control system depends on just those experiences.

    Knowing physics and chemistry is no help with a soufflé. Wide-ranging, flexible and broad learning, the kind we encourage in high-school and college, may actually be in tension with the ability to develop finely-honed, controlled, focused expertise in a particular skill, the kind of learning that once routinely took place in human societies. For most of our history, children have started their internships when they were seven, not 27.

    Instead of simply giving adolescents more and more school experiences—those extra hours of after-school classes and homework—we could try to arrange more opportunities for apprenticeship. AmeriCorps, the federal community-service program for youth, is an excellent example, since it provides both challenging real-life experiences and a degree of protection and supervision."