Behavioral Economics – Page 2

The Hot Tentacle

The World Cup started with vuvuzelas and ended with Paul the octopus. The world’s most famous cephalopod grabbed headlines by correctly predicting the winners of eight straight World Cup matches, including today’s victory by Spain over the Netherlands.

I’ve enjoyed Paul’s exploits, but his success got me wondering: just how many animals are out there picking World Cup winners? Could it be that, oh, 256 animals were making predictions when Paul started his run and he’s just the lucky one?

Well, after a little bit of internet snooping, I haven’t found all 256 yet, but I bet they are out there. For starters, there’s Mani the parakeet who called four quarterfinal matches correctly, but then fowled up by picking the Dutch over the Spaniards in the final.

And then there’s this article in the Christian Science Monitor, which recounts failed prognostications by a sloth, a hippo, and a monkey.

So that’s at least four. As for the other 251 failed psychics that I think are out there, my guess is that Google doesn’t know about them. And that, friends, is what’s known as survivorship bias. That bias is a big deal in financial markets. For example, the performance of existing mutual funds is much better than that of mutual funds generally because the laggards get closed and drop out of the data.

And so it is with animal psychics. The lucky ones grab headlines, while the laggards are forgotten. Which doesn’t mean that I begrudge Paul his fame. Indeed, I think his fame should spread right into finance and statistics classes when school starts in the fall.

Human Organs, Behavioral Economics, and Insurance Mandates

Like the minimum wage and rent control, the market for human organs is a classic topic when teaching the basics of supply and demand. Organ markets are largely outlawed and, as a result, the demand for organs greatly outstrips the supply. For example, according to some estimates, as many as 4,000 people in the United States die each year while waiting for donor kidneys (some of which could, in principle, come from healthy donors).

As Dick Thaler notes in the New York Times today, the usual economist solution to this problem – allowing the buying and selling of human organs – is a political non-starter. Many people find the idea “repugnant,” as economist Alvin Roth has put it.

One solution, which Roth helped pioneer, is to create organ swaps rather than sales. Suppose, for example, that my wife needs a kidney and that I am willing to donate, but am not a match. And at the same time, a woman wants to donate a kidney to her sick brother, but also isn’t a match. That seems like a dead end (so to speak), but if I am a match for her brother, and she is a match for my wife, then we can arrange a swap – my kidney for hers. Two lives get saved, and there’s nothing repugnant about it.

Over time, this basic idea has expanded to include “daisy chains” of donations involving numerous donors and recipients (for a nice description see this recent article in Wall Street Journal).

Thaler considers another way to address the problem of organ supply (from individuals who become brain dead, not those who are healthy) using the insights of behavioral economics:

Continue reading “Human Organs, Behavioral Economics, and Insurance Mandates”

Catherine Zeta-Jones & Consumer Finance

Catherine Zeta-Jones has an important message for policymakers who want to help consumers make better financial decisions.

Really.

Let’s go to the video:

I should emphasize that the message is not that economists are bow-tie-wearing geeks who should be sprayed with garden hoses. That may be true, but it isn’t CZJ’s message to policymakers.

No, the special message of the T-Mobile ad is that … Continue reading “Catherine Zeta-Jones & Consumer Finance”