The psychology of Economics---Consumer confidence is down and it serves as a drag on the economy. Simple, but powerful...

Economics is part social science and part psychology.  What people think "en masse" matters.  Consumer expectations are one of the factors affecting Aggregate Demand.

This short posting below from the WSJ suggests that expectations for the near term are not positive for a good percentage of people.  Consumers tend to hold back spending when they are unsure about their immediate situations. When consumers hold back then businesses cut back---the cycle continues.

More Than 50% of Poll Respondents Expect Economy to Get Worse

Consumer spending in the U.S. continued to decline during July as consumer sentiment about the economy waned and expectations about personal finances were unchanged, according to Discover Financial Services’ U.S. Spending Monitor.

The poll index, which tracks economic confidence and spending intentions of about 8,200 consumers a month, declined 1.4 points to 89.3 points last month.

The poll found 28% of respondents view the U.S. economy as improving, down from 29% in June and 33% in May. Roughly 53% of respondents now rate the U.S. economy as poor, unchanged from June.

However the portion of consumers that expect the economy will get worse rose to more than half for the first time this year–up 4 percentage points at 53%–as sentiment among men worsened. The portion of men who indicated expectations the economy will worsen was up 9 percentage points at 57%, while the amount of women who felt that way was unchanged at 50%.

The number of people who said their personal finances were improving was unchanged at 23% in July from June, but was down from 25% during May. Respondents who see their personal finances getting worse was up 2 percentage points to 49%.

While 28% of respondents planned to spend more next month, the increase was driven mostly by an increase in anticipated spending on nondiscretionary items. About 38% of respondents expect to spend more on household expenses.

"The Rent is too Damn High!" Actually it is import taxes...Would YOU do this to your car to avoid paying the tax?

Ukrainians cut cars in half to reduce import tax at customs (HT: Carpe Diem)

""Today I received some tax saving wisdom from a taxi driver in Ukraine. He told me that people who import cars to Ukraine sometimes cut the car in two separate pieces and carry it through the customs this way. By doing this, they save a fortune on import tax. A car carried in two pieces is seen as spare parts and therefore is taxed at a much lower rate than a normal car.""

Source of photos HERE

How do hotels get people to re-use the linens if they are staying multiple nights? Well, trick them, of course...Read how La Quinta did it to me.

"Help reduce the amount of water and energy we use. Place this card on your pillow and your linens will be changed daily. No card on your pillow means your linens will be changed every three days"

I took this photo at a La Quinta in College Station, Texas...Interesting lesson in incentives and how to "Nudge" people into doing something you would like them to do with an overwhelming sense of coeresion.  It is subtle but La Quinta uses a little reverse psychology to achieve a goal, financial mostly and environmentally secondarily, although La Quinta wants you to think the opposite by the way they designed the card. 

If you care about the environment then you will be pro-active in doing small things to try to make a difference--that is just the way you roll. If you don't care about the environment you won't lift a finger to do much to advance that cause. 

La Quinta requires the opposite. If your concern for the environment is greater than your concern for clean sheets everyday, then La Quinta asks you to do nothing.  No effort required and you get the same linens for 3 days. However, if your concern for clean linens is greater than your concern for the environment, then you have to DO SOMETHING to get them changed everyday.

I certainly understand BOTH groups of people could simply want clean linens regardless of their views on environmental issues.

I am interested in the potential response of 3 groups of people in this scenario. The first two might be alienated by the policy (for different reasons) and are certainly the outliers, but the third is the real target group, in my opinion:

(1) the environmentally conscience people who support this and will dutifully follow instructions BUT might feel a little cheated by not being able to demonstrate their commitment by not actively putting the card on the pillow ("Conspicuous Conservation"--a terrific podcast on this topic from Freakonomics).

(2) the non-environmentally conscience people who when they come back at the end of the day and curse the "damn Liberals" because they could not be bothered to put the card on the pillow but want clean linens because that it what they pay for.

(3) the "guilt-trip middle", for a lack of a better term.  As with most issues, this represents the largest number of people and are the ones you want to "nudge" in numbers that will make a difference in the bottom line AND in saving the planet.  The card is very bold in its design and you cannot miss it or avoid the message.  If La Quinta can move a good number of these people to the side of re-using linens, it can save money on the bottomline, and yes, help the planet too.

