http://www.tutor2u.net/blog/index.php/economics/ en tutor2u.net Copyright 2012 2012-02-12T07:41:03+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/daniel-kahneman-on-decision-making http://www.tutor2u.net/blog/index.php/economics/comments/daniel-kahneman-on-decision-making#When:18:49:37Z Here is a quick link to a guest blog on the Economist website provided by Daniel Kahneman - a handy overview of some of his key insights concerning psychological explanations for departures from rationality. Follow this link Behavioural Economics, Teaching of Economics, 2012-02-05T18:49:37+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/introduction-to-neuroeconomics-fusing-psychology-with-economics http://www.tutor2u.net/blog/index.php/economics/comments/introduction-to-neuroeconomics-fusing-psychology-with-economics#When:16:16:36Z This autumn I have been given lots of practice interviews with and helping to support the reading of students interested in reading Economics at many UK and US universities, but also those keen to explore degrees including Human Sciences and Psychology. I have no background in the sciences but it has been fascinating to find out more as an interested lay person. Some of this has happened at the superb lectures and discussions at the RSA whose Social Brain Project is well worth following. Just recently I went to hear Andrew Oswald talk about the psychology of herd behaviour Neuroeconomics brings together the disciplines of economics, psychology and neuroscience. I have put together a selection of recent articles that seem to me to explain what it might offer and I will happily add more links if colleagues have some other good resources to share. Behavioural Economics, Teaching of Economics, 2011-12-16T16:16:36+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/rory-sutherland-at-zeitgeist http://www.tutor2u.net/blog/index.php/economics/comments/rory-sutherland-at-zeitgeist#When:18:00:57Z This is a gem of a talk with so much of interest - drawing on insights from behavioural economics - funny, insightful, a terrific talk to show to ambitious sixth form students who are not prepared to accept the tenets of neo-classical economics! Behavioural Economics, Teaching of Economics, 2011-12-01T18:00:57+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/behavioural-economics-herd-behaviour http://www.tutor2u.net/blog/index.php/economics/comments/behavioural-economics-herd-behaviour#When:16:14:53Z Professor Andrew Oswald from the University of Warwick delivered a pitch-perfect lecture on the significance of herd behaviour in his talk at the LSE tonight. If you take time to scan most leading economics textbooks at school, college and undergraduate level, the idea of herd or imitative behaviour scarcely warrants a mention. But we know that it matters deeply in many economic, social, environmental and political domains. Why has the Economics discipline been so tawdry in understanding better some of the Biology and Psychology behind the behaviour of groups? It is as fundamental to a modern networked society as it is in the non-human animal kingdom. Check out the wonderful murmuration of starlings in the video clip below for an inspirational illustration of herd instincts in action. Behavioural Economics, Market Failure, Externalities, Teaching of Economics, 2011-11-28T16:14:53+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/lse-lecture-daniel-kahneman-thinking-fast-and-slow http://www.tutor2u.net/blog/index.php/economics/comments/lse-lecture-daniel-kahneman-thinking-fast-and-slow#When:18:33:48Z This is a blog drawing on a lecture at the LSE with Professor Richard Layard in discussion with Nobel winner Daniel Kahneman! AS and A2 Specifications, AQA Economics Unit 3, EdExcel Economics Unit 3, A2 Micro, AS Micro, Behavioural Economics, Market Failure, Teaching of Economics, 2011-11-15T18:33:48+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/lse-lecture-darwin-economy http://www.tutor2u.net/blog/index.php/economics/comments/lse-lecture-darwin-economy#When:22:36:54Z Last week I took some of my pupils to the LSE for Professor Robert Frank on “Liberty, Competition and the Common Good: The Darwin Economy”, chaired by Paul Mason. Frank’s book is about the fact that Charles Darwin understanding of competition offers a better guide to economic reality than Adam Smith and rational choice theory. Smith’s view is putting us all at risk by preventing us from seeing that competition alone will not solve our problems. AS and A2 Specifications, AQA Economics Unit 3, EdExcel Economics Unit 3, A2 Micro, AS Micro, Behavioural Economics, Game Theory, Market Failure, Externalities, Teaching of Economics, 2011-11-13T22:36:54+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/behavioural-economics-daniel-kahneman-in-town http://www.tutor2u.net/blog/index.php/economics/comments/behavioural-economics-daniel-kahneman-in-town#When:22:41:31Z Daniel Kahneman’s new book Thinking Fast and Slow is no available in bookstores and he is coming to the LSE in London on Tuesday to hold a discussion with Professor Richard Layard. I am taking a group of students to the event and the sense of expectation is palpable, the Nobel prize winner in Economics has a world renown and we will send through a detailed blog on the event early next week. Here are some fresh teaching resources on his work Vanity Fair: The quiz that Kahneman wants you to fail! Michael Lewis (author of the Big Short) writes on Kahneman’s work: The King of Human Error AS and A2 Specifications, AQA Economics Unit 3, EdExcel Economics Unit 3, Behavioural Economics, Teaching of Economics, 2011-11-09T22:41:31+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/behavioural-economics-bittersweet-symphony-the-psychology-of-food http://www.tutor2u.net/blog/index.php/economics/comments/behavioural-economics-bittersweet-symphony-the-psychology-of-food#When:08:46:09Z Last night I attended a discussion with Professor Charles Spence, Head of the Crossmodal Research Laboratory at the Department of Experimental Psychology, Oxford University. He was speaking about the psychology of food, and his work with Heston Blumenthal at the Fat Duck. It was a tremendously entertaining and revealing talk about the ways in which top chefs are embracing ideas from psychology and neuroscience in creating new products and experiences. But how many of the innovations will find their way into the everyday meals that we eat rather than the ‘once in a lifetime’ conspicuous consumption of a meal at a Michelin-starred restaurant? Constant trial and error from Chefs in charge of their own destiny is a world away from the financial imperatives and constraints of the mass-volume industrial food processing businesses. AS and A2 Specifications, AQA Economics Unit 3, EdExcel Economics Unit 3, A2 Micro, AS Micro, Behavioural Economics, Teaching of Economics, 2011-11-08T08:46:09+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/unit-3-micro-price-discrimination-in-the-e-book-market http://www.tutor2u.net/blog/index.php/economics/comments/unit-3-micro-price-discrimination-in-the-e-book-market#When:09:51:07Z Seth Godin’s Domino Project is an attempt to re-fashion the way in which e-books are published, sold and priced. This blog is particularly interesting for teachers and students who consider different forms of price discrimination. It proposes (at least) three different price tiers: $1.99 ebooks - a clearing price for the majority of e-books $5 ebooks. This is the price for bestsellers, hot titles and academic titles required by courses $10 - $20 ebooks. This is the price you will pay to get the book first, to get it fast, to get it before everyone else Read paying for first What do you think? How do you see e-book pricing tactics evolving as the market grows? The UK Office of Fair Trading is currently investigating the market for e-books in the UK amid allegations of price fixing / collusion by several leading publishers. You can access the OFT investigation using this link. Further reading: Guardian (August 2011): Apple and major publishers face lawsuit over ebook ‘price fixing’ Telegraph: EU raids publishers in ebook price-fixing probe By way of background - new research has found that the average e-book price of front-list e-books across the world was €10.50 net of taxes. The average price of UK frontlist e-books was €10.80, €1.50 more than equivalent US titles, but less than those in Germany, Spain and France. AS and A2 Specifications, AQA Economics Unit 3, EdExcel Economics Unit 3, A2 Micro, AS Micro, Behavioural Economics, Game Theory, Business Economics, Monopoly, Oligopoly, Market Equilibrium and Price, Nature of Demand, Teaching of Economics, 2011-10-31T09:51:07+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/collusion-in-the-classroom http://www.tutor2u.net/blog/index.php/economics/comments/collusion-in-the-classroom#When:07:20:51Z Today we played a variety of ‘prisoner’s dilemma’ games with my U6th economists, highlighting the game theory element of oligopolistic markets. (A nice mix of collusion between the pupils was apparent, coupled with the usual cheating on agreements and back-stabbing – always fun to have in the classroom!) AS and A2 Specifications, EdExcel Economics Unit 3, A2 Micro, Behavioural Economics, Game Theory, Business Economics, Oligopoly, 2011-10-08T07:20:51+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/the-cure-for-economic-slowdown-drive-faster http://www.tutor2u.net/blog/index.php/economics/comments/the-cure-for-economic-slowdown-drive-faster#When:06:38:34Z This is the headline used by Reuters in their report of the government Transport Secretary’s proposal that the speed limit on motorways should be raised from 70 to 80mph. The justification for the proposal is largely that, when the limit was