“Dear Undercover Economist” publishes my favourite “Dear Economist” columns from in one handy book-sized package. It's now available in. Yours credibly, The Undercover Economist FEBRUARY 14, Dear Economist, I have a Valentine's Day problem. I will be taking my sweetheart out for a. Throughout history, great philosophers have been answering profound questions about life. But do they know why your socks keep disappearing from the dryer.
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Download Hi Res. LitFlash The eBooks you want at the lowest prices. Many people have found that alcohol has aphrodisiac qualities, even if it occasionally dampens the ability to follow through.
This Christmas, thousands of couples like you and your girlfriend will rediscover each other with the help of the yuletide brandy. You are not alone! Of course, it is easy to drink more alcohol than is good for you. Perhaps this is what is concerning you, but there seems to be no need to worry.
Since the typical British couple claims to make love every three days or so, you should be able to lubricate yourself appropriately without putting too much strain on your liver. Just steer clear of prodigious feats of love. It seems to me that there is one cause for concern: How can I persuade the girls to give me a second chance? Imagine a new manufacturer trying to persuade skeptical customers that a new DVD player is reliable.
You, too, need to o er a money-back guarantee. Go to the speed dating session with two tickets for a top Broadway show and give them to a girl you like. Tell her that you are sure she will like you if she gets to know you, and that you suggest that she use the tickets to take you on your third date. If not, she is free to take someone else.
I think this should work. It will certainly ensure that for the lucky lady, you will give a first impression that lasts.
I invited my girlfriend to visit so we could spend the evening there together. As we split most big costs in our relationship, I proposed we share the cost of the hotel room and she cover her airfare. She argued that because my company had covered my airfare, I should split hers with her. Who is right?
Both you and your girlfriend have a case, but this disagreement is part of a much wider game. Your trip has created joint gains for the pair of you, and you are arguing over how to divide the spoils. There is no right way to do this. Your admission that you would pay for dinner and entertainment, although you normally split major costs, is an admission that the merits of the case are vague. You might think that some fancy economic theorem will give you a precise answer.
Nothing could be further from the truth. You will have such arguments many times, and game theory shows that in an inde nitely repeated game, there are many possible outcomes, some good and some bad. The best are cooperative and pro table for both players—which suggests that a little generosity on your part may go a long way. Of course, you have everything to gain from penny-pinching if your relationship with your girlfriend is short-lived.
In that case, you are going about it the right way. What would you say were the costs and benefits? I have never had a bikini wax myself and prefer not to comment on the aesthetic qualities of the practice. Nevertheless, I believe there is an important economic insight to take on board: When businesses install equipment to satisfy a particular customer, they usually do so only when protected by cost-sharing arrangements or a long-term contract; sometimes the client will even merge with its supplier.
Those who do not take such precautions risk being exploited: For you, cost-sharing might be a fancy weekend away; a long-term contract might specify that your boyfriend does the dishes. And as for a merger? Marriage, of course, or an engagement assured by a suitably expensive rock. Whatever you want from your boyfriend, make sure you get it before making your own painful investment.
You need to understand when your bargaining power is waning or—ahem—waxing. Each man proposed to his preferred partner; each woman then rejected all the less attractive o ers and kept the remaining fellow on tenterhooks in case someone better came along.
The rejects would then propose marriage to someone closer to their league, each woman would reject all but the best so far, and the humiliating process would continue. The algorithm eventually produces a stable assignment, where nobody prefers a willing partner to the one they have. It also produces a billion broken hearts; presumably the assignment is stable because nobody wants to go through the whole thing again.
The algorithm works equally well if the women do the proposing and the men do the rejecting. Nearly ve decades after this revelation, a change in tradition is probably overdue.
Will the relationship survive? Is there anything I can do to keep it going? Economist Tyler Cowen, a professor at George Mason University, has pointed out that the Alchian-Allen theorem applies to any long-distance relationship. The theorem, brie y, implies that Australians drink higher-quality Californian wine than Californians, and vice versa, because it is only worth the transportation costs for the most expensive wine.
Similarly, there is no point in traveling to see your boyfriend for a take-out Indian meal and an evening in front of the TV. Insist on it. Meanwhile, optimal experimentation theory suggests that at this tender stage of life you are highly likely to meet someone even better.
Socialize a lot while your boyfriend is not around. Finally, consider your bargaining strength with potential new boyfriends with regard to, for instance, who pays for dinner. Your best alternative to a negotiated agreement with the new boy friend is your old boyfriend, who by your admission is an excellent catch. This puts you in a sound negotiating position—unless, of course, the boy is maintaining a long-distance relationship of his own.