I am reading the book Nudge right now about using economic priniciples and behavioral science to get people on a micro-level to do things they might now otherwise do.  Pretty interesting and if you are interested in this type of thing I recommend it highly.

Nice interview with Bill Gates on energy and the environment---He even uses the term Opportunity Costs...NICE!!!

In a discussion on energy, Mr Gates invokes the important economic term "Opportunity Cost". He uses it terms of using land to produce food for either human consumption or energy production.  Trying to solve one problem (clean energy) creates unintended consequences (well, dead people from starvation/malnutrition).  I encourage you to read the whole interview (rather short).  He has some good insights and touches on many behavorial economic concepts as well the state of alternative energy on a macro and micro level. 

Q&A: Bill Gates on the World Energy Crisis

Anderson: When you look at the big picture, where should we be focusing besides nuclear? On massive solar plants in the desert? On middle-size stuff for office roofs? Or is there a reinvention that could be done right in the home?

Gates: If you’re going for cuteness, the stuff in the home is the place to go. It’s really kind of cool to have solar panels on your roof. But if you’re really interested in the energy problem, it’s those big things in the desert.

Rich countries can afford to overpay for things. We can afford to overpay for medicine, we can overpay for energy, we can rig our food prices and overpay for cotton. But in the world where 80 percent of Earth’s population lives, energy is going to be bought where it’s economical. People are going to buy cheap fertilizer so they can grow enough crops to feed themselves, which will be increasingly difficult with climate change.

You have to help the rest of the world get energy at a reasonable price to get anywhere. It’s great to have the rich world, because we’re there to think about long-term problems and fund the R&D. But we get sloppy, because we’re rich. For example, despite often-heard claims to the contrary, ethanol has nothing to do with reducing CO₂; it’s just a form of farm subsidy. If you’re using first-class land for biofuels, then you’re competing with the growing of food. And so you’re actually spiking food prices by moving energy production into agriculture. For rich people, this is OK. For poor people, this is a real problem, because their food budget is an extremely high percentage of their income. As we’re pushing these things, poor people are driven from having adequate food to not having adequate food.

The most interesting biofuel efforts avoid using land that’s expensive and has high opportunity costs. They do this by getting onto other types of land, or taking advantage of byproducts that aren’t used in the food chain today, or by intercropping....""

The whole article is HERE...

How do we keep the elephant from becoming extinct? Easy! Let people shoot them, eat them and sell the ivory. Get over your squimishness. The elephants NEED you to support this!!

Below is a graphic (HT: Carpe Diem) comparing the elephant population of Kenya and Zimbabwe from 1970 to 2011.  You can see they run counter to each other. Why? It is the result of how each country dealt with the problem of "The Tragedy of the Commons"...Kenya banned hunting of elephants and Zimbabwe gave ownership rights to the elephants to local communities. It may be distasteful to many the way they went about saving the elephant from extinction but they, well, saved the elephant from extinction.  Please read the excerpt below and at least consider the effectiveness of this approach. The elephant population needs you to help them survive!   

Source: Carpe Diem

 The following is from Defining Ideas (HT: Carpe Diem)

In the 1970s, Kenya had about six times as many elephants as Zimbabwe, and today Zimbabwe has three times more elephants than Kenya (see chart). What happened that caused the dramatic reversal in elephant populations in the two African countries?


Terry Anderson and Shawn Regan of the Property and Environment Research Center (PERC) explain in their excellent article "Shoot an Elephant, Save a Community":

"Anti-hunting groups succeeded in getting Kenya to ban all hunting in 1977. Since then, its population of large wild animals has declined between 60 and 70 percent. The country’s elephant population declined from 167,000 in 1973 to just 16,000 in 1989. Poaching took its toll on elephants because of their damage to both cropland and people. Today Kenya wildlife officials boast a doubling of the country’s elephant population to 32,000, but nearly all are in protected national parks where poaching can be controlled.

In sharp contrast to Kenya, consider what has happened in Zimbabwe. In 1989, results-oriented groups such as the World Wildlife Fund helped implement a program known as the Communal Areas Management Program for Indigenous Resources or CAMPFIRE. This approach devolves the rights to benefit from, dispose of, and manage natural resources to the local level, including the right to allow safari hunting. Community leaders with local knowledge about wildlife and its interface with humans help establish sustainable hunting quotas. Hunting then provides jobs for community members, compensation for crop and property damage, revenue to build schools, clinics, and water wells, and meat for villagers.