introduced, cars were less safe than they are now, and that technical improvements have made 80mph a safe speed at which to travel. Other arguments include the desire to conform with the higher motorway speed limits in Europe, which are generally higher than in the UK, and also the fact that many drivers do drive at between 70 and 80 on motorways anyway and tend not to be fined for it, so the law may as well be amended to keep up with actual behaviour. A2 Micro, AS Micro, Behavioural Economics, Environmental Economics, Government Intervention, Government Failure, Market Failure, Transport Economics, 2011-10-01T06:38:34+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/behavioural-economics-the-ikea-effect http://www.tutor2u.net/blog/index.php/economics/comments/behavioural-economics-the-ikea-effect#When:20:59:01Z If you have ever spent a frustrating afternoon assembling IKEA furniture but then stood back and admired your incredible craftmanship then you might be interested in reading this research from behavioural economists on the value we attach to items we have personally assembled or mashed up as a group. Here is the actual research document. There might be a classroom experiment here? Cross-curricular links with the home-economics department could be cultivated by getting your students to make some cakes or pancakes with ready mix packets (eggs, sugar, water etc) and then asking how much they value the finished product? Turns out that valuation does depend on getting the job done - imagine the effect if you were half way through a cooking session and you told your students to throw everything away into the bin! Dan Ariely writes about this aspects of behavioural economics here And below there is a link to a super 5 minute video from him on the IKEA effect!   Behavioural Economics, Teaching of Economics, 2011-09-25T20:59:01+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/unit-1-micro-sleep-money-happiness-and-choices http://www.tutor2u.net/blog/index.php/economics/comments/unit-1-micro-sleep-money-happiness-and-choices#When:09:27:00Z Autumn is arriving here in the UK. I cannot have been alone in finding it tough to drag myself out of bed on Friday morning to teach at the end of a tiring week. The marginal utility of an extra hour under a comfy duvet was so appealing, fortunately so too was the prospect of discussing the Greek debt crisis! Here is an interesting choice to put in front of your students - sure to prompt discussion. AS and A2 Specifications, AQA Economics Unit 1, EdExcel Economics Unit 1, AS Micro, Behavioural Economics, Introductory Economics, Teaching of Economics, 2011-09-25T09:27:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/economics-at-the-movies-the-game-of-chicken http://www.tutor2u.net/blog/index.php/economics/comments/economics-at-the-movies-the-game-of-chicken#When:08:14:00Z This classic scene from the film Footloose can be used to illustrate the game of Chicken - a popular example of game theory.   Behavioural Economics, Game Theory, Teaching of Economics, Economics at the Movies, 2011-07-18T08:14:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/competition-plan-for-universities http://www.tutor2u.net/blog/index.php/economics/comments/competition-plan-for-universities#When:15:36:01Z Competition, AS Microeconomics, A2 MicroeconomicsSo the Universities White Paper has been published.  Words like “Competition” on news feeds instantly make me sit up and take notice.  As my Year 12s embark on their odyssey into market structures and ever more close encounters with efficiency, I think this might just be the case study of the moment.  After all its subject matter is foremost in many of their minds. AS and A2 Specifications, AQA Economics Unit 1, AQA Economics Unit 3, A2 Micro, AS Micro, Behavioural Economics, Game Theory, Business Economics, Competitive Markets, Monopolistic Competition, Competition Policy, Government Intervention, Maximum Prices, Market Failure, Information Failure, 2011-06-28T15:36:01+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/the-big-money-test-a-behavioural-economics-experiment http://www.tutor2u.net/blog/index.php/economics/comments/the-big-money-test-a-behavioural-economics-experiment#When:15:01:00Z Significant effort is made by teachers, companies and the government to try and educate people about managing their financial affairs, but often to no avail. Indeed, the book Nudge suggests that even financial experts often struggle to make the ‘right’ or ‘best’ decision. A new experiment has been designed that aims to examine how people make financial decisions - and you can take part! Firstly, visit this BBC website to find out a bit more about the experiment, then look at what is being termed ‘money sanity’ here, before taking the Big Money Test. Behavioural Economics, Cycles and Shocks, Aggregate Demand, Consumer Spending, Financial Markets, Teaching of Economics, Wildcard Wednesday, 2011-05-25T15:01:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/super-cooperators-and-game-theory http://www.tutor2u.net/blog/index.php/economics/comments/super-cooperators-and-game-theory#When:08:50:00Z It was a delight to hear Martin Nowak and Roger Highfield at the RSA last night when they delivered a presentation on aspects of their new book Supercooperators - The Mathematics of Evolution, Altruism and Human Behaviour. The video of the presentation is now available below Martin Nowak is a celebrated Professor of Biology and Mathematics at Harvard University and his strong presentation was a model of clarity and insight drawing heavily on the classic Prisoners’ Dilemma as the basis for a discussion on the importance of direct and indirect repciprocity as the basis for co-opertaive behaviour between humans. He was joined by Roger Highfield, Editor of the New Scientist.   Behavioural Economics, Game Theory, Teaching of Economics, 2011-05-19T08:50:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/review-of-adapt-by-tim-harford http://www.tutor2u.net/blog/index.php/economics/comments/review-of-adapt-by-tim-harford#When:10:06:00Z Tim Harford’s “Adapt - why success always starts with failure” is an ambitious, entertaining and enthralling work that is immensely readable and which offers revealing insights and twists and surprises with remarkable frequency throughout the book. I sense that the tide is turning in the book publishing industry. After several years of hand-wringing and blood-letting in explaining the genesis of the global financial crisis, a new genre of books is emerging that is more optimistic in tone. Authors such as Steven Johnson (Where Good Ideas Come From), Martin Nowak and Roger Highfield (Super Co-operators) and John Kay (Obliquity) have all explored the conditions under which innovative ideas, altruistic behaviour and counter-intuitive business models can succeed in a constantly-changing economic and business landscape. Tim Harford’s book is a hopeful and confident examination of the architecture of success in evolutionary environments where fear of failure, a lack of ambition and rigid policy-making can make matters worse and bring about environmental, economic and organisational collapse.   Behavioural Economics, Teaching of Economics, UCAS and Oxbridge Advice, 2011-05-09T10:06:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/dominos-pizza-turns-to-behavioural-economics http://www.tutor2u.net/blog/index.php/economics/comments/dominos-pizza-turns-to-behavioural-economics#When:22:23:01Z The hugely successful pizza chain is using some of the emerging ideas from behavioural economics to reshape the incentives for customers. This article explores some of the changes and features Rory Sutherland from Ogilvy who is speaking at our National Economics Conference at the end of June.  “Domino’s Pizza has become one of the first brands in the UK to use behavioural economics in overhauling its consumer marketing strategy” Behavioural Economics, Teaching of Economics, 2011-05-05T22:23:01+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/macroeconomics-revision-measuring-consumer-confidence http://www.tutor2u.net/blog/index.php/economics/comments/macroeconomics-revision-measuring-consumer-confidence#When:06:41:00Z For students preparing for macroeconomics exams, there is a useful analysis of consumer confidence on the BBC website this morning. Following the GDP figures released by the ONS last month, and the corresponding Nationwide Consumer Confidence figures for March, there is an assessment of the Nationwide index and the importance of expectations of employment and wages in the eyes of Robert Gardner, Nationwide’s Chief Economist. A2 Macro, AS Macro, Behavioural Economics, Economic Growth, Standard of Living, UK Economy, 2011-05-04T06:41:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/fantastic-short-piece-on-nudges-and-shoves http://www.tutor2u.net/blog/index.php/economics/comments/fantastic-short-piece-on-nudges-and-shoves#When:20:36:00Z Here is a superb short piece from Jonah Lehrer on aspects of behavioural economics and in particular, the sue of nudges to control calorie consumption in restaurants and to get us to use less energy in our homes. The law of unintended consequences makes a guest appearance - compulsory calorie information on menus in New York City have seen calorific consumption edge higher over five years. Data on relative energy consumption within a neighbourhood have shown only marginal gains in energy efficiency. There is a superb phrase in the piece - “the nudges of policy makers must compete against the nudges of the marketplace…Sometimes, we don’t need a nudge. We need a shove”. A hat tip to Tim Harford for flagging up the article on his Twitter page - and a reminder that I regard Tim’s new book “Adapt” as one of the must-reads this summer. It is a tremendous book for economics students - reviewed here. Behavioural Economics, Market Failure, Information Failure, Teaching of Economics, 2011-04-19T20:36:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/the-power-of-incentives http://www.tutor2u.net/blog/index.php/economics/comments/the-power-of-incentives#When:14:33:00Z Here is an edited version of a talk given recently by economist Ian Ayres, co-Founder of Stickk.com - Carrots? and Sticks: Unlock the Power of Incentives to Get Things Done’. Some interesting examples although the editing does take away some of the flow of the talk.   