Whenever we go out, we have the best of times, but for a reason I seem unable to comprehend, she has not clearly indicated that she feels the same for me as I do for her. I see a risk of alienating her as a friend if I tell her how I feel for her. Quite an exposure, in my view. Any suggestions? The distinction might seem over ne, but in your case it may be critical. The most likely scenario, frankly, is that your friend can read you like a book but prefers to ignore your crush.
The ambiguity of mere mutual knowledge preserves your friendship, but a declaration of love would create common knowledge and doom it. The alternative possibility is the one you hope for: You need to discover whether this is true without risking all, so simply ask a friend of hers to make inquiries. Another option, of course, is to write a letter to the FT.
If your friend is pretending not to notice your ardor, she can also pretend not to notice your letter. The fatal transparency of common knowledge is avoided and your friendship can continue.
If by some miracle she loves you but is blind to your feelings, your letter will solve this problem. Fingers crossed for the next few days, eh? Husband and wife can each specialize in di erent skills, according to their comparative advantage. I fail to see why you cannot realize these economies of scale with almost anyone.
Second, there are economies of scale in consumption. One backyard will do; so will one kitchen. The real question, then, is whether you can stand the person you marry enough to enjoy these e ciencies. They examined data from a speed dating company and discovered, unsurprisingly, that women like tall, rich, well- educated men. Men like slim, educated women who do not smoke.
The more intriguing nding emerged when pickings were scarce. If the men were short and poor, then the women lowered their standards, and still picked 10 percent. The men, too, abandoned unrealistic ambitions. This happened even though each could have had a complimentary speed date another time if he or she had found no one they liked. My conclusion: My advice: You appear to have fallen for a variant of the oldest trick in the book: Clearly you are deserving of compensation, but that is hardly the point.
The question is whether there is any prospect of you receiving it. Life is full of situations in which we are asked to bear a cost today in exchange for a benefit later—salaries are typically paid in arrears, for example. Courts no longer do this, which is why it became traditional to supplement such proposals with nonrefundable deposits, to be worn on the ring finger.
If you happen to have such a deposit, all is well. Otherwise, all you have received for your pains is a valuable lesson. Yours faithlessly, The Undercover Economist MAY 19, Dear Economist, I am thirty-eight years old, rather bored with my husband, and for the past two months I have been irting like mad with another man.
We often meet up for a drink, and the talk has started to get quite saucy. Should I? Fair, an economist at Yale. Professor Fair modeled affairs as a time-allocation problem.
That seems odd. That said, his approach to the problem could equally have applied if you had written to say that you were thirty-eight years old, rather bored with your husband, and were thinking of taking up badminton. One senses that something is missing. You do not know how much fun an a air will be. Nor do you know whether your husband is likely to become more or less tedious over time. A cost- bene t analysis is going to be tricky, but we can say for sure that your potential a air represents a valuable option.
Until then, why not enjoy the saucy talk? It may be a lot more fun than the a air itself. How does the cost-benefit analysis work out? There is little doubt that virgins achieve better grades. Yet is this because sex kills brain cells or because kids who are already bored at school look harder for ways to amuse themselves? Professor Sabia nds that deciding to have sex will knock a few percentage points o your grade.
If this happens, what should I do? You must instead balance the benefits of choice against the effect your flightiness may have on your targets. These decisions are much like those faced by a company choosing the optimal number of suppliers. Dealing with more suppliers allows the company to choose the cheapest and best.
Dear Undercover Economist The Very Best Letters F... by Harford Tim 1408701553
But having too many makes suppliers insecure and unwilling to invest in the relationship. Your ideal choice depends on what you want. Fun and frolics are ideally obtained by keeping options open, perhaps even switching to the spot market.
But if you want your partner to have your babies, support you while you write your novel, or share the cost of downloading a home, you will need to reassure her that you do not have other competitors waiting in the wings. In some industries it is common to sign contracts with two suppliers—enough competition to keep each on its toes, but enough commitment to inspire big investment in the relationship.
In your case that would be a wife and a long-term mistress. Perhaps the tried-and-tested rules of thumb work after all. What should I do? The evidence—gathered from twenty years of data by the economists Peter Schwarz, Jennifer Troyer, and Jennifer Beck Walker—suggests that the pooch may indeed dog your relationship. Your letter does not mention whether you want to have children, but if you do, the dog is a problem. Households with young children tend not to own dogs—suggesting that the dog is a good substitute for a baby.
