T-Shirts and consumer choice
Firstly, I hope the first AS exam went well, whether that was macro (OCR), micro, and whether for the first time or a retake. I also hope that in amongst the revision you’re in the market for a more random blogpost…
This one’s a topic on which Paul Ormerod would have something to say. On NPR’s Planet Money radio show/podcast, they’re launching a T-shirt, and using this as a stimulus for a whole set of reporting on its genesis, from cotton subsidies to its design. The latest podcast investigated the colour of their T-shirts. “What’s the economics in that?”, I hear you cry…
Paul Ormerod: The Market for Speeding Points
What is it worth to take someone else’s speeding points? The Huhne-Pryce case has brought this into sharp focus. Setting aside the moral issues, the question raises interesting topics in economics.
It turns out that there is a market in these points. The Daily Telegraph discovered that prisoners are willing to take points. By the time they get out, the points will often have expired. For around £200, someone will take your three points. But mingling with a group of England supporters after the Wales debacle on Saturday, their tongues loosened by alcohol, I discovered that one respectable woman claimed to have done it for £500.
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Paul Ormerod: Hip Hop and Why Some Things Succeed
Just over a month ago, a group of young men from a fairly
yokel part of Australia posted a video on YouTube. Nothing remarkable about that. Except that the video now has over 21 million viewings. More than 170,000 variants of the original
theme have been posted on YouTube.
A few have received even more viewings than the original, with one
notching up over 63 million.
The wider repercussions have been even more dramatic. Australian miners have been sacked for
recording their on version underground.
People have been arrested in Russia for copying it on a World War Two
tank. In Israel, two soldiers have
been jailed. A flight from San
Diego is the subject of a major investigation when the passengers attempted to
redefine the Mile High Club and create a version in mid-flight.
This phenomenon of popular culture is called the Harlem
Shake. Its essence is that a group
of people perform a comedy sketch, accompanied by excerpts from the 1980s
hip-hop song of the same name. King Lear it is not.
Paul Ormerod: Today Singapore and Japan, Tomorrow China
It has suddenly become fashionable to be concerned about China’s growth rate slowing down. This is not a matter of a short-run cyclical downturn, with normal service being resumed shortly as the economy roars ahead once more. It is a worry that there will be a permanent slowdown by the end of this decade. Instead of annual growth rates around 10 per cent and even more, the Chinese economy will settle down to the much more sedate rates seen in the West in the 1950s and 1960s in the range 3 to 5 per cent.
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Should we invest to avoid snow days?
Although it's not been too bad in my area, the recent cold snap is another example of the extreme weather we've seen a number of times in recent years. But what does extreme mean in this case? This isn’t a hurricane. It’s extreme in the sense that it’s unusual. This weather would not faze the Finns or Swedes. They are equipped for this weather, so surely we too could avoid the loss of a work/school day by some investment.
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econoMAX - Behavioral Finance
Mark Johnston provides this introduction to behavioural finance. As with behavioural economics, the conventional view of finance assumes that markets are efficient and that the price of shares, bonds and other financial instruments are a reflection of the fundamental economic values that they represent. Behavioural finance is all about understanding why and how financial markets are inefficient. If there is a difference between the market price of a share or bond and its fundamental value then in conventional economics no one can make money in financial markets by exploiting the difference.
read more...»Paul Ormerod: Meat and potato pies and the Nobel Prize in economics
Tragedy struck at a mid-week game played during the holiday
season in Football League Division Two. The pies ran out in the home supporters’ bar. The incident may seem trivial to
those not involved. Yet it
illustrates some important themes in economics, which have even gained their
inventors the Nobel Prize.
Behavioural Economics - Slides from a Short Course
I ran a short optional course in aspects of behavioural economics last term and this streamed presentation contains some of the slides from a few of the sessions. I enjoyed teaching it - this is a part of the subject that really ought to have greater prominence in the AS / A2 syllabus and students enjoy researching some of the potential practical applications of ideas drawn from behavioural in addressing economic and social problems and issues. Click on the behavioural economic blog category - here - for more teaching resources.
read more...»Unit 3 Micro: DropBox - Network Economics and Market Contestability
Here is a superb blog from the Economist magazine into a digital business built around the Freemium pricing model and where network effects are strong. Also good for understanding market contestability and the impact of new entrants on profit margins. Dropbox is my preferred file sharing system, I am pretty much locked in and wouldn't change!
Freemium is a business model in which some basic services are provided for free, with the aim of enticing users to pay for additional, premium features or content
The complete guide to freemium business models
Nassim Nicholas Taleb - Anti-Fragile
In this edition of Meet the Author, the BBC's Nick Higham talks to the Lebanese-American author and former derivatives trader Nassim Nicholas Taleb about his new book, Antifragile: How to Live in a World We Don't Understand.
