How the Cobra Effect came to be

 

The "Cobra Effect" story is a popular economic anecdote relating to when India was under British colonial rule. Officials from the British government were concerned with the large population of cobras in Delhi, so they created an incentives program that rewarded hunters for bringing in dead cobras. Some, seeing the program as an easy way to get rich, started to breed cobras for the program. Understandably, the British government was not happy to find out that they were being taken advantage of, so they ended the program.

But what happened to the cobras in captivity? Well, seeing as there was no use in keeping venomous snakes around, the breeders set them free, thereby increasing the number of cobras in the wild. While this story is only anecdotal, people have been taking advantage of the "Cobra Effect" throughout history.

In 1897, Hanoi was under French colonial rule. The French modernized Indochina with new age infrastructure, with the most notable improvement being a functional sewer system. However, that sewer system also meant the rats who normally had to hide away in dark alleys and trash heaps now had a safe highway to scurry into. Concerned with the spread of bubonic plague, the French government employed a similar program to the British. They employed Vietnamese rat hunters to kill the rats. Proof would be submitted through dismembered rat tails.

The rat hunters, realizing that outright killing the rats would not generate the most money, took advantage of the system. They started to amputate the tails, so that the tailless rats could reproduce and breed more rats. Some Vietnamese followed their Indian counterparts, breeding rats so that their tails could be farmed. Just like with the British, the French ended the program.

People will always take advantage of incentives, it is only a question of if the benefits of the incentives (for example, compensating people for weight loss) outweigh the "cobra effect" (people intentionally bulking and then slimming down).


Sources:
https://economictimes.indiatimes.com/markets/stocks/news/heard-of-cobra-effect-be-careful-what-you-ask-for/articleshow/60866402.cms?from=mdr
https://www.atlasobscura.com/articles/hanoi-rat-massacre-1902

The Economics Behind Impulse Buys

           We've all been there.  In the checkout aisle of a Safeway or a Target, items like candy and travel-sized products somehow make their way into our carts.  Large companies purposely place these items in a way they know will be hard to resist.  All of this was designed with the motive of getting customers to buy as much as possible.

           According to Shopify, stores use several tactics like creating a path for customers where they must interact with the impulse buys and choosing items specifically that either require little consideration or are in stock for a short time (think seasonal or clearance items).  They understand that we as consumers can be swayed off-course by a quick and seemingly beneficial purchase.  We think that because we probably haven't already seen these items elsewhere in the store, we perceive the item to be scarce and thus worth buying. 
          They also know that we get a lot of short-term utility out of impulse buys.  The joy of eating a candy bar bought while waiting in line is short, but still leaves us with a brief sense of satisfaction.  If the product is something else, like a magazine or travel-sized item, we look forward to using it and frequently do so as soon as we get home. 
          Impulse buys also occur online.  When we're checking out on an online store, last-minute sales like "buy two more of the item in your cart and get them all 50% off" can cause us to buy more than we actually intended or need.  According to CNBC, customers spend an average of $5,400 per year on items we probably don't even want.
         How can we stop these toxic spending habits? There are several ways to combat giving into impulse buys.  We can:
1. Avoid shopping online when possible.
2. Be mindful of your feelings surrounding the impulse item. Will I really want this tomorrow?
3. Stick to a list when shopping.
         If we stick to these tips, we can hopefully reduce warrantless spending and find more utility out of things we actually want to consume.

https://www.shopify.com/retail/10-tactics-for-impulse-buying
https://www.cnbc.com/2018/02/23/consumers-cough-up-5400-a-year-on-impulse-purchases.html
https://www.google.com/search?q=how+to+stop+impulse+buying&rlz=1CAPQVW_enUS709US710&oq=how+to+stop+impulse+buy&aqs=chrome.0.0j69i57j0l4.3496j0j9&sourceid=chrome&ie=UTF-8&safe=active&ssui=on

Proshot Broadway: Maximizing Profit in the Theater

There has been a large argument about whether or not Broadway shows should be professionally filmed and released. Many fans argue it gives people more access to the shows, while others argue that theater is best experienced live. But what are the economics of the situation?

I personally believe that if professionally recorded shows were released to the public, similarly to how movies are released on DVD after the movie is shown in theaters, that this would bring in more profits for Broadway.

How would proshots, or professionally shot musicals, do this? Firstly, they would give access to Broadway shows to people who wouldn’t have spent money to see them live. Depending on the show, tickets on Broadway can be hundreds of dollars. People also have to drive to the venues and make time to watch the show. There are people who don’t have time, money, or the transportation to do any of these things. With a proshot, these people could pay much less money to see these shows. And importantly, they’re now paying for the shows. Rather than make $300 or $0 from a person, Broadway could suddenly be making $15-$20 per person in an untapped market.