Or to ip it around, households with dogs tend not to have young children. If you get over that hump, when the kids are older, your family is more likely to want a dog. By then, though, this one will probably have breathed his last. Worse yet, the gures show that when households earn more money the women tend to want to spend it on the children and the men tend to spend it on pets. Think of the dog as a supertoy, like a motorbike or a fancy piece of hi-fi.
Only poverty, it seems, can save you from bitter arguments over how to spend money. Should I take them out of class? It is easy to see why information about contraception might encourage sex by lowering its costs, but the e ects might be more dramatic than you would think.
In a nutshell, xed costs are your problem. These are obvious when it comes to, for instance, producing software. The rst copy may cost hundreds of millions of dollars to produce, the second very little. But losing your virginity is like that too: Economics students will recognize the implication: That means that sex has economies of scale, and that it is efficient to either have lots or none at all.
Within a relationship, too, the first sexual experience probably has a fixed cost. In both cases, access to contraceptives makes it likelier that the first experience will be chosen; having crossed that barrier, it may become so attractive to have sex that teenagers will do so even when the contraceptives are not available.
Centers for Disease Control and Prevention, believe that this is the way teenagers do, indeed, behave. Yet, I would not advise you to shield your children from sex education. That might be wise if prevention of pregnancy and disease were your goals, but that is too extreme. Your children will know that sex has bene ts as well as costs.
Perhaps you should refresh your memory about these? I am also a virgin. Should I be? Theory rst: The basic reasoning is that it takes a woman nine months to produce a baby, while it takes a man about ninety seconds.
However, birth control is much better than it was in the environment in which these preferences evolved. Perhaps, then, your preferences are more cautious than they should be.
What about the evidence? The key conclusion is that almost 60 percent of women say they lost their virginity because they were in love; just over 35 percent of men o ered this reason. Collins believes this supports the sociobiological view that women are making an investment when they lose their virginity, and so need to choose their partners with care. Men are simply engaging in consumption—that is, having fun. Collins also discovers that people who found out about sex by talking with friends rather than, for instance, from books were more likely to lose their virginity for nonromantic reasons.
Perhaps they wanted something to talk about. I suggest that you get some friends over for a girly chat about the facts of life.
All investments should begin with research. The other students are almost all male, like me. I feel that the school does not meet my romantic needs and that I will never know true love while at school. Please can you help, or even just offer some hope? The school does not meet your romantic needs. Even if the boys only mildly outnumbered the girls—say, fty- ve to forty- ve—then assuming everyone paired o in the traditional fashion, there would be ten boys left out, hormones raging, willing to o er the girls a better deal in one way or another.
Sensible girls know how to exploit this healthy competition in their favor. Still, as you grow older, your time will come. In cities across the developed world, dating-age women outnumber dating-age men. Economist Lena Edlund argues that women have more to gain from city life than men: The excess supply of datable women and the resulting dating disadvantage forces women into bursts of self-improvement, which may explain why they tend to be better dressed and better educated than men.
It does not take much to tip a dating market out of equilibrium, and your plight seems particularly extreme. Yet take heart. At your age I was in an even worse situation, at an all-boys school. The question is: The nancial impact is relatively small either way, and I am not afraid of scandal. I am just trying to work out whether some time living together is likely to make our marriage stronger or not. Your man may be charming on a date, but if he leaves his underpants lying around or eats toast over the sink to avoid washing dishes, forget it.
The overwhelming evidence, on the other hand, used to be that marriages preceded by cohabitation were more likely to break down—in the U. The question is whether this was a causal relationship or whether the cohabitation and the marital breakdown were caused by a third factor, such as social class or a lack of religious belief.
Fortunately, new empirical research from economist Ste en Reinhold suggests both that the relationship between cohabitation and divorce is not causal, and also that the correlation has faded over time as more educated middle-class couples choose to live together before marriage.
Dear Undercover Economist
Keep an eye out for discarded underpants. But there is one nagging worry: She is not in a position to download him out of his investment, and although they rent it out, the mortgage is steep. I believe the condo is an investment speci c to the former relationship, and I would like it divested—but the housing market is a shambles. A relationship-speci c investment is one that is worth more within a relationship than outside it, such as a set of wedding photos.
The condo is not relationship-specific, just unprofitable and illiquid. The condo can therefore be disposed of without destroying value—but not, it seems, by either side downloading the other side out. Subsequent negotiations about the condo would then be between you and the ex. And if not, at least you will have prearranged some compensation.
