Friday, October 29, 2021

How to Motivate Your Teen to Be a Safer Driver

Showing teenage drivers how to avoid being distracted behind the wheel works better than nagging them to put their phones away, research finds

By Julie Jargon of The WSJ. Excerpts:

"Through apps from insurers and other providers, parents can track their teens on the road and see how well they’re driving."

"An age-old parenting quandary is whether and when to use positive reinforcement or punishment with children. When it comes to teen driving, the stakes for choosing the right approach are high. Do you take away teens’ driving privileges if the tracking apps show them to be speeding or using their phones too much while driving, or do you focus on what they’re doing right?"

"Summer is the most dangerous time of year for auto accidents, and new teen drivers are three times as likely as adults to be involved in a deadly crash, according to the Automobile Association of America. Distraction plays a role in about 6 out of 10 teen crashes."

One man "had been using State Farm’s Drive Safe & Save app to keep tabs on his young drivers, and to receive insurance discounts if they drove without speeding or braking too hard."

"A State Farm spokesman said the app positively reinforces safe driving behavior by offering insurance-premium discounts up to 30%."

"New research is emerging that shows positive reinforcement works best with drivers, according to a study out of Australia and preliminary findings from University of Pennsylvania researchers, who are still analyzing data collected from more than 2,000 drivers. In their study, one group of drivers received weekly feedback from Progressive Auto Insurance’s Snapshot app on how their hand-held phone use while driving compared with that of others in their age group; another group received up to $50 at the end of a seven-week period if their phone use was among the lowest in their demographic group; and another received both feedback and the monetary incentive."

"Still another group received weekly feedback and weekly incremental incentives that could add up to $50 if the driver had comparatively low phone use all seven weeks. Depending on how their phone use compared with others for the week, they would either earn or forfeit money. They would receive text notifications letting them know how much of their weekly allotment they had received—or sacrificed.

Drivers who were promised money at the end of the study for keeping their phone use comparatively low showed a 17% reduction in phone use, compared with a control group. The drivers whose earnings were meted out week by week did even better, reducing their phone use by 23%. “Showing people how much they were losing each week created regret,” said lead study author Kit Delgado, an emergency room physician and associate director of the Center for Health Incentives and Behavioral Economics at the University of Pennsylvania."

Related posts:

Lose the Fat to Lower Your Insurance Rates  

How Did Astronauts Of The 60s "Purchase" Life Insurance?   

Should Overweight People Pay More For Health Insurance?

Should We Pay People To Adopt A Healthy Lifestyle? 

'Spy car' worries raised by new Allstate patent 

Should your company or insurer reward you for meeting exercise goals?

How insurance companies are using technology to better assess how risky customers might be   

The EU Says Insurers Can No Longer Discriminate On The Basis Of Gender   

Some History of Insurance 

The EU forbids the use of gender to help calculate car insurance premiums, leading women to pay more and men to pay less

Thursday, October 21, 2021

How Odysseus Started The Industrial Revolution

Factory work may have been a commitment device to get everyone to work hard. Odysseus tying himself to the mast was also a commitment device. Dean Karlan, Yale economics professor explains how commitment devices work:

"This idea of forcing one’s own future behavior dates back in our culture at least to Odysseus, who had his crew tie him to the ship’s mast so he wouldn’t be tempted by the sirens; and Cortes, who burned his ships to show his army that there would be no going back.

Economists call this method of pushing your future self into some behavior a “commitment device.” [Related: a Freakonomics podcast on the topic is called "Save Me From Myself."] From my WSJ op-ed:
Most of us don’t have crews and soldiers at our disposal, but many people still find ways to influence their future selves. Some compulsive shoppers will freeze their credit cards in blocks of ice to make sure they can’t get at them too readily when tempted. Some who are particularly prone to the siren song of their pillows in the morning place their alarm clock far from their bed, on the other side of the room, forcing their future self out of bed to shut it off. When MIT graduate student Guri Nanda developed an alarm clock, Clocky, that rolls off a night stand and hides when it goes off, the market beat a path to her door."
 See What Can We Learn From Congress and African Farmers About Losing Weight?

