Recycling waste - goodbye stick, hello carrot
The proposal for a pay as you throw charge for collecting household waste is being abandoned by the new government as they turn instead to positive incentives for people to increase recycling rates. This BBC news article provides the background. Gradually the percentage of household waste that is being recycled after collection is rising.
But there are enormous differences in recycle rates across the country and also variations in what is being collected. According to the article, almost 37% of home rubbish was recycled in England in 2008/09 - up from 34.5% the previous year and a massive increase since 2000/01 when only 11.2% was recycled - the top performer was 62% in Staffordshire Moorlands compared to just 15% in Newham, London.
Will rewards instead of charges nudge people into making changes to their behaviour? Positive rewards within a voluntary system seems to have worked well in my local borough of Windsor and Maidenhead. Can it be rolled out across the country? Beware the law of unintended consequences!
Remember though that recycling is just one part of this issue. Cutting the amount of waste in the first place is hugely important and here both consumers and producers have important roles to play.
On the Daily Politics show Giles Dilnot reports on plans to end the bin tax
Finding new opportunities among the economic wreckage
I am reprising this blog entry from a year ago partly because Robert Frank is one of my teaching heroes. But also because his idea of a steeply progressive consumption tax continues to have such resonance today as we seek to find ways of re-balancing our economic systems away from excessive and often wasteful consumption towards saving and productive investment. Read on and you will find out about positional goods, status races and the case for taxing consumption more and saving less.
read more...»Why is it so hard to tickle yourself?
Paul Seabright is the author of the Company of Strangers a fascinating exploration of human behaviour in complex worlds. The new edition has just come out and this is a video of Paul’s talk at the RSA. It is forty minutes well spent with some really interesting insights. I am adding Paul’s book to my reading list for aspiring Oxbridge students this summer.
Humans are social primates and human brains have astonishingly sophisticated abilities to size up social and comic relationships - we conduct complex exchanges relying on trustworthy nature of our partners in a deal - in most cases we have never met them. Most exchanges in economics are between strangers - we have no connection with virtually every person or network involved in supplying goods and services to us. Paul draws on lessons and recent research in neuroscience and behavioural economics and explains why we need to invent a machine if we actually want to tickle ourselves to a state of ecstasy
Dan Ariely’s new book - the Upside of Irrationality
Dan Ariely’s new book “The Upside of Irrationality” is now available in the UK and is bound to be popular with students and teachers as a great summer read! The first chapter is about procrastination - I plan to read it this afternoon ..... or perhaps I will put it off until tonight ..... or Sunday…
Dan is quoted in this fascinating article in the New York Times from earlier this month about the behaviour of early-adopters of new technology products
The Irrationality of Shaving
Despite the efforts of UK businesses such as King of Shaves, millions of people still spend too much money on their razor blades and they tend to hang onto their handles and blades for longer than they should! Behavioural economist Dan Ariely decides on a change of approach as his birthday approaches…..and the same goes for squash balls.
Animal Spirits
Animal spirits refers to the state of confidence or pessimism held by consumers and businesses. Expectations for the future inevitably influence decisions made today about how much consumers are prepared to spend or save and the willingness of businesses to commit funds towards capital investment in their chosen markets.
read more...»A Fun Way to Get People to Obey Speed Limits
A lovely idea to nudge people to obey speed limits!
read more...»Economics of Happiness v.2010
The economics of happiness does the rounds every year or so and here is v.2010. The latest edition of Economic Journal revisits the “economics of happiness” literature this week.
read more...»Oligopolies
A good applied example here of the strategic interdependence and non-price competition that occurs in oligopolistic markets. This example focuses on the games console market, where in response to the Nintendo Wii’s motion-sensor controllers, Sony have unveiled their own one; whilst Microsoft is joining the party later this year to go even further with a full body motion controller(!). Its a good example of how oligopolistic industries interdependence (follower-leader relationship) can be of benefit to consumers via dynamic efficiency aims.
Behavioural economics - lessons from an ad man
Some of the most interesting academic work comes from collisions and overlaps between diverse fields and disciplines. As the dust begins to settle from the financial crisis Economics IMO needs to listen and draw more from Psychology, History and Biology. We need less Maths and more humanity and we can do much from approaching knotty policy dilemmas from different points of view.
In this spirit, Rory Sutherland the “Fat bloke at Ogilvy” gave a fascinating and illuminating talk on some of the lessons of behavioural economics applied to the world of advertising and marketing in his talk at the LSE this afternoon - it was totally worth the train journey into London to hear a speaker whose positive engagement with his audience put others to shame. How refreshing it was to hear from a speaker undaunted and unaffected by the doctrines of classical economic thinking.