Behavioural Economics, Teaching of Economics, 2011-03-31T14:33:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/the-placebo-effect-beautifully-visualised http://www.tutor2u.net/blog/index.php/economics/comments/the-placebo-effect-beautifully-visualised#When:17:18:00Z A St David’s Day hat-tip to Henry Wingfield for spotting this superb visualisation of aspects of the placebo effect. It ties in quite nicely with Rory Sutherland’s placebo segment of his famous TED talk AS and A2 Specifications, AQA Economics Unit 1, AQA Economics Unit 3, A2 Micro, AS Micro, Behavioural Economics, Health Economics, Teaching of Economics, 2011-03-01T17:18:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/want-free-wifi-and-breakfast-all-in-choose-a-cheaper-hotel http://www.tutor2u.net/blog/index.php/economics/comments/want-free-wifi-and-breakfast-all-in-choose-a-cheaper-hotel#When:20:11:01Z This super piece by Jonah Lehrer on behavioural economics on our frequent reliance on mental accounting as a cognitive short-cut reminded me of a bad choice made last week when I stayed at Jury’s Inn in Chelsea ahead of our Global Economy Enrichment Event. I should have known better than to accept the offer of a £20 upgrade to an executive room which included free broadband internet. For all I know the room on the 6th floor was no different to any of the two hundred below. New to the area and unaware of a friendly coffee shop that might have offered web access for a few quid, I mentally assigned the extra cost to a bill that was already in three figures and which I would not have to pay for another 24 hours - choosing instead the easy route to a more convenient existence. Then the hotel scalped me for a pretty sub-standard breakfast the next morning and my copy of the FT never arrived. Revenge of a certain type has come in the form of a stinging review for fellow travellers on the Trip Advisor web site! Back to the Lehrer article - it draws on a well-known experiment from behavioural economist Richard Thaler about the loss of money or a ticket (worth the same) on the way to an event and the inconsistent choices that many seem to make when asked about their likely response. If you are interested, the problem is posed in this article dated 2007 from the Washington Post. One question to consider is whether the loss of a ticket or cash that on the surface has the same value IS equivalent? For example providing you have proof of purchase of the ticket, you might be able to claim another one from the venue. I forked out £20 for a paltry room upgrade and some expensive web access .... and four nights later I spent the same on a ticket to the O2 to watch an evening of Premier League darts. Now that was worth it! Over 10,000 people at a darts match and a fantastic atmosphere from beginning to end! Behavioural Economics, 2011-02-14T20:11:01+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/behavioural-nudges-at-the-gym http://www.tutor2u.net/blog/index.php/economics/comments/behavioural-nudges-at-the-gym#When:11:16:00Z A Boston economics student drew on lessons from behavioural economics lectures to persuade her local gym to trial some innovative gym membership fees as a way of incentivising more regular attendance .....read about it here. Behavioural Economics, 2011-02-10T11:16:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/tuesday-talks-the-art-of-choosing http://www.tutor2u.net/blog/index.php/economics/comments/tuesday-talks-the-art-of-choosing#When:21:17:00Z In this second Tuesday Talks post, for students and teachers looking for some extension material, I’ve picked out another insightful TED talk on how we make choices - you can find it here. I’ve seen quite a lot of literature over the past few months both in the academic press and more mainstream publications relating to consumer choice, and our inability to make effective decisions when we are faced with too much choice. This seems to fly in the face of classical economic theory which argues that consumer choice is key in ensuring competition and associated efficiencies. One great example of this deliberate reduction in choices available to consumers relates to Morrison’s decision to reduce the size of it’s range of balsamic vinegar available in store. Much of this debate over consumer choice has, I think, stemmed from Thaler and Sunstein’s bestselling book Nudge, which is well worth a read! There is also an interesting blog relating to the ‘nudge’ concept. Once you’ve digested the talk, and some of the other associated material that I’ve mentioned, you could think about the following questions: 1. How many options do you think consumers can realistically cope with, and still make the most efficient decision? 2. Carry out some research to come up with examples where choice has been deliberately restricted in order to help consumers with their decisions. 3. Carry out some research to come up with examples where consumers are faced with a wide range of choices. How do consumers make their decisions in these markets? 4. Is it right that governments may try to affect the outcome of our decision-making? For example, should governments change the system of organ donation to an opt-out system, rather than the current opt-in system (some details here). Behavioural Economics, Teaching of Economics, Tuesday Talks, 2011-02-01T21:17:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/winner-of-the-fun-theory-competition http://www.tutor2u.net/blog/index.php/economics/comments/winner-of-the-fun-theory-competition#When:19:03:00Z Here is the winner of the Fun Theory competition to find innovative and fun ways to get people to change their behaviour in socially beneficial ways! For Dan Ariely of “Predictably Irrational” fame the Fun Theory programme provides simple ideas about how human motivations and incentives drive change. In this case speeding drivers pay fines into a fund that provides money for a lottery to reward law-abiding drivers. Behavioural Economics, Teaching of Economics, 2011-01-23T19:03:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/ariely-on-limitations-of-rational-economics http://www.tutor2u.net/blog/index.php/economics/comments/ariely-on-limitations-of-rational-economics#When:11:13:00Z A hat tip to Mark Seccombe for spotting this - Dan Ariely on the limitations of rational Economics. And to tick the cross-curricular boxes Mark always leads into it with a bit of Shakespeare: “What a piece of work is a man, how noble in reason, how infinite in faculties, in form and moving how express and admirable, in action how like an angel, in apprehension how like a god!” – Hamlet Act II, scene II Behavioural Economics, Teaching of Economics, 2011-01-23T11:13:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/rory-sutherland-to-speak-at-2011-economics-teacher-national-conference http://www.tutor2u.net/blog/index.php/economics/comments/rory-sutherland-to-speak-at-2011-economics-teacher-national-conference#When:21:53:00Z We are delighted to announce that Rory Sutherland, Vice-Chairman of the Ogilvy Group UK has agreed to join us as one of the speakers at the 2011 Economics Teacher National Conference at the British Library on the 29th June. Rory is a passionate and gifted communicator who has specialised in analysing how ideas drawn from behavioural economics can be harnessed in marketing and in developing public policy. His two TED talks (Life Lessons from an Ad Man and Sweating the Small Stuff) have fast become legendary on the internet and a great hit with Economics teachers and students alike. You can view those talks using the links further below. The 2011 Economics teacher National Conference takes place at the superb British Library Conference Auditorium, St Pancras, London on Wednesday 29 June 2011. The aim of the day is for Economics teachers from many different countries to enjoy some presentations and discussions on issues of contemporary importance and also to refresh their passion and enthusiasm for this great subject! In the last couple of years our speakers have included Hamish McRae, Linda Yueh, Tim Harford, John Micklewait, Paul Collier, David Smith and Stephen King. Provisional bookings for the 2011 Conference can be made here:   Behavioural Economics, Teaching of Economics, 2011-01-01T21:53:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/behavioural-economics-nudge-squared http://www.tutor2u.net/blog/index.php/economics/comments/behavioural-economics-nudge-squared#When:21:22:00Z This article today from the Telegraph picks up on the recent work of Paul Ormerod in understanding the power of network effects in influening people’s behaviour. I re-watched Paul’s talk at the RSA and it really is very good - having spent some time tonight considering purchases on Amazon UK and reviews on Trip Advisor, I am now alert to the impact of comments and feedback from people that I will in all probability never meet! Behavioural Economics, 2010-12-30T21:22:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/behavioural-economics-public-policy-and-behavioural-change http://www.tutor2u.net/blog/index.php/economics/comments/behavioural-economics-public-policy-and-behavioural-change#When:20:10:00Z Behavioural change continues