More reading here on Taleb's new book
Seven rules of anti-fragility (Farnham Street Blog)
read more...»Paul Ormerod: Bankers, Greens and the Barking Mad: When Prophesy Fails
Forecasts of the end of the world have an even worse track record than predictions in economics. Some followers of the Mayan calendar believe the world will end next week.
But we have been here before. In 1956, an American group, led by a suburban housewife, believed that a catastrophic flood would destroy the world on a specific date. Concealing his true identity, a leading American social psychologist, Leon Festinger, had joined them several months previously. When the flood failed to happen, he noted that, far from abandoning their beliefs, the members became even fervent in their view that the world was about to end.
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Supermarket Pricing Strategies
Various news sources are reporting about the industry agreed self-regulation adopted by most supermarkets this week relating to the pricing strategy of charging an initially high price for a product only to discount the same product fairly quickly - giving the impression that the product has much greater value after discounting (this report from This is Money gives a couple of examples). Most of the supermakets have agreed to temper this strategy by ensuring that products are not discounted for any longer a period of time then when they were at the higher price.
Some would call the strategy a 'con' - the supermarkets can only undertake this method as they have significant power and control within the market and can afford to have low sales of the products initially. However, there is nothing illegal about the practice.
Whilst this is a good example to show students of how market power can impact on price controls within an oligopolistic market, it also struck me as a decent example of game theory in place.
read more...»Paul Ormerod: Prisons, incentives and how to save the planet
Criminals are refusing to leave Portugal’s prisons. According to the International Herald Tribune, prisoners are starting to want to serve the full amount of their sentences rather than be released on parole. This is despite the fact that there is record over-crowding and conditions inside are reported to be dire. Motoring offenders are increasingly failing to pay fines, opting instead to serve three or even six month sentences. This is a remarkable illustration of the effect of economic incentives.
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Paul Ormerod: A stitch in time: We need smarter government, but less of it
What is the connection between the content of Boris Johnson’s speech this week to the CBI, tax avoidance and evasion, executive pay, petty crime and plagiarism by students? This is yet another one where economics can help us with the solution. Economists have long used the example of a factory which imposes costs on other people in the neighbourhood through the pollution it generates. They refer to such costs as ‘externalities’. These are costs external to the factory itself.
Unit 1 Micro: Denmark Drops the High Fat Food Tax
The Danish government has opted to bring to an end a policy intervention designed to curb consumption of high fat foods. The measure - introduced in the autumn of 2011 - added £1.50 per kilo of saturated fats in a product but the experiment will end because of fears over inflated food prices and domestic jobs being put at risk. Food manufacturers complained of increased compliance costs and there was some evidence of a rise in cross-border shopping to avoid the tax. A proposed new tax on sugar has also been cancelled.
Video: Fat tax introduced by Denmark
Paul Ormerod: Corporation tax: fostering the illusions of the electorate that someone else will pay
Corporation tax is very much in the news. Starbucks is merely the latest to be in the spotlight, having paid no corporation tax on more than £1billion of sales in the past three years . This became noteworthy when the Prime Minister himself declared he was unhappy with the level of tax avoidance by big corporations working in Britain.
The plain fact is that if corporation tax did not exist, it would be madness to introduce it. The tax plays to the ignorance not only of the general public, but of almost all politicians. It encourages the fantasy that there is a free lunch, that someone else will pick up the bill for the welfare state and bloated state bureaucracy.
read more...»Paul Ormerod: Ninja Turtles, Nick Clegg and Market Failure
Christmas is coming. Retailers are beginning to push their offers hard. The first page of a search on Google for ‘Christmas Toys 2012’ is full of sites announcing the ones which will be ‘hot’ or ‘top’. In total, there are over 75 million results available to be perused.
Last year it was Mishling Tree Monsters, Doggie Doo, and the like which proved the most popular. Readers of a certain age will recall such stupendous commercial triumphs as Teletubbies, Buzz Lightyear and Teenage Mutant Ninja Turtles.
Fond though these memories might be, the runaway successes bring tears as well as joy. Every year, the cult toys of the year become hard, or even impossible, to acquire as the great day approaches.
read more...»Alcohol as an example of a de-merit good
You might find this news report from KL.FM (a radio station in King's Lynn) about the self-regulated sales of 'strong booze' in Ipswich an excellent example of a policy to deal with de-merit goods. Alcohol is a prime example of a de-merit good and a common student response regarding government policies to reduce its consumption often centres around the use of taxation and age-based prohibition. A good evaluative answer to questions relating to government policy would mention the fact that alcohol remains a popular product despite its obvious issues and might also discuss how the over-consumption of alcohol could be linked to something more cultural (compared to, say, France) - hence the need for something a little more creative than blanket bans or high duties. I would want to ask my students questions such as 'what are the costs to society' mentioned within the report and why might the targeting of high-strength alcoholic drinks be a more affective policy then banning sales of all alcohol?
