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Altruism and information deficits: What snowstorms teach us about economics

Altruism and information deficits: What snowstorms teach us about economics

While weather may not seem like a typical economics topic, there are always interesting aspects to behaviour in any context.

Quite a number of drivers, for example, appear to have ignored notices of road closure. They drove on regardless, until becoming stuck in the snow.

In Greater Manchester, which seems to have been the vortex of the storm, the police had to put out a special appeal on this.

Part of this apparently irrational behaviour was undoubtedly due to sheer stupidity, or even to a lack of basic literacy. But for others, the response may have been more rational.

Almost all motorists will have encountered flashing lights on a motorway to slow down for an “incident” or “debris in road” or some such thing. But a good proportion of the time, the problem has been solved already. The authorities have simply been slow to switch the warnings off.

In short, the experience of motorists leads some at least to doubt the validity of the information provided by the authorities.

How do they know whether they can trust the accuracy of the information when they have been misled in the past? Alternatively, they can choose to believe it, but if it is actually false, they will suffer substantial inconvenience.

So, in the humble context of a “road closed” sign, we see some of the key issues which surround fake news on social media.

On a more cheery note, there have been numerous accounts of stranded drivers being helped by the local community.

A prominent example was in Rochdale, where vehicles were trapped on the M62, in winds over 90mph. One man was offering hot tea to motorists for £1 a cup. He was hardly profiteering. But even so, the volunteers were scandalised – they were providing tea for free.

This altruistic behaviour may seem to challenge the very basis of economic theory. In the popular view, economics sees people acting purely in their own self-interest.

Giving blood is a classic case often used to attack economics. Surely, it is argued, this is pure altruism. Certainly, all the adverts urging you to be a blood donor focus on this motive. Admittedly, you get a free drink and biscuit as part of the process. But the benefits from this can hardly be said to be worth the time and effort involved.

A fascinating paper published by the prestigious US National Institutes of Health in 2014 challenges the view that blood donors are motivated by pure altruism.

The Nottingham University psychologist Eamonn Ferguson did some neat analysis with a survey of blood donors. He examined a range of motivations, but the most important was what he described as “warm glow” altruism.

People who gave blood derived personal benefit from the positive emotional gains associated with donating.

We do not, of course, know whether the motorway helpers were motivated by “pure” or “warm glow” altruism. But economics can find things of interest even in the gloomiest situations.

As published in City AM Wednesday 7th March 2018

Image: London Snow by David Merrigan via Wikimedia is licensed under CC by 2.0
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Mind the gap: Economics is catching up to the fact that we’re not always rational

Mind the gap: Economics is catching up to the fact that we’re not always rational

Do Tube strikes make Londoners better off?

At first sight, the question is simply absurd. The answer is surely “no”.

But a paper in the Quarterly Journal of Economics comes to the opposite conclusion. Cambridge economist Shaun Larcom and his colleagues analysed the two-day strike of February 2014.

They obtained detailed travel information on nearly 100,000 commuters for days before, during, and after the strike.

A key feature of the strike is that nearly half the stations remained open. So most commuters could experiment with routes different to the ones they normally use.

The project may seem barking mad. But it investigates an important issue in economic theory.

Richard Thaler’s recent Nobel Prize for behavioural economics received a lot of publicity. Behavioural economics looks for examples of people making decisions in ways which deviate from those predicted by the rational choice model of economics.

A criticism from the mainstream is that deviations might indeed be observed at a point in time. But over time, they will disappear as people learn to be rational and make the best decision.

The Tube network remains the same for long periods of time. Commuters have many opportunities to learn about it. So almost all of them should use the quickest possible route to work. If someone has just moved jobs or homes, there may be a short period of adjustment. But everyone else ought to have learned the best way to travel.

Yet Larcom and his colleagues find that a significant fraction of London commuters fail to find their optimal routes. They come to this conclusion by comparing the journeys of the people in their data set before and after the strike.

Of course, for many journeys the best route is trivially easy to discover. If you live in Richmond and work in Hammersmith, there is only the District Line. Other journeys have more options. Larcom notes that there are 13 potential ways to travel between Waterloo and King’s Cross.

The authors point out that many decisions faced by consumers are more complex and less repetitive than the commuter problem they analyse. So, in an excellent example of jargon, they state that “our estimate of suboptimal habits may be a lower bound to the problem in other contexts”.

In other words, systematic and persistent deviations from rational choice are an important feature of the real world.

Economists of course like to value everything, and there is a standard way of valuing time. The academics estimate that the time gains subsequently achieved by those who switched routes outweighed the time losses incurred by everyone else during the strike. So Londoners were better off as a result of the strike.

Bizarre though it may seem, the article is a good example of how economics is becoming much more empirical when thinking about individuals’ behaviour and less reliant on pure theory.

As published in City AM Wednesday 15th November 2017

Image: Underground by By Elliott Brown is licensed under CC by 2.0
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Neo-Luddites won’t like it, but the UK must keep on (driverless) truckin’

Neo-Luddites won’t like it, but the UK must keep on (driverless) truckin’

The announcement that experiments will take place with driverless lorries on UK motorways ought to be a cause for celebration. Once again, human ingenuity is pushing out the frontiers of technology.

But the general reaction in the media has been one of anxiety and concern. Wholly contradictory arguments have been advanced against them.

Driverless cars it is argued, for example, do not mean that you can summon one to your front door and be taken to and from the pub with impunity. The drink driving laws, the opponents of progress pronounce with confidence, will still apply to the humans being transported. Yet it is also claimed that the concept of responsibility for accidents involving driverless cars does not yet exist. Until it is, they cannot legally be used.

As with the introduction of railways, the law around a revolutionary technology will take some time to evolve. But the idea that a man should walk in front of the train carrying a red flag was soon given short shrift. The new technology was far too convenient to have it impeded in this way.

The opposition to driverless cars and lorries seems almost Luddite in its intensity. People currently employed in and around the activity of driving vehicles will become unemployed. Where will the new jobs come from?

I am writing this in a country house hotel in Aberdeenshire. In the room is a magazine dedicated to weddings. This, a eulogy to expensive popular culture, tells us a great deal about how the labour market evolves.

Many of the activities around modern weddings involved jobs which were either completely non-existent only a few decades ago, or only catered to a tiny number of ultra-rich individuals.

The adverts for venues, for example, usually stress that a dedicated wedding co-ordinator will be assigned to you during the planning stages. And a dedicated wedding events manager will ensure the day itself goes smoothly. Bridalwear experts can be hired to advise on the choice of costumes. People can, and do, pay substantial fees to be told that “if you plan to marry at the height of summer in Spain, a heavy material such as velvet is inadvisable”.

Special courses of dance lessons are available so that the bride and groom can perform a “full-on choreographed, fabulous first dance”. The potential activities around hen and stag events know no bounds. An adventure activity day is offered involving “Segways or zorbing”.

Specific fitness courses are offered to ensure that not only the bride and groom but their entire supporting cast look suitably “toned and sculpted”. Even your faithful pooch can be groomed for the occasion, and look glowing through consuming organic dog food. What a pity there was no advert for vegan canine sustenance.

This is a snapshot of how innovation impacts the economy. Technology enables a product or service to be provided more cheaply and at a higher quality.  Some people directly involved lose their jobs. But everyone else is made better off, and their extra spending creates entirely new types of jobs.

Paul Ormerod 

As published in City AM Wednesday 29th August 2017

Image by Pxhere used under CC0 attribution.
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