I wonder if you might have some sound business advice on how workers in my industry should tackle the sudden drop in demand following the collapse of Lehman Brothers?
Dear Miss C. You have three options, none of them perfect. Canary Wharf is a pure banking play, and you could seek a more diversi ed market. The West End is full of hedge funds, oil barons, and old money. However, I recognize that it will take some e ort to nd new clients. The economist Steve Levitt and the sociologist Sudhir Venkatesh discovered, in a recent analysis of Chicago street prostitution, that the industry was very concentrated because prostitutes and clients would otherwise fail to nd each other.
You, of course, are not in quite the same game and may be able to relocate with ease. Levitt and Venkatesh found that the supply of street prostitution was highly elastic in response to a demand surge. The Fourth of July provokes a spike in trade for prostitutes—who knew?
This suggests that many of your rivals will nd something else to do in the tough times. That spare time could be used to study or nd a part-time sideline. I would give exactly the same advice to a real estate agent. No wonder we economists are so keen to stress that our subject offers insights into realms other than mundane financial bean counting. Indeed, economists tend to be unexpectedly indi erent to matters of money.
It is a complicating super cial distraction that can usually be assumed away without much harm being done. It may be natural to look to economics for guidance about earnings, but I rarely give purely nancial advice. I am more fascinated by the deeper-running currents of the working environment: This section of correspondence applies free market principles to time management, and asks what the theory of comparative advantage has to say about the ultimate career question: This reasoning makes sense only if you assume that the HR department is representative of the company as a whole—thankfully, it often is not.
Game theory, which looks at the later moves of a game and reasons backward from that point, will give you more solid career advice. A small company hiring only one candidate may have a legitimate reason to require a quick decision, but larger rms are playing games. It is not to their advantage to withdraw the o er, because if you were a desirable recruit in January, you will still be a desirable recruit in June. A company might try to make these threats more credible by making them a matter of strict policy.
However, graduates who are bullied into accepting send a signal that they are not con dent of getting other o ers. And if top-quality candidates who delay accepting are turned down, the policy would lead to a poor class of recruits.
Be courteous, refuse to be hurried, and watch what happens next. The examiners grade on a curve, giving the top grade to the best 10 percent of students, the next grade to the next 20 percent, and so on.
But organizing this is easier said than done. Can you suggest anything? Let me remind you. In equilibrium, each student works fairly hard, and grades are determined by talent and appetite for work.
You would all like to work less hard and get the same grades for less e ort. However, this is not an equilibrium because each student has an incentive to study a little in secret, and secure a top grade without much effort. To make the agreement stick, you need to increase the rewards for slacking arrange events with cheap beer , reduce the bene ts of hard work force people to share ndings, take turns going to lectures so notes can be passed around, and form revision groups to discourage solo studying , and punish the nerds.
Punishment is important. Turn nerds into social pariahs; whenever someone is caught studying, organize coordinated bursts of hard work, in which everybody su ers as their relative grades go nowhere but their absolute e ort increases. Such tactics work best if you can observe one another: It is policy to grade students relative to one another rather than to any absolute standard.
The trouble is, I suspect that they may all be trying to slack o simultaneously to enjoy the same grades without any hard work. The cartel will try to increase the payo for slacking and punish those who work. Your countermeasures must increase the payo for hard work and make punishment more difficult.
Start by refusing to give your students any interim grades or constructive comments. This will make it harder for them to identify anyone who is doing well. Omit important, easily monitored information from your lectures and make sure it is accessible, instead, in obscure textbooks that can be read secretly. Make your reading lists inordinately long, so that it is hard for students to check up on who is reading what. Finally, be sure to examine your students in a single set of colossal exams, rather than through continuous assessment.
Your slackers will nd it hard to monitor who is cheating the cartel by working hard, and by the time they nd out, the course will be over and it will be too late.
If you, an economics lecturer, cannot outwit a student cartel, then they had little to learn from you in any case.
I just want to be happy. Can you help? Jessica Granger, via email Dear Ms. Granger, This is hardly something to be ashamed of, and you have come to the right place for advice. Economists have been studying this subject intensively. Nobel laureate Danny Kahneman asked a large sample of working women to describe what they had done and how they had felt throughout the previous day.
If their experience is a guide, easily your best option is to have a lot of sex. Exercise, food, prayer, and socializing also make people feel happy.