to feature prominently in the news - just this week the government announced plans designed to increase the amount that we give to charity. And a House of Lords Committee is currently investigating approaches to behavioural change applied to many economic and social issues. The Institute for Government has just published a new document - MINDSPACE: Influencing behaviour through public policy - which focuses on the contribution that insights from behavioural economics might play in shaping public policies. MINDSPACE is an acronym capturing nine separate influences on our behaviour (listed below). The document contains some case studies of where behavioural nudges have been tried in local communities. AS and A2 Specifications, OCR AS Economics Unit F581, Behavioural Economics, Government Intervention, Teaching of Economics, 2010-12-30T20:10:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/a-drunkards-walk-winning-streaks-and-randomness http://www.tutor2u.net/blog/index.php/economics/comments/a-drunkards-walk-winning-streaks-and-randomness#When:08:00:00Z I am doing some work on probability and randomness for a entrance test later on in 2011 and have been re-reading some puzzles in this area. Here is a reprise of a book review from 2008 - this book still stands as one of the best on probability that I have read. A super book for ambitious students. Statistical significance, random errors, laws of sample space, hot hand fallacies, bell curves, regressions towards the mean and the Baye’s theorem about conditional probability - hardly the stuff to get the pulse racing during a relaxing summer break. But when the risks of having a life-threatening disease when your test comes back positive turn out to be much lower than you thought. When your local sports club has been on a losing streak for seven or eight games against evenly matched opposition and you cannot understand why. Or when the local paper goes overboard about the existence of cancer hotspots / clusters or an abnormal rate of suicides in certain towns - that is when a good grounding in the laws of probability come in handy in appreciating what might lie behind what are intuitively unlikely occurrences. Behavioural Economics, Market Failure, Information Failure, Teaching of Economics, 2010-12-25T08:00:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/the-99p-effect-behavioural-economics-and-price-points http://www.tutor2u.net/blog/index.php/economics/comments/the-99p-effect-behavioural-economics-and-price-points#When:20:47:00Z Euro3.00 versus Euro2.99 - are you sensitive to the 0.99 price point effect? New research suggests that it works and prices are often sticky at this point because competiting retailers are loathe to move. Here is a link to a new theoretical paper. A seasonal hat tip to Tim Harford for spotting it. Behavioural Economics, Teaching of Economics, 2010-12-23T20:47:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/behavioural-economics-links http://www.tutor2u.net/blog/index.php/economics/comments/behavioural-economics-links#When:13:54:01Z A seasonal hat tip to Kevin Hinde for flagging up this set of lectures on behavioural economics at TCD. Lots of links to authors and videos included. A useful resoyrce. Behavioural Economics, Teaching of Economics, 2010-12-13T13:54:01+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/pricing-tricks-and-behavioural-economics http://www.tutor2u.net/blog/index.php/economics/comments/pricing-tricks-and-behavioural-economics#When:08:58:00Z Martin Hickman’s Consuming Issues column in the Independent this weekend has a piece on some of the tactics used by retailers to take commercial advantage of many of our behavioural biases. These pricing tactics include: AS and A2 Specifications, AQA Economics Unit 1, AQA Economics Unit 3, EdExcel Economics Unit 1, EdExcel Economics Unit 3, A2 Micro, AS Micro, Behavioural Economics, Business Economics, Monopoly, Price Discrimination, Government Intervention, Market Failure, Information Failure, Market Equilibrium and Price, Nature of Demand, Price Mechanism in Action, Teaching of Economics, 2010-12-12T08:58:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/yet-another-airline-cartel-story http://www.tutor2u.net/blog/index.php/economics/comments/yet-another-airline-cartel-story#When:21:38:00Z Just in case you wanted one more example of price fixing, cartels, collusion and whistle blowing, here it is. The EU has boosted its revenue for the year by fining 11 airlines almost 800m euros for fixing cargo prices between 1999 and 2006. AirFrance-KLM are hit the hardest, at 340m, followed by BA at 104m - but Lufthansa, who blew the whistle on the other airlines involved, are not fined at all. AS and A2 Specifications, AQA Economics Unit 3, A2 Micro, Behavioural Economics, Game Theory, Business Economics, Oligopoly, Competition Policy, European Economy, Government Intervention, Regulation, Transport Economics, 2010-11-09T21:38:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/the-upside-of-irrationality-dan-ariely-at-the-lse http://www.tutor2u.net/blog/index.php/economics/comments/the-upside-of-irrationality-dan-ariely-at-the-lse#When:21:50:01Z One of the world’s foremost authorities on behavioural economics was on sparkling form in a lecture to a packed audience at the LSE tonight. Dan Ariely is the author of Predictably Irrational and his new book The Upside of Irrationality draws the reader into a fresh array of experimental and empirical work on psychological biases in our behaviour when we are faced with countless decisions across different time frames Behavioural Economics, Teaching of Economics, 2010-10-27T21:50:01+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/paul-ormerod-on-the-power-of-networks http://www.tutor2u.net/blog/index.php/economics/comments/paul-ormerod-on-the-power-of-networks#When:13:26:00Z Economist Paul Ormerod (author of Butterfly Economics) is speaking at the RSA on Tuesday 16th November on the topic of the Power of Networks. Here are details of the event - tickets are free and can be booked from the RSA site. Due to school football commitments I may not be able to make it to this meeting so perhaps a colleague might be there and blog about it! Paul has contributed to the latest RSA journal exploring links between behavioural economics and network effects and their relevance to social policy. Here is a link to the RSA journal article “Nudge plus networks” Behavioural Economics, Teaching of Economics, 2010-10-26T13:26:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/balls http://www.tutor2u.net/blog/index.php/economics/comments/balls#When:16:24:00Z Half term looms, and so it is high time for a bit of semi-serious fun. Being an Economics teacher, I like to think that I can solve every problem. Every so often in lessons, I find myself irresistibly drawn to beginning a sentence by saying ‘If I were running the country …’ This is usually a cue for a collective groan from the students, who naturally wonder what pearl of wisdom is about to emerge from my lips. I plough on regardless – one has one’s duty after all, and the students are still huffy about a prior comment I made re banning driving until age 21… Anyway … football is losing its soul, lets face it. If we care about this, how as Economists can we provide the correct incentive mechanisms to fix it? I find myself drawn to the following ideas: - The exorbitant salaries at the top end of the game act as a disincentive to care about performances at the national level. Too many of our pampered professionals don’t seem to care, despite professing a love for the national shirt. Let’s test their levels of motivation by asking them to pay a refundable deposit every two years, based on a % of their salaries. If they perform, they get the money back. If they don’t, the money is kept and distributed to the grass roots of the game. If they don’t want to pay this deposit, fine. Give the so-called ‘lesser’ players a chance to show what they can do. - The American draft system is an excellent idea – bring it into the top levels of football – level the playing field (did you see what I did there?); - Please hurry up and bring in a system whereby clubs cannot live beyond their means: institute an enforceable system whereby any breaches of a salary/revenue percentage maximum are dealt with harshly, via points deduction and enforced relegation if necessary; - Re-brand the Champions’ League, for obvious reasons. Back in the day, it was only champions who could win it. 1967 and 1982 are excellent examples. I understand the need for revenue generation in the modern game, but call the competition something else, like the ‘Snouts in the Trough Challenge’; - Good people of the Home Counties, Manchester United is not for you! There are only two acceptable reasons for supporting a football team: either you have a geographic connection, or a familial one. Any other reason, such as liking the team because they win things, is unacceptable. Fans that are discovered to be breaking these rules should be forced to watch only rugby for the rest of their lives as a punishment. Sorted. Enjoy half term! Behavioural Economics, Government Intervention, Regulation, Market Failure, 2010-10-21T16:24:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/dan-ariely-at-the-lse http://www.tutor2u.net/blog/index.php/economics/comments/dan-ariely-at-the-lse#When:18:14:00Z As this talk will take place in the middle of half term, many people may be unable to get to it - but if you want to spend an evening in London next week, check out the possibility of hearing Dan Ariely speak about his new book ‘The Upside of Irrationality’ on Wednesday 27th October at 6.30. You need to apply for a ticket, from 1pm this Thursday 21st October - you are likely to need to be pretty prompt