This strategy would also help stop the spread of illegal videos of the shows, or bootlegs. With a bootleg, people can get the show for free, but the quality is often very bad and the websites to get these recordings can give your computer a virus. Plenty of fans would much rather pay for a professional looking HD version of their show, especially if they are supporting something they love by paying for it.

Proshots could also cause exposure to broadway, bringing in more people who had never heard of the shows otherwise. Someone who has never heard of Les Miserables or Phantom of the Opera is unlikely to spend hundreds of dollars on a ticket to see them. But someone who paid $10 to see a recording might realize they really like the show and want to see it live.

Google trends shows that when the Newsies proshot was released in 2017, there was a huge spike in popularity for searching the term up, and there are still occasional spikes in popularity.

(This graph uses a scale that shows searches from the last 5 years)

A similar thing happened to Legally Blonde: The Musical when it was filmed for MTV in 2007.

(This graph uses a scale that shows searches from 2004 until now)

Overall, Broadway shows could actually make more money from filming and releasing their shows. They could get sales from people who would have never paid hundreds of dollars for tickets in the first place, getting money from a new source. They could also expose more people to Broadway, thus getting more ticket sales in general.

There is a counter argument saying that if people could just watch musicals at home, why would they buy theater tickets? One only has to look at sports games and movie theaters to see that even if something is easy to watch at home, people will go out of their way to pay more money to see it.

Broadway should release proshots of their musicals. It’s the economically sound thing to do.

The World is Getting Fatter Because of America

This past week, we have been learning and talking about the obesity epidemic in America, but we have yet to further discuss how companies exploit everyone's consumption incentives all around the world. Obesity is more than just an American issue, it is becoming a global issue.

In Brazil, there have been an added 1 million cases of obesity every year. China has almost 50 million cases of obese children, which may or may not have to do with the old one child policy and the culture of raising children. Since the 1970s, obesity has tripled globally. The first part of it is what we discussed in class, socioeconomics and poverty. 

In the early 70s, the price of food went up. So Nixon, being the economic genius that he is *sarcasm*, encouraged farmers to grow more corn, which led to excess high-fructose corn syrup, which is cheaper than sugar. Because of this cheaper costs, high fructose corn syrup started being used by a bunch of foods like bread, ketchup, chips, and most importantly: soda.

These are correlations that don't paint the entire picture of the cause of global obesity. Another side of it is corporate greed. (Fun fact: CapriSuns are just sugar water...I used to think it was juice)

Around 20 years ago, scientists began to publish papers about how bad sodas were for consumers, so Coca Cola funded around 400 academic papers to undermine the connection between diet and weight. Coke tried to point out that too many people were worried about what they were eating, and not enough about their exercise regimen. Everyone disliked that.

This isn't the first time Coke has tried this either. In the 1970s, Coke became the first American company to enter communist China's economy. In the 40+ years there, the number of obese individuals went from 10% to 32%. Now it controls over 1/2 of the soft drink market in China. When China tried to control Coke consumption, Coke pulled the same act they did in the U.S., but it actually worked: policies were enacted to encourage people to exercise more.

But by far the country that has been affected the worst is Mexico. With the NAFTA free trade deal, U.S. had a dumping ground for all of its cheap, processed junk food in return of over half of Mexico's fresh fruits and vegetables (like your fresha vocados). Before NAFTA, 34% of Mexico was overweight or obese; today, over 75% are obese. Mexico has also become the leading consumer of Coke in the world, and now the leading cause of death in Mexico is diabetes.

With free trade and interconnected economies, the markets of each country becomes a lot more complex. We are seeing a new age of obesity around the world, all stemming from private American companies having a dominant influence in the world. 

Sources:

https://www.who.int/news-room/fact-sheets/detail/obesity-and-overweight

https://futurism.com/the-byte/coca-cola-killing-nutrition-research

https://www.nytimes.com/2017/12/11/health/obesity-mexico-nafta.html

https://chinachannel.org/2019/02/06/coke-in-china/

The Good Student Discount

How do insurance companies decide how much to charge people for driver's insurance? Besides the initial packages that are offered, auto insurance companies often offer policy discounts to certain groups. For young drivers, an average Good Student Discount could save you around 7% of your driver's insurance. Each company uses policy economics, which involves using the data of grades, test scores, and accidents, to set their own guidelines.

This package incentives students to achieve in school in order to save money. The insurer will want to see proof of good grades or SAT scores in the top 20% of the national average. Since parents want to save money, they will encourage their children to fit into these brackets. For companies, this policy is beneficial because the good students they insure may be less likely to get into accidents, and thus save payout money. Although this may seem like a good deal for all parties involved, the opportunity cost of trying to get these deals is less time and practice on the road which may actually result in more accidents.

Since the policy is largely reliant on previous data and the theory that if someone is more responsible when they are studying, they will be more responsible when they are driving, there is also a danger of fallacy of composition. Being a good student does not mean they will be a good driver since correlation does not mean causation.

