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Archive for the ‘Economics’ Category
C’mon…Baby Needs a New Pair of Shoes.
Recently I traveled to Las Vegas for business. I’ve been there about five or six times all for business related reasons and EVERY time I’m amazed at the place. For one…its in the desert. Two, the buildings that exists there are unimaginable; I was standing under the Effie Tower while being in a building. And third…the backbone of Vegas- gambling. I watched a guy lose over $100 at video poker ( in about 5 minutes), and he didn’t even spill his drink. Call me frugal, call me smart – or call me intone with my economic mind. Whatever the reason, I don’t understand why how people can risk their hard earned money on games which clearly have a bias.
Behavioral economics is a tricky subject. In a nutshell, it attempts to rationalize the irrational. Throughout time, humans have subscribed to the “economic man” theory- where humans make rational decisions weighted on cost/benefit. If you’ve been to Vegas however…you know this isn’t true. The guy taking another card on a 19, or someone betting it all on black, the odds are always against you. So how does Vegas survive? Behavioral economics explains that many decisions are made upon risk seeking or risk aversion. Placed in identical situations, even the same person may not choose the same result due to these behaviors. I recently read a study by Ayako Onzo And Ken Mogi from the Tokyo Institute of Technology. They set up an experiment where subjects were given 5 “units”. The subjects could then push one of two buttons – bet or escape. The probability of winning was fixed at 25%, but time limits and phrases were used.
They found that when subjects were shown the “You Win” tag, they were more likely to bet, however less likely when about to lose their units and be out of the game.
This phenomenon can be traced to an experiment by Daniel Kahneman. Kahneman set up a experiment dealing with lotteries. the subjects had to choose between lottery Red and Black. In Red, there is a sure loss of $750. In Black, there is a 75% chance to lose $1000 and a 25% chance to lose nothing. They found that although both lotteries had an identical expected value, a clear majority of respondents preferred Black (13% of the subjects chose Red and 87% chose Black). This result suggests that there is a risk seeking preference on this kind of negative
choice. Relate this to ANY gambling. With the odds, it is more likely for you to lose your money, but who would play a game with flashing lights that says “Lose $50 Here!”
The second part of the Japanese study also shows how attitude can affect decision. Like in a slot machine, when a player wins, they are more likely to bet again, especially if that win “saved” their credits. Now im not saying the machines are rigged, but its pretty interesting that you win when you have one credit left, just enough to entice you to keep betting.
So believe it or not, Vegas certainly have their pulse on behavioral economics – they know how they want you to think, and they know how to get you to think that way. So the next time the dice is calling your name…just buy baby the new shoes.
Looks like is paper bags for baby....
Puff – Puff – Pass…A law?
Marijuana is always a hot topic and everyone has a clear cut opinion…maybe. This week the justice department made a huge announcement giving more power to states in terms of medical marijuana dispensaries. The DOJ stated that as long as these outlets were following state law, they would pretty much stay out.
With that news states like California and Colorado have had a surge in interest in the legalization of the drug. These states already allow marijuana for medical purposes and hundreds of dispensaries are popping up throughout the states. A recent New York Times article detailed how the marijuana movement is starting to gain some clout in the political circles. One group has obtained over 300,000 signatures supporting a bill that would legalize marijuana.
Let’s take a look from an economic perspective. Currently, the United States Federal government classifies marijuana as an illegal drug. As with anything illegal, someone will provide it. Recently Mexican drug cartels have invaded our nations national forecast, setting up huge grows deep in the woods. These is a major problem here in Colorado, and imagine your surprise as on your Sunday hike you run into armed Mexican Mafioso- not good. The government spends and estimated $17 billion annually on fighting the drug trade, with marijuana being one of the more used drugs, one can assume the cost of this “war”
Now I know what you’re thinking – yes its bad for your health, yes- driving under the influence is bad- but so is alcohol and tobacco. Both of these vices provide substantial tax dollars. With a pack of cigarettes pushing $10.00 in NYC, imagine the price people would pay for legal, pre packed marijuana cigarettes! By legalizing the drug that nearly 45% of the population has used at least once, we could eliminate the marijuana drug cartels and their profits would fall out of the market, increase tax revenue, and save billions as the US marijuana drug trade ceases to exist.