if you are going to be lucky. The link to information about the event is here. Behavioural Economics, 2010-10-19T18:14:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/incentives-to-give-make-it-personal http://www.tutor2u.net/blog/index.php/economics/comments/incentives-to-give-make-it-personal#When:11:17:00Z The charity Water Aid has produced some innovative and striking adverts in recent months. I have embedded a selection into this blog. There is strong evidence that making charity appeals deeply personal to potential givers is more effective in raising donations than a broad brush approach about a particular crisis or illness. Dan Ariely has some interesting things to say about this aspect of altrustic behaviour in his recent book The Upside of Irrationality. If a giver can see how a donation can make a difference to a small group or individual they are more likely to make giving part of their default behaviour. So which of these (if any?) make a mark with you? Behavioural Economics, Emerging Economies, Development Economics, Poverty and Inequality, Teaching of Economics, 2010-09-12T11:17:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/paul-ormerod-on-behavioural-nudges-and-networks http://www.tutor2u.net/blog/index.php/economics/comments/paul-ormerod-on-behavioural-nudges-and-networks#When:12:23:00Z Here is a really interesting new pamphlet from Paul Ormerod (of “Death of Economics” fame) who focuses on the importance of network effects in understanding the power of policies to change behaviour in economic and social domains Behavioural Economics, Teaching of Economics, 2010-09-05T12:23:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/behavioural-economics-and-competition-policy http://www.tutor2u.net/blog/index.php/economics/comments/behavioural-economics-and-competition-policy#When:16:24:00Z Here is a link to a recent research report from the Office of Fair Trading. It provides a very readable introduction to what behavioural economics is and then asks whether this emerging area of economic thinking can have useful applications in the shaping and handling of competition policy. Great for teachers who want to introduce some behavioural aspects into their teaching of competition policy issues in the UK and in other countries. AS and A2 Specifications, AQA Economics Unit 3, EdExcel Economics Unit 3, A2 Micro, Behavioural Economics, Business Economics, Monopoly, Competition Policy, European Economy, Government Intervention, Teaching of Economics, 2010-08-12T16:24:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/monkeynomics http://www.tutor2u.net/blog/index.php/economics/comments/monkeynomics#When:23:20:01Z A great TED talk on irrationality - Laurie Santos looks for the roots of human irrationality by watching the way our primate relatives make decisions. A clever series of experiments in “monkeynomics” shows that some of the silly choices we make, monkeys make too!! Behavioural Economics, Teaching of Economics, 2010-08-02T23:20:01+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/cluster-bombs http://www.tutor2u.net/blog/index.php/economics/comments/cluster-bombs#When:22:56:00Z Here is a good example of evidence that “prisoners’ dilemmas” can be resolved through cooperation/collusion, as a global cluster bomb ban comes into force this week. The Convention on Cluster Munitions bans the stockpiling, use and transfer of virtually all existing cluster bombs, and also provides for the clearing up of unexploded munitions. It has been adopted by 108 states, of which 38 have ratified it. Although 22 out of the 28 countries in NATO have joined, many of the world’s major military powers - including the US, Russia and China - are not signatories to the treaty, showing the major problem that still exists in this version of the prisoners’ dilemma… that is the incentive to “cheat” or “not cooperate” is always very strong… AS and A2 Specifications, AQA Economics Unit 3, EdExcel Economics Unit 3, A2 Micro, Behavioural Economics, Game Theory, Teaching of Economics, 2010-08-02T22:56:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/questions-in-behavioural-economics-combatting-obesity http://www.tutor2u.net/blog/index.php/economics/comments/questions-in-behavioural-economics-combatting-obesity#When:18:30:00Z Charles Smart (Eton College) draws on some important lessons from behavoural economics to consider whether simple carrots or sticks or something smarter can have a noticeable impact on the obesity epidemic? The struggle to get people suffering from chronic obesity to lose weight has become a great focus of both government and individual concern. A recent NHS policy rewards those who lose weight with up to £450 over a 13 month period, yet has seen limited success. Thus a group of enterprising Yale economists have gone in the opposite direction, believing the proverbial stick to be more effective than the carrot. Behavioural Economics, Teaching of Economics, 2010-06-30T18:30:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/questions-in-behavioural-economics-the-longest-match-and-loss-aversion http://www.tutor2u.net/blog/index.php/economics/comments/questions-in-behavioural-economics-the-longest-match-and-loss-aversion#When:18:20:00Z Jamie Lindsay (Eton College) argues that loss aversion can help to explain the dramatic events at Wimbledon this year when two unheralded players made sporting history with an eleven hour tennis match. Wimbledon 2010 will be remembered for the longest tennis match in history. A staggering 183 games played between Mahut and Isner over a period of 11 hours – some marriages don’t last as long as this!  Record books were torn up and the world’s media rushed to Court 18 to capture a scarcely believable drama unfolding between two relatively unheralded players. Behavioural Economics, Teaching of Economics, 2010-06-30T18:20:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/questions-in-behavioural-economics-how-can-framing-be-used-to-influence-pub http://www.tutor2u.net/blog/index.php/economics/comments/questions-in-behavioural-economics-how-can-framing-be-used-to-influence-pub#When:18:38:01Z James Spicer discusses whether how choices and decisions are framed impacts on our decisions. During the recent media frenzy over the social networking site Facebook’s privacy settings, debate has raged over the growing lack of personal privacy in the digital age, and whether legislation adequately protects consumers’ rights. The Internet is such a vast, multinational network, and has evolved so fast, that there is no international organisation to police it, or even watertight laws to govern the data that is stored online. It is against the law for a website to sell details such as browsing history or personal information to third parties without the person’s consent, and this raises the question: how have so many of the public been duped into giving away personal information, and therefore being surprised when they get personally-tailored emails, embarrassing search queries hit the public domain, or in extreme cases, their identities are stolen? Behavioural Economics, 2010-06-27T18:38:01+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/questions-in-behavioural-economics-why-is-the-placebo-effect-important http://www.tutor2u.net/blog/index.php/economics/comments/questions-in-behavioural-economics-why-is-the-placebo-effect-important#When:18:31:00Z Nipuna Senaratne (Eton College) writes about aspects of the placebo effect and some of its consequences for the treatments we make available through the health service. The placebo effect is the medical phenomenon where an external stimulus can have an effect on the efficacy of treatment even if the medication or procedure is fake. This intervention could take the form of a inert sugar pill and may cause the patient to believe that the treatment is both real and effective. This expectation that the treatment will help his or her condition may lead to a therapeutic improvement decreasing symptoms and improving the patient’s condition. The physiological effect stemming from ‘fake medicine’ shows how the brain and body are intertwined and how expectations play a huge role in determining the effectiveness of treatments. Behavioural Economics, 2010-06-26T18:31:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/questions-in-behavioural-economics-why-do-we-engage-in-herd-behaviour http://www.tutor2u.net/blog/index.php/economics/comments/questions-in-behavioural-economics-why-do-we-engage-in-herd-behaviour#When:18:25:00Z Alex Richardson (Eton College) considers this aspect of behavioural economics. Herd behaviour is a concept, originally pioneered by Friedrich Nietzsche. It occurs where consumers and businesses act together without direction or logic. Imagine the following scenario: You are walking along a road, trying to find somewhere to eat. You come across two restaurants on opposite sides of the road, decorated identically and with identical menus, neither of which you have visited before. One of the restaurants has 3 people inside (restaurant A), the other has 30 people inside, and a small queue at the door (restaurant B). Which restaurant would you be more likely to enter? Behavioural Economics, 2010-06-25T18:25:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/rsa-animate-bringing-discourse-to-life http://www.tutor2u.net/blog/index.php/economics/comments/rsa-animate-bringing-discourse-to-life#When:11:13:00Z I love the breadth and ambition of the many talks available for viewing online by the Royal Society for the Arts (RSA) - their web site is here. These are exciting times for the social sciences and the programme of public lectures made viable by the support of the global network of Fellows at the RSA is breathtaking. I have been to several RSA events this year