Posts tagged “Neuroeconomics


One of the many things that fascinate me are fines.  I’m referring to penalties, not “its all good.”  Are they proportional?  Is there a logic?  Do they work?

When I was growing up, people used to go to the library (this dates me!).  Typically the check-out period for a book was 30 days.  If you kept the book longer than 30 days you had to pay a fine.  As I remember it was something along the lines of a nickel per day.  Those nickels added up quickly!  Be late for a month and it would cost me a buck fifty which was about a third of my weekly allowance.

As an adult, one of the fines I’ve paid most often is for parking where I shouldn’t have or longer than I was supposed to.  Fines in the District of Columbia are not cheap.  I think the last one I paid was $100.  If you’re late they double.  Rack a few of those up and you’re talking real money.  Let’s say that you average a couple of parking fines a year.  And you’re late on one of them.  That’s $300.  If you’re the average person with an average family income (which is $51,413), that’s about .6 percent of your income.  Not much.

I read yesterday that the FCC fined Google a whopping $25,000 for for impeding an investigation.  It had something to do with Google collecting information without permission.  I don’t know if the FCC was right in fining Google.  And I don’t know if Google was really guilty of anything.  But I’m thinking that Google doesn’t look at the FCC fine the same way I did my late library book fines or parking fines.

According to Gooogle Finance, Google has about $57 billion in the bank.  But that’s not liquid assets that they can use to pay the FCC.  No, their liquid assets (cash and equivalents) are only $23 billion.  And now that I think of it that’s not the right measure either.  When I paid library fines or parking fines, I didn’t pay them out of savings, I paid them out of income.  So what is Google’s income?  Well for the quarter ending in March 2011 net income was a paltry $3.5 billion.

So how does $25,000 stack up to $3.5 billion?  By my math (and I had to search to find an online calculator that would go far enough in decimals to figure this out) it is .0007 percent.  But that is over three months.  The math gets a bit better if you look at it through the lens of monthly income.  If we assume that Google’s net income is running about $1 billion a month (a bit more than my allowance growing up and slightly higher than the median family income) then they are making net about $33 million every day (this includes Saturdays and Sundays! … those Google people never stop working!).   And assuming that these guys are working 24/7, then the math works out to $22,916 in net income – that is income after expenses and taxes – every minute.

So that’s the FCC fine.  The government got sixty seconds of Google’s net profit.

So here’s the question.  If the library only charged kids sixty seconds of their allowance after candy, soda, and music … if the DC parking authority only charged us sixty seconds of our income after taxes, rent, and food …

Do you think we’d ever bring back a book or pay a parking meter?

The JuiceBar Jobs Program

This morning I read the Washington Post and found out where all our money is.

It is with all those companies that aren’t hiring.

Apparently they are sitting on $1.8 trillion in cash.  In fact, they have 25% more cash on hand today than they had prior to the economic meltdown!

By contrast, I’m sitting on … well … not nearly that much.  In fact, like a lot of people I’m trying to cut back because experts tell me that I should have more cash on hand.  My new found frugality is upsetting a lot of people.  Guess who is most upset?  The same companies that are sitting on $1.8 trillion in cash!

Companies are saying they are not hiring people (despite having $1.8 trillion cash on hand) because there is ‘uncertainty’ in the market.  There is uncertainty because people are nervous.  People are nervous because they are afraid the companies with $1.8 trillion aren’t hiring and in some cases still laying people off.

We need a way out.

So here’s the JuiceBar’s deal with corporate America.

We’ll buy your stuff if you hire our neighbor.

We can even set up a formula.

If we buy an extra 100 cases of Crest, P+G hires back one mid-level manager.  15 gas grills from Home Depot equals an extra cashier.  Five flat screens and LG has to hire back one technician.

And I’ll only refinance at these incredibly low rates if the bank agrees to hire two recent college graduates with English degrees.

The history and English majors need our help.

And with $1.8 trillion you could buy a lot of them.

Einstein. Socks. Cab fares.

Yesterday coming home I was thinking about Einstein, socks, and cab fares.

Let me explain.

