Hi guys, long time since i used this blog. Since its Vesak day and I've got nothing to do, might as well kick start this account again.
Today, I would like to introduce you a book named "Adapt" written by Tim Harford, the man who brought you "The undercover Economist" .
The gist of this book explains why success always start with failure. I'm not sure if it is available in Singapore yet since it is a newly published book this year.
From the video, Tim Harford explains three simple principles of success.
1st: BE WILLING TO FAIL A LOT
2nd: FAIL ON A SURVIVABLE SCALE
3rd: SPOT A FAILURE AND FIX IT EARLY
Most of his books are inspiring and entertaining. Be sure to grab them at your local bookstores now !
Comments
"Like the best coffee house, Tim Harford’s book provides a welcoming and generous space for ideas to mingle and I recommend it strongly to every ambitious economics student who wants to break free of an exam strait-jacket and broaden their understanding of what drives success in a spiky and volatile world."- Geoff Riley
Disclaimer
This is not intended to be an advertorial. The above recommendation is solely a personal perference.
- Location:Singapore, Singapore
- Mood:
awake
Illuminating advice on the dark art of ‘drip pricing’
By Tim Harford
Published: August 21 2010 00:46 | Last updated: August 21 2010 00:46
“You inched towards the dark side,” joked one behavioural economist after he read a recent column in which I hinted that his field has some merits. It was a quip that got me thinking, because behavioural economics does indeed have a dark side. Behavioural economists study the psychology of economic decision-making, and if they are any good at their task they will discover something the unscrupulous salesman could use to his advantage.
A behavioural economist turned rogue would exploit the “endowment effect” – a tendency for people to put a higher value on something that they feel they already own. He or she would also try to create the sense that consumers would lose out if they did not buy, because people seem to hate the idea of losing £5 much more than they like the idea of gaining £5.
Third, our rogue economist would attempt to suggest an “anchor” value that was much higher than the asking price, which would make the product seem cheap. It doesn’t seem to be hard to create such anchor values: they can be produced by inviting experimental subjects to write down the last two digits of their social security number.
Fourth, he or she would make the pricing as complex as possible so that people struggled to compare one offer with a rival offer. Fifth, he or she would try to create a sense of social approval – everyone is buying this. Finally, a rogue economist would throw in something free.
Many unscrupulous salesmen have figured this advice out for themselves already. Think of infomercials. “The TimCo smokemaster doesn’t retail for £200; it doesn’t retail for £100; it doesn’t retail for £50 … ” (anchoring to a price of £200) … “if our lines are busy, please try later” (social approval) … “the smokemaster is not available in regular stores” (loss aversion) … “but wait! When you buy the TimCo smokemaster you get the TimCo soup knife absolutely free” (complex pricing and use of “free”).
The UK’s Office of Fair Trading (OFT) has been turning to behavioural economists for advice on such tactics, and has found that there is no pricing scheme more pernicious than “drip pricing”. Under the scheme, customers agree to pay a price only to discover that there is a charge for delivery; another charge for paying by credit card, and another for insurance. Drip pricing taps into the endowment effect, because customers feel that they have already made the decision to purchase; it creates loss aversion because customers commit time and effort to the search before being hit with extra charges; and it is a form of complex pricing which makes it hard to compare offers.
The OFT research, conducted by consultants and academics at University College London, was based on a laboratory experiment in which students sat at a computer and were presented with hypothetical deals from two fictional retailers. The students were beguiled with various marketing tricks and had to decide from whom to purchase, in what quantity, and after how costly a search. There was no trick quite so guaranteed to confound them as drip pricing, in which they were hit first with an extra charge for handling and then with a charge for shipping. (A two-part drip is modest: according to the OFT, one package holiday provider used four unavoidable “drips”, and two computer retailers tacked on seven optional ones.)
The OFT has been firing warning shots about drip pricing, but it will have its work cut out to regulate it – there is usually some loophole through which price drippers can slip. Buyers should remember that if they walk away when the drips start to fall, they won’t get soaked.
