Sacrifices in Economy

Too much information kills information

by Sebastien Gay

Sometimes information tends to work counter-intuitively: people use Facebook to stay in touch with their friends and sometimes promote their businesses, but a side effect of having a clear presence of information on the internet is the open door for employers to check on a potential applicant’s personal life. Similar problems arise for consumers.  Information in itself is not the problem, but the accumulation of opinion and information is.  If you are excited about watching a movie at a movie theater and then check the reviews on Rotten Tomatoes and notice that the reviews are poor, you would have a biased opinion of the movie and might not enjoy it as much. Even in the case of green products, too much information results in a worse picture without necessarily helping confidence on the product.  Most green labels are only green through their label, and make people feel good, but are not actually checked by the Federal Trade Commissions.  The FTC provides guidelines for green products, but products are not necessarily checked for them. As everything in an economics agent, information needs to be rational and optimal.  With the advent of the internet and fast communication we reached a point of over-information that dampers our everyday life.  As an investor would not be able to invest if all of the information about a stock would be known (in this case either no one would buy it or everyone would buy it so no variation), we end up second-guessing ourselves for consumption when a potential risk still exists, even if we think it does not. Giving up some information would be a positive step toward a healthier and more positive life.

Self-control for well being

by Sanjit Dhami

Humans routinely avoid harmful objects and actions. But in many cases, they are unable to do so or procrastinate too much. New year resolutions on diets, addictions and lifestyle are often short lived. Pernicious habits are hard to kick. Why do we observe such self-control problems? The “rational” view, based on the Nobel Prize winning work of Gary Becker postulates that addiction arises when the present discounted value of the benefits from addiction exceed the costs. How aware are we of our future self-control problems? A prominent theory in psychology views humans as being a succession of multiple selves, one self for each time period. For instance, the night-self might set an alarm for the morning but the morning-self presses the snooze button. This can happen repeatedly, suggesting an underestimation of future self-control problems. Individuals who anticipate self-control problems might prefer to buy an annual health club membership, while others, without such problems, prefer to pay-per-visit. They also invest in illiquid assets such as housing so that future selves do not splurge on consumption. We use our current moods excessively when we make predictions of the future (projection-bias). Experiments show that we often order more food than we can possibly eat and the amount of food purchased at the grocers often depends on how hungry we are. Public policy recognizes the relation between self-control and our well being. Cooling-off periods, labeling of food on containers, and public health warnings on sale of addictive substances are all examples. An understanding of how our mind works can reinforce the effect of such public policy.


 Illustration by Paul Davis, London, UK

Published in the hard-copy of Work Style Magazine, Spring 2011