Placebo Effect WIth a Financial Twist

I just read about a new study on one of my favorite blogs (Freakonomics), about the placebo effect with a financial twist.  Subjects were given electric shocks and asked to rate the pain.  The subjects were then given a sugar pill and asked to rate the pain after the shocks.  However,  unlike other studies, the subjects were separated into two groups, one group was told the pills were $2.50 and another group was told the pills were discounted to $0.10 a pill.  Not surprisingly the groups given the pills rated the pain lower than when they hadn't taken the pills even though the pill had no medical effect.  

However, there was a statistical difference between the two different price groups.  85 percent of subjects in the first group ($2.50 per pill) indicated that the pain lessened after taking the pill while 61 percent of the group in the second group ($0.10 per pill) said the pain lessened.    Perhaps pharmaceutical price their drugs with this in mind?

 

Everything You Ever Wanted to Know About Prostitution

Stephen Levitt, my favorite economist, is publishing a paper on the economics of prostitution. The paper is full of fun facts including:

--> 3% of sexual acts are given to police to avoid arrest

--> Sunday and Mondays are the slowest days of the week for business
and friday is the busiest

--> supply of prostitution is fairly elastic (july 4th a lot of temps
come in for the surplus business)


For those in the market, the paper is rich with information on pricing (a menu of sorts).

I emailed the paper to a friend of mine who found a very funny quote from the paper:

"Prostitutes who work with pimps have higher wages and better conditions (largely because pimps drum up supply).

Reflecting this, many of the prostitutes who didn't have pimps asked Levitt and Venkatesh (Levitt's coauthor) if they could please link them up with pimps. L&V planned a randomised experiment (randomly assigning prostitutes to pimps), but before they could carry it out, the pimps got angry at Venkatesh and told him that he would be killed if he returned. "

Data and Maps

I discovered a great new website called Understanding USA with my favorite internet channel surfer StumbleUpon. The site is full of interesting data presented in unique ways. My favorite is the distribution map, shown on the right, which depicts the areas of the United States are the most populated.

Great New Blog!

I have discovered some great blogs from reading the freakonomics blog. I discovered indexed.blogspot.com, a picture/diagram humor blog... the author and i seem to share the same sense of humor.

Today Freakonomics referenced http://bps-research-digest.blogspot.com a British psychology blog which has many entries about decision making and happiness which seems to be mostly what i write about.

Overconfidence

There is a lot of academic research in behavioral economics on how individuals tend to be overconfident. This leads people to make irrational decisions which is basically what the field of behavioral economics is all about.

One of my favorite studies is a survey was given to college students that asked them about their own chance of positive events (ex: marriage, income, career success etc) and the chance of their classmates. On average people, rate their own chances for success/happiness to be much higher than their classmates. Here is a link to an abstract of the study http://content.apa.org/journals/psp/39/5/806

View from my hotel room in Sayulita, Mexico

Whenever I go on a beach vacation, I get hotel anxiety. Naturally, I always want to be near the beach, but when travelling to a unfamiliar place, you never really know what you are going to get. Is it worth paying a premium to stay on the beach even though staying on the "beach" could easily mean a dumpy piece of sand? Should I spend more as a form insurance that I will be next to a nice beach? Should I play it safe and stay inland and thereby avoid some beach premium cost?

On two visits to Hawaii, my beach hotel didn't exactly live up to my standards (dumpy piece of sand) and on a trip to Pismo Beach, I was right in front of the only beach in California that you are allowed to drive on (read redneck hangout).

I am in Sayulita, Mexico right now and my beach hotel is awesome. There is a patio area with two hammocks that look out onto the ocean. I can literally fall out of my room onto a great beach where i can go surfing or boogie boarding. I did the latter twice today and plan on going surfing tomorrow. The only downside is that it doesn't have hot water but it does have wifi... a trade I would take every day of the week.


Here is a picture from the hammock.

Feature Creep

There was a great article in the New Yorker in May about how consumer electronic products often have too many features and why this happens. The dilemma is that products with lots of features sell well but, at the same time, they are also the products that are most frequently returned. This puts consumer product manufacturers in a tough place because more features=more sales but it also means a poor user experience.

The most interesting part about this article is how people make purchasing decisions and don't seem to know what is in their best interest, or at least have a hard time processing trade-offs. Consumers overestimate how many features they will use and don't seem to take into account the added learning or complexity.