Diamonds are forever, right? Maybe not. This study of 3,000+ adults found that:
- Higher spending on engagement ring is inversely correlated with marriage duration for male respondents
- Higher spending on the wedding is inversely correlated with marriage duration for female respondents
- Having high wedding attendance and a honeymoon is generally positively associated with marriage duration
That means you should forego the ring and invite all your Facebook friends to your wedding, right? Unfortunately it isn't that easy. I cited these studies in my article about correlation and causation; they are a great example of how one could mistake correlation for causation. In all likelihood, the weddings with more people led to longer marriages because the bride and groom 1) had a lot of friends to invite, implying they are pleasant people and 2) the marriage is clearly supported by friends and family, giving it greater chances of success. One can also see how couples with a lavish wedding or expensive ring might be focusing too much on the material aspects of their marriage, which can easily degrade down the line.
Would you donate blood for money? Would you be happy if you donated blood, and were surprised with a gift card after? At first, it seems like the answer to both of these questions is a definitive "yes". A paper published based on a natural experiment of nearly 100,000 people had some interesting findings (via Marginal Revolution):
"Subjects who were offered economic rewards to donate blood were more likely to donate, and more so the higher the value of the rewards. They were also more likely to attract others to donate, spatially alter the location of their donations towards the drives offering rewards, and modify their temporal donation schedule leading to a short-term reduction in donations immediately after the reward offer was removed....We also find that individuals who received a reward by surprise were less likely to donate after the intervention than subjects who received no reward, suggesting that for some individuals a surprise reward adversely affected their intrinsic motivations." - Rewarding Altruism
It may seem strange that people would donate less after being surprised with a monetary reward, but behavioral economics has a complete explanation. People have two different kinds of major incentives and norms - social norms, and market norms. To borrow an example from Predictably Irrational (great book), imagine if at Thanksgiving dinner you thanked your mother-in-law for the meal and asked her how much money you owed her. Go ahead, gasp inside at the thought of this social gaffe. You wouldn't do that because the social norm is to simply enjoy the meal and perhaps bring a bottle of wine by next time. In this case, you have brought market norms into the social-norm appropriate situation. Similarly, those trying to encourage charitable behavior must recognize that many individuals participate in philanthropy out of their own benevolence, expecting nothing in return. Bringing market norms unexpectedly into a social norm situation ends up making people feel like their deed wasn't purely benevolent.
Businesses can also capitalize upon the use of social norms, but must be careful. If a business grows by treating its customers as friends and reaping the benefits of loyal customers (referrals, word-of-mouth marketing, etc.), but then later hits a customer with a fee that they won't waive, suddenly the customer-business relationship has switched from warm and personal to a market exchange. The customer will likely be much angrier when a favorite family-run business gives them trouble with a refund rather than a large, impersonal retailer like Target. So, what's the moral of the story?
“To paraphrase Mises, an incentive is not an objective fact but a subjective interpretation.”
More from Marginal Revolution upon the idea of market norms and social norms, or as they also call them, extrinsic and intrinsic motivations. Tabarrok discusses a paper co-authored by recent Noble prize winner Jean Tirole.
"In this paper, Tirole and Benabou try to resolve the economist’s intuition that incentives motivate with the idea from psychology that incentive schemes can sometimes demotivate. The psychologists argue that extrinsic motivation can reduce intrinsic motivation (but they are not at all clear on why this should be the case)."
To use the blood drawing example from above, the extrinsic (think external) motivation would have been the monetary offering, which was in contradiction to people's intrinsic motivation (their internal motivation) to do good. Economists mainly focus on extrinsic motivations or market norms, thinking that people will foremost respond to money. This is true, but in many circumstances it seems like intrinsic motivations and social norms are much more powerful, albeit rare. People like to feel that they are doing something benevolent or helping a friend, so learning how to capitalize upon this is quite valuable.
The unemployment rate often seems to be quite random and influenced by uncountable factors; now we can add another item to the list - size of city and ease of transportation. According to new data from the US Census Bureau and Harvard, the unemployed stay unemployed for longer in cities with a big urban sprawl. It should be noted they are discussing size in terms of area rather than population.
"Controlling for other factors, they found that a 50 percent increase in neighborhood accessibility led to a 4.2 percent shorter period of unemployment overall. For job seekers who found work that paid at least 90 percent of what their old job did, the effect was larger — people in accessible places were unemployed for 7 percent less time than people in inaccessible places.
People able to commute long distances by car before being laid off found new jobs sooner, and were more likely to find a job that nearly replaced their previous income."
The most important factor of this finding is how it effects those already disproportionately affected by unemployment - low-income and migrant workers. Researchers found these effects were heightened for Hispanic and black workers, women, and older individuals. Those who rely on public transportation in massive cities like Los Angeles or my hometown of Dallas have a much harder time finding a new job due to the difficulties of transportation and potentially having to commute much farther from home.
Have you ever heard someone express frustration at someone homeless or poor having a nice smartphone? I have heard this many times, but this is the most compelling reason why that is an elitist view.
The marginal utility of smartphones rises as income falls. They begin as luxuries for the very rich and end as essentials for the very poor
— Benedict Evans (@BenedictEvans) November 11, 2014Why? Well, here's one reason:
@BenedictEvans probably because "rich" have several 'computers' and the "poor" have but one: their smartphone. #marginalUtility #econ
— Michael A. Robson (@21tigermike) November 11, 2014For the people without a computer or even a home, having access to the mobile internet and contact with others is essential. Some say "why is the government using our tax dollars to pay for welfare when these people have brand new phones? Clearly they can't be that poor." Having a phone is a necessity in order to get a job today, let alone find interviews, information, and news. If a person struggling for money sold their phone today, it might provide food for a month, but then they still might not have a job and now, on top of no job, they have no way to get one without a phone number or access to internet. Sure, they could use pay phones or library computers, but do we really view the poverty-stricken so harshly that they are not allowed to have the single most important tool for upward mobility? A very interesting perspective brought about by mobile expert Benedict Evans.
Finally, along the lines of technology improving lives, in the developed world we can now use a fingerprint to provide mobile payment (via Apple Pay). On the other hand, in Venezuela fingerprints are used to ration goods. To quote the WSJ, "amid worsening shortages, Venezuela recently reached a milestone of dubious distinction: It has joined the ranks of North Korea and Cuba in rationing food for its citizens... Under the system in place here, basic price-controlled items—including milk, rice, coffee, toothpaste, chicken and detergent—are rationed, with the fingerprinting machine used to ensure that a shopper doesn’t return over and over to stock up. " It is ironic, to say the least, to see such advanced technology monitoring the primitive economics in place thanks to the Venezuelan government. Price controls have been responsible for creating these shortages and thus the rationing. Perhaps they would be better off just changing their laws, but that would be too easy, right?
Money represents a social agreement, which has implications for how we value wealthy people. Bitcoin replaces the need for this social agreement with technology, and in doing so challenges the values we ascribe to wealth.