Commuting makes people miserable. Any kind of human company is cheering, unless the other person is your boss. At rst sight, the insights are commonplace: To give an idea of the size of the e ect, losing your job and a third of your income is four times more depressing than just losing the income. Getting divorced is nearly as bad; being separated but not divorced is even worse. The advice is clear: Finally, form low expectations. People with a high-earning peer group, women whose sisters marry rich men, and people with a lot of education but little income are all miserable.
This may explain the sour demeanor of many journalists. This seems a good way of saving. What do you consider are the pros and cons of this method? He frequently rids himself of loose change, but by doing so ensures that every transaction generates yet more change. Carrying a bottle of coins to the bank every six months seems more hassle than setting up a standing order into a savings account, but perhaps such a bottle on the mantelpiece is what passes for a conversation piece in Cambridge.
Let us assume, therefore, that the excitement of such a savings method is adequate compensation both for the inconvenience and the lost interest. Even then, there is no obvious merit to this scheme. So, my guess is that your friend values the way that saving appears painless. Your friend wants to save on behalf of his long-term future self, yet realizes that this evening he will be a di erent person, blowing any loose change in the pub slot machines.
The Undercover Economist
The whisky bottle is a strategic commitment device in the three-player game between your friend this afternoon, your friend this evening, and your friend in retirement. I doubt that it will even pay for the psychiatrist. The more diligently I con scate his economics books, the more he steals from my purse. Addictive goods and activities have some interesting properties.
First, addictiveness itself: In other words, the more heroin, alcohol, or neoclassical growth theory the addict has consumed, the less bearable it will be to abstain now. Typically, we think of negative addictions: But positive addictions are possible too. A progressive addiction to yoga or to reading may make for a happier and happier person.
I am addicted to my wife—so far, with unambiguously positive results. But even if it is a negative addiction, you must remember that rational addicts are utility maximizers. He may have been driven to addiction by circumstances—a desire to escape an overcontrolling parent, for instance—but trying to frustrate his desires will make him more miserable. What could be more heartrending than to see a true passion for economics crushed by an economically illiterate parent?
I must urge you to stop your ill-advised policy of prohibition and adopt the more enlightened approach of laissez-faire.
Some will be very lucrative, some will be very interesting, and some will be easy to do. Many, however, will be neither lucrative nor interesting nor easy to do. What is the optimal response strategy, assuming that I never pull out of engagements once accepted? If you later nd yourself impoverished, overworked, or under-stimulated, adjust that combination accordingly. Then treat each slot on your calendar as a separate optimal experimentation problem.
When an invitation arrives, you will know from experience how attractive the invitation is and how many others are likely to materialize between now and the speaking date. If the answer is four, only accept an invitation that experience shows is in the top quartile: The closer you get to the speaking date, the lower you should set your standards for acceptance. If you anticipate becoming more popular, you will expect more attractive invitations in larger quantities and should set higher standards.
The converse also applies—so beware of cut-rate competitors. There are some smart young economists around, you know.
Johnston, I have been asked the secret of happiness before, but your question is rather speci c. To answer it we need to turn to economist Andrew Oswald. His conclusion is that, assuming nothing else changes, more money makes them happier.
So the simple answer to your question is yes, more money will make you happier. But be careful—simply pursuing money will not, if your relationships, health, or job security su er. Oswald shows that these are vastly more important than money. Staying healthy and employed are more important still, worth tens of thousands of pounds a month. Envy plays a sinister role. Oswald shows that happiness increases with higher income, but it falls with higher expectations.
The higher the income of your peer group, the more depressed you tend to be.
This is not good news for you: Oswald suggests that you are likely to be disappointed. Should I tell my daughter to apply pressure by quitting her job? Yours sincerely, Godfrey Pickens, via email Dear Mr. There are two competing views here.
One is that he will become hooked on leisure the welfare trap hypothesis and will work less in the future, even if his wife quits her job. Such competing hypotheses have been hard to test in the past.
But economist John Kagel has succeeded in running a series of experiments that shed light on the matter. Kagel rst forces his subjects to work for their income. Then, for a while, he provides them a substantial unearned income—a kind of welfare, if you will.
Unsurprisingly, they slack o at once. Later, he withdraws the welfare and observes whether they work more or less than before welfare had ever been paid. The answer: This implies that your daughter should keep working for a while and see what happens.
No harm will result. Do you think the parallel with your son-in-law is close enough? My parents insist that I go to college to study music. The opportunity cost of going to college is that you could otherwise work, gain musical experience, and put the money you earn and the college fees you save into a diversi ed investment portfolio.
