I recently mentioned that prospect theory tells us that most people are risk seeking in losses. CPW commented that this seems to be at odds with the fact that people buy insurance. After all, if people like risky losses, why would they pay money to avoid them by purchasing insurance? According to John Nyman the answer lies in a straightforward reframing of the choice consumers face when they buy insurance. Read more
Many climate change sceptics argue that the IPCC’s predictions are highly uncertain. Over at Vox, Paul Klemperer suggests that this should make us more worried, rather than reassuring us.
…[If] the models merely underestimated the uncertainty, the range of plausible outcomes is now greater, so… defences would need to be higher for us to feel safe.
Klemperer is implicitly relying on people’s risk aversion to claim that the increase in uncertainty makes us worse off. Standard economic theory is on his side here, but experimental work has shown that people are actually risk seeking when it comes to losses. Most people would rather gamble on a loss if there’s some possibility of averting it than take a small, certain penalty. That implies that the increase in uncertainty over the costs of climate change might actually make people feel better about it! Maybe the sceptics are pressing the right buttons after all.
Brad Delong points to a great article by Paul Graham about arguing on the internet:
Many who respond to something disagree with it. That’s to be expected. Agreeing tends to motivate people less than disagreeing… The result is there’s a lot more disagreeing going on, especially measured by the word. That doesn’t mean people are getting angrier. The structural change in the way we communicate is enough to account for it. But though it’s not anger that’s driving the increase in disagreement, there’s a danger that the increase in disagreement will make people angrier…
You don’t have to be mean when you have a real point to make. In fact, you don’t want to. If you have something real to say, being mean just gets in the way.
A couple of weeks ago I asked why people might avoid finding out how worthy a charity is. People know that they’ll give to worthy charities and yet they shy away from finding out that a charity is worthy so that they avoid giving. Why might this be?
There aren’t many situations in which rational agents choose to avoid obtaining information costlessly. The times when they might are when it gains them a strategic advantage. However, you’re not playing a game against anyone else when you pass a collector on the street. The only person that you could be said to be playing against is another temporal self. Carillo and Mariotti’s paper on strategic ignorance explains how a person might choose to avoid information in order to gain an advantage over their future self. If you’re keen to get quasi-technical about it, read on. Read more
Apparently Sony has backed down on it’s proposed $50 charge for removing the junkware that usually comes preinstalled on computers. The new Fresh Start option when you buy your Vaio laptop allows you to choose to have a clean OS, without all the usual trial software and other adware, for an extra $50 over the usual price. If you look at Gizmodo’s comments you’ll see the predictable outrage of consumers over having to pay more to avoid something, rather than paying to gain something. However, to an economist, this looks like a simple case of price discrimination much as you see with business class flights on a plane. What’s the difference here? Read more
We’ve talked in the past about how smokers would be better off if they could precommit to not smoking in the future. It seems that someone is trying to do just that by auctioning a contract on Trademe:
I’ve smoked cigarettes for twelve years and I’ve tried all the usual ways to quit smoking. Now that my wife Annabel and I are pregnant with our first child, it’s time to give up once and for all.
I’ve created a listing on the New Zealand online auction site trademe.co.nz, and on Monday 31 March, 2008, the highest bidder will receive a contract written by my lawyer, Chris Hoquard at Dominion Law, in which I hand over my right to smoke to them, and agree to pay them a forfeit of NZ$1000.00 per cigarette that I smoke at any time following the auction’s closure.