Yearly Archives: 2009

Dear Economist: Should I marry my boyfriend?

February 14, 2009 1:12 am

I have a great boyfriend. We’ve been together for five years, have a son and are planning more kids. I have a good job which I would like to continue doing and that pays OK. My boyfriend earns a lot more money than me and we have a very comfortable lifestyle. We are both in our early thirties but I am worried that after three kids and 10 years with me, he’ll run off with a younger woman. Should I marry him?

C.M., France

Dear C.M.,

Economists have gathered evidence from speed dating and internet dating, and found that it supports the conventional wisdom: men like young women and women like rich men. Clearly, you have reason to be nervous.

I keep re-reading your letter and I cannot work out whether you regard the risk of desertion as a reason to get married or a reason not to. No matter: a spot of game theory, which economists use to understand how rational people interact with each other, may help you here. You have three options: dump him now; stay with him but do not get married; or get married now. Ten years later he will respond by staying with you or leaving you for the nanny.

Dumping him seems odd: you already have a child together, you enjoy the relationship, and dumping him will not change the unpleasant logic of evolutionary psychology, which puts you at an increasing disadvantage as you both grow older. Staying with him seems more sensible, but if he does run off you will have limited negotiating power. Marrying him seems best of all: the legal contract, in most jurisdictions, protects you against this sort of behaviour. You cannot prevent him leaving you, but you can make it an expensive proposition for him if it happens.

Do I hear the distant sound of wedding bells? Happy Valentine’s Day.

Questions to economist@ft.com

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The Logic of Life in paperback

February 10, 2009 8:26 am

Price-sensitive lovers of economics books may want to know that the paperback of “The Logic of Life” is now out in the US. (In the UK, one more month to wait.) You can buy it here; you can read discerning reviews from the New York Times, the Economist, and many others here – people of taste, all.

The book has been interpreted as the antithesis of Nudge or Predictably Irrational, an anti-behavioural-economics book, but it isn’t really that. It’s really a product of my love affair with economics, showing how it can usefully be applied to crime, marriage, poker and much else. Thumbing through the pages of the paperback reminds me how much I loved writing the book, so I’m glad that the collected book reviewers of America enjoyed reading it.

Posted in Everyday economics | Permalink

Dear Economist: Hard cash or a secure job – which is better?

February 7, 2009 2:00 am

I work with an international bank, but have recently been laid off. Fortunately, I have managed to land myself another job in this very tough job market (yes, in India too!).

The catch is that my current employer is offering me a severance package of around 20 months pay – but only if I stick around for six more weeks, while the other company wants me to join as soon as possible.

One option gives me a pile of hard cash, but uncertainty and the stigma of unemployment. The other option is a secure and cushy job. And, another thing: India does not have any unemployment benefits.

P.M., India

Dear P.M.,

I’m not surprised you’re tempted by the severance package, especially with two companies fighting over who employs you for the next six weeks – a great boost to your ego.

Still, I’d urge you not to get too confident. An economics PhD student at MIT, Johannes Spinnewijn, recently published a research paper showing that most unemployed people are too cocky about their prospects of finding a new job. On average, they expect seven weeks of unemployment, but eventually endure 23 weeks. And this is using data from the mid-1990s, not recession years. Be warned, then: don’t let overconfidence lure you into undervaluing the guarantee of a good job.

A better approach would be to negotiate a compromise. Surely there is a way to secure the new job without losing all the severance pay – perhaps involving part-time work for both companies for the next two months.

If you do decide to turn down the new job and look again with severance pay in hand, look very hard indeed. Spinnewijn’s research shows that job-seekers tend to harbour another misperception: that an energetic job search does not pay dividends. They are wrong.

Questions to economist@ft.com

Posted in Dear Economist, Everyday economics | Permalink

Enlightened research, fuelled by the dark stuff

February 7, 2009 1:47 am

I know plenty of economists who are fond of Guinness, but not many who realise just how important the beer has been to the profession. The man who laid the foundations for the global success of Guinness also produced one of the most important tools in economics – and a tool that is widely mishandled today.

Faced with an apparent pattern in any data, a key question is always: “Does this pattern represent something real, or is it just chance?” The simplest example: if I measure the heights of five men and five women and discover that the men tend to be taller than the women, I might be on to something, or I might just have some tall men and some short women in my sample. Based on this small sample, how confident should I be that men are in general taller than women?

The statistical apparatus to check this is a test called Student’s t-test. Student was the pseudonym of William Sealy Gosset, an amiable, rucksack-wearing chemist who – beginning in 1899 – worked all his adult life for Guinness and eventually rose to the rank of head brewer. So nervous was the company about commercial confidentiality that Gosset published surreptitiously under his pseudonym.

The remainder of the article can be read here. please post comments below.

Posted in Undercover Economist | Permalink

How fingers burned today will forge tomorrow’s savers

January 31, 2009 1:30 am

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.

The remainder of the article can be read here. Please post comments below.

Posted in Undercover Economist | Permalink

Dear Economist: Should I forgive my selfish ex-boyfriend?

January 31, 2009 1:22 am

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.
CP

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 economist@ft.com

Posted in Dear Economist | Permalink

You read it here first

January 26, 2009 10:16 am

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.

Posted in Everyday economics, Undercover Economist | Permalink

Why charity begins – and stays – at home

January 24, 2009 2:30 am

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.

The remainder of the article can be read here. Please post comments below.

Posted in Everyday economics, Undercover Economist | Permalink

Dear Economist: Do lonely heart dinner dates owe me thanks?

January 24, 2009 2:30 am

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 economist@ft.com

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