Here is a snapshot of Rory’s journey through some great microeconomics!
read more...»TV Time!
Lots of Economics on TV this weekend:
read more...»Daniel Kahneman on our experience self
A new perspective on happiness economics - in this newly released TED talk and using examples from vacations to colonoscopies, Nobel laureate and founder of behavioral economics Daniel Kahneman reveals how our “experiencing selves” and our “remembering selves” perceive happiness differently.
Behavioural economics - the psychology of menu pricing
Here is a fascinating piece from the New York Times on how some restaurants are restructuring their menus in a bid to beat the recession and drive higher revenues and profit margins from their businesses. Decoy choices and eliminating the currency sign are among the experimental strategies.
“Pounded by the recession, they are hoping that some magic combination of prices, adjectives, fonts, type sizes, ink colors and placement on the page can coax diners into spending a little more money.
How Markets Fail - the logic of economic calamities
A huge number of well-known economists and a remarkable number of ideas make an appearance in John Cassidy’s new book How Markets Fail – the logic of economic calamities. From Akerlof and Arrow to Von Neumann and Walras, John Cassidy’s ambitious and lucid work takes us on a swift journey through over two hundred years of economic thought and policy-making through to the moment when the global financial system stared over the abyss in the early autumn of 2008.
read more...»Getting lyrical about behavioural economics
Fans of behavioural economics will love this festive selection of cognitive biases in popular songs unearthed by Chris Dillow in his excellent blog.
They think it’s all over…
I wonder what John Nash would have to say about this unorthodox winning strategy in a football match. This Barbados vs Grenada football match yielded some interesting and entirely rational tactics!
read more...»Joel’s Noel Message on Giving
Christmas is a fully anticipated event - it falls on the same day each year and we more or less know the size and scale of gift-buying frenzy into which we throw ourselves with varying degrees of enthusiasm and expertise. But that doesn’t prevent millions of us having to borrow at an APR in excess of 18% to fund Xmas purchases. Or suffering from numerous information failures when buying and receiving gifts. For many years, economist Joel Waldfogel has studied the deadweight loss of Christmas and he likens it to an orgy of value destruction even if we assign an appropriate value to the joy of giving. His new book Scroogenomics explains why you shouldn’t buy presents for the holidays and why charitable giving (mainly for adults!) through time limited gift cards could well be an effective and efficient way to spread festive cheer in future years.
I greatly enjoyed his early evening talk at the LSE last night although I suspect he had a more receptive audience at an earlier presentation to the RSA. The LSE crowd on a Thursday evening is not known for its mirth and merriment - there are too many post-graduate economists around to provide such an atmosphere. And the talk was not helped by Martin Lewis from Moneysupermarket.com reminding the audience of his web site at every available opportunity.
That said Joel’s presentation gave solid empirical evidence of the scale of spikes in seasonal demand across numerous different countries. The rise of giftcards is changing the timing of these spikes and retailers are becoming more savvy about how to exploit our growing desire for ethical and charitable giving. The evidence seems to be that total spending on holiday giving is declining as a share of national income - which suggests that seasonal present buying can be classified as a necessity with an income elasticity of demand of between zero and +1. In contrast, charitable donations have a higher income elasticity of demand and the internet (e.g. Just Giving) and the ever-widening scope of charitable gift cards is accelerating this process.
There were some interesting questions. One contrasted the almost de rigeur nature of wedding gift lists with the more randomised giving at Christmas. Another asked which was great - the deadweight cost of christmas presents or the waste associated with throwing away uneaten food. I really liked the question about why it has become default behaviour to scratch the price tag off an item that you are giving as a present. And another question asked us to consider whether handing over cash was a stigmatised form of giving - save for the cash that teenagers routinely prefer especially from elder relatives!
Law and Morality in Economic Life
It is easier to destroy a society than it is to build it. And tipping points that cause people en mass to lose faith and confidence in institutions are more likely than we might assume. This was one of the themes from an outstanding lecture given at the Royal Institution yesterday by Sir Partha Dasgupta as this year’s Royal Economic Society annual public lecture. Drawing on a lifetime of experiences and research, Sir Partha enthralled his audience with a brilliantly structured talk on the growing importance of social norms in helping us to understand more clearly the gulf in economic wealth and life chances between different parts of the world.
read more...»Happiness, Love and Scroogenomics
Tim Harford was on sparkling form in his address to the Eton College Keynes Society on Thursday night. He chose the themes of happiness, love and Christmas to explore areas in which microeconomics can offer genuinely interesting insights to the choices we make in our daily lives. It was a relief to the audience that the credit crunch was barely mentioned, although a question from the floor did prompt Tim to say that policy-makers moved with remarkable alacrity towards Keynes when the financial system moved to the edge of the abyss. At least in Keynes we see macroeconomics with some psychology at its core (reflected too in the recent work of Shiller and Akerlof). Tim discussed the data reconstructive method as a means of finding out more about why some people are more content with their lives than others.