Tim Harford’s latest book is ‘Dear Undercover Economist’ (Little, Brown)
Copyright The Financial Times Limited 2010. You may share using our article tools. Please don't cut articles from FT.com and redistribute by email or post to the web.
- Location:Singapore, Singapore
Today's topic will be on filial piety and family relationships. This topic stuck me when i saw the video above. It may be just a simple advertisement, but it has much deeper meaning into it.
The problem in today's society is that we simply do not cherish or respect our parents.
During our first phase of life, which is after birth, the scarifices our parents made for us is inmeasurable. We were once defenceless ourselves. However, they will be there to shield us from any storm and at the same time bestow us the power of speech. Yet the first words from our mouths was not "thank you" but "Papa" or "Mama" where we could ask for more. We would frequently make a scene if we could'nt get the toys we wanted, which made our parents look like fools in public. Now that you realise it, its time to make the difference.
The second phase of life was the schooling period, where it was also the time that we were growing up. This was the time that we make new friends from different family backgrounds. Some may walk a different path of taking drugs, be involved in gangfights or simply not putting in their effort to study hard. At this point of time, what our parents say can hardly be encrypted into our minds as we tend to believe friends are for live. Alright, think twice. Your parents job is to ensure that you lead a crime free life but if the friends you are with has these bad habits, then they are not considered friends anymore. They are terrorist that ruins your life. You may think that its your life, but its your parents that gave you life. They will be equally or even more hurt. Now that you realise it, its time to make the difference.
Next phase, for boys,was the stage of doing national service(NS). During this phase, we may think that being in the army made us more manly and independent. True and i will not deny the fact. However, each time when we were out in the fields for excerises or operations, our parents will still be worried for our safety. We might be the bravest soldier in the company, but remember that our parents is still waiting for our return. Charging recklessly at our enemies is not bravary, its nothing but foolery. Now that you realise it, its time to make the difference.
Being in this stage of life, I want to sum up this reflection with three words. Cherish your parents before its too late, respect what they have done for you and lastly, forgive them if any of their demand was unreasonable, they just want you to be a better person.
So what's your story like?
-econo
where great minds come together
Acknowlegement
1. www.youtube.com for the video
2. www.google.com for the photo
- Location:Singapore, Singapore
- Mood:
happy
This post features Paul Krugman and Niall Ferguson on their debate in determining which macro policy is best for the United States in its current economic status.
Paul Krugman is an Amercian economist, Professor of Economics and International Affairs at the Woodrow Wilson School of public and International Affairs at Princeton University, Centenary Professor at the London School of Economics, and an op-ed columnist for The New York Times. In 2008, Krugman won the Nobel Prize in Economics for his contributions to New Trade Theory and New Economic Geography.
Niall Ferguson is a British historian who specialises financial and economic history as well as the history of colonialism. He is the Laurence A. Tisch Professor of History at Harvard University as well as Wiliam Ziegler Professor of BBusiness Administration at Harvard Business School, and also currently the Philippe Roman Chair in History and International Affairs at the London School of Economics.
Krugman agrues that we must support more stimulus and spend more so as to save employment. However, Ferguson supports the need to cut spending and service the debt.
Krugman's Argument
Firstly, Krugman argues that we must focus on the issue of unemployment in the US. Due to the lack of domestic consumption, the States is face with a persistently high level of cyclical unemployment. The latter is also known as a demand-deficient unemployment as the fall in demand drives up unemployment. He argues that it will be difficult for these retrenched workers to be reemployed again after 2-3 years of being jobless. This is because, over the time, they may lose valuable experience gained in their workplace and skills. If unemployment persist, standard of living wil not only fall, but also welfare schemes will mountain and add even more significant pressure to the debt. Hence spending more to drive employment is nesscary.
Next, Krugman argues that deflation will haunt the economy too. People has simply stop spending. This may be due to serveral reasons such as low confidence and pessimitism in the economy. We are in a situation where people "sits on their cash". On one side, the government tries their best to subsidies producers to stockpile their inventory. However, no one is spending. This only increases potential growth to the economic and not actual growth which is accounted in the country's GDP. When the aggragate supply is higher than aggregate demand, prices fall even more significantly and this more lead to an even worse scenario, a deflationary spiral. Therefore, spending to boost consumption and investment is nesscary.
