The Curse of Knowledge: Price Bubbles and Airline Logos

Lufthansa terminal

 

“Why do they have pictures of knives and forks here, daddy?” My daughter, then six-years old, was gazing out of the window of the airport bus as it brought us from the aircraft to the terminal building of Frankfurt Airport. I looked up briefly from my text messages. “Where do you see knives and forks, sweetheart?” I asked. “Everywhere”, she cried. I peered out of the window more intently this time. I leaned over to align my viewpoint with hers. I looked behind to check the area the bus had just passed. I looked left and right, inside and outside. Nowhere could I see cutlery of any description. “I can’t see any knives or forks”, I said, apologetically. She grew visibly exasperated: “Look! There! And there!” I didn’t want to upset her, so I remained silent as I scrutinized our surroundings. Then I saw them. They were indeed everywhere.

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Explaining behavioural finance to a 14-year-old

Explaining behavioural finance to a 14-year-old“Can you explain behavioural finance to my 14-year-old daughter?”

As the girl’s father was a finance professor, I had the impression that he might already have tried it unsuccessfully himself. Undeterred, though, I turned to the unenthusiastic teen and asked her to imagine a prize draw with a £100 reward for the lucky person whose ticket number is randomly drawn from a basket.

There are only 100 tickets,” I explained, “so, arguably, each entry ticket is ‘worth’ £1.” She nodded in agreement. “Now suppose I offer you the chance to buy one of those tickets for 90p. Would you take it?” She nodded again, smiling. Was this going to be easier than she thought? Continue reading

The World Cup needn’t be the only gold they bring home

Despite being an Englishman, former soccer player and manager, Jack Charlton, is immensely popular in the Republic of Ireland. As manager of the national team, he led the soccer-mad nation to its first World Cup competition in 1990. He has been awarded one of the Republic’s highest honours, an honorary Irish citizenship. Cork airport even has a life-sized statue of him indulging his passion for fishing. When he goes on fishing trips to the Republic, he has been known to pay his expenses by cheque. The payees, so delighted to have the autograph of their sporting hero, sometimes never bank them. The value and, therefore, the demand for this asset can be greater than suggested by the face-value because of the signature on it. Continue reading

Do you LIKE it, or do you WANT it?

“And do what you like. Yeah, and doowutchyalike. Everybody doowutchyalike” Digital Underground

In their 90’s hedonic anthem, Digital Underground invited party revellers to ‘doowutchyalike’. Yeah. Doing just what we like is probably the purest form of satisfaction. So, if our goal is to maximise the collective satisfaction of a population, we ought to distribute the limited resources so that as many as people as possible get as much of the things they like as possible.

The problem is that it is difficult to discover what people like without asking them individually. What people want, in contrast, is immediately revealed in their purchases. Continue reading

Impossible Decisions Are The Easiest

mindThe difficult we do immediately. The impossible takes a little longer.”

This cheeky slogan, on postcards, mugs and screensavers, provides as much encouragement and motivation to modern office workers today as it did to the US Army Corps of Engineers during the Second World War. Whoever coined it, though, was certainly not talking about human decision-making, as the opposite might well be the case: tough decisions take a while, but impossible ones are easier.

. ..Read more on TCAM’s website

The New Prodigal Son

bentley-1273361_1920Over Christmas I became reacquainted with the parable of the Prodigal Son. It is a frequently told story from the New Testament, yet it so often provokes grumbles amongst its audience. And this muffled disapproval always concerns the father’s behaviour. Although everyone can understand the actions of the selfish but ultimately repentant title character, and one can also sympathise with his steadfast but ultimately resentful brother, the father’s response to the return of his lost-but-now-found son strikes many as disproportionate. ..Read more on TCAM’s website

WWWD: What Would the Wealthy Do?

I was recently fortunate enough to have been able to attend a lecture by French economist, Professor Thomas Piketty, at Frankfurt’s Goethe University. So celebrated is the author of ‘Capital in the 21st Century‘, the packed amphitheatre had to wait fully 30 minutes before the professor was allowed to open his mouth. First we had to endure a speech from the university’s chancellor, then the French ambassador (who had been flown in from Berlin, even though France has consular representation in Frankfurt scarcely three kilometers from where we sat). Thereafter came the obligatory word from the sponsors, and an unusually lengthy introduction from the moderator. Everyone wanted a piece of the action – a sprinkling of Piketty Dust.
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Hedonomics – The (Behavioural) Economics of Happiness

 

Click here for the presentation

In 2004 I came across a treatise on the subject of happiness, and how to achieve it, in quite possibly the last place on earth I would have expected to find it: a newsletter published by an investment bank. The author’s name was James Montier, a stock market analyst. In the very first paragraph, he took the unusual step of cautioning any reader who was seeking specific investment advice to read no further. This was a very prudent step because his first recommendation for living a happier life was that his profit-hungry readers should not equate happiness with money. His nine other tips for improving wellbeing included getting plenty of exercise, sleep and sex, doing enjoyable work, meditation, and developing close personal relationships. None of the tips depended directly on money.

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