Something like this came up recently in the New York Times, in reference to factory work and the Industrial Revolution. See Looking at Productivity as a State of Mind. From the NY Times, 9-27-2014. By SENDHIL MULLAINATHAN, a professor of economics at Harvard. Excerpts:
"Greg Clark, a professor of economics at the University of California, Davis, has gone so far as to argue that the Industrial Revolution was in part a self-control revolution. Many economists, beginning with Adam Smith, have argued that factories — an important innovation of the Industrial Revolution — blossomed because they allowed workers to specialize and be more productive.

Professor Clark argues that work rules truly differentiated the factory. People working at home could start and finish when they wanted, a very appealing sort of flexibility, but it had a major drawback, he said. People ended up doing less work that way.

Factories imposed discipline. They enforced strict work hours. There were rules for when you could go home and for when you had to show up at the beginning of your shift. If you arrived late you could be locked out for the day. For workers being paid piece rates, this certainly got them up and at work on time. You can even see something similar with the assembly line. Those operations dictate a certain pace of work. Like a running partner, an assembly line enforces a certain speed.

As Professor Clark provocatively puts it: “Workers effectively hired capitalists to make them work harder. They lacked the self-control to achieve higher earnings on their own.”

The data entry workers in our study, centuries later, might have agreed with that statement. In fact, 73 percent of them did agree to this statement: “It would be good if there were rules against being absent because it would help me come to work more often.”"
The workers, like Odyssues, tied themselves to the mast to resist the temptation of slacking. This made it possible for factories to generate the large output of the Industrial Revolution.

Thursday, October 14, 2021

How Economists Put A Price Tag On Your Life


By James Broughel. He is a senior research fellow at the Mercatus Center. Excerpts:

"One common metric economists rely on is the value of a statistical life (VSL), which is a measure of how much money a group of individuals is willing to pay to reduce the probability of its members dying. For example, workers in a relatively dangerous industry like construction receive higher wages than they might otherwise get elsewhere. Given the statistical realities involved, one can add up the excess wages earned by workers in exchange for taking a riskier job to ascertain how much as a group they jointly place on a life lost in their industry.

One claim sometimes made by public health experts, regulators, and even from some economists is that when they use the VSL, they are only putting a dollar value on “risk,” not on anyone’s actual life."

"Is it true that when economists employ the VSL, they are not placing a dollar value on individual lives?

To start, consider a hypothetical: Let’s say for the sake of argument that air pollution in a city affects a population of 1 million people. Over the course of a lifetime, four people in the population die early from causes related to air pollution, and the deaths are more-or-less random. Thus, each member of the population faces a 1-in-250,000 risk of death. 

Now let’s say that government planners decide to implement a public health regulation that they expect will reduce the number of people who die prematurely from air pollution from four to two. Furthermore, let’s say the city’s 1 million people are each willing to pay $20 for this reduction, which lowers any particular individual’s chance of dying from 1-in-250,000 to 1-in-500,000. Collectively, therefore, the city’s population is willing to pay $20 million, or $10 million for each person saved."

"As a group, the population is indeed placing a dollar value on specific, individual lives. Whether its “risk” or “lives” that is valued is semantics in this case."

Related post

Obscure Model Puts a Price on Good Health—and Drives Down Drug Costs. (it discusses QALY, for “quality-adjusted life year”)

"One year spent in perfect health equals one QALY. A year with some kind of health problem that affects quality of life would be worth less than one QALY." 

So if a drug adds years of life or improves the health of remaining years that counts as so many QALYs and the price is based on that

Thursday, October 07, 2021

When Money Is No Object

Sure, using a credit card is easy, but paying with invisible money makes saving harder and spending easier. People behaved differently when they saved—and spent—cold, hard cash.

By Jason Zweig of The WSJ. Excerpt:

"Nowadays, zooming through with digital toll technology like E-ZPass, you may have no idea how much you just paid. Once money is dematerialized, using it doesn’t feel like spending.

“As we move away from paying with those gross motor movements,” says Kathleen Vohs, a marketing professor at the University of Minnesota, “we lose that sense of its being an exchange, the gravity of using money.”

Dozens of studies have shown that consumers using credit cards rather than cash are less likely to remember how much they spent, take less time deciding what to buy, are more willing to pay high prices and make a greater number of purchases. They also exert less self-control, buying more junk food, luxury goods and other impulsive items.

