Looking for Sound Financial Advice? Look to Psychology

http://www.psychologymatters.org/behavioralecon.html
So for this post I really wanted to do some browsing for behavioral economics stuff... and it really is pretty interesting stuff. Who woulda thought you could tie psychology with economics, but it makes sense.

This article, by the American Psychologists Association, had some good applications of behavioral economics. The first example that was used dealt with the stock market. Everything with behavioral economics seems to be analyzed with experiments... so these two economists did a study of 78,000 households and divided the investors into those who trade more and those who trade less. They actually found that those who traded less had a smaller net annual return than those who traded more. They tied this with the overconfidence... most investors think its easier to pick winners than it really is. I'm thinking gambling kinda falls in the same category as this... the overconfidence characteristic... i know it does for my grandpa anyway.
Next they talked about a popular experiment that a guy name Thaler conducted with a manufacturing company. He based his experiment on the knowledge that a lot of people are procrastinators and overly optimistic about their future... especially when it comes to saving money. So he convinced employees of this manufacting company to commit right away to putting a portion of their salary towards retirement money. By making them commit to it early it gave them no way come up with excuses not to save their money. And it worked... employees went from saving 3.5 to almost 14% of their salary. I'm pretty sure a lot of companies do this already... but i think its a really good idea, especially for people like me who aren't real good at saving.
Behavioral economics can be applied in other ways too... like getting people to become organ donors... check out the article to learn more!

Economic Benefits of Expanding California's Southern Sea Otter Populations
http://www.biodiversitypartners.org/econ/report/sea_otter.shtml

Okay so i found this article and it made me think of Mary so i had to use it. Mary is all about the enviornment and the animals so if she actually read this or did some posts she would be happy that economics can be related to some sea otters... or any endagered species for that matter.

With an expansion of the sea otter population along the coast near Santa Barabara the SEIS (Southern Environmental Impact Statement on the Southern Sea Otter Translocation Program... what a mouth full) study found that California households would be provided with over $100 million in economic benefits. There are both positive and negative externalities to this expansion...Positive: tourism is going to increase= more jobs, the sea otters will help in the restoration of the kelp forests which help in reducing erosion. Negative: other sea animal populations will decrease... however, the study found that benefits from an increase in sea otters will outweigh the losses of commericial fishing, anyway.
The article mentioned something called existence value benefits which they defined as the value people place on knowing that sea otters are being saved from extinction... they also mentioned that this one of the main reasons that an increase in the otter population would benefit California economically. I guess this goes to show how peoples' attitudes can play a role in the economy... people like to see that their state is working for a good cause and they are going to support it to show other states how "nice" they are. This is what will aid in the increased tourism and recreation to the Santa Barbara area.
Kinda cool how environmental resources can easily benefit economies.

Govts turn up the heat on business cartels

http://economictimes.indiatimes.com/News/Economy/Policy/Govts_turn_up_the_heat_on_business_cartels/articleshow/1900801.cms

Governments are cracking down on cartels and the effects are noticeable. In international cartels the over-charges were estimated to be over 20-30%! This really stinks for developing countries... in 1997 World Bank estimated that $81.1 billion of developing countries' imports were subject to price fixing conspiracies. Think how much better off they would be with that $81.1 billion dollars! With tougher anti-cartel policies, price drops have been witnessed globally. For example, the UK has seen a 40-60% drop in the envelope industry.
Cartels arise especially in industries with homogenous products with few suppliers and many buyers(cement cartel was mentioned numerous times in the article as an example).
The more I read about cartels, the angrier i get. These firms get together with other firms and devise ways to cheat their clients and get more money. Obviously it has to be analyzed deeper than that... but I don't understand how if the cartels main objective is to fix price it would be able to stay stable for very long... more firms are going to want to get involved and it will become chaotic within the cartel. A lot of thinking must go into maintaining a cartel and keeping it from being discovered by the competition authorities(which i did not know existed!). Why not just stick with a fair price and avoid the risk of HUGE fines or even jail time which is enforced in some countries??

