Monthly Archives: January 2009

Late last year I sat with members of my extended family and we talked about which banks might be safe havens for savings, and which might be about to collapse.

“Remember this conversation,” I instructed my young nephews. “The last time people talked like this was before your granddad was born.”

It made me think how the great crash of 1929, or the Great Depression, must have shaped the attitudes of those who lived through them. I used to think, in the arrogance of youth, that elderly people were just crazy if they stored their savings under the mattress because they didn’t trust the banks. Now I realise that painful memories, rather than senility, might explain the choice.

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I was living with my boyfriend when he got accepted to a very good university in London. He convinced me to go with him. I applied and got accepted to another very good university to pursue a masters degree that I long dreamed of. He broke up with me before I knew I had been accepted, arguing he wasn’t prepared to carry the responsibility of me leaving a life behind to go after him. Of course, it was his idea in the first place.
He has been living in London since September. I have just arrived. I still love him, but I think he has been very selfish. Should I forgive him and look him up? Human selfishness and economics have always walked hand in hand. I would love to have your advice.

Dear CP,

The whole episode seems to have been very good for you: at your boyfriend’s urging, you followed your dreams and now you are realising them. Wonderful.

However, this happy fact does not translate into a compelling reason to renew the relationship. Normally I advise people that they should ignore “sunk costs” – to put it another way, there is no use crying over spilt milk. In this particular case you should ignore the “sunk benefits”. Forget the fact that it’s all worked out well, and focus instead on what this story tells you about the prospects for a happy future together.

If your boyfriend is not rational then his behaviour is self-destructive and self-obsessed. Even worse, if your boyfriend is rational – as economists usually assume – then he seems simply to have been opening up an option (to have his old girlfriend in London) and discarding it when it had no value to him.

I’d guess he thought he could do better than his old relationship in London. I’m quite sure that you can.

Questions to

A few weeks back there was an excellent briefing in The Economist on the international bright young things of economics. Having finally made the time to read it, I was pleased to see that Undercover Economist readers will have recognised many of the names.

So here is the the roll of honour from the Economist, with links to my interpretations of their work:

Jesse Shapiro; Roland Fryer; Esther Duflo (and here, and here); Raj Chetty; and Xavier Gabaix. Apologies to have thus far passed over Marc Melitz, Ivan Werning and Amy Finkelstein.

In 1987, an 18-month old baby named Jessica McClure fell down a narrow disused well in a Texas backyard. It took two and a half days to rescue her, bloodied but alive and alert, after an astonishing media circus. The rescue won a Pulitzer prize for the photographer who captured it, and inspired a TV movie. “Well-wishers” from across the US donated so much money that when Jessica turns 25 she’ll receive a fat trust fund. Media speculation puts it at a nice round $1m.

Jessica’s case was uniquely famous, but $1m is not a remarkable sum of money to save an American life. Government agencies regularly plug larger sums into their cost-benefit calculations, and few voters think they are wrong to do so.

To some extent that’s cheap talk – we’re talking about spending each other’s money, after all. Yet even if we wouldn’t spend $1m of our own money, we would all be willing to make financial sacrifices to save a specific baby. Imagine that you had been passing the back yard at the moment baby Jessica had slipped down the well, had rushed over and peered down to see her just within reach, snagged by a fraying babygro. If you lunged down and grabbed her you could save her life at no risk to your own, but would ruin your new suit – price tag, £300. Would you do it? Unthinkingly and without regret.

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Finding myself alone again, I have joined a dating agency. As a result, I am taking delightful, unattached women out to dinner. This is almost always very enjoyable and, according to tradition, I pay for the meal.

I am very happy to do this but I am disappointed when the woman in question does not send me a text or other message the next morning to say thank you. Am I expecting too much in this modern world?
R.S., London

Dear R.S.,

Oh dear. I am inclined to agree that a thank-you is appropriate, and if you are not receiving so much as a text or an e-mail, this is a bad sign. But a sign of what?

Scenario one: the woman is a rational self-interested agent. If she regarded a free dinner as sufficient compensation for the time she had to spend in your company, then a “thank you” would be a simple way of securing a repeat of the experience. The fact such gratitude is not forthcoming suggests your dining companion did not wish for a second date. Nor did she care if you regarded her as ungrateful or said so to others. In short, she would be happy never to see you again.

Scenario two: your date wished to continue the relationship, but was too stupid or self-obsessed to realise that “thank you” would be a good first step. In which case, you are better off without her.

A final possibility is that your offer to pay for dinner struck your companion as sexist. But then, either she protested and you boorishly ignored her, in which case scenario one now applies (you have no chance); or she let you pay anyway and then sulked, in which case scenario two applies (you got away lightly).

The good news? You seem to enjoy these first-date dinners – and I suspect many more are in prospect.

Questions to

Several books on my desk at the moment.

Strongly recommended: The Long and the Short of It by FT columnist John Kay – which I see has already sold out at

Daron Acemoglu’s magisterial textbook on economic growth looks very impressive; I’ve not dared to crack the spine yet.

Coming soon, Economics 2.0 in translation from the original German. I enjoyed this a lot, although no tales of derring-do a la Freakonomics. It’s an accessible literature survey of a lot of quirky or otherwise intriguing economics, and many readers of my column will enjoy it. The modest bias towards continental researchers is a good thing – it introduced me to research I had overlooked.

Nariman Behravesh’s “Spin Free Economics” looks promising. Tyler Cowen loved it. I am still stuck under a pile of research papers but hope to read it soon. US Amazon readers don’t like the claim of non-partisanship. I can see what they mean: Behravesh is very pro-market, although that is not quite the same thing as partisanship…

Stephanie Flanders, BBC Economics editor, is back and she’s blogging.

More or Less airs on Radio 4 this Friday at 1.30pm GMT and Sunday at 8pm GMT. You can also listen online, subscribe to a podcast, and read more at the More or Less website here.

This program is the last in the current series. We’ll be discussing how a regulator with a mountain of data should communicate it to worried couples seeking IVF treatment. We’ll return to the maths of the credit crunch, talk to Martin Weale about what a recession actually is – and discover the link between Guiness and statistical signifiance.

Australian readers will no doubt want to know that “Core Economics” is now a multi-author blog. The founder, Joshua Gans, is author of “Parentonomics“, a book which deserves (and will shortly find, I suspect) a wide audience outside Australia. Dear Economist readers will already know about his ideas.

“They were displaying classic symptoms of mania. They were overconfident, they had racing thoughts, they had diminished need for sleep and heightened sexual appetite.”

John Coates, a former Wall Street trading floor manager, was describing to me not drug addicts or rutting stags, but the male traders he had supervised during the dotcom bubble.

The similarities are not just skin deep. Successful traders and dominant stags are indeed high on something: testosterone. Spikes in testosterone levels are both the cause and the consequence of a profitable day on the trading floor. After a good day, traders find their systems flooded with testosterone, which encourages them to take more risks the following day and, up to a point, to make more money.

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Tim Harford’s blog

This blog is no longer updated but it remains open as an archive.

Tim, also known as the Undercover Economist, writes about the economics of everyday life.