Behavioural Living

Optimising Christmas Gift Giving

8. December 2013

What to get loved ones for Christmas – the perennial problem? Even if you’ve already found what you believe to be the ideal gift, you might not better off than those of us who have yet to make up our minds because you don’t know that it’s the right one? Will your other half glow with delight on the big day, or will you be rewarded with a long face and a polite ‘that’s nice’?  Yet choosing a gift needn’t be left entirely to chance. What use is the academic study of happiness if not to inform us what it is that makes people happy?

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Have a Safe Trip

11. November 2013
Gute reise

Me: Well, I’ll see you in three weeks’ time. I’m going on holiday.

Her: Where are you off to?

Me: Somewhere warm, Israel.

Her:  Israel? I s r a e l?

Me: (Puzzled expression)

Her: Really? Israel?

Me: Yes really, Israel.

Her: Why Israel, of all places?

Me: Why not Israel?

Her: I mean there are lots of other sunny places in mid-October.

Me: Yes.

Her: Oh, I get it. You’re visiting relatives in Israel?

Me: No.

Her: Ah, so you mean you are not…?

Me: Well, I’m not really sure. There was a thing with my father, but…

Her: Isn’t it a little dangerous, especially now with Syria, and Palestine, and those rockets? You want to travel with your kids to a crisis region?

Me: There is always a crisis somewhere, not just in Israel.

Her: (Shakes head in despair) Well, I dunno!  Why Israel of all places?

Me:   That’s why.

In the above conversation, any resemblance to persons living or dead is deliberate. The ‘You’ in this exchange is personally known to the author and, like so many others, claims only to have my best interests at heart.

 

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Are We There Yet?

6. November 2013
Lufthansa

Companies are trying to cut costs everywhere these days, even if this means delivering a worse service. This, at least was my impression on a recent vacation to Tel Aviv. Formerly, Lufthansa would use much larger aircraft on this route. These days, it uses the same aircraft on a four-hour international flight as it does on a domestic German inter-city flight.

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Thou Shalt Not Buy Positional Goods

30. October 2013
Positionsgut5

Over the course of four blog posts on the subject of positional goods, I have perhaps given the impression there is not much positive to say about them. Some readers might have been tempted to say: What is the point of all that stress? Why join in this daily rat-race where everyone is battling to secure higher social status, constantly comparing themselves with others, and ultimately being left feeling frustrated because there is always someone else who is wealthier or more accomplished than oneself?

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The Positional Rat-Race

28. October 2013
Positionsgut4

In recent blog posts, I have explored the difference between positional and non-positional goods, i.e., those goods whose ownership confers some social status on the owner, and those that don’t. As people attach a great deal of importance to how they rank in social comparisons, there is a tendency to sacrifice non-positional goods in favour of positional ones. For instance, people are prepared to forgo time spent with family and friends, or even time spent sleeping, in order to work longer hours. Sleep is a non-positional good, so being able to enjoy more of it has no impact on one’s social ranking. However, the top-of-the-range car that one can afford to buy with the extra income is a positional good; it confers social status on its owner, so this is an important part of its perceived value. Of course, some of this status will be lost as soon as the neighbours park even more desirable automobiles on their driveways. The foregone sleep, in contrast, can never be regained.

Social norms play an important role in this context. Any product that happens to be ‘in’ at a given time, for example the latest iPhone, will see its value as a positional good suddenly upgraded. This can result as a function of its scarcity – only the first people to leave the Apple store with the newly-released smartphone will proudly hoist the gadget into the air. The positional clout of a good could also be due to its lofty price, which means that not everyone can afford one. Even the most unlikely products, which because of the social norm or fashion have become must-have products, can mutate into positional goods. Once again, though, as soon as these products stop being trendy, for example, once everyone else has one, the mutation will go the other way – the positional cachet will be lost.

In the end, a veritable race to consume positional goods can develop. Larger and more powerful cars will be bought as motorists try to improve their relative positions in society. Even if this means that the cars people buy are wholly unsuited to the practical use they are eventually put – for instance, on roads with speed, width, height and emission limits – people still want them. The race is typically led by the wealthiest; they shift the reference point higher for the less-wealthy. This ripple effect is visible even among the least wealthy in society, with less expensive goods. Indeed, the proportion of positional goods in the total household consumption will tend to rise as the household income falls. A poor household has to give up more of their non-positional goods, like sleep, in order to keep up with the Jones’ in the positional race.

The completion for positional goods also manifests itself in financial markets when ownership of certain securities suddenly becomes trendy. Admittedly, this is not very easy; after all, people do not wear their share certificates on their sleeves. However, during phases of stock market bubble when rapid price rises allow investors to quickly realise profits and convert them into more visible positional goods, to be seen as the owner of a must-have start-up company or subscriber to a fast-growing technology firm’s IPO confers social status. A the social reference point rises with the booming stock market, those who would normally squirrel their savings away on a deposit account, suddenly have the need to try their hand at the bourse. This particular race typically ends badly; when the market turns the entire neighbourhood loses money. As they all lose in similar proportions, at least the prior social ranking is left intact.