and value greatly it’s role in championing creative thinking and emphasising the vital role of innovation in supporting and sustaining competitiveness in the world economy. One of the terrific innovations on their web site is the use of animations to accompany some of their presentations and discussions and here is a stunning example with the help of the amazingly talented creative media company Cognitive Media This week and next I am teaching a short course in behavioural economics to my Year 12 students as we move on from AS studies. having looked at a range of cognitive biases in behaviour we have moved onto issues connected to human motivations / drives and the role that penalties and incentives play in shaping decisions and actions. Dan Pink’s talk at the RSA a little while back is worth viewing on its own - it is engaging, dynamic, funny and revealing and there are several brilliant examples to draw on for students interested in the management of organisations in a digital age. But with RSA animate a forty minute lecture is condensed into just over ten minutes - perfect for use in the classroom! I showed the first section of Dan’s talk in standard format (perhaps 6-8 minutes) and then switched over to RSA animate - it worked and there was a great response from students. Wouldn’t it be great if we could have a print out of the animation! Or perhaps a limited edition could be made available for purchase? They would be fantastic as a wall display! Try the current range of RSA animations by clicking on this link Behavioural Economics, Teaching of Economics, 2010-06-18T11:13:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/nudging-consumers-towards-sustainability http://www.tutor2u.net/blog/index.php/economics/comments/nudging-consumers-towards-sustainability#When:09:01:00Z I popped over to the RSA last night for a meeting on nudging consumer behaviour to promote sustainability. The panel discussion featured Sir Martin Sorrell, Chief Executive, WPP, one of the world’s largest communications services groups; Dr Andy Wood, Managing Director, Adnams, one of the UK’s most carbon-efficient brewers and Dr Sally Uren, Deputy Chief Executive, Forum for the Future. Overall there was less discussion on ideas drawn from behavioural economics than I was expecting. Sir Martin Sorrell focused most of his remarks on the progress that WPP was making in lowering their carbon footprint. He made some interesting comments on the power that brands have in changing consumer behaviour. When a brand is genuinely loved then there is more scope for companies to nudge consumers in changing their purchasing habits. But many businesses have legacy products they don’t want to alter. Sorrell argued that consumers in BRIC countries are greener than their Western counter parts and that taxes and regulation in rich nations can only succeed to a point. Dr Sally Uren was on good form last night and I felt she made the most significant contributions from a behavioural economics perspective. Smart marketing about sustainability can make consumers feel good! And businesses need to be the ‘nudgers in chief’ and make small actions seem significant. She praised Tesco’s carbon management project - they are focusing directly on lowering the consumer’s carbon footprint as well as making progress in reducing their own carbon impact and through their supply-chains. A point made by all of the panellists is that doing good is good business and that there is growing evidence of a seismic change in attitudes of business towards sustainability. Behavioural Economics, Environmental Economics, Teaching of Economics, 2010-06-11T09:01:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/extension-and-enrichment-reading-for-year-12-economists http://www.tutor2u.net/blog/index.php/economics/comments/extension-and-enrichment-reading-for-year-12-economists#When:15:34:01Z I have brought together a selection of articles on different aspects of economics drawing on journal and magazine articles from recent months. They are designed to take Year 12 economists into interesting areas of recent research in economics, management and the application of economic ideas to social and political policy with one eye on strengthening their UCAS application. Here is the collection of articles as it stands - I would be hugely grateful for additional ideas from teaching colleagues and I will happily produce an extended version adding in the recommendations. Behavioural Economics, Teaching of Economics, UCAS and Oxbridge Advice, 2010-06-09T15:34:01+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/recycling-waste-goodbye-stick-hello-carrot http://www.tutor2u.net/blog/index.php/economics/comments/recycling-waste-goodbye-stick-hello-carrot#When:15:54:00Z 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 AS and A2 Specifications, AQA Economics Unit 1, EdExcel Economics Unit 1, AS Micro, Behavioural Economics, Business Economics, Environmental Economics, Government Intervention, Market Failure, Externalities, Teaching of Economics, 2010-06-07T15:54:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/finding-new-opportunities-among-the-economic-wreckage http://www.tutor2u.net/blog/index.php/economics/comments/finding-new-opportunities-among-the-economic-wreckage#When:08:29:00Z 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. A2 Macro, AS Macro, Behavioural Economics, Economic Growth, Macroeconomic Policies, Fiscal Policy, OECD Economies, US Economy, Teaching of Economics, UK Economy, Credit Crunch, 2010-06-01T08:29:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/why-is-it-so-hard-to-tickle-yourself http://www.tutor2u.net/blog/index.php/economics/comments/why-is-it-so-hard-to-tickle-yourself#When:21:06:00Z 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 Behavioural Economics, Teaching of Economics, 2010-05-25T21:06:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/dan-arielys-new-book-the-upside-of-irrationality http://www.tutor2u.net/blog/index.php/economics/comments/dan-arielys-new-book-the-upside-of-irrationality#When:14:30:00Z 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 Behavioural Economics, Teaching of Economics, 2010-05-21T14:30:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/the-irrationality-of-shaving http://www.tutor2u.net/blog/index.php/economics/comments/the-irrationality-of-shaving#When:19:39:00Z 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. Behavioural Economics, Market Equilibrium and Price, Nature of Demand, Teaching of Economics, 2010-05-02T19:39:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/animal-spirits http://www.tutor2u.net/blog/index.php/economics/comments/animal-spirits#When:07:52:00Z 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. AS and A2 Specifications, AQA Economics Unit 2, AQA Economics Unit 4, EdExcel Economics Unit 2, EdExcel Economics Unit 4, OCR A2 Economics Unit F585, A2 Macro, AS Macro, Behavioural Economics, Cycles and Shocks, Aggregate Demand, Capital Investment, Consumer Spending, Saving, Macroeconomic Policies, Keynesian Economics, Teaching of Economics, UK Economy, Recession Watch, 2010-04-25T07:52:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/a-fun-way-to-get-people-to-obey-speed-limits http://www.tutor2u.net/blog/index.php/economics/comments/a-fun-way-to-get-people-to-obey-speed-limits#When:15:50:00Z A lovely idea to nudge people to obey speed limits! AS Micro, Behavioural Economics, Market Failure, Externalities, Teaching of Economics, Quirky Trivia, 2010-04-02T15:50:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/economics-of-happienss-v2010 http://www.tutor2u.net/blog/index.php/economics/comments/economics-of-happienss-v2010#When:21:17:00Z 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. A2 Macro, A2 Micro, AS Macro, AS Micro, Behavioural Economics, Poverty and Inequality, 2010-03-14T21:17:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/oligopolies http://www.tutor2u.net/blog/index.php/economics/comments/oligopolies#When:13:25:01Z 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. A2 Micro, Behavioural Economics, Game Theory, Business Economics, Competitive Markets, Oligopoly, 2010-03-11T13:25:01+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/crap-avoidance-rather-than-an-orgy-of-optimisation http://www.tutor2u.net/blog/index.php/economics/comments/crap-avoidance-rather-than-an-orgy-of-optimisation#When:20:42:00Z 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! Behavioural Economics, 2010-03-09T20:42:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/tv-time http://www.tutor2u.net/blog/index.php/economics/comments/tv-time#When:16:59:00Z Lots of Economics on TV this weekend: A2 Micro, AS Micro, Behavioural Economics, Game Theory, Emerging Economies, Economic Growth, Government Intervention, Buffer Stocks, Government Failure, Regulation, Market Failure, De-Merit Goods, Externalities, Information Failure, Teaching of Economics, 2010-03-07T16:59:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/daniel-kahneman-on-our-experience-self http://www.tutor2u.net/blog/index.php/economics/comments/daniel-kahneman-on-our-experience-self#When:21:58:00Z 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, 2010-03-02T21:58:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/behavioural-economics-the-psychology-of-menu-pricing http://www.tutor2u.net/blog/index.php/economics/comments/behavioural-economics-the-psychology-of-menu-pricing#When:22:41:00Z 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. More here Behavioural Economics, 2009-12-26T22:41:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/how-markets-fail-the-logic-of-economic-calamities http://www.tutor2u.net/blog/index.php/economics/comments/how-markets-fail-the-logic-of-economic-calamities#When:08:13:01Z 