Krugman also argues that the government should invest in more significant government spending. Debt is 10% of GDP in the US. He said that " A trillion dollars of spending by the govenment is not as much as you think that will recover the economy."
One problem that the US economy face is low confidence level from the consumers and producers. As the world has not fully recovered from the Sub-prime mortgage crisis yet, consumers are relcutant to buy while the producers are relecutant to stockpile. Such a situation results in consumption being postphone which will halt employment. Hence, fiscal pump priming is reasonable in boosting the confidence of society.
In conclusion, Krugman argues " Why let people stay unemployed if the government can remedy this problem?"
Ferguson's arguement
Firstly, Ferguson argues that Amercians must face up to reality. They are spending more than they can afford, which is the bedrock of the accumulated debt. In order to curb such spending habits, the government has to implement measures that increase taxes and cut spending. He said that Keynesian policies begets a chain reaction. For example, in the midst of a financial crisis, Keynesian economist such as Krugman believes that fiscal pump priming measures will help kick start the economy. In fact, such a move will only lead the economy to a fiscal crisis where the country will be embedded by debt. Hence, Keynesian solutions are not feasible. He further site the example of Pearl Harbour being US treasuries. Only until 1941 that the US thought Pearl Harbour was a safehaven.
Next, he argues that more spending by the government will inevitably lead us into a debt spiral. Just like Japan, Greek and UK, where the country has to borrow to service their debt. This is unsustainable in the long run. David Ricardo's theory of the Riccardian Equivalence suggest that when a government tries to stimulate demand by increasing debt-financed government spending, demand remains unchanged. This is because the public will save its excess money in order to pay for future tax increases that will be initiated to pay off the debt. Hence, pumping money into the economy is not feasible.
What Ferguson suggest is to implement radical reforms that would simplify the tax code and cut unnecessay entitlements. However, he feels depress on how Wastington ruled out this choice.
He then gives an example on how fiscal pump priming measures backfired in the 1970s. In the 1970s reccession, fiscal stimulus was thought to be the solution to once again kick start the economy. However, towards late 1970s, the US economy was plunged into a stagflation. The latter being defined as slow economy growth accompanid by high levels of inflation. Hence, the use of radical reforms are more approriate to deal with the current situation.
In addition, Ferguson also pointed out that empires collapse when the economy goes bad. The case for the US now is that the government is paying more to service debt than to service its troops. In fact, the war in Afganistan has already contributed to the debt by a large extent. Quoted from Churchill, " Amercians does the right thing when all of the alternatives have been exhuasted." So why can't we do the right thing now to avoid other detrimental consequences in the future.
Lastly, Ferguson pointed out that if we rely solely on Keynesian economies, the future generation will be lost and not being able to find any job. The biggest obstacle is not economical, instead political.
Questions worth pondering
After the heated debated by both professors, what is your take on the issue? Should we stick to fiscal stimulus or switch our direction to favour austerity.
Acknowledgements
1. www.youtube.com for posting the debate.
2. www.wikipedia.com
3. www.google.com for supply images
- Location:Singapore, Singapore
- Mood:
working
Crossroads
In a foreign land,
You were there.
Through flames of hell we walked,
You were there.
Drenched as we were,
You were there.
Up at the peak,
you were there.
Across the sandy shore,
I see you.
Once again we hear the call,
the battlefield's rumbling roar.
Earth shake with each stomp,
rivers stretch miles long.
Pack your bag and come with me,
as i shall lead you to victory.
Keep your loved ones not with you,
but in your heart, I presume.
Days will pass and we'll be back,
safe and sound and all intact.
Say your prayers and you're alright,
so just wait for the return flight.
For honour we fight,
for glory we win.
Are you ready?
My soldier,
my friend,
my buddy.