One could argue that it would be better, for the greater good of society, to bring an end to this positional rate-race. Would this make sense? Would it even be possible? This is the question I will answer in the fifth and final part of this blog series.

 

 

 

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House-Hunting with Economists (Positional Goods III)

21. October 2013
ETW

Not all goods satisfy the conditions to be classified as ‘positional’. One essential characteristic of a positional good is that it must be comparable with other goods, which means it must be easily recognisable and measurable. Just consider the good we call ‘income’ with the one we call ‘leisure’.

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The ‘Positional’ Economy is not a Zero-Sum Game

16. October 2013
Positionsgut 2

To measure the value of a positional good, one shouldn’t look (only) at the price tag. This is because these goods are desirable principally for what they say about their owners’ social status. If someone owns something that everyone else in a group wants but cannot have, the owner can demonstrate a higher group status.

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My Horns Are Bigger Than Yours

14. October 2013
Elch

I couldn’t help but smirk when Robert H. Frank made this bold prediction[1]: in 100 years’ time, economists will predominantly regard Charles Darwin as their spiritual father. Today, economists would probably point to a figure such as Adam Smith. So for Frank, an economist himself, to predict such a striking switch in allegiances is quite audacious.

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And the Winning Number is 00000001

2. October 2013
Dolarnote

Certain things labelled with the number 1 are often very sought after. Vehicle registration plates come immediately to mind. If that is not available, particular series of numbers, or repeating numbers, are also well-loved. Who wouldn’t like to have 7777 7777 as a telephone number?  It looks rare and exclusive. One might even consider it a status symbol. Of course, the reality is that it is as rare and exclusive as every other telephone number.

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The Next Insider Trader

30. September 2013
datenkabel

On the same day I read the investment bank JPMorgan & Co. was in discussions with regulators to bring an end to criminal and civil charges by paying an $11 billion penalty, I also discovered the US Federal Reserve had begun investigating claims that some traders were privy to the information ahead of the official release time and had exploited it the milliseconds before it went public.

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Trickle-Down Dog Food

23. September 2013
Frühstück

The whole family took their seats around the breakfast table. It didn’t take long before our little pug scurried beneath the table and began chomping on some non-existent morsel.

“What’s he making so much noise about?” I asked.”

“He’s hoping that something tasty comes his way,” my daughter replied.

Indeed, the chances of a crumb or two were quite good this morning as the table was more generously laden than normal: eggs, smoked salmon, cheese, and fresh bread, more than enough for everyone.

“If one day there is less food on the table, those underneath would likely go hungry,” I thought out loud.

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The Swift ARE Those That Can Endure It

18. September 2013
SPIEGEL

I’ve done a fair bit of battle with the bulge in my time. I’ve deployed all kinds of diet plans; done a few sorties armed with yoghurt and powder; and gone over the top with WeightWatchers, Low.Carb and Low-Fat. There were times when I made great progress. But if I added up all the kilos I initially lost in these programs, my weight would be zero by now. But here I still am, so nothing lasted.

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A Doubtful Culture Change

2. September 2013
Moral

The underbelly of the financial sector has shown itself to be far less than pristine since the outbreak of the global financial crisis. With fraud, manipulation and insider trading to its discredit, it seems as no manner of dirty dealing was beyond the scope of some bankers. However, the shame does not reside only at the top

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Counterfeit Social Status

28. August 2013
Handtasche

Sidetracked, a new book by Harvard professor Francesca Gino, got me thinking about my recent holiday in Venice. I can hardly imagine there is anywhere else in Europe where tourists are offered so many counterfeit handbags. Whether it is a fake Louis Vuitton, Chanel, Prada or Gucci, it is there in varying degrees of reproduction fidelity.

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Wait a Minute!

12. August 2013
venedig

I couldn’t resist another trip to Venice with the family this year. Despite the numerous complaints one so often hears, it is undoubtedly my favourite European destination. Yes, it is very warm at this time of year, and it is often overcrowded with tourists. The lagoon does stink a bit

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The Top Five Crocodile Tears of the Dying

9. August 2013
Blumentopf

In 2011 Bronnie Ware, a former palliative care nurse, published a book in which she detailed the five most frequent regrets of those she cared for in the final stages of their lives[1]. So what would people on their death-beds do differently if they had their lives to live all over again? Hazard a guess. My suspicion is that you will readily sympathise with the five most popular sentiments because these are among the things today’s robustly-healthy already regret.

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The Importance of Attention III: Charitable giving

2. August 2013
Almosen

When we buy things in order to make us happy, the question we should ask first is not how much we like it or how much it costs, but whether it will keep our attention once it is in regular daily use. If it cannot hold our attention, the liking or the price will not matter.  The same applies if we spend money to avoid things we do not like.