Paul Ormerod: Lessonsin Economics from the Nobel Laureates
The presentation streamed below is from a talk given to the 2011 Economics Teacher National Conference organised by Tutor2u entitled "The future of economics – lessons from
the Nobel Laureates… and beyond"
Behavioural Economics: Lessons from Poker in Business and Life
Here is the wonderful Caspar Berry on the decisions we take and the investments we make in business and in life - superb as a complement to your studies in behavioural economics. Caspar was a vibrant, curious and ambitious presence in the first Economics class that I ever taught in the autumn of 1988.
read more...»Behavioural Economics: Getting People to Wear Seat Belts
Can you think of a dozen motoring offences off the top of your head? Instinctively I can write down speeding, driving while using a mobile phone, driving while under the influence of alcohol or drugs, driving without insurance or valid documentation and failing to wear a seat belt. The latter is often the target of the local police and I noted in my own paper last week that in just one day,over two hundred drivers were caught doing this on a busy road - it carries a £60 fixed penalty fine. Can public information adverts make a difference? The video below makes the point effectively in my view. The excuses that drivers offer police when stopped range from the obvious ("I forgot") to the bizarre ("I am suffering from diarrhoea"). In a recent UK national study, of the 1,059 car occupants killed in crashes, 21 per cent were not wearing a seatbelt.
read more...»Behavioural Economics: Taking the P? Video Games to Reduce Splash
Following on from the legendary flies embossed into the urinals at Schipol Airport in Amsterdam - a behavioural nudge to reduce spillage and cleaning costs - a UK business called Captive Media has created a p-controlled video game for bars, clubs and restaurants. Will it take on? Might it lead to higher consumption as customers load up to beat their personal best? Will Nintendo launch it on their Wiiplatform? Time will tell.
Behavioural Economics: The Babes of Woolwich
Behavioural nudges have the prospect of at least addressing some intractable social issues and in this example we see how a simple idea can be harnessed in a bid to reduce vandalism. Inspired by Rory Sutherland and the team at Ogilvy, the shuttered streets of Woolwich were brought to life with pictures of faces of local babies. Can this work to help connect people to their neighbourhood and lower the risks of repeated vandalism of shuttered shop fronts?
iPhone 5 and the Circular Flow of Income
Many of us are introducing new AS level economists to the Circular Flow of Income at the moment, and it is a joy when a great news story breaks just at the right time to use in our teaching. There has been much news and press coverage of the new iPhone 5 this week, with plenty of in depth analysis of the extras that it offers and whether it will allow Tim Cook to emerge as a genuine successor to Steve Jobs at Apple. Michael Feroli, chief economist at JP Morgan, has gone further and looked at the potential impact of the launch on US GDP, and concluded that it could add up to 0.5% to annualized gross domestic product growth in the fourth quarter. Just one little product could have that massive an effect on expanding the economy - no wonder government is keen to encourage skills to enable competitiveness and to provide the infrastructure to facilitate business growth.
Why teachers are just like bankers
The current highly emotional debate about GCSE grades is not very enlightening. But what has happened tells us a lot about how incentives matter, how they affect outcomes. And at the same time, it shows that unless a proper set of social norms is in place, incentives can have unanticipated, perverse effects. Bankers and teachers have behaved in exactly the same way.
read more...»The Olympics and the wider struggle
The last three Summer Games have seen a titanic battle between the US and China to head the medals table. Combining the three, China is just ahead, having 121 golds to America’s 116. But America headed the table in both 2004 and 2012, and it is the massive haul in Beijing which just edges it for the Chinese.
Is this a portent of the wider struggle for global hegemony in the 21st century? Just 20 years ago in Barcelona, the US was well ahead with 37 golds to China’s 16. The Chinese have caught up – or so it seems.
read more...»The Olympics, traffic in Central London and a bar in Santa Fe
We all know now about the empty roads and deserted shops, all quite contrary to the official announcements before the Games began. No doubt Transport for London used their massively complicated, expensive models of the transport network to deduce that the system would be under massive strain.
But a deceptively simple game devised in the 1990s about a bar in Santa Fe sheds light on what has happened. Santa Fe is teeming with high powered researchers, who proliferate in the state of New Mexico.
read more...»Behavioural Economics: George Akerlof and Identity Economics
Everything in Economics is contextual. The trouble is that the standard textbook economics taught to students largely ignores this. George Akerlof’s recent work on identity economics tries to better understand the motivation of people in different contexts. Motivations include the aim of living up to the concept of who we think we should be. Identity is defined as a person’s sense of self, naturally this can change during a lifetime as the context of our lives changes too.
read more...»Behavioural Economics: Free Beer - The Truth About Dishonesty
Behavioural economist Dan Ariely has a new book out about the drivers of dishonest behaviour. He spoke about some of the themes of his book in a talk at the RSA in London at the beginning of July. Here is an edited video of his talk - as always it is entertaining, informative and beautifully paced.
read more...»Deloitte Summer Reading List
If you’re looking for some short insights into the latest economic thinking, and you’d like a break from watching the Olympics, then look no further than this excellent selection of recommended articles.
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