The price elasticity of opium in Taiwan

http://www.ncbi.nlm.nih.gov/entrez/query.fcgi?cmd=Retrieve&db=PubMed&list_uids=10847935&dopt=Abstract

All I got was the abstract of this article... but i think it was enough to make some observations.

So the article talks about a study of the elasticity of opium, an addictive drug, in Taiwan from 1895 to 1945. Basically, over time, the Japenese government eliminated the use of opium in Taiwan by various policies including raising the price. A study was done and estimated that the short term demand elasticity was .48 and long term was 1.38. This is evidence that at first an increase in price did not change the quantity demanded and consumption much because of how addictive opium was. As time went on, and prices continued to rise, more consumers of opium turned away from opium and stopped purchasing it or found substitutes to help with their addictions. This kind of trend could probably be seen with most additive drugs, and useful for control of them.

Gas prices continue to rise

http://www.bizjournals.com/losangeles/stories/2007/02/12/daily49.html

Gas prices continued to climb up this week across Southern California, although it is unclear whether the upturn is the beginning an annual springtime price spike at the pump.
According to the Automobile Club of Southern California's Weekend Gas Watch, the average price of self-serve regular gasoline in the Los Angeles-Long Beach area is $2.643, which is 8.4 cents higher than last week, six cents higher than last month, and seven cents higher than last year.


On the Central Coast, the average price is $2.799, up 8.1 cents from last week, half a cent above last month, and 10 cents higher than last year.
In the Inland Empire, the average price is $2.646, eight cents above last week, four cents higher than last month, and six cents higher than last year.
"Supplies have tightened in California because of issues such as last week's shutdown of the state's fifth-largest crude oil field after an explosion," Auto Club spokesperson Carol Thorp said in a statement.
"But even without disasters, we've seen a pattern over the last seven years of a spring gas price spike due to increased demand and consistently low inventories at this time of year. The Auto Club recommends that during periods of price increases such as this one, drivers should make extra efforts to conserve gasoline."


So I knew there would have to be an article out there about gas that has to do with supply and demand and this was just the first good one that I came across. The article talks about California's rising gas prices, which is partly the result of a decrease in supply because of an explosion at a crude oil field. The article explained that there is also more demand and lower inventories at this time of the year. I understand there being more demand; people are out and about during the holidays, then in January they hibernate to get over that holiday rush. Now its February and people are driving more again. I wasn't sure why supply would be low consistently at this time of year. Maybe suppliers realize the pattern of people demanding less during January, so less is going to gas stations. Then when people start demanding more, not enough can be supplied in time to meet the demand??

Wisconsin Gov. Jim Doyle Proposes Cigarette Tax Increase Up To $1.25 Per Pack

http://www.medicalnewstoday.com/medicalnews.php?newsid=61633&nfid=rssfeeds

This article is based on the recent increase Gov. Doyle proposed for the cigarette tax in Wisconsin. Doyle said he would support the increase only if revenue earned (estimated to be $197.6 million/yr) is used exclusively for smoking-related health services. For lawmakers to get Doyle to remove this proposal from his spending plan, they will have to make cuts to offset rising health care costs.
This article reminded me of a segment in Naked Economics specifically about the effects that taxes on undesirable activity have on the economy. Lawmakers try to make these taxes seem spectacular, because not only do they reduce the number of people doing them, but they also help with paying for health care costs of treating the after effects, like cancer. However, by using taxation to promote a healthy lifestyle, we are increasing the life span of many individuals. If they are living longer, then they are benefiting from Social Security longer and living in nursing homes for less time. Also, when people stop smoking, which is bound to happen with an increased tax, the revenue gained from the tax is going to drop each year. Smokers can also find ways around the tax. Many individuals will go to other states where taxes are lower or turn to internet vendors or, if they are really addicted, the increasing black market.