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The Importance of Attention II: The Car Buyer

30. July 2013
Sportwagen

Consider a driving enthusiast who ploughs all his savings into on the shiny new sports car of his dreams. Walking towards the vehicle in the car park, he admires the elegance of its flowing lines, the masculinity of its meaty grill and flared wheel arches, and the promise of speed in its oversized alloy wheels and its low-sitting chassis. His pulse starts to pick up

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The Importance of Attention I: Public Policy

26. July 2013
Massenauflauf

Oscar Wilde defined a cynic as someone who knows the price of everything but the value of nothing. The author also pondered on the nature of happiness[1], but he never made this observation on the importance of attention: it knows the value of everything but the price of nothing. If there is a single lesson happiness seekers must retain from all of the research on well-being is that nothing can bring joy or sadness, pleasure or pain, unless it first has our attention.

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How Happy Am I? Don’t Ask

24. July 2013
Geldkoffer

Given the task of predicting how satisfied someone is likely say they are with his/her life, and armed with information about that person’s age, gender, race, income, marital status, education and employment status, the single piece of information that should inform that prediction more than any other is the person’s income[1].

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Sloth: A Deadly Decision-Making Sin

5. July 2013
Trägheit

An in-house discussion about the Seven Deadly Sins threw up some amusing parallels between these famed lapses of virtue and behavioural finance. It was remarkably easy to associate common errors in investment decision-making with the seven classical sins. Sloth, in particular, played a recurring role: in business decision-making, as in one’s private life, it can be fatal.

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The Venice Sting

12. June 2013
venedig

After my wife and I saw a TV report on this year’s La Biennale, we got Venice fever. It was so fascinating that even before the emission was over our minds were made up: we had to go back. All the memories of our previous trip came flooding back – Giardini della Biennale, the old Arsenale shipyards – like it was yesterday. But would a trip to the Venetian Lagoon be possible at such short notice – right in the middle of the summer holiday season?

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Low Noon: Price Crash at Warren’s Charity Lunch

10. June 2013
Buffett

Poor Warren Buffett (that sounded odd); the bidding on eBay for a place at his annual charity lunch table was so tame the auction was ‘won’ for only one million dollars. Compare that to the bidding wars of the previous two years: in 2011 a lunch with the Oracle of Omaha cost the winner $2.63 million; and the entry ticket to his table at New York’s Smith & Wollensky steakhouse went for $3.46 million. So this year’s lunch was a veritable bargain. Alternatively, one could see it as a price crash of 70 percent.

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Pandora’s Package

22. May 2013
Pralinenschachtel

There was surprise waiting for me in my mailbox yesterday. Nestled between the bills, newspapers and Whitsunday promotional offers was a silver package. It looked a little like a box of luxury chocolate pralines, but it made no sound when I shook it next to my ear. I was intrigued, until I saw the name of the sender:

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A Costly Lesson

14. May 2013
spülmaschine

It was just three months ago that I had to call the customer service hotline because my dishwasher broke down. The repairs came at a stinging cost of €320, a figure that was almost at the border of a decision to simply buy a new machine, so I had hoped I would have my peace for a while. In addition to the overpriced repair, the technician also wanted to sell me an insurance policy that would cover future repairs to this machine

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The Cold Heart

22. April 2013
Kaltes Herz

I relish the chance to make a trip to the Black Forest whenever I visit my native Freiburg. Those woods have the magical ability to chase away all thoughts about financial markets and to stir up long-forgotten memories from my childhood.  One such reminiscence on a recent trip was of the fairytale by Wilhelm Hauff, ‘The Cold Heart’. For those who do not know it, the tale, which was set in the Black Forest in the 19th century, recounts the misadventures of a poor charcoal burner named Peter Munk. 

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With an ‘S’ on her Chest

10. April 2013
Superwoman

A tweeted link to a story about Margaret Thatcher caught my eye this morning, as it certainly did other readers. It related to an accusation by Australia’s foreign minister that Margaret Thatcher held ‘unabashedly racist’ views. The bold headline about the late Baroness’ xenophobia was well chosen; Bob Carr’s other recollections about the former British premier were rather glowing and therefore boring. This was the only titbit likely to generate a few clicks.

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A Pleasure Shared is a Pleasure Halved

4. March 2013
Ghostwriter

“My book got a great review today,” my colleague announced proudly.

“Aren’t you supposed to say ‘our’ book,” I interjected, “there were two of you who wrote it after all?”

“Of course, I meant ‘our’ book,” he replied in voice that was fully one octave lower.

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A Weighty Problem

25. February 2013
SPIEGEL

A generous waistline is my sin in life; diets are my suffering. It doesn’t seem to matter which diet I try, the kilos I fight so hard to lose always seem to creep back again. It makes no difference whether I try milkshake meals, WeightWatchers, or Atkins. The only difference is how much or how quickly the weight disappears at the outset. In every case, though, the missing kilos always wind up back where they seem to belong: on my waistline.

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It Helps to Look the Part

20. February 2013
Weinmesse

Strasbourg played host to the 20th Independent Wine Producers and Wine Fair last weekend. It was a great event: it not only gives wine-lovers the chance to sample hundreds of wines from every French wine region, it also provides an opportunity to meet the independents vintners who do the cultivating, the harvesting and the fermenting. Such encounters are often the starting point for lifelong relationships between wine producers and their customers.

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