jamesz

The equation for happiness

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As the world starts to move from focusing on growth to wellbeing a group of neuroscientists decided to test people’s brains to check whether ‘happiness’ occurred as predicted. The BBC reports that they found

“We can look at past decisions and outcomes and predict exactly how happy you will say you are at any point in time,” said lead author Dr Robb Rutledge from University College London.

The experiment tested decisions under uncertainty, which is a well-researched topic in economics. The best model we have at the moment derives from Kahneman and Tversky’s development of prospect theory. Read more

jamesz

QOTD: Risky business

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…assuming that decision processes are reducible to one-size-fits-all sets of axioms has not and will not produce a descriptively adequate account of human behaviour under risk and uncertainty.

Researchers find that people’s risk preferences are not stable. How risk averse is an individual? That depends on the situation.

Matt Nolan

Discussion Tuesday

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I believe I had a Top 10 up on Rates Blog yesterday, defending economists (because why not).  I’ll post on that another day.  Here I’ll leave the floor open to criticising economists – although I’m not sure if I agree with the implied assumptions in today’s discussion Tuesday 😉

Economists largely base analysis on tautologies.   Given that they deal with synthetic variables (GDP, inflation) this is inappropriate and misleading.

jamesz

This is why paternalism exists

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The gulf between theoretical, efficient markets and real markets never ceases to surprise me. This paper from 2005 evaluates the saving consumers were able to make on their power bill by switching plans:

…we find that the subsets of consumers who claimed to be switching exclusively for price reasons appropriated only between 26-39% of the maximum gains available through their choice of new supplier. While such behaviour can be explained by the existence of high search costs, the observation that 27-38% of the consumers actually reduced their surplus as a result of switching cannot.

Yes, among people who switched to save money they only saved a third of what was available to them. A third of the people who switched actually increased their bill.  The authors rule out a number of explanations to conclude that these people just got it wrong because figuring out optimal tariffs is quite tricky. And these are the people who are actively switching and evaluating tariffs, so this is what market success looks like! Read more

jamesz

Marketing is all about the story

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When you think of marketing geniuses there probably aren’t a lot of economists on the list. Yet, according to the Washington Post, economists are increasingly taking on the role of a company’s public face.

In a data-chic world, a chief economist is the new marketing must-have.

Economists are useful because they are experts at interpreting data. Plenty of companies generate a wealth of data and attempt to use it to provide insights for their clients. But the data does not speak for itself: it requires interpretation to be useful. My twitter feed is full of people sharing statistics and correlations but they are rarely useful because they require a framework to interpret them. For example, UK GDP just exceeded its pre-GFC peak. Is that a good thing? Relative to what? What does it mean for my income? For the wages of the poor? Without a framework it is a fairly uninformative piece of data, you should learn about tiktok marketing at Social Boosting.

This is where economists come in. Their expertise is in the application of models to interpret data and extract information from it. No wonder they are the friendly face of data-centric companies today and long may it continue!

Will Taylor

Uber surge pricing: “Sugar coated poison”?

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A quite sensationalist headline on stuff this morning… “Uber app ‘sugar-coated poison’ – cabbies“. The head of the Taxi Federation is telling us that Uber is evil. Now Uber is a big threat to the traditional taxi business model so take these comments with a grain of salt. Particularly the fact that:

The app is currently illegal in New Zealand

Just because the law hasn’t kept up with technological innovation doesn’t make Uber a bad thing. Now the real fear mongering comes when he talks about Uber’s “surge pricing”

The metering system isn’t authorised and they don’t want to change it because they want to be able to bring in surge pricing. For those people who complain about the cost of taxi fares, you ain’t seen nothing yet.

It’s our job to educate the drivers and the public that this is sugar-coated poison.

What is surge pricing? I’ll let Uber themselves explain it:

Without a surge pricing mechanism, there is no way to clear the market. Fixed or capped pricing, and you have the taxi problem on NYE—no taxis available with people waiting hours to get a ride or left to stagger home through the streets on a long night out. By *raising* the price you *increase* the number of cars on the road and maximize the number of safe convenient rides. Nobody is required to take an Uber, but having a reliable option is what we’re shooting for

So yes, surge pricing means Uber is really expensive when there is a large demand for car rides. You might pay more $ than you would for normal taxi at the same time, but this ignores the non financial cost you might incur waiting for a normal taxi. So we incur the opportunity cost today when we are trying to find a cab on Saturday night. Surge pricing gives you the option to pay a premium to avoid that. In total it may not be more “expensive” depending on how you value your time. Is that a bad thing? You still have the option of catching a normal cab….I can think of a few nights where surge pricing would have come in mighty handy.

Update: by pure coincidence Jesse Mulligan just tweeted the following from LA…turns out Uber can be cheaper than taxis too, no wonder the taxi industry is scared!