Mokka mit Schlag » Economics

After a few years of relative peace, the phone spammers seem to have discovered my home number again. I’ve gotten two calls in the last fifteen minutes, one from Mark Marshall at Ambit Energy (though I’m certain he lied about his name) and one from Daniel of the Police Conference of New York (one of those scummy organizations that tries to sell you stickers to put in your car with the implicit promise that this will keep you from getting tickets). There have been quite a few others in the last few weeks too.

I suspect some of these are jumping the gun on the expiry of the federal Do-Not-Call list. The FTC claims:

Your registration will not expire. The Federal Trade Commission will not drop any telephone numbers from the National Do Not Call Registry based on a five-year expiration period pending final Congressional or agency action on whether to make registration permanent. Read more about it at http://www.ftc.gov/opa/2007/10/dnctestimony.shtm.

I think it’s time to start filing some complaints. In fact, I think the next time this happens I’m going to hold the caller on the phone while I fill out the complaint form.

Today on Buy Nothing Day we remind ourselves that:

• It’s far more comfortable to sleep in your own bed than camped out in a big box parking lot.
• Cashiers deserve a holiday too.
• Mall food causes heart disease.
• You may save $100 on a big TV if you buy it today, but you will save $1000 if you don’t buy it at all.
• Wal-mart is not our family.
• Ronald McDonald is not a real person.
• Going to the mall is not a patriotic duty.
• Credit card debt is not a sign of God’s favor.
• The Grinch can’t steal Christmas if you don’t buy it in the first place.

At the heart of modern economics, even apparently contrarian economics such as Freakonomics, is the idea the consumer is rational; that the consumer can be relied on to act in their own best interests. If that’s not true, much of economic theory comes tumbling down. In fact, economists are so incredibly convinced of this dictate that when they observe apparently irrational behavior, they expend volumes attempting to justify and rationalize it, and prove that consumers are indeed acting in their own best interests. Indeed, that’s what Freakonomics is largely about.

The fact is people often aren’t rational. While we sometimes are, we often act directly counter to our own interests for no good reason. We have sensory and reasoning apparatuses evolved to help us find food in the jungle and avoid being eaten by tigers. Our reasoning abilities, as impressive as they are, can be actively counterproductive when applied to the complex, food-plentiful, tiger-free environment we live in today. Bruce Schneier explains this very well in his recent article on Rare Risk and Overreactions. Here’s one relevant portion:
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1. Biodiesel is bad for the environment.

Sorry Willie. Rain forests are being torn up and plowed under to grow palm trees to be turned into biodiesel. However the emissions are shifted from mostly European, first world countries, to less developed third world countries. The net effect is an increase in global CO₂. This enables Europe to come closer to meeting its Kyoto targets without actually having to reduce its power consumption. It’s a shell game, and one we’re losing.

And if that weren’t bad enough, it’s also diverting land and crops from food production. Increased usage of biodiesel may well increase starvation among the poorest people in the world.1
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According to State Farm,

The National Insurance Crime Bureau (NICB®) has compiled a list of the 10 vehicles most frequently reported stolen in the U.S. in 2005.

1. 1991 Honda Accord
2. 1995 Honda Civic
3. 1989 Toyota Camry
4. 1994 Dodge Caravan
5. 1994 Nissan Sentra
6. 1997 Ford F150 Series
7. 1990 Acura Integra
8. 1986 Toyota Pickup
9. 1993 Saturn SL
10. 2004 Dodge Ram Pickup

This doesn’t match my expectations at all. With the single exception of the 2004 Dodge Ram Pickup, these are all a decade old or older. Can anyone explain why?
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Here’s an example of an all-too common fallacy in assessing the rationality of economic actors. It comes from Daniel Kahneman and Jonathan Renshon in Foreign Policy in an otherwise interesting article:

Imagine, for example, the choice between:

Option A: A sure loss of $890

Option B: A 90 percent chance to lose $1,000 and a 10 percent chance to lose nothing.

In this situation, a large majority of decision makers will prefer the gamble in Option B, even though the other choice is statistically superior. People prefer to avoid a certain loss in favor of a potential loss, even if they risk losing significantly more.

Kahneman and Renshon believe Option A to be the rational choice, but in fact Option B should be preferred by most people, most of the time. Do you see why?
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