Many are worried about the effects, here in Denver, the city is allowing medical marijuana dispensaries. A recent Denver Post article interviewed one owner. When posed with the accusation they would be “bad neighbors” to the business district they stated they were installing all new lights, benches, fixing the sidewalk and most immortally “paying a lot of taxes”
This debate will surely fire many up, and be drawn out, but maybe its time to take a cost benefit analysis, spend our tax dollars on real issues – and hey…maybe even relax a little bit.
Open For Business
Strippers and School Buses
I bet I have you attention now. If you’ve been to Las Vegas lately you will see some very creative marketing going on. Every cab has ads…everywhere (many of questionable nature). From the roof, to on the truck, in the passenger seat to my personal favorite – modified spinner hubcaps with ads on them, cabs are moving billboards. From a marketing and economics view, this is genius. Vegas has thousands of cabs, that pick up thousands of people a day, but more importantly they are seen by tens of thousands a day throughout the city. With this much exposure, marketers would be crazy not to capitalize on this format.
So what does this have to do with school buses? With school taxes on the rise, and for most salaries not increasing with cost of living, why not apply the same technique to an even bigger billboard – school buses. Now I’m not suggesting that Percillas Pussycat Lounge be featured next to the blinking lights, but think of the possibilities! Who sees school busses? School Children – advertise toys. Parents- grocery stores, car insurance, cell phones. People stuck behind them on their way to work – satellite radio to sooth the nerves, and I’m SURE Starbucks would love to slap their name on the back to entice frustrated commuters.
With the extra revenue from that ad placements, not only could schools expand their budget with less tax payer money, but also stop cutting valuable programs like art, music and sports that have plagued under funded school districts.
So the next time you’re stuck behind a bus, just think…how much money COULD I be saving with Gieco?
So easy...A school administrator can do it
What Businesses Can Learn From The Taco Truck
We have an interesting thing here in Colorado – the taco truck. Literally a box truck outfitted to be a mobile taco kitchen. These restaurants on wheels drive to local business and offer their employees hot, fresh and delicious Mexican offerings right there in the parking lot. Average price per taco? $1.00 Move over taco bell.
But what can big business learn from these enchilada entrepreneurs? Specialization. The taco truck does one thing – make Mexican food. The owners of these trucks offer the same basic foods and turnover product at a very high rate. By moving product quickly, not only does the food gain quality due to its freshness, but also allows the price to be driven way down due to the quick turnover and economies of scale.
In this age of global conglomerates, where the corn producer also makes aluminum wheels, perhaps we can stimulate the economy by using specialization. Focus on one thing, do it VERY well and flip your inventory like tamales. Not only would this improve quality, but drastically increase employment as many niche businesses would pop up to fill the needs of the economy. Image the economies of scale of a business that doesn’t need to retool- they just make one product line to the best of their ability. Like the taco truck, this angle could produce some tasty results.
Specialization- Tasty Success
Are Banks Racist?
I recently saw an interesting, yet entertaining video. Though not on top of the academic hierarchy, YouTube producers “Internets Celebrities” offer a fresh and street level view of problems in a humorous way. Their film Checkmate delves into a problem facing many urban centers: the lack of financial institutions.
The film focuses are the poorest areas of east New York, in Brooklyn. The hosts of the video investigate an interesting concept in the lower income neighborhoods of the city: the lack of commercial banks. These financial institutions do not appear in these areas of Brooklyn. Without the availability of these traditional financial centers, the residents of these neighborhoods are forced into using the outlets available- check cashing centers.
These centers although convenient open a trap for the members of the community. With exurbanite fees that strain paychecks and the lack of an opportunity to build savings, the check cashing services offered in these neighborhoods work to keep the status quo.
