Monthly Archives: September 2008

I’ve been offered a job in the UK. The job, the salary and the possibilities are beyond my expectations. However, trying to think in pounds instead of euros (and changing them every time I visit my family) and in miles rather than kilometres, having to change the plugs and learn to drive on the other side, and – why don’t I say it? – facing the weather and food, all make me feel a bit uncomfortable, especially since it would be for at least five years. Am I right to worry?

Anna, Florence

Dear Anna,

Do not worry about adjustment costs such as currency, driving on the left and changing plugs. In the context of a five-year visit they are trivial.

More serious are the lasting compromises you must make. You are right to mention the food. You will also be far from your family. Who is to say whether money and a good job outweigh these concerns?

Since the price and quality of goods is different in the UK, your consumption bundle should also change. You would be wise to drink tea instead of coffee, and to seek out daring new art rather than hoping to find British Renaissance masterpieces.

Think of this move as an experiment. Your time in the UK will open up new options: the younger you are, the more valuable those options, because you will have a lifetime to take advantage.

So your age counts: being British, I am too much the gentleman to ask what it is.

Questions to economist@ft.com

Not the wonderful FT, of course, or so I hope:

Rising house prices: Good
Falling house prices: Bad
Affordable houses: Good
Unaffordable houses: Bad

Hm. You’ll have to explain that one to me, I’m a journalist. But Bluematter offers other examples.

Just finished reading “Economic Gangsters” by Ray Fisman and Edward Miguel – perhaps best known for their paper on corruption and parking tickets. It’s a well-written, accessible summary of their economic research on corruption, crime, civil war and other cheery subjects. I enjoyed it a lot – their research is very clever – although it would have been nice to see them use their expertise to synthesise the research of others, which tends to be acknowledged rather than explained.

Until reading the book, I hadn’t encountered Ted Miguel’s work on witchcraft (see also Emily Oster’s, here) but there’ll be an Undercover Economist column on the subject shortly!

It’s a miserable year to be selling a house, on either side of the Atlantic. In the UK, for example, house prices fell by 1.5 per cent in April, according to the Halifax index.

Except: they didn’t. The Halifax’s own figures show that house prices rose in April, albeit by less than 0.2 per cent.

The 1.5 per cent fall, widely reported, is the result of “seasonal adjustment”, an attempt to strip out predictable calendar patterns and report just the underlying trend. House prices usually surge in April, and this April the surge was disappointing enough to be reported as a fall.

The remainder of this column can be read here. Please post comments below.

Being a considerate father, I am planning a monetary incentive scheme to improve my 18-year-old son’s marks at school. Instead of executing a relative’s bequest as decreed, I intend to spend the €7,000 rewarding good results. During three semesters, he will have to pass 48 preliminary tests, then the main exams in the fourth and last semester. How should I divide up the capital?
Robert Saverin, a grateful father

Dear Mr Saverin,

Start by promising more than you can deliver. If you offer €10,000 for a perfect score, you will only need to apologise after your scheme has succeeded. That may seem to undermine your credibility, but the real risk lies the other way: your son may expect to get the money from his doting dad anyway. Discourage this view or your plan will be in vain.

You must also pitch the stakes just right. Research in behavioural economics suggests that trivial rewards are worse than no rewards, but also that performance suffers when too much is at stake.

Finally, focus on the early exams, because success breeds success. Promise your son €200 for every excellent result in these: that should engage his interest without throwing him into a panic. If things go well, the money will run out before the high-pressure exams. But by then he will have mastered his subjects anyway.

Questions to economist@ft.com

First, I spelt Mikhail Drugov‘s name incorrectly in this post about corrupt bureaucrats.

Second, the highly-credible Geoff Riley tells me that my post about economics teaching dying out was based on a “wholly innaccurate” BBC story: apparently economics teachers don’t show up in the training statistics because they tend to train on the job. Student numbers are up, says Geoff. (He teaches economics teachers so my guess is that he knows.)

Sorry.

Not that much of a debate: Pete Lunn says it is a big deal, and I agree. (Prospect originally asked me to debate the proposition “Is behavioural economics a revolution?” and then changed the motion after the debate was finished…)

Still, we have plenty about which to disagree. An extract:

PL: Other classic experiments of behavioural economics are challenging the traditional assumptions too. We often overcome selfishness to reach beneficial common solutions, as good managers and motivators understand. As for rationality, behavioural economists have recorded hundreds of instances where our economic instincts run counter to the traditional definition, especially when risk or uncertainty are present. And the assumption that economic agents are independent ignores our strong instincts to seek economic alliances and to be influenced by the opinions of others about what things are worth—those bubbles again….

TH: …your question, “What simplification best describes us?” is the wrong one. You have confused economics with psychology. As I wrote in my first letter, one of the most fertile areas in economics is the modelling of complexity. Three examples: the evolution of firms; the development of national economic clusters such as South Korea’s memory chip industry; and the spread of social norms like honesty, obesity or smoking. These new complexity models are producing brilliant new results despite riding roughshod over psychological insight.

But it’s invidious to pick extracts (especially when I get to do the picking) so do read the whole thing.

The Undercover Economist: a guide

Publishing schedule: Excerpts from "The Undercover Economist" and "Dear Economist", Tim's weekly columns for the FT Magazine, are published on this blog on Saturday mornings.
More about Tim: Tim also writes editorials for the FT, presents Radio 4's More or Less and is the author of "The Undercover Economist" and "The Logic of Life".
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