Habits

Everyone experiences time the same: twenty-four hours in a day, seven days in a week and fifty-two weeks in a year. So why does it feel like that some can accomplish more in the same span of time than others?

Recently, I have been listening to this audio book called The Power of Habit by Charles Duhigg, and I am convinced that forming habits is the easiest way to improve efficiency and productivity for a person. Mundane tasks such as tying one’s shoes, riding a bike, or even driving takes little to no effort and conscious thought because the motions become habitual. The repetition of these actions engrains knowledge into one’s brain so that he or she can perform such tasks subconsciously. Unknowingly, our brain removes unnecessary intermediate thoughts, minimizing the thought process associated with each task. Habits also have the potential to ease more complex tasks, but first let me explain how habits effects our brain.

In a lab research, a rat was placed in a box with a lever. When the lever was pulled, sweet syrup would flow into the box which the rat enjoyed. At first, the rat was hesitant to pull the lever, but after repeating this exercise, the rat pulled the lever quicker and quicker. Through analyzing the brain activity of the rat, the scientists concluded that initially, the rat associated the pulling of the lever with the appearance of syrup. After consuming the syrup, the rat felt a sense of pleasure. As the exercise repeated, the rat began to associate the pleasure of consuming the syrup directly with pulling the lever! The moment that the rat pulled lever, it expected pleasure it would receive from the syrup.

Our minds work in a very similar way. Tasks become simpler when one establishes a habit.

Benefits of Negative Incentives

While I was talking with one of my friends this week, we stumbled upon this question: “why do our government often resort negative incentives for harmful actions instead of providing positive incentives for not participating in harmful actions?” For example, our government taxes companies that pollute our environment instead of giving tax-breaks to companies that don’t. Wouldn’t it be more encouraging for the government to reward instead of punishing companies? In the end, we concluded that there are benefits to negative incentives that positive incentives don’t have. Let’s take a look at our pollution example.

You see, when the government award people for not polluting, they create a binary situation: you pollute or you don’t. People who have to pollute in order to manufacture their products will not care about how much they pollute because they won’t receive government benefits regardless of if they produce one pound or ten million pounds of the pollutant. Therefore, many of the companies would produce excessive amounts of pollutant and accept that they won’t receive some tax breaks that some other companies will receive.

On the other hand, if companies are taxed based on how much they are producing, the market would reach an optimal quantity of pollution. By no means is pollution good, but society needs products that involve the release of pollution. With a tax on the pollution, companies would produce a quantity where the marginal return (benefit of producing one more unit) equals the marginal cost (expense of producing one more unit) which in this case is the tax. This also allows more efficient companies/ manufactures to produce more than those that are less efficient, ultimately benefiting our society as a whole.

TAX REDUCTION

Today, Donald Trump signed the most consequential tax legislation in the past three decades, marking a great legislative victory for his presidency. Under the new tax law, individual rates will be lowered, standard deduction will almost double and corporation rates will drop significantly. At this point, you might be thinking that this must be one of Trump’s attempts to help the wealthy at the expense of the poor and the middle class. I do not believe so. In fact, my family have already benefited from this tax cut! As one of the hundreds of thousands of AT&T employees, my step-father will be receiving a bonus of a thousand dollars at the end of this year! In fact, all non-high-level managers working for AT&T will be receiving a check totaling to few hundred million dollars given away with the passage of this bill!

Out-sourcing. You probably have heard this term before. Companies have been out-sourcing many of their job positions overseas to places with lower wages and taxes. When the costs (including taxes) in the States are too high companies will just offer their jobs to non-American workers overseas. We are living in the 21st century where the markets are globalized. Even for Companies like AT&T where almost all over their customers and services are provided in the US., they can (and do) hire people from Czech Republic to do tasks like data analysis. With this in mind, a corporate tax reduction isn’t probably the as impactful to corporations as some might think.

So, are the tax reductions aimed to benefit the rich at the expense of others? Well, I don’t know for certain. All I will say is that I will be looking forward to how my family will be spending that one grand.

Assumptions Debunking

Throughout our daily lives we make a lot of assumptions regarding the things that occur around us. However, many common assumptions are just not true. I have been working as a host at a local dinner for a while now and many of my assumptions regarding restaurants are beginning to change. Here are two few that I have noticed:

Assumption 1: “My cup and silverware are dirty. The restaurant must not care very much about sanitation.”- Believe it or not, restaurants care about sanitation above all else! I have had multiple situations where we would rewash a tray of silverware because we saw a single piece of food amidst the utensils. The cost of rewashing a few hundred forks is much less than that of the legal cost of going to court over food poisoning. Restaurants do get busy at times and in the chaos of bussing tables and seating customers, sometimes small details can be overlooked. If you ever find yourself with dirty silverware, just ask for some new ones!

Assumption 2: “My server hasn’t brought some ketchup like I asked. He or she must not like us and is doing it on purpose.” – I used to get really annoyed when I ask for something such as napkins or some ketchup and my server fails to bring it to me. I had the illusion that it was due to personal reasons, but I have found that it probably isn’t the case. When restaurants get really busy, workers are often bombarded with so many tasks that they begin to lose track. This is especially true if they have been working a long shift. There is no incentive for a server to ever purposely avoid the request of the customers. In fact, the opposite is true: there are incentives (in the form of tips and good reviews) for workers to satisfy the needs of customers especially when it’s something meniscal like getting some ketchup.

Potential Above Skill

December 8th. For some of us it’s just a regular Friday. A day that signals the end of a long week and the start of the weekend. However, for a few individuals, today is life-pivoting. At 4:00 PM Pacific Time, Stanford early action results are released.

Every year, thousands of students spend hours upon hours filling out college applications in pursuit of higher education. From this compendium of young scholars, colleges choose individuals to admit into their programs. As a senior in high school, I can’t help but wonder what do colleges look for in a student?

The first thing that came into mind was ability; students with more skills and have achieved more in the past will be the ones selected to attend the most prestigious institutions. With minimal research one can conclude that this is not the case. Students who have perfect GPA’s and stellar test scoresaren’t guaranteed to get in. Puzzled by the administration process, my friends and I brainstormed explanations and an interesting point was brought up: a student’s potential might even be more important than their ability.

Let’s say there are two students: Student A with a 4.0 and student B with a 3.8. At first glance, Student A might appear more desirable for a college than student B who has a lower grade. Then, we find out that student A was born into a wealthy family that had the resources to hire renowned educators to tutor the kid while Student B was born into a single-mother family and had to take on part-time jobs to support his family. Would colleges still consider student A to be better than student B? Not necessarily. For student B to achieve a 3.8 despite the difficulties at home indicates great untapped potential. We believe that colleges are looking for students who can fully utilize the array of resources that the school offer and in this case student B’s demonstration of potential might overcome the 0.2-point difference of GPA.

The same can be said about a company. When hiring new employees, skill and experience is not necessary the only factors considered. In the long term, employees with greater potential can prove to be more productive than those who began with more ability.

Investing of the Future

Bitcoin. Bitcoin. Bitcoin. One cannot talk about financial investment in 2017 without talking about the raise of Bitcoin. With a whopping 930 percent increase since the beginning of the year