However, if this package is beneficial to you, make sure to bring your transcripts to the insurer when you set up your auto insurance plan.

Kagan, Julia. “Good Student Discount.” Investopedia, Investopedia, 18 Nov. 2019, www.investopedia.com/terms/g/good-student-discount.asp.

The Film Industry: An Economic Breakdown

People underestimate the film industry, without the knowledge, the common assumption is that wanting to work in the film industry is a risky move, comparable to wanting to be a famous actor or painter. Have you ever stayed for the ending credits of a Marvel movie? In reality, there are so many departments and pieces to those departments. In summary, the film industry is huge and has a lot of employees at many different levels with many different levels of involvement. 

Simply put there are two sides to the film industry: the artistic side, and the business side. Producers, when deciding how to allocate money, must have knowledge of the market. They require an in-depth understanding of what makes a successful film, understanding the costs on set and comparing that to an estimated profit allows them to designate sums of money. They also consider the cast and whether or not a specific actor is worth the cost for the film. It is all a math game in terms of what projects get x money. 

With that, the directors, screenwriters, and producers must develop an understanding of what sells. Maximizing the utility for people and using the study of past films to learn what satisfies viewers. Considering marginalism, there are some movies you only feel inclined to see once, while others (often considered classics) you could watch over and over again over the course of the year. What is your favorite movie? How many times could you watch it until your utility diminishes? What do you like about it? Producers keep in mind these questions to audiences when allocating resources to projects.

Work Cited

“Taking Note: The Film Industry's Contributions to National and State Economies.” NEA, 1 Mar. 2018, www.arts.gov/art-works/2018/taking-note-film-industry%E2%80%99s-contributions-national-and-state-economies.

“Theory of Economics in the Film Industry.” UKEssays.com, www.ukessays.com/essays/economics/theory-economics-film-industry-1578.php.

Robots are Taking Our Jobs And Other Key Takeaways from Automation

A CNC Mill: https://www.flickr.com/photos/johnrhawk/3964417019

It’s no secret our world is becoming increasingly digitized. Between biomedical supercompanies like Intuitive Surgical assisting doctors in high-precision surgery, to the robots that help stock and maintain Amazon’s warehouses, robots are doing more labor for us than ever before. In fact, Tesla maintains fully-automated assembly lines for their electrical vehicles, and Google’s Everyday Robot Project is developing new robots that will assist people throughout their daily lives. In fact, there are 1.79 robots for every 1,000 workers according to The Federal Reserve Bank of Saint Louis. It’s clear that robots are automating the tasks that we used to do ourselves, but what is the impact of this wide-spread automation?

In terms of microeconomics, the effect of robots in certain industries is vast. We no longer see many United States citizens working on the assembly line because they simply don’t have to. Jobs with simple, repetitive tasks are the ones most likely to be taken by a robotic counterpart-- jobs that involve sorting, categorizing, etc.. For companies, it is often easier (and more cost-effective) to “hire” a robotic machine than to pay a worker compensation and benefits. If the robot gets hurt, after all, the company will not have a potential lawsuit on their hands. With increasing economic scarcity, companies are fighting over resources to build the best products with the highest profit margins. Therefore, it makes sense that these jobs that are easiest to automate and being “taken” by the robots.

In fact, for a manager considering opportunity cost for these jobs, the robot wins every time. Why? Robots are a one time expense, while workers must be paid compensation on a timely basis. The robot quite literally pays for itself over time, all while saving the company valuable resources. Not to mention, but on a macroeconomic scale, the automation of these jobs creates even more “future-ready” jobs in technology and robotics. Robots may be “taking” the jobs that require the least thought, but in the process, increasing automation actually creates more “future-proof” jobs in STEM, jobs that require dynamic thought rather than routine labor. Is this pervasive automation a positive thing? That is up to you to decide. However, Oxford Economics recommends choosing a career that is “future-proof regardless.”

What does future-proof mean? It means choosing a job that is dynamic, one that often cannot be done by a robot. Jobs that involve unpredictable motions, human analysis, and general creativity are the hardest to replicate. This means that jobs like welding, trucking, and many research fields likely will not be automated within the coming century. However, jobs such as machining and manufacturing may be. It’s up to you what career path you take, but making sure it is future-proof is essential in this day and age.

Robots may be taking our jobs, but their potential impact on economic growth is vast. Just make sure to pick a future-ready job!

Works Cited

Bharadwaj, Asha, and Maximiliano A. Dvorkin. “The Rise of Automation: How Robots May Impact the U.S. Labor Market.” St. Louis Fed, Federal Reserve Bank of St. Louis, 29 July 2019, www.stlouisfed.org/publications/regional-economist/second-quarter-2019/rise-automation-robots.

“How Robots Change the World - What Automation Really Means for Jobs, Productivity and Regions.” Oxford Economics, www.oxfordeconomics.com/recent-releases/how-robots-change-the-world.