Showing posts with the label Economics - Behavioral

Paying More for Less: Understanding the Correlation between Big Payment and Work Performance

About a year ago, I wrote a short article on whether there is any relationship between guaranteed high bonus and excessive risk taking by the management of a company. You can see the post here . Basically, such guaranteed high bonus gives a negative incentive to the board of directors to take higher risks in order to gain better benefit for the company. While higher risks might be translated into higher profits, they can also cause higher costs and losses which would trouble the company and the shareholders. In other words, big payment might actually produce worse results. Apparently, Dan Ariely, a Professor of Psychology and Behavioral Economics at Duke University, has a similar view on this issue, though he reached the conclusion from different perspective. In his latest book, The Upside of Irrationality, he discusses his experiment which more or less shows that higher payment does not always work. The experiment was conducted in India, where several participants were asked to pl

On Becoming a Libertarian Paternalist: Designing Better Policies for the Society (Part 2)

In my post dated 26 August 2009, we have discussed the basic concepts of Libertarian Paternalism, introduction to better policy making, and examples of human errors with respect to daily economic activities. Today, we will discuss some useful guidelines in making better policies and how to implement such guidelines in actual life. The Six Guidelines of Better Policy Making According to Thaler and Sunstein, there are 6 basic guidelines for better policy making: Expect Error; Defaults; Understand Mappings; Give Feedback; Structure Complex Choices; and Incentives. Each will be further discussed below: 1. Expect Error I guess this is the first guideline to be considered by policy makers. Since most men make mistakes, a good policy will consider such fact and will ensure that the mistakes can be fixed in the easiest way. What is the actual implication of this guideline? While governments or private institutions can try their best to design a good policy, they must be

On Becoming a Libertarian Paternalist: Designing Better Policies for the Society (Part 1)

A Libertarian Paternalist is someone who believes in Libertarian Paternalism, but since I'm guessing that most people wouldn't even know the definition of Libertarian Paternalism, you can check the definition here . So, why are we discussing this issue? I have just finished reading a book titled " Nudge ," and a very interesting book it is. Made by Richard Thaler and Cass Sunstein (Professors of economics and law at the University of Chicago, respectively) this book introduces the movement of Libertarian Paternalism, a movement that supports governments and private institutions to adopt policies which can maintain or maximize people's free of choice while in the other hand influence those people to improve their life and important decisions, such as wealth, health, and happiness. The basic reasoning is quite logic, people make errors most all the time and in reality, there is no such a neutral design in making a policy, so why don't we maximize the possib