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. A2 Macro, AS Macro, Behavioural Economics, Game Theory, Cycles and Shocks, Economic History, Market Failure, Teaching of Economics, Credit Crunch, 2009-12-26T08:13:01+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/getting-lyrical-about-behavioural-economics http://www.tutor2u.net/blog/index.php/economics/comments/getting-lyrical-about-behavioural-economics#When:08:39:00Z Fans of behavioural economics will love this festive selection of cognitive biases in popular songs unearthed by Chris Dillow in his excellent blog. Behavioural Economics, 2009-12-23T08:39:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/they-think-its-all-over http://www.tutor2u.net/blog/index.php/economics/comments/they-think-its-all-over#When:09:01:00Z 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! A2 Micro, Behavioural Economics, Game Theory, Quirky Trivia, 2009-12-08T09:01:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/joels-noel-message-on-giving http://www.tutor2u.net/blog/index.php/economics/comments/joels-noel-message-on-giving#When:00:11:00Z 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! A2 Micro, AS Micro, Behavioural Economics, Teaching of Economics, 2009-12-04T00:11:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/law-and-morality-in-economic-life http://www.tutor2u.net/blog/index.php/economics/comments/law-and-morality-in-economic-life#When:09:37:00Z 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. A2 Macro, A2 Micro, AS Macro, AS Micro, Behavioural Economics, Game Theory, Economic Growth, Standard of Living, Teaching of Economics, 2009-11-26T09:37:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/happiness-love-and-scroogenomics http://www.tutor2u.net/blog/index.php/economics/comments/happiness-love-and-scroogenomics#When:15:48:01Z 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! Behavioural Economics, Teaching of Economics, 2009-11-21T15:48:01+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/going-once-going-twice-still-going-once-going-twice http://www.tutor2u.net/blog/index.php/economics/comments/going-once-going-twice-still-going-once-going-twice#When:18:09:00Z (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!). A2 Micro, Behavioural Economics, Game Theory, 2009-11-16T18:09:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/time-to-reassess-rationality http://www.tutor2u.net/blog/index.php/economics/comments/time-to-reassess-rationality#When:08:06:00Z 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. A2 Macro, A2 Micro, Behavioural Economics, Teaching of Economics, 2009-11-09T08:06:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/hot-wiring-the-brain-to-pay-off-more-debt http://www.tutor2u.net/blog/index.php/economics/comments/hot-wiring-the-brain-to-pay-off-more-debt#When:12:01:01Z 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.   A2 Macro, A2 Micro, Behavioural Economics, Teaching of Economics, 2009-11-02T12:01:01+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/lessons-from-an-ad-man-superb-microeconomics http://www.tutor2u.net/blog/index.php/economics/comments/lessons-from-an-ad-man-superb-microeconomics#When:12:58:00Z 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.   A2 Micro, AS Micro, Behavioural Economics, Business Economics, Teaching of Economics, 2009-10-25T12:58:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/score-draw-and-soccernomics http://www.tutor2u.net/blog/index.php/economics/comments/score-draw-and-soccernomics#When:16:16:00Z 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! A2 Micro, AS Micro, Behavioural Economics, 2009-10-11T16:16:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/oxbridge-economics-introduction-to-game-theory http://www.tutor2u.net/blog/index.php/economics/comments/oxbridge-economics-introduction-to-game-theory#When:08:14:00Z Here is an “Introduction to Game Theory” lecture, which offers a broad introduction to the field, with some exercises to do at the end. (The yellow-underlined text hyperlinks out to other resources). Behavioural Economics, Game Theory, Teaching of Economics, UCAS and Oxbridge Advice, 2009-10-04T08:14:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/the-boy-who-harnessed-the-wind1 http://www.tutor2u.net/blog/index.php/economics/comments/the-boy-who-harnessed-the-wind1#When:07:35:00Z 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. Behavioural Economics, Game Theory, Economic Growth, Market Failure, Externalities, Public Goods, Poverty and Inequality, Development Economics, 2009-10-01T07:35:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/say-sorry-it-makes-business-sense http://www.tutor2u.net/blog/index.php/economics/comments/say-sorry-it-makes-business-sense#When:17:25:00Z 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 A2 Micro, Behavioural Economics, Business Economics, 2009-09-24T17:25:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/kick-start-for-the-economy http://www.tutor2u.net/blog/index.php/economics/comments/kick-start-for-the-economy#When:07:38:00Z 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…….. Behavioural Economics, Game Theory, Cycles and Shocks, Aggregate Demand, Consumer Spending, UK Economy, Recession Watch, Credit Crunch, 2009-09-12T07:38:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/economics-the-queen-and-the-wrong-sort-of-maths http://www.tutor2u.net/blog/index.php/economics/comments/economics-the-queen-and-the-wrong-sort-of-maths#When:21:09:00Z 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. Behavioural Economics, Teaching of Economics, UK Economy, Recession Watch, Credit Crunch, 2009-08-17T21:09:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/too-much-choice-is-bad-for-you http://www.tutor2u.net/blog/index.php/economics/comments/too-much-choice-is-bad-for-you#When:14:33:00Z 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! Behavioural Economics, Quirky Trivia, 2009-07-20T14:33:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/fiscal-policy-public-sector-pay-and-employment-flexibility http://www.tutor2u.net/blog/index.php/economics/comments/fiscal-policy-public-sector-pay-and-employment-flexibility#When:09:07:00Z 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. A2 Macro, AS Macro, Behavioural Economics, Government Intervention, Labour Market, Market Failure, Public Goods, UK Economy, Credit Crunch, Fiscal Policy, 2009-07-05T09:07:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/spending-75-for-a-piece-of-3d-card http://www.tutor2u.net/blog/index.php/economics/comments/spending-75-for-a-piece-of-3d-card#When:05:34:00Z …or £75 for a limited edition souvenir that may rise in value in the future – which of these is rational? This debate is raging on many blogs following an offer from AEG, the promoters of the Michael Jackson ‘This is it’ tour that would have commenced later this month in London. Approximately 800,000 people have already paid from £50 to £75 for the tickets, and will now be given the option of having their money back or of receiving the ‘souvenir tickets’ – and no refund. AEG say that the tickets feature graphics ‘inspired and designed’ by Jackson, and will become collectors pieces. A quick scan through the comments following this piece on the BBC website gives a roughly even split between those who want their money back and see the offer as AEG trying to keep the cash, and those who welcome it as a way of having something to keep as a ‘personal memento’ of the singer. Very much a matter of personal opinion and so open to irrational, non-economic thought, and could be an example of behavioural economics, not least the tendency of people once they have ownership of something to value it more highly. Tim Harford applies some game theory concepts to this issue in his undercover economist blow piece here Behavioural Economics, 2009-07-05T05:34:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/madoffs-behaviour http://www.tutor2u.net/blog/index.php/economics/comments/madoffs-behaviour#When:15:43:00Z Dan Ariely applying behavioural economics to Madoff’s $65 billion dollar fraud. And an earlier article that discusses human irrationality when it comes to herding behaviour. A cookie for anyone who makes the link with the photo below. Greg Woods reports on Madoff’s sentencing in New York   Behavioural Economics, Credit Crunch, 2009-06-30T15:43:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/game-theory-and-north-korea http://www.tutor2u.net/blog/index.php/economics/comments/game-theory-and-north-korea#When:14:09:00Z In the post-AS lull, we have been studying the basics of game theory; and this week had a great discussion on game theory applied to the current political hot potato that is North Korea and its nuclear program.  