- herman
OPERATION COMMAND AND CONQUER TAIWAN
Follow the starlight to reach our haven
- Location:Singapore, Singapore
INTRODUCTION
China still emerge an economic powerhouse even after the economic meltdown. With growth rates of 6-8% compared to negative growth rates of other countries, standard of living(SOL) in China is, nevertheless, rising tremoudously. The main focus in this week's discussion will be on China's workforce. Below are a few guiding questions.
1) How does increase in SOL affect its labour force?
2)How does it affect countries that outsource their workers from China?
Lets put it simply, the younger generation wants more. In the past, a worker will be contented if he has enough pay for food and shelter. However, the current generation of migrant workers expect more. They expect things like internet cafe or a KTV bar near the factory they work in. Inevitably, these web-savvy, fashionable youngsters have higher aspirations and expectations.
Here's an example of a young migrant worker in Guangzhou :-
" Is there an internet cafe near the factory? Or a karaoke bar?"
" Can we wear our own clothes to work instead of the factory uniform?"
Effects on China's labour force
1) Increase in wages due to higher expectations incurring high opportunity cost.
Due to higher expectations by the workforce, many prefer not to work in noisy and dirty factories, but shift to office jobs. This result in a shortage in supply of workers.
For example, local media says that economic powerhouse of the Pearl River Delta is lacking as many as 2 million workers.
In order to increase supply of labour, this led the authories in Guangzhou to increase miniumum wage from 860yuan to 1030 yuan, so as to attract more migrant workers into the labour-intensive factories.
This will result in an increase in government expenditure to provide welfare benefit to the workforce. This sum of money could be use elsewhere such as improving healthcare or infrastructure. High opportunity cost is incurred.
2) Increase in wage induces cost-push inflation
Increase in wage will result in the increase in cost of production. Assume aggregate demand (AD) remains unchange, the results in an upward shift in aggregate supply (AS) curve. This increases price of general goods and services, without the rise in economic growth. Cost of living becomes higher. Widens income inequity in society.
Worst still, this may trigger a wage-spiral.
3) China is losing its comparative advantage on cheap labour.
Due to an increase wages, other countries that outsource their production to China may see an increase in cost of production. This increase in COP will result in a fall in overall profits, assumming total revenue remains unchange. These countries may shift their production from China to a country with lower cost, take for example India. This outflow of foreign direct investments (FDIs) from China may result in slower growth and a series of deflation.
Purpose of the policy: Population control
Argument to adandon the policy: China has enjoyed double digit growth for the past few years due mainly to its cheap labour. It is before the implementation of the one-child policy that contributes to this immense labour force. With the one-child policy in place, the population number is restricted, so will be the amount of workers. This is hit by a double whammy with the increase in expectations in today's generation of workers.
The labour force may shrink by 23% between 2015 and 2050 if current demographic trends contiune, based on a Washington think tank, centre for stratgic and international studies.
Hence, a two-child policy?
Base on reports, discussions are still going on. Vice-premier Li Keqiang said in a conference in January, " China must switch from population control to population development ."
As the factory of the world, I hope China will act accordingly to avert a "labour femine" or a tsunami of increasing cost of production will hit our shores.
Reference
1) The Straits Times, 20 March 2010 - " China's labour crunch: End to one-child policy? "
-herman
where great minds come together
We share the same moon, yet we share different fate
- Location:Singapore, Singapore
- Mood: awake
Introduction
Defination: Game theory is mainly concerned with predicting the outcome of games of strategy in which the participants have incomplete information about the others' intentions.
What is required in a game?
1) 2 or more players
2) Choice of action where stratergy matters
3) Game has one or more outcomes
4) Presence of strategic interaction.
Exception to Game Theory
For example: 1) Games of pure chance eg, Slot machine 2) Games w/o strategic interaction eg, Solitaire
Three elements of a game
1) The players
- Numbers of players?
- Does chance or nature play a defining role?
2) Complete information on the possible stragery each player may undertake.
3) Complete information on possible payoffs for each decision the players make.
Assumptions Game theorist make
1) Players are risk neutral as payoffs are known and fixed.
2) All players behave rationally where they aim to maxmize profits.