By granting local people control over wildlife resources, their incentive to protect it has strengthened. As a result, poaching has been contained and human-wildlife conflicts have been reduced. While challenges remain, especially from the current political climate in Zimbabwe, CAMPFIRE has quietly produced results with strikingly little activist rhetoric.

Between 1989 and 2005, Zimbabwe’s total elephant population more than doubled from 37,000 to 85,000, with half living outside of national parks. Today, some put the number as high as 100,000, even after decades of legal, trophy hunting. All of this has occurred with an economy in shambles, regime uncertainty, and mounting socio-political challenges."

Panera Bread experiments with "Pay What You Want" pricing...Is this a good idea??

Some restaurants are experimenting with a voluntary payment system for its food---YOU decide how much you want to pay for your meal. Panera Bread is one such chain trying this at select locations. (HT: Carpe Diem)  It is an interesting experiment in behavioral economics.  They find that 80% of customers pay either the "suggested price" for a meal or actually pay more than the suggested price. Only 20% pay less than the suggested prices.

 I think the strategy is interesting. I wonder how the results would change if payment was completely anonymous.  No face to face contact with an employee to make change or process the credit card payment.  I think Panera is well aware that MOST people who visit their stores would not want to appear to be cheap or dishonest in front of another person.  What do you think? Would people, on average, be just as honest or would those percentages flip---only 20% would pay the suggested prices and 80% would pay less?

: USA Today

""USA Today -- "A Pay-what-you-want Panera in Clayton, MO is being called a success. The menu board lists "suggested funding levels," not prices. Payments go into a donation box, though the cashiers provide change and handle credit card payments.


The majority of patrons pay the "suggested funding level" or more. Statistics provided by Panera indicate that roughly 60% leave the suggested amount; 20% leave more; and 20% less. One person paid $500 for a meal, the largest single payment." Source:

Do not buy your next airline ticket until you read this article! If may save you money...

Buying an airline ticket has to be one of the most frustrating and mysterious purchases one can make. In economics it is best explained through Price Discrimination, segmenting customers according to their willingness to pay.  We have been lead to believe that purchasing in well in advance is the best way to get a lower fare. Turns out, it may actually be the DAY and TIME you purchase your ticket is the key to getting a "deal" rather than the time lag.

WSJ: Whatever You Do, Don't Buy an Airline Ticket On …

""Rick Seaney, chief executive of FareCompare.com, studied three years worth of airline prices and concluded that 3 p.m. Eastern time Tuesday was the best time to buy. "That's when the maximum number of cheapest seats are in the marketplace," he said.""

This graph shows the dip in prices to major destinations during mid-week. I hope this helps you plan your next trip!

Wall Street Journal

This is only one part of this article. Click below to read the rest...I learned alot and hopefully I will be a more  educated ticket buyer the next time I fly!

Are you a good shopper? Then why do you shop harder to find deals on things increasing in price and less so in finding even better deals on things that are decreasing in price? Which one makes you "richer"? Hmm...

At the popular econblog Marginal Revolution, there is a posting:  "Do falling prices make us complacent?".  Ever curious about human economic behavior, it prompted the following thought about the relationship between increasing and decreasing prices and our reaction to them.

""When prices rise we work harder to find bargains/sales so we can become less poor. This makes sense. There is an incentive to maintain ones current standard of living. When prices decrease we work less fervently to find even lower prices so we can become even richer (or at least better off). This makes less sense--There is an incentive to improve ones standard of living, yet in general we don't pursue it. Seems we work against our self-interest.  Is this "rational" or evidence of the irrationality of the consumer. The producer as quickly as possible increases retail prices when their costs increase, BUT when their costs decrease they are slow to decrease retail prices with the same zeal.  This makes sense from the production side. They are working in their self-interest.  The producer is certainly a rational actor in this case..."

How come on our consumption side we appear to be less efficient and not working in our own self-interest when there is motivation to do so---a higher standard of living? 

One last extra-credit attempt! Extra points on the final if you can offer a plausible explanation.  I have one concept in mind. I mention it OFTEN (as in everyday) and students don't like to hear it because it actually makes them think about making a decision...Opps--that is too much information... :)