If the expected income from the portfolio is lower than the expected increase in your earnings after the age of twenty- one, your parents are correct.
The returns to such straightforward nancial investments are much lower than the human capital investment of going to college. So your parents would seem to have a strong argument, especially since partying and late-rising at college is often more fun than real work. What, specifically, are the returns to education for musicians? Thomas Smith of the University of Illinois, himself a jazz bassist, has examined the data on the earnings of jazz musicians.
Professional playing experience, by contrast, is especially valuable for jazz musicians. Tell your parents to save their college fees and subsidize your rst couple of years at the University of Life. Two of the slaves double the investment by the time he returns. Is this a parable about the virtues of stewardship or about eye-popping investment success? Your pastor is clearly salivating at the prospect of the latter, but he is being foolish.
I am sorry to awaken you rudely from this daydream, but you have to remember that biblical Judea was severely capital-constrained. Anyone lucky enough to have investment capital had a great choice of projects, and percent returns were not uncommon. And third, household slaves were experienced money managers.
In contrast, your church is dishing out peanuts to monkeys. Most serious of all, the parable of the talents has a master entrusting money to slaves who could not run away. You, on the other hand, are a free agent. But cinema is my passion. Should I follow my heart and do films, even if it seems risky? Choosing the best career is a little like trying to choose the shortest line at the post o ce.
Perhaps you do not have lines at German post o ces—try to imagine. All the lines will tend to be equally long; if any of them were obviously quicker, people would already have joined them. The only reason for you to choose one line over another would be if you had a crush on the handsome post o ce clerk at window number two, and nobody else did. If everyone else did, each of you would nd it a toss-up as to whether to spend twice as long waiting in line for a chance to brush hands over the stamps, or to get quick service from somebody less attractive.
Now, back to your career choice. All jobs, like all post o ce lines, are similarly attractive once you take into account working conditions, entry quali cations, and pay. What you must consider is not whether you like creative work but whether you like it more than all the other aspiring lmmakers, who are keeping wages low and opportunities scarce.
Your choice to study management now makes consulting easier, and therefore relatively more attractive, compared with other potential careers. Since you are considering joining the back of another line, however, perhaps you are just obtuse enough to make filmmaking the ideal choice. Still, you are right to be concerned about managing your win correctly. If you were a rational economic agent, you would instantly optimize your downloading patterns to deal with your greatly expanded budget constraint.
Evidently you are not, or you would certainly not have wasted money on a lottery ticket, which gave you a tiny chance of winning a prize that you now say you do not want. Economic psychologists have long realized that people do violate the axioms of economic theory. The economist John List has demonstrated, however, that these mistakes typically happen in unfamiliar settings.
With experience, people do act rationally. Therefore you must acquire this experience. I recommend putting your money in trust with binding rules on when you can withdraw it. After eleven years you will have withdrawn all the money, and you should have had plenty of time to think about how best to spend it. You will have acquired newer, richer friends and you may even have kept some of your old ones.
But before you become too expert with your money, kindly note that my commission on this advice is a modest 1 percent. It occurs to me that I might use my fortune to express my values by investing in an ethical fund. In practice, this is unlikely. As long as a substantial number of investors look only at nancials, they will seek out the pariah rms oil companies, pornographers, management consultants whenever they become cheap.
The more ethical investors shun such companies, the more attractive they look to other investors. Your decision will probably cost you too. You often see ethical funds arguing that they achieve better performance. This is nonsense. Even if, by a staggering coincidence, the ethical companies are the only good investments, a pro t-driven fund manager could pick them and do no worse than a fastidious one. The truth is, by denying yourself options, your ethical investment returns will tend to be more volatile.
Others—such as the Ave Maria Catholic Values Fund—did well as the bubble de ated for the converse reason: Neither result proves anything about future performance.
If it did, you could equally consider the high- ying Vice Fund. It is invested in gambling, alcohol, defense, tobacco … and Microsoft. This semester alone I need to complete seven projects and assignments, work on my dissertation, and sit five exams. I am the captain of the karate club, which requires a big time commitment, and I am applying for jobs, which means lots of interviews and assessment days in the next few months.
Let me instead give you a couple of pointers. First, your time is spent investing rather than consuming: You can borrow a little time from the future with the help of stimulants, but a more practical solution is to borrow money to save time.
Quit any part-time job, take taxis, hire a cleaning person, and order takeout. More fundamentally, look for opportunities to gain from trade. Your karate appears to be an area of comparative advantage, so perhaps you could persuade some clever weakling to write your dissertation for you. Five minutes of applied karate practice for you would be a life-transforming experience for your assistant; well worth many days of work on your dissertation.