3) Rules of game are common knowlegde whereby all players know "X" , where all players know all players know "X". where all players know all players know all players know "X" , . . . , ad infinitum.
Illustration
There are countless of illustrations that we can derive from Game theory. Below is an example of it :-
Illustration 1: Hawk-Dove game
| 1/2 | Hawk | Dove |
| Hawk | [ (V-C)/2, (V-C)/2 ] | [ V, 0 ] |
| Dove | [ 0, V ] | [ V/2, V/2 ] |
V= Value of resources that players can enjoy
C= Cost of competition
Hawk= Aggressor
Dove= Peace seekerWhen both players play "hawk", they will both incurr a cost ,C. Hence the value of resources that each can enjoy falls to (V-C)/2 . On the other hand, a Hawk player gets the whole resource for itself when playing with a Dove. When V > C, we have a Prisoners’ Dilemma game, where we would observe fight.
In the case whereby V < C, the fight will be costly. This game is similar to another well-known game named “Chicken”, where two players driving towards a cliff have to decide whether to stop or continue. The one who stops first loses face, but may save his life. The latter is an example of a zero-sum game. More generally, a class of games called “wars of attrition” are used to model this type of situations. In this case, a player would like to play Hawk if his opponent plays Dove, and play Dove if his opponent plays Hawk.
References:
1) Introduction to Game theory by Prof. John Duffy. University of Pittsburgh, Department of economics.
2) Illustration of the Hawk-Dove Game by Prof Muhamet Yildiz. Massachusetts Institute of Technology, Department of economics.
Above is only a VERY brief introducing to Game Theory. Anyone interested can post questions or contact me for further discussion regarding this topic. See you next week. GOODBYE :)
-herman
(where great minds come together)
Video on The Prisoner Dilemma Game
- Location:Singapore, Singapore
- Mood:
busy
Hello everyone. This week we shall take a break from economics :(
Lets switch our focus this week to SNSD aka So Nyuh Shi Dae aka Girls Generation aka 소녀시대!!
This nine-member group consist of Yoona, Tiffany, Hyoyeon, Sooyoung, Seohyun, Yuri, Taeyeon, Jessica and Sunny.
From left : Yoona, Tiffany, Yuri
From left: Hyoyeon, Sooyoung, Seohyun
From left: Taeyeon, Jessica, Sunny
Go listen to their new album released this year! haha Quite nice lah.
Okay, I may post again tmr on other things. Sorry i cant post my life in army cause its restricted.
Watching 下一站，幸福 !!
Different genre from "Hi my Sweetheart". So far i watch only 5 ep and its quite sad alr. Wait till i finish watching thn i write about it k?
GOODNIGHT to all SNSD FANS and earth-lings :)
- Location:Singapore, Singapore
- Mood: happy
INFLATION . . . INFLATION . . . INFLATION !
Defination : A situation of sustained and inordinate increase in the general price level.
Contextual knowledge
Rate of inflation in Singapore is measured by the Consumer Price Index (CPI). The CPI takes into consideration a basket of commodities such as food, clothing, footwear, housing and etc. Below is the current CPI that Singapore adopts in 2009.
Food Main Group Year 2009 (%) All items 100 22
9
14
Clothing and Footwear 3 Housing 25 Transport 16 Communication 5 Education and stationery 7 Healthcare 6 Recreation and others 16
Note: Figures do not add up due to rounding. The CPI is rebased every five years to reflect the latest consumption patterns and composition of goods and services consumed by resident households.
Source: SINGAPORE DEPARTMENT OF STATISTICS
Rate of inflation in Singapore currrently stands at 0.6% after the revised CPI implemented last year.
Question
1. Is inflation always bad?
Inflation means sustained and inordinate increase in general px levels of g&s. This may sound like a bad thing. But first, we have to analyse what causes the inflation. There are 2 main catergory of inflation. Mainly demand-pull inflation and cost-push inflation.
Demand-pull inflation results in an increase in aggregate demand (AD) of the economy.