He persuaded us that, when it comes to love, the Economists probably shade the Romantics in understanding the essence of attraction. And he offered some early festive fare with a look at the economics of giving, drawing on the work of Joel Waldfogel whose new book ‘Scroogenomics: Why You Shouldn’t Buy Presents for the Holidays’ might well find its way into the stockings of enthusiastic economics students!
A better bet would be to buy Tim’s new book Dear Undercover Economist: The Very Best Letters from the “Dear Economist” Column - another ideal stocking filler!
Going once… going twice… Still going once… going twice…
(A hat-tip to C. Gee for spotting this!)
For those of you who enjoyed Nudge, here is Professor Thaler in the New York Times discussing an interesting behavioural analysis of the website Swoopo.com. (If you haven’t visited the site yet, it’s very interesting to watch!).
read more...»Time to reassess rationality
In today’s Times, Roman Frydman, Professor of Economics at New York University, and Michael D. Goldberg, Professor of Economics at the University of New Hampshire, argue that a much deeper debate is required about economists’ flawed theories of market “efficiency” and “rationality”, which have led economics and policy astray in the past decade. Read the article here.
Hot wiring the brain to pay off more debt
This report for Radio 4’s Money Box programme is a superb example of behavioural economics in action and in particular the anchoring effect. Researchers have found that by putting a small minimum required payment at the bottom of credit card statements, people’s brains are wired to pay less back than if no such minimum was posted. The result is that debt takes many years more to repay and the accumulated interest to the lender is naturally much higher. Offering low minimum repayments each month seems seems intuitively to benefit the borrower - making the servicing of debt appear more manageable on a month-by-month basis. But the anchoring effect in fact lifts the profits of finance houses.
Anchoring describes the human tendency to rely to heavily or ANCHOR on a trait or piece of information in particular. Natural human nature is to rely to heavily on certain pieces of information and then adjust to that piece of information to account for other elements of the circumstance.
When a price anchor is established for a product, it serves as a reference price for all similar products and substitutes. For example, when bread-makers were first introduced to consumers in the USA at a retail price of $275, consumers were not prepared to buy them. However, when a similar product was priced at $400, consumers flocked to buy the $275 bread-maker because they perceived it to be available at a bargain price. This was because their price anchor had shifted from $275 per bread-maker to $400. Anchoring a price for a good or service at a higher level helps to attract consumers to products priced below the level of the anchor.
Lessons from an Ad Man - Superb microeconomics!
The wonderful Rory Sutherland wows the audience at the TED conference in Oxford with a superb sixteen minute talk on advertising and aspects of behavioural economics. It is an immensely watchable video that will allow you to discuss with your students concepts such as perceived value, symbolic value,intangible value, hedonic opportunity cost and some ideas for nudging personal behaviour in socially beneficial ways. We learn of the extraordinary value of placebos, the rebranding of the potato in Prussian Germany. That all value is subjective and that persuasion is better than compulsion. Some super examples too of Veblen Goods, price discrimination and how the framing of the Italian penalty points system for drivers in Italy has a different impact than for motorists in the UK.
Score Draw and Soccernomics
Arjun Bali looks at the surprisingly low number of draws in Premiership Football and suggests that the Reds might have challenged more strongly for the title last year had Benitez been more of an economist!
read more...»The boy who harnessed the wind
This fantastic true story of boy’s dream to improve the standard of living in his village in Malawi is both inspiring and full of good economic examples (and therefore a winning combination!). William Kamkwamba’s family had to pull him out of school in Malawi as they could no longer afford the £50 annual fee; however, he continued to use his local library to study science and set out on a project to use items of junk and waste to build a windmill in order to bring electricity and running water to his village. There are some lovely examples here relating to development in terms of grassroots approaches, some of the problems faced by those living in developing countries, the positive externalities associated with education, alternative measures to tackling climate change as well as an inspirational entrepreneurial story. I for one will be buying the book telling the story of this young man’s vision.
Say sorry ... it makes business sense!