Studies on debit cards and mobile payments show similar results. A recent neuroscience experiment found that spending with credit cards, rather than cash, activates the same reward centers of the brain that are triggered by cocaine and other addictive drugs. If spending cash hurts, perhaps using credit makes you high.

Of course, it’s hard to say whether people are spending more and saving less because cash is dying—or whether cash is dying because people are spending more and saving less.

For most of the second half of the 20th century, Americans saved roughly 10% of their disposable personal income. In the late 1980s, U.S. consumers began to save less until, by 1995, they saved only 3% of available earnings. That number rebounded in the 2000s and 2010s, then shot up during the pandemic as the economy locked down and people received government stimulus payments.

One of the main factors driving the long-term decline of savings in the U.S. is the fall in interest rates since the early 1980s, says Jonathan Parker, a financial economist at the Massachusetts Institute of Technology. Lower interest rates reduce the return on bank accounts, cut the cost of borrowing, and raise the value of stocks and real estate, making people feel they can spend more."


Friday, October 01, 2021

The ariline industry looks competitive

See Air Travel Prices Have Barely Budged in 25 Years. (It’s True.) by Scott McCartney of The WSJ. Excerpts: 

"In the first quarter of 1996, the average domestic airline ticket cost $284, according to the Transportation Department’s Bureau of Transportation Statistics. Twenty-five years later—the first quarter of this year—the average domestic ticket cost? $260.

Adjusted for inflation, air travel in the U.S. has gotten much cheaper. That 1996 ticket in today’s dollars would be $482"

"But history suggests that inflation in airline tickets ends quicker than your last vacation. Over time, prices have fallen, even after the industry consolidated to four giant airlines commanding a large share of the marketplace.

Competition is a constant in the airline business. If prices in markets get high, another airline swoops in, sensing opportunity. Technology has helped airlines cut costs on a massive scale over the past two decades. It’s also made it easy for consumers to comparison-shop, keeping prices down.

Even pre-pandemic, when demand for air travel was strong, prices were a bargain. Domestic tickets in the fourth quarter of 2019 were 26% cheaper than the same period of 1995 in today’s dollars."

"add-on fees now generate a lot of airline revenue that might have previously been priced into tickets. In 2019, baggage fees totaled $5.8 billion for U.S. airlines, according to BTS. Those fees were 2.9% of operating revenue. And that doesn’t count fees for seat assignments, early boarding and other services.

John Heimlich, chief economist at Airlines for America, the industry’s Washington, D.C., lobbying organization, says even if fees were included, “the trajectory is the same. There is not a big difference between the average fare with or without fees. A lot of people don’t pay fees.”"

"Cheap airline tickets have driven a boom in air travel. Far more people travel today than in past decades.

Those tickets have also, in the eyes of many travelers, cheapened airline service to barely acceptable levels. Many feel compelled to pay extra for adequate legroom or even first-class seats—and that’s exactly the strategy airlines have pursued."

"Because competitors match prices, the impact of Spirit and other ultra-low-cost carriers like Frontier, Allegiant and Sun Country extends to travelers who never fly them.

“They have pricing power way beyond what their size would project,” says Scott Nason, a former American Airlines pricing and technology executive who now is president of SDN TT&H Consulting, based in the Dallas area."

"the share of domestic passengers carried by the ultra-low-cost carriers increased from 4% in 2009 to 11% in 2019."

"Those carriers were up to 15% market-share in 2020."

"After the big airline mergers—Delta and Northwest combined in 2008, United and Continental in 2010, Southwest and AirTran in 2011, and American and US Airways in 2013—the remaining large carriers enjoyed record profits. The four had 80% of the U.S. market, and capacity—or, the number of available seats around—was stable.

As demand rose, so did prices. From $302 in the second quarter of 2009, the average domestic ticket price jumped to $402 in the same period of 2014. Then airfares started descending again. By the second quarter of 2018, the average price was down to $349. The comfort zone big airlines had found was already eroding."

Related posts:

Is The Airline Industry An Oligopoly? (from 2014)

It seems like airlines are not passing along all of the increased fuel costs to consumers (from 2018)