• The econlife.com Weekly Roundup

    Weekly Roundup: From Apple’s Chimes to Boston’s Olympics

    May 30 • Behavioral Economics, Businesses, Demand, Supply, and Markets, Developing Economies, Economic Growth, Economic History, Economic Humor, Economic Thinkers, Environment, fiscal policy, Gender Issues, Government, Innovation, Labor, Lifestyle, Regulation, Sports, Tech, Thinking Economically • 127 Views

    Our Posts Roundup

    Everyday economics and egg prices Sunday 5.24.15

    Why egg prices are scrambled… more

    Everyday economics and money incentives Monday 5.25.15

    When money awards backfire… more

    Everyday economics and peanut butter standardization Tuesday 5.26.15

    Finding the real peanut butter… more

    Everyday economics and cartoon messages Wednesday 5.27.15

    Cartoons that say more than a joke… more

    Everyday economics and Firms that need product differentiation can use distinctive sounds to identify a good or service. Thursday 5.28.15

    The importance of a chime… more

     

    As a mega-project, the 2024 Olympics creates concerns for host cities that are similar to any massive transportation infrastructure plan. Friday 5.29.15

    What Boston needs to know about the Olympics… more

    Ideas Roundup

    • innovation
    • labor
    • elasticity
    • supply shock
    • money awards
    • behavioral economics
    • unintended consequences
    • incentives
    • environment
    • standardization
    • weights and measures
    • regulation
    • gender issues
    • economic humor
    • expectations bias
    • competitive market structure
    • monopolistic competition,
    • oligopoly
    • intellectual property
    • cost
    • optimism bias

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  • As a mega-project, the 2024 Olympics creates concerns for host cities that are similar to any massive transportation infrastructure plan.

    The Cost of Hosting the Olympics

    May 29 • Behavioral Economics, Developing Economies, Economic Debates, Economic History, Economic Humor, Economic Thinkers, Entertainment, fiscal policy, Government, Labor, Lifestyle, Sports, Tech, Thinking Economically • 313 Views

    “The Montreal Olympics can no more have a deficit than a man can have a baby.” (1976, Montreal Mayor Jean Drapeau)

    While Mayor Drapeau might have been surprised that it took 30 years for Montreal to pay for the Olympic stadium nicknamed “The Big Owe,” Olympic cost overruns are not unusual. Looking at all Olympic Games from 1960 to 2012, scholars from the University of Oxford concluded that the average cost overrun in nominal terms was a whopping 324 percent.

    Where are we going? To Olympic spending.

    The 2024 Summer Olympics

    Hoping to host the 2024 Olympics, Rome’s mayor recently said his city would use the Colosseum to create a gladiator-type experience. Meanwhile, Hamburg and Paris will probably be contenders and Boston is a maybe. All have to tell the IOC by September 15, 2015 that they intend to submit a bid to host the 2024 Summer Olympic Games. The IOC will announce the winner in Peru in 2017.

    Looking at Boston’s Olympics 2024 “Bid Book,” I got excited. The pictures of cheering fans and of triumphant athletes were captivating. Add to that Boston’s 400th anniversary celebration in 2030 that the Games would initiate and you have an irresistible proposal.

    Almost.

    The Bid Book also includes cost projections to which some Bostonians seem to be realistically responding. According to the Oxford study comparing Olympic cost projections to actual spending, the planners’ numbers are probably inaccurate. Below you can see in real dollars, just for the sports costs (also there are infrastructure and operational expenses) how expenses have been underestimated:

    Olympic spending for host cities

    From: “Olympic Proportions: Cost and Cost Overrun at the Olympics 1960-2012″

    Here we have a comparison of Sochi and Athens to other mega-projects.

    Cost and benefit cost of 2 Olympics

    From: “What You Should Know About Mega-Projects
    and Why: An Overview”

    Our Bottom Line: Optimism Bias

    Citing “four sublimes,” the authors of the cost overrun studies explained why some cities proceed with Olympic bids and other mega-projects when they surely know the money costs will balloon.

    1. Technological: Creative anticipation generates enthusiasm among the designers of the project.
    2. Political: Politicians like to initiate and implement a razzle-dazzle project.
    3. Economic: Ranging from financiers to contractors to lawyers, the new jobs foster a supportive constituency.
    4. Aesthetic: The beauty of the project and its energy captivate a broad audience.

    Together, the four sublimes take us to optimism bias. Nobel economics prize winner Daniel Kahneman and his co-author Amos Tversky (1937-1996) suggest people’s tendency toward an optimism bias leads us to underestimate costs and overestimate the benefits of a project.

    And that returns us to the Mayor of Montreal.

     

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  • Everyday economics and Firms that need product differentiation can use distinctive sounds to identify a good or service.

    The Sounds That Can Sell a Product

    May 28 • Behavioral Economics, Businesses, Demand, Supply, and Markets, Economic History, Economic Humor, Entertainment, Government, Innovation, Labor, Lifestyle, Tech • 164 Views

    Frito-Lay proudly let the world know in 2010 that they had created the “World’s first 100% compostable chip package,” Less obvious was a second note saying “This bag is louder because it is compostable.” Consumer Reports said it was twice as loud as a Tostitos bag. Others compared it to a jet engine.

    And that was the problem. After sales declined by 11 percent, Frito-Lay returned five of its six Sun Chips flavors to their old bags.

    Where are we going? To how firms use sound to compete.

    The Apple Chime

    The Apple start-up sound has been called rather zen but it wasn’t always like that.