Various aspects of game theory can be applied to the issue of North Korea’s nuclear programme, from credible threats, brinkmanship, to dominant strategies. Behavioural Economics, Game Theory, Teaching of Economics, 2009-06-29T14:09:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/questions-in-behavioural-economics-reducing-your-carbon-footprint http://www.tutor2u.net/blog/index.php/economics/comments/questions-in-behavioural-economics-reducing-your-carbon-footprint#When:15:29:00Z Doug Swift We know that Climate Change is one of the greatest perils facing modern man. Stronger hurricanes, rising sea levels, heat waves and droughts are all predicted to have occurred with virulent force before this century is out, yet such a global issue typically avoids individual action. Perhaps ‘Behavioural Economics’ can help us understand why. A2 Micro, Behavioural Economics, Environmental Economics, 2009-06-24T15:29:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/questions-in-behavioural-economics-saving-more-for-tomorrow http://www.tutor2u.net/blog/index.php/economics/comments/questions-in-behavioural-economics-saving-more-for-tomorrow#When:15:25:00Z Joe Murdy writes on this question - Why do so many people fail to save for their future? A2 Macro, AS Macro, Behavioural Economics, Cycles and Shocks, Aggregate Demand, Saving, 2009-06-23T15:25:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/questions-in-behavioural-economics-students-and-procrastination http://www.tutor2u.net/blog/index.php/economics/comments/questions-in-behavioural-economics-students-and-procrastination#When:14:40:00Z Rob Hayer finally gets in his answer on procrastination! His brief was to write on “Why do students find it difficult to complete assignments on time?” I’ll just spend another 20 minutes on the X box. I’ll just play football for 15 minutes more. I have plenty of time to do my assignment later, if I just move this here and spend two minutes less there. Behavioural Economics, 2009-06-22T14:40:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/questions-in-behavioural-economics-presumed-consent-for-organ-donation http://www.tutor2u.net/blog/index.php/economics/comments/questions-in-behavioural-economics-presumed-consent-for-organ-donation#When:14:30:00Z Keshav Dimri considers whether we should move towards a system of presumed consent for organ donation and brings into play behavioural economics concepts such as framing and default behaviour. AS Micro, Behavioural Economics, Health Economics, 2009-06-20T14:30:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/questions-in-behavioural-economics-credit-cards-and-spending http://www.tutor2u.net/blog/index.php/economics/comments/questions-in-behavioural-economics-credit-cards-and-spending#When:21:23:00Z Why do people often spend more when they swipe a credit card than when they use cash? Arjun Bali offers a view. It’s 2015 and there are two queues of people waiting to buy tickets for an FA Cup final. The longer queue is for those who can pay by cash only, the other is for those who have gained the right to hold a credit card through steady saving and responsible consumption. A2 Macro, AS Macro, Behavioural Economics, Cycles and Shocks, Aggregate Demand, Consumer Spending, 2009-06-19T21:23:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/britains-got-talent-and-behavioural-economics http://www.tutor2u.net/blog/index.php/economics/comments/britains-got-talent-and-behavioural-economics#When:13:45:00Z Britain's Got Talent and Behavioural Economics We are studying behavioural economics in school this week and Tom Aedy one of my AS students thinks he may have spotted some possible asymmetric dominance in the voting for the final of Britain’s Got Talent! Here is his letter to Dan Ariely author of Predictably Irrational. Behavioural Economics, 2009-06-08T13:45:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/bank-runs-and-infectious-diseases http://www.tutor2u.net/blog/index.php/economics/comments/bank-runs-and-infectious-diseases#When:10:23:00Z behavioural finance, bank run, Northern Rock, social networksRelationships matter in economics. And this interesting new research from Duke University has found strong links between social networks and the speed with which a run on a bank such as Northern Rock can happen and the longer term consequences for the bank if it is able to survive the crisis. A collapse in depositor confidence can spread remarkably quickly and there are some important parallels with the dispersion of infectious diseases such as swine flu. After a week on tamiflu and living in a close-knit community struck with numerous cases of swine flu, it is interesting to observe how effective (or otherwise) protective measures can be in limiting the impact of the spread of flu.  Behavioural Economics, 2009-06-07T10:23:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/introducing-ideas-in-behavioural-economics http://www.tutor2u.net/blog/index.php/economics/comments/introducing-ideas-in-behavioural-economics#When:21:37:00Z Behavioural economics, introduction, As our AS students return to school after their exams, I will be giving my own students a broad introduction to aspects of behavioural economics and nudging them towards seeing how this rapidly expanding branch of the subject can be applied to micro and macro policy issues. A streamed version of one of my presentations can be found below Behavioural Economics, Teaching of Economics, 2009-06-06T21:37:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/tim-harford-on-smarter-saving http://www.tutor2u.net/blog/index.php/economics/comments/tim-harford-on-smarter-saving#When:18:47:01Z It has always struck me as odd that borrowers regard monthly credit card bills offering a 12.5% APR as “cheap” whereas a long term savings deposit account paying 4% is regarded as derisory and unattractive. When it comes to savings behaviour smart decision-making can often fly straight out of the window. The Undercover Economist Tim Harford has a super piece on smarter saving and behavioural economics in this edition of Parade magazine. A2 Macro, AS Macro, Behavioural Economics, Cycles and Shocks, Aggregate Demand, Saving, 2009-05-19T18:47:01+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/behavioural-economics-cruel-to-be-kind http://www.tutor2u.net/blog/index.php/economics/comments/behavioural-economics-cruel-to-be-kind#When:07:17:00Z Thanks to Mark Johnston who has unearthed several gems from the pages of the New Scientist over the years and has found another one with this article “Classical economics says that no rational person should ever reduce their own income just to slash someone else’s. And yet that’s exactly what we do. Classical economics, it turns out, is a pretty terrible predictor of how we actually behave…..Economists, anthropologists and evolutionary biologists have been teasing out how, used judiciously, spiteful behaviour can be one of our best weapons in maintaining a fair and ordered society.” Behavioural Economics, 2009-05-19T07:17:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/dan-says-so http://www.tutor2u.net/blog/index.php/economics/comments/dan-says-so#When:20:15:00Z Tom Aedy reviews Predictably Irrational by Dan Ariely. An article featured in the new edition of Etonomics. “Dan Ariely didn’t start out manhood like the rest of us. His 19th and 20th birthdays were spent in a bath full of disinfectant solution – whilst nurses ripped bandages off his raw flesh. Ariely didn’t have any skin left after a large magnesium flare exploded next to him, leaving most of his body covered in third?degree burns. The next 3 years were spent dislocated from society. His experiences gave him a clairvoyance into human nature.” Read the remainder of the review here Etonomics_May_2009_12.pdf Behavioural Economics, 2009-05-14T20:15:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/dan-ariely-on-bbc-worldwide http://www.tutor2u.net/blog/index.php/economics/comments/dan-ariely-on-bbc-worldwide#When:19:30:00Z Spotted this tonight - a BBC international radio interview from a few days ago in which Dan Ariely explains the essence of behavioural economics. Dan Ariely has done a string of experiments to show how people actually behave.He finds that they don’t behave like the economically rational person that economic theory assumes. Hear the interview here. Behavioural Economics, Teaching of Economics, 2009-05-10T19:30:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/cash-incentives-for-healthy-options http://www.tutor2u.net/blog/index.php/economics/comments/cash-incentives-for-healthy-options#When:09:44:01Z I often use Stephen Landsburg’s famous quote which claims that the whole of Economics can be summed up in four words “people respond to incentives” - so it was interesting to read in my morning newspaper that the Department of Health is considering rolling out a wider programme of cash incentives for people who can demonstrably show that they are making progress towards a healthier lifestyle. Nicholas Timmins writes in the Financial Times that “In Dundee, smokers are being offered £12.50 a week by the NHS if carbon monoxide testing shows they have quit. In Essex, pregnant women can claim a £20 food voucher from the NHS after stopping smoking for one week, £40 after four weeks and another £40 at the end of a year if they have still quit. Brighton offers children £15 for quitting smoking for 28 days, while overweight patients in Kent are also being offered incentives for losing weight.” This short paragraph could form the basis of an excellent discussion about different forms of government intervention designed to affect health outcomes. I try to focus on three key words when teaching the impact of government intervention. Policies tend to work best when they are EFFECTIVE, EFFICIENT and EQUITABLE. So what roles can direct financial incentives from the taxpayer for people to quit smoking, lose weight or eat better have both in the short term and over a longer time horizon? If such incentives work what will be the longer term benefits for the health service and for the tax payer? Are they better than regulations, taxation and attempts to improve information? Is it fair to appear to reward unhealthy behaviour? What of those tax payers who do not smoke, maintain a healthy diet and weight and who make few if any claims on the health and welfare system? Can the law of unintended consequences come into play? If you pay teenagers to stop smoking, will more of them start in the first place? How will the cash payments be used? A2 Micro, AS Micro, Behavioural Economics, Cost Benefit Analysis, GCSE Economics, Government Intervention, Government Failure, Health Economics, Market Failure, Externalities, Information Failure, Market Equilibrium and Price, Nature of Demand, 2009-04-11T09:44:01+00:00