There are many things that baffle me.  Mens socks are one.  You never lose a pair of socks.  You always lose one sock.  Every six months I go to the closet and find a handful of socks none of which match.  Where did their pairs go?  So I go to the store and buy a dozen pair.  Slowly the phenomenon repeats itself.  Months later another drawerful of single socks each forlornly in search of its  match.  Back to the store.

Hold that.

einsteinSo yesterday I was on a day trip to New York.  I took the 8 am shuttle from DCA to LGA.  Caught the 7 pm back home.  Fare to the city:  $38.   Fare back from the city to the LaGuardia:  $30.

Then it struck me.  Why are cabs from the airport TO the city are ALWAYS more expensive than cabs FROM the city to the airport?  It was a phenomenon that has been bothering me for some time.  Just like socks.  I travel a lot.  Boston.  St. Louis.  Atlanta.  San Francisco.  Every time it is the same thing.  Cab fares from the airport to the city are X … cabs from downtown to the airport … less than X.

I’ve tried to identify all variables.  Time of day.  Tolls.  Traffic.  None seem to fully account for the difference.  After I net everything out it is always cheaper to go from the city to the airport than the other way around.

The only factor I can think of is that coming home always seems quicker to me than going away.  This is a phenomenon that is widely recognized.  There are all sorts of theories but as best I can tell they all boil down to how we perceive time.

Things seem longer when you are under stress (going away) and things seem shorter when you are in delight (coming home).

As Einstein once said:

“Put your hand on a hot stove for a minute, and it seems like an hour. Sit with a pretty girl for an hour, and it seems like a minute. THAT’S relativity.”

So I get how the cab ride can seem shorter or faster or easier going one way or the other.

I just can’t figure out the fare part of it all.

And the socks.

Swine Flu Schizophrenia

Worried that you’re going to die because you CANNOT get the swine flu vaccine?

Worried that you’re going to die because someone is going to MAKE YOU TAKE the swine flu vaccine?

Ready to blame the government, big pharma, the medical-industrial complex for it all?

Welcome to the whacky world of being a human being in America.

On the same day — November 6th — there were two polls that told the story of America’s schizophrenic mindset about vaccinations, swine flu, and modern health.

hdc_0000_0001_0_img0070One was a Harvard poll whose headline read alarmingly that only “one third of those who sought the vaccine were able to get it.”  The poll was part of a swarm of stories flooding the top half of virtually every news outlet citing long lines, soaring complaints, and rising outrage that more vaccine was not available to the American public.  If you follow these stories you’d think that an uprising of cataclysmic proportions was just around the corner.

On the left coast there appeared another poll.  According to it more than half of registered voters in California didn’t want the swine flu vaccine.  Indeed, the “Times/USC poll also found that 59% of people ages 18 to 29, among the most at-risk of any age group, said they had no plans to get the vaccine.”  And there were sizable portions of the public — particularly among African Americans and Latinos — that the vaccine itself was more dangerous than the disease.

So the paranoid will get vaccinated.  The apathetic will not.

And whatever happens, I’m sure the blame won’t be on the paranoid or the apathetic — rather it will be on the poor folks who are actually trying to develop and deliver the vaccine.

Quote of the Day

Folks who have followed the JuiceBar know that I’ve a love/hate relationship with social media.

I love it. It is wild, dynamic, open, refreshing, democratic, transparent, exciting … and just plain fun.

nothing-blackI hate it. It is elusive, confounding, over-hyped, out-of-control and overwhelming.

So here’s my quote of the day from Brian Mazzaferri, the lead singer of I Fight Dragons from a great story by Walin Wong of the Chicago Tribune.

“There’s so many things you can do online that make you feel you’re doing something, when in reality you’re doing nothing.”

I can’t tell you how many times I’ve thought the same.

Then something happens.  You get curious.

And you say to yourself … log on one more time!

When the levee breaks

Growing up in New Orleans, you gain a healthy respect for two things: the Army Corps of Engineers and the Mississippi River.

New Orleans wouldn’t exist — at least in its modern day form — absent the Army Corps. Indeed, it is hard to think that any place that is 6 feet under sea level could.

I grew up a stone’s throw from the Mississippi and often played up and down the levees that protected Jefferson Parish from the river’s current. The levees and the Jefferson Parish pumping station were the only things that separated us from a swamp. It is one marvelous job of engineering.