Capitalism is not always pretty. Should I offer more? You should raise the rate only if you cannot get the vacancy filled for less. Fancier economic theories disagree. In the long run you may do better. Recent laboratory experiments suggest a stranger notion: Economist psychologists argue that such an unexpected bonus will induce gratitude and extra e ort.
If true, traditional economics can safely be chucked out of the window. But beware of putting too much weight on laboratory work, because gratitude can be short-lived. A recent study by economists John List and Uri Gneezy shows this: As the laboratory work predicts, the grateful recipients worked extra hard.
You can feel proud of creating more employment, and they should get more done too: Yours magnanimously, The Undercover Economist APRIL 22, Dear Economist, To improve my chances of getting a raise should I be the rst person to walk through the office door in the morning, or the last person to leave at night?
Clark, Being rst into the o ce is a risky business. What if you get in at six-thirty A. In the winner-take-all world you envisage, you might just as well have crawled in at ten A. Being last out of the o ce is, at least, predictable. You just wait until everyone else has gone, and leave barely a second later. However, your colleagues will realize this, so the last-out strategy may become popular, and thus costly. Which is the easiest path to a raise?
Nobel laureate William Vickrey has shown, surprisingly, that all such auctions raise the same expected revenue. Both the rst-in and the last-out competition will be equally profitable for your boss and equally costly for you. I have a word of advice and a word of caution. If you want to play this game, my own research suggests that the competition will become easier to win as the year draws on and your rivals use up their reserves of energy and spousal goodwill.
Take it easy at first and only burn the midnight oil once your rivals are getting divorced. But perhaps you should not play at all.
This is a competition likely to be won by whoever is most optimistic about the prospects for a juicy raise. Optimists tend to be disappointed. The horror is apparent to everyone but you. It is not a matter of sel essness: But a second question arises: It might be intrinsically satisfying to have a well-dressed boyfriend, but there is nothing fundamentally less productive about a scru y accountant. Evidently, the tie is important because employers believe it is correlated with diligence and talent.
If this is true, we would expect to see the largest premium on snappy dressing in professions where there are few other e ective ways to evaluate performance.
Real estate agents and management consultants are sharply dressed in the absence of more convincing guides to their competence. That is why when I look around the Financial Times o ce, neatly pressed shirts and blouses are hard to find. I have been o ered a job with a rival company and I think it would be perfect, but it is only a six-month position as maternity cover. If I want it, I need to say so immediately.
I might also land a job at the head o ce of my current employer, which is located overseas. That would suit me just as well, but no decisions will be made for several weeks. Come next year, of course, they will have a change of heart. Securing the new, cool job permanently at either company is uncertain. But if you stay with your current employer and fail to win the new job, you still have your old, enjoyable job and can try again. Taking the maternity cover looks unwise to me, but to you it simply looks immediate.
To make a more rational decision, try a thought experiment. Imagine that neither job will be available for a year, but you need to decide now, in advance, which one you will go for.
The thought experiment may outwit your hyperbolic discount rate, as well as your urge to gamble your career away. My colleague has adamantly refused, as she sees this as a downgrading of her skills, which she has tried very hard to build to more value-added activities.
She is willing to quit or be red if the company insists. I have suggested that she pay some other colleague to do the task. Have I given my friend bad advice? If more corporate employees bribed one another to do work, o ce life would likely be much more e cient.
In fact, some people might be happy to hang around the o ce for no salary at all in the hope of picking up some odd jobs. In e ect, she is saying that she is so con dent of nding a new job that she refuses the tiniest imposition on her. She is likely to get her way. She sounds insufferable. In Italian schools the study of Latin is required, with priority given even over studying English.
The reasons given: I nd that this is useless because we could study Chinese, which would improve our logical capacity and also help us to achieve something in the future. Knowing Latin appears to convey no practical bene t. Even in the politest society it is less a display of erudition and more a demonstration of a misspent youth, like being able to recite too many Monty Python sketches.
You correctly observe that Chinese would serve just as well as a mental exercise, and conveys the additional advantage of being able to talk to people other than the pope.
Unfortunately, you are up against politics here. Public choice theory suggests that a small group with much to gain from a policy will tend to prevail against a large group who stand to each lose a small amount. The small group knows the stakes and is better organized—which is why we have trade tari s, which help a small number of people while imposing poorly understood costs on a diffuse majority.