    When the earliest Macs were created during the 1990s, Apple sound engineer Jim Reekes thought their start-up chime was annoyingly dissonant. Reekes realized that a start-up sound could frame our entire experience. So when his bosses said no to the “fat C-major chord” he had created for the start-up, late one night, he snuck in and changed the code. Subsequently, a Byte magazine reviewer of the new Mac noted that “I knew I was in for something great when I heard it turn on.”

    Trademarked Sounds

    Like the Apple start-up chime, when a sound uniquely defines a firm’s identity it can become intellectual property that is protected with a trademark from the U.S. government.

    The NBC chime secured the first sound trademark in 1971:

    The Green Giant’s Ho Ho Ho is trademarked:

    So too is the MGM lion’s roar…

    Our Bottom Line: Product Differentiation

    For sellers who engage in monopolistic or oligopolistic competition, product differentiation is a must. With monopolistic competition where we have many sellers, a restaurant like Chili’s, for example, uses its sizzle to separate its fajitas from all others. With larger more powerful oligopolies, sound also resonates…but, as with Sun Chips, not always the way we might expect.

    Because perfectly competitive firms sell identical products like potatoes, and monopolies have no competition, those who compete along the middle of the market structure continuum are the ones that need product differentiation.

    Product differentiation in different market structures

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  • Everyday economics and cartoon messages

    How Feminists Should Feel About New Yorker Cartoons

    May 27 • Behavioral Economics, Businesses, Economic Humor, Gender Issues, Households, Labor, Lifestyle • 138 Views

    Our story starts with an analysis of New Yorker cartoon content.

    Where are we going? To expectations bias.

    Women in New Yorker Cartoons

    After statistically analyzing all of the New Yorker cartoons during 2014, writers for an online semi-satirical journal concluded that women are under- and stereotypically-represented. The bosses in New Yorker cartoons were mostly male as were judges, lawyers and scientists. But if you look for an assistant, a food server or a cave person, there was more of a chance that the individual would be female. Only as parents, spouses, and students did the number of depictions of women equal or outnumber the men.

    Here are the actual results. The x-axis shows the “number of depictions” of females in blue and males in red.

    Expectations bias from cartoons

    Expectations bias from cartoons

    From: Vox.com

     

    Our Bottom Line: Expectations Bias

    In cartoons and beyond, stereotypical depictions of women could be shaping our behavior by creating an expectations bias. Shown by the following experiment, what we expect can shape how we act.

    During a 1960s lab experiment, Harvard professor Robert Rosenthal falsely labeled average rodents as either smart or dumb. Because his students seemed to have an affinity for the rats they assumed were smart, they handled them more frequently and more gently. Since touch affects a rat’s behavior, the “smart” ones not only outperformed the “dumb” ones but also were tamer, cleaner, more pleasant and more likable. Dr. Rosenthal concluded that his students had demonstrated an expectations bias that affected their subsequent behavior.

    Similarly, could stereotypical depictions of women in non-authority positions, even in cartoons, create an expectations bias that influences an employer’s behavior?

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  • Everyday economics and peanut butter standardization

    When Real Peanut Butter Is Not What or Where You Expect

    May 26 • Businesses, Economic History, Government, International Trade and Finance, Labor, Regulation • 195 Views

    Imagine what commerce would be like without shared weights and measures.

    In 18th century France, there were 250,000 different units and some even had the same name. Assorted fabrics, grain, wood all had their own metric. Traveling from one village to another, you could have seen a 20% difference in the size of a pint.

    Shared Weights and Measures

    We could say the story of shared weights and measures starts with two scientists who, during the 1790s, identified the size of a meter by calculating the distance from the North Pole to the Equator and dividing it by 10 million. The task was actually a huge trigonometry problem as each one traveled from one place to the next creating huge imaginary triangles to measure the distance. Once they knew the size of a meter, they said the kilogram was “a cubic decimeter of rainwater at 4 degrees Celsius” and then fabricated a platinum kilogram cylinder.

    Today, in the U.S., the National Institute of Standards and Technology (NIST) is the place to go for an inch or a second or any definitive standard for measurement that is used in commerce and research.

    Preserved in a vault, this is the standard kilogram:

    Standardization weights and measures and the kilogram

    From: National Institute of Standards and Technology

     

    But…Peanut Butter?

    Not preserved in a vault, this is the standard peanut butter:

    Standard Weights and Measure form NIST

    From: NIST

    Called Standard Reference Material 2387, in 2003, 2800 jars of peanut butter were created as a “calibration standard for nutritional information.” Now, with 80 percent having been sold, you can buy three 170g jars for $761 from NIST. The peanut butter standard was made by a commercial manufacturer with sugar, salt, hydrogenated fat and roasted peanuts, While the contents sound rather like Skippy, the analysis process involving dozens of technicians and scientists and perhaps gas chromatographs and mass spectrometers was the pricey part.

    As for taste, then NY Times food critic William Grimes said, “… [it] tastes a lot better than it looks, which is like dark-brown industrial paste. I wasn’t sure whether to eat it or lay down some new bathroom tile. As a food product, it seemed to aim for dead average. The peanut flavor was muted, and it lacked the creamy, unctuous quality of storebought brands. If you like peanut butter to stick to the roof of your mouth, this is one for you.”

    Our Bottom Line: Standard Weights and Measures

    Invisible because we are so used to having universally accepted standards, shared weights and measures are a basic requisite for commerce…even for peanut butter.

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