AD = Domestic consumption(C) + Govt expenditure(G) + Investments(I) + Net Exports(X-M)
An increase in any aspect of AD implies that the economy is striving and there is economic growth. Depending on which aspect, there will be different consequence and backlash. Ultimately, standard of living is maintained or be even better.
Cost-push inflation results in an increase in cost of production. This maybe sparked by different factors. Some examples are :
i) Depreciation of currency. (Hit harder for cty that imports lots of raw materials)
ii) Decrease in productivity level of the workforce.
iii) Increase in tax rates / levies.
Firms pass on the increase in cost of production to the consumers. This increases cost of living and widens income inequity in the society.
To conclude, there are both good and bad inflation. Depending what causes the inflation, will we determine if its healthy or devastating to our economy.
Takeaways for today
Defination of inflation : Sustained and inordinate increase in general price levels of goods and services.
Main caterogisation of inflation : i) Demand-pull inflation ii) Cost-push inflation
Questions to ponder
1. Is deflation always good?
2. What results in Singapore's current rate of inflation of 0.6%?
MY LIFE
Ok i think i should include a bit of my life in this blog or it will be boring to non-economic lovers.
As usual, i went for taekwondo yesterday.
Oh man! The class was in a chaos yesterday.
I think because the master is not around.
So hard to control can! i almost vomitted blood. I took all the kids aged around 10 years old and they were like monkeys !
Cannot la, next week i need to punish them already or i just go take the teenagers.
IM NOT A CHILD-CARE TEAHCER OKAY !!! >:(
Ok, see you all next week ! :)
- herman-
Where great minds come together
( Looking for economic enthusiast)
Economic Outlook
2009 marked the year of the bull. However, markets were not bullish at all. In fact, we faced an economic meltdown, causing GDP for Q1 in 2009 to plunge 10%. Amist the gloom, our economy manage to pick up in Q3 and Q4 of 2009, resulting in a better-than-expected decline of 2.1% at the end of the year.
In the year of the tiger, we must be cautious as markets are still not stable yet. Especially in Singapore, where its economy is open and export-oriented, we are more vulnerable to ripples if another tsunami were to hit our counterparts again. In the US, consumer confidence are not recovering as fast as expected.
Whats more, the US is trillions in debt, after the government bailed out firms from the sub-prime mortage crisis. Even though the US is not Singapore's top exporting destination ( Malaysia is ) , Singapore relies FDIs from the US to invest in Singapore so as to increase its productive capacity and to boost aggregate demand.
On top of that, the US dollar is the international currency for most markets. In a situation whereby the dollar plunges, the value of assets will fall and may result in catastrophic consequences.
Also, the current debt crisis that Greece is in may well affect Singapore's economy in 2010, if its not managed properly. As Greece represents part of the European Union (EU), the debt crisis has already affected countries like Italy. This shows how interconnected our economy is in today's world.
Other than matters affecting us indirectly, lets take a look at some events that will boost our economy, specifically the tourism sector.
1. Intergrated Resorts in Sentosa and Marina Bay (Universal Studio and Casinos)
2. 1st Youth Olympic Games (YOG)
3. Singtel F1 NightRace 2010
We must welcome the year of the tiger with more optimism and confidence. Goverments should plan ahead to avoid pork-barrel spending while consumers and investors should regain confidence to start spending again. Of course spending within one's budget limit is our personal responsibility.
For those that are interested in investing, you can start with the less risky type of investments such as structured-deposits in banks. There are other finaninal products such as goverment securities, bonds and unit trust available too. Not to mention the products with greatest risk that is speculation in commodity or in the forex markets and deriviatives . A piece of advise before investing. Ask yourself these few questions.
1. How much risk can u take?
2. How much payoff/ dividends you are expecting?
3. Do i need this sum of cash between this period of time till my investment matures?
4. Have I read all the terms and conditions carefully before I invest in the particular product?
Okay, I shall stop here for this post. Questions are most welcomed and will be answered to my best knowledge.
May the year of the Tiger be a roaring year for you and your family.
I wish you a Happy, prosperous and healthy Chinese New Year.
-herman
Where great minds come together
(Looking for economic enthusiast)
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i_love_econs- Herman Econo
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