But eventually the Mississippi River and has its way. And it doesn’t have to be the tsunami of a Katrina. It could just be the river doing what it always does … catch water from the winter snow and spring rains and head it South to the Gulf of Mexico.

You can build as many levees as you will. As high as you will. But eventually the Mississippi and nature will take its revenge.

Unfortunately, Iowans and Missourians are experiencing that today.

Recently my team and I went through our own episode of a broken levee. Like that in Iowa and Missouri, it was a once-in-a-lifetime, perfect storm, Murphy’s Law, everything that can go wrong will go wrong event.

We screwed up. And we screwed up big time.

And like the levees holding back the Mississippi, all the business processes and procedures in place, all the best planning, the loudest exhortations, the noblest of intentions … were overcome by an accumulated series of unanticipated events, bad judgments, unplanned actions, and poor planning.

Not good.

So what do you do?

Well, you can blame the Corps. And you can blame the river. Right now you see a lot of both.

But neither are very constructive.

I think the everyday people in Iowa and Missouri are a good guide for all of us.

You suck it up. You take your lumps.

You complain and indulge in self pity long enough to remind yourself that you’re human but quickly move on.

Good brands don’t make excuses. They know that eventually their levees will break.

And you either build the levees higher or figure out a way to move to higher ground.

Why Economics Remains a Dismal Science

It has been awhile. I’ve been on “vacation”. A Dutch / American reunion of sorts.

But now I’m back and on the road again which means I read USAToday.

I find the USAToday puzzles page (last inside pages of the Life Section) ideal for take offs and landings since they don’t have an on or off switch. That is, the flight attendants aren’t pestering me about turning off the games on my BlackBerry … and USAToday has puzzles that I can actually do (as opposed to the impossible and oftentimes insipid crosswords by Will Short in the NYTimes).

So as I pulled out Tuesday’s USAToday on a flight home from Boston my eyes rested on a feature story on billionaire George Soros and the promotion of his book. Seems that George is hawking something called “reflexivity.” The relevant summary of Soros’ theory of reflexivity from the USAToday piece goes something like this …

Classic free market theory holds that everyone in an economy acts rationally, based on complete information while seeking to maximize their individual welfare or profits … To Soros, the conventional approach is rubbish. Instead of a world of near-identical actors, coolly assessing their economic interests and acting with clear-eyed precision, he sees a world (and markets) governed by passion, bias and self-reinforcing errors. Because fallible human beings are both involved in, and trying to make sense of, this world, they inevitably make mistakes. … Standard economic theory is flawed, Soros says, because it treats markets populated by thinking human beings as if they operated according to the natural laws that govern atoms and molecules.

Not surprisingly, those economists entrenched in classic rational economic theory don’t view kindly on reflexivity. According to USAToday’s David Lynch:

Critics of reflexivity, especially among the economists Soros disparages, have been brutal. A reviewer of one of his earlier books savaged his “windy amateur philosophy” and attacked him for being unfamiliar with basic economics … “It is difficult to conceive of a more mistaken understanding of the profession’s research in the last 10-15 years. … The great danger of the (earlier) book is that non-economists will take seriously his ill-founded criticism of economic research,” wrote economist Christopher Neely of the Federal Reserve Bank of St. Louis.

The Juice Bar has devoted several posts to the very obvious observation that people — including me — are NOT rational. The most recent was back in February coinciding with the release of Dan Airley’s book, Predictably Irrational.

So I’m naturally inclined to be open to this “ill-founded” reflexivity theory since it appears to track with reality over theory.

Then I think to myself …

Soros has made billions of dollars using his reflexivity theory … Neely oversees billions of dollars using his rational choice economic model.  Soros is so wealthy he can’t give his money away fast enough.  The U.S. economy has lurched from crisis to crisis with the dollar in the tank and skyrocketing debt.

Who ya gonna believe?

Not surprisingly, if I had to choose on who I’d want managing my money, I think I’ll go with Soros over Governor Neely of the Federal Reserve.  That is, I’ll go with someone who recognizes that people are emotional, non-linear, and, yes, irrational beings.

And this is why economics remains a dismal science.  Because it continues to refuse to accept the emotional and wacky things that make us all human.

Now … on to the sudoku page.