In your case, the scattered victims are millions of su ering students, while the victors are likely to be a well-established lobby of Latin teachers. Simply ask yourself, cui bono?
Or as they say in China, dui shei you hao chu? These are not meetings I can avoid, and often I am double and triple booked.
As well as this, I have real work to do. Having delegated everything I can to my team, I still nd it di cult to leave the o ce before eight P. This has gone on long enough! What should I do to get back control of my schedule? Your delight in Stakhanovite posing shows the old communist confusion between input and output. You say you are delegating all you can, but are evidently not doing it. And with you booked to attend more meetings than there are hours in the day, I am willing to bet your subordinates know a lot more about what needs to be done than you do.
You simply need to introduce the price system into your little politburo. Charge by the hour, as do lawyers or psychiatrists. Better, auction o appointments to the highest bidder. The bidders could include clients, superiors, or subordinates.
If the total sum raised exceeds your salary, many congratulations! However, I fear that you may nd less demand for your unique talents than you anticipate. Stand ready to offer a discount. I always believed that I could make up for years of badly paid public service by advising a major company for a fat retainer.
I know nothing about business, yet my network of contacts would be invaluable. What is going on? Yours, T. Dear T. You seem to be thinking of a simplistic model of networks, in which size is everything. One fax machine can do nothing, two can talk to each other, and because each new machine can connect to the entire network, each new machine adds more value than the last. Ditto for mobile phones, site, and Facebook: Venture capitalists therefore pay big bucks for large networks, no matter how shallow.
Yet this simple arithmetic ignores an o setting e ect: The first mobile phones were used to conduct multimillion-dollar deals. One more mobile phone today is one more source of classroom text messages. Many people who sign up to Facebook quickly find they have no use for it. There should be no trouble monetizing that sort of access. The elections are won on the basis of whose name is seen the most around campus.
Given that it is improbable I will win, I am willing to o er a pot of hundreds of pounds to people to help campaign—dependent on my winning. What is the most e cient use of this pot?
Hire one person to go flat out? Or spread the money around? Cheers, J. But you seem like an obvious loser to me. If your fellow students are as dismissive of your chances as you yourself are, they will find your offer unattractive. They will refuse to help, and you will lose. Either way, your situation—like that of many politicians—is dependent on a self-fulfilling prophecy. You need to nd some way to take advantage of your position as a hopeless outsider.
I would recommend putting a decent bet on yourself to win—you should be able to nd long odds.
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The prospective winnings would make your o er more generous, which could make all the difference. As for how to divide the money, I recommend that you run a prize drawing, winning volunteer takes all. That would make the cash payment more attractive when your campaign is sparsely supported and the incentive is most needed. In any case, the economist John List has shown that prize drawings are a great way to raise money for charity. Your campaign certainly sounds like a charity case to me.
Is that an economic reality? In one case that has become famous among economists, a company that replaced cracked windshields switched from paying workers by the hour to paying workers by the windshield, with a penalty for repairs that later failed.
Slow workers quit, fast workers worked yet faster, and faulty installations fell. Such stories fuel the appetite for performance pay, but for most jobs it is not so easy to quantify performance. Even if managers know who is doing a good job, managerial impressions cannot be written into contracts. Worse, many performance contracts expose sta to nancial risks that have nothing to do with their performance. It is hardly motivational to blame your ice cream division for missing targets during a wet summer.
So performance pay is often awarded in relative terms, such as a promotion for the top three sales sta rather than a bonus per sale.
Such schemes are often called workplace tournaments, because there are winners and losers. Workplace tournaments seem to work well—perhaps a bit too well. In one study of manufacturing companies, tournament pay motivated workers to take less sick leave.Remember that when you punish Alasdair, you have lost the battle but are winning the war: Sensible girls know how to exploit this healthy competition in their favor. Elevators do not have seats, and usually have room to accommodate everyone who is waiting.
Although the Peltzman e ect remains controversial, some subsequent research has reached similar conclusions. In one case that has become famous among economists, a company that replaced cracked windshields switched from paying workers by the hour to paying workers by the windshield, with a penalty for repairs that later failed.
This book is a collection of advice columns written by the Undercover Economist for the Financial Times over a period of years, essentially attempting to highlight the economist's view of the world ruthlessly rational, challenging assumptions about social etiquette or common sense by applying economical reasoning to typical "everyday" problems that people might have.
A progressive addiction to yoga or to reading may make for a happier and happier person. Yours with added value,. There is only a problem if these requirements are mutually exclusive.
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