Sorry seems to be the hardest word for politicians and for all of us who have dug ourselves into a hole. But a new study of consumers from academics at Nottingham University finds that customers are more likely to continue a commercial relationship with a business that is up front anmd apologises rather than those who resort - after a delay - to financial sweetners. More here
Kick-start for the economy?
The British Retail Consortium estimate that England’s qualification for the World Cup finals in South Africa next year could be worth £1.25 to the UK economy next year. Pubs could take an extra £30-40mn at each live match they show, and electrical manufacturers will get boom sales in flat-screen TV’s to those watching at home and supermarkets will sell huge quantities of food and drink to keep the blood sugar levels up and combat the nerves. Spending on world cup advertising in 2006 generated £300mn, sports kit manufacturers Umbro will be rushing to make more England shirts, and flights and package tours to South Africa are selling out fast. Could this be the news we need to combat the recession and get people spending again? The Times leader writer yesterday thought it might be; in spite of the trillions that have been spent in the last year, this could finally be the news that we need. I see lots of educational opportunities too - game theory as illustrated by the penalty shoot-out for a start (should you shoot left or right? And can the goalie guess which way the penalty taker will go, to save the match?).
Not all businesses will be so happy though. In 2006 estate agents found a huge drop of interest in house buying during the World Cup, and some cinemas had to close for the month with too few visitors. Not to mention the potential effect on A level students: the tournament kicks off on 11th June, with group matches and the knock-out round of 16 lasting through the rest of that month – just when the exams will be scheduled. Best to get the revision done early……..
Economics, the Queen, and the Wrong Sort of Maths
Last year the Queen attended a tutorial at the LSE about the credit crunch, and asked the not-unreasonable question, why economists hadn’t seen the economic crisis coming. Her Majesty’s question has raised a very defensive response from a number of economists who have written and published answers for her. One such answer comes from ten leading economists who argue that the training of economists has led them down the path to more maths, and less understanding. Bridget Rosewell, one of the economists who wrote the letter, spoke with Evan Davis about it on the Today programme on Saturday – the link to that interview is here. She is Chief Economist to the Greater London Authority and her research interests focus on the economic performance of local economies, the performance of markets, and business organisations. In 2007 she was named as one of the 25 most powerful people in London by the Evening Standard newspaper, and so she was an excellent person to explain the solution offered to the Queen on the Today programme on Saturday, which is that the ethos of economics has been distorted by the Wrong Sort of Maths.
read more...»Too much choice is bad for you
At last I have found someone else who only wants to use his mobile phone to call other mobile phones. Adam Shaw, who presents Business news on Radio 4’s Today programme, is writing about choice on his business round-up and suggesting that too much of it is a bad thing.
The one option he seeks in a phone – that it should simply allow him to communicate with other people’s phones – is the only choice that is unavailable to him.
He also bemoans the fact that, amongst a range of hundreds of different shirt styles available, he can’t find one that is just what he is looking for, and he suggests that the problem is that too much choice makes it hard to feel confident that the selection we make is the best option available, so that the opportunity cost of getting that choice wrong is higher.
Look at the example from behavioural economics of the supermarket which finds that it sells ten times as much jam when it only gives consumers six varieties to choose from, compared with very low sales when twenty four different pots are on offer, making a great display that attracts lots of attention but few sales, as buyers are confused by the risk of getting the choice wrong. He ponders whether we would be happier if we returned to a simpler economic model, with fewer choices and lower expectations of the utility we would gain from each decision that we make.
Perhaps Stelios has a point when he told Adam Shaw that his objective was to lower customer expectations so that they would be content with lower customer service levels!
Fiscal policy, public sector pay and employment flexibility
Steve Bundred, Chief Executive of the government Audit Commission, has suggested that public sector workers would willingly accept a pay freeze this year, because they have done well in recent years and will recognise that a pay freeze is better than the alternative. Reports of his comments will focus particularly on education and the NHS, as two monopsony employers who provide the services used by most taxpayers (the NHS remains the world’s third largest employer, suggesting huge scope to make savings by reducing the pay bill). Those services were being given as the focus of the debate in parliament this week over public spending and investment between Gordon Brown and David Cameron. The Prime Minister’s enjoyable statement in Prime Minister’s Questions on Wednesday that there would be a ‘zero percent increase’ in public spending in 2013-4 was reflecting his determination that the way to pull the country out of recession is through continued spending on government investment and public services. Mr Bundred however is suggesting that there have to be cuts amounting to £50bn in order to begin the task of reducing national debt – that would be a cut of approximately 8% of the Treasury’s projection of £671bn managed expenditure for 2009-10.
read more...»