The video states that in the more wealthy areas like Brooklyn Heights, traditional banks appear 1 for every 1,000 residents. In the poorer neighborhoods like Bushwick – 1 bank for every 50,000 people. The lack of these centers deprives the poor of creating savings, and gaining access to the numerous benefits of having a bank account. From direct deposit to growing net wealth, deprived of these services the poor will stay poor.
The video discuses however that banks are business, responsible to their shareholders and are not required to open in less profitable areas, which is the basis of sound business practice. My thoughts however are in this age of government bailout, hope and change, why not alter the system? What has happened to the local and regional banks that serviced their residents? Let’s stop bailing out big business and start new business, let’s let people help themselves. With successful programs in micro loaning and community development, why not invest in the neighborhoods themselves? With small, community banks placed in areas in need of a financial center, the residents of those neighborhoods can finally get easy access to the benefits of checking and savings. Let’s stop the debt wormhole and give it a try…what’s to lose?
Check....please?
Why the Subway Should Cost MORE
The other day I left class in a hurry to get home, only to find my subway route had been cut off…for hours. Who knows what happened, and I certainly was not going to stand on a stationary train until it was up again. Plus, I had already paid my $2.25 fare….so, like many of my other subterranean peers, I joined the huddle around the subway map to figure out a new route home.
I had to take 4 (5?) trains to get to where I wanted to be that day. I even made a mistake at one point, and had to jump back a stop on the same line. How much did all of this cost? $2.25. The same price as if I would have taken my normal 1 train. In New York, subway transfers cost nothing. And that’s probably a mistake for the MTA.
Why? Well, it parallels the same type of argument that fat people should pay more for flying on planes. The ride on a common carrier should reflect the true cost of the ride. Riding 4 subways to get home costs more than $2.25. If that was my daily, admittedly complicated, way to get home everyday….shouldn’t I pay more than 1-stop-Sally? Of course I should, because my free-riding (literally) costs the system, and therefore everyone, more money.
This would be terribly unpopular, but to incite your outrage, imagine this extreme example: A savvy New Yorker figures that his Bagel-delivery service can use the subway for ALL of its transportation needs. In fact, the delivery guy figures out a way to have other people meet him at terminals to hand-off bagels at one station, and receive them at others (assume this guy has lots of employees all over the City). He only pays $2.25 to transport his bagels all over the city (think Bronx to Canarsie…) ALL DAY. He does this at everyone else’s expense.
I don’t think that number of stops should be factored into the charge, as administrative costs would probably get out of control and eat up savings, but charging for transferring trains would be easier to do, limit abuse by bagel-couriers, and move toward the economic holy grail of “full cost accounting.”
Bagel Anyone?
Economics is Unfair
In the midst of government bailout of the big three, many are crying wolf. As these companies beg for taxpayer money to stay afloat, it raises the question why? Yes I fully understand the weight of letting the big three fail. Detroit, a city tough enough would crumble into social unrest. The over 513,000 United Auto Workers union members would be out of a job. I understand all of these things, but should compassion outweigh even basic economic theory? Obviously these companies have their issues. Ford, GM and Chrysler formed the backbone of an American tradition, however their stubbornness or lack of vision caused them to fall behind. Apply this to any other American icon, say the drive in theater. The once heralded pastime of parking and enjoying a movie outdoors is nearly vanished. In the hay day of drive ins, 3,775 screens existed. According to a recent Boston Globe article less than 400 exist now. Much like the big American automobile, it was a cherished object, but new technology, comforts and formats now exist that have pushed the drive in out of business. Is there a bailout for theaters? No. So why automakers? I say let them fail. Let the practices that brought them down stay down and let the American auto industry rebuild. The basic model of supply and demand clearly shows a problem in the industry. So let’s take a page from econ 101 and start over. Is economics unfair? Maybe, but not nearly as unfair as using taxpayer money to support an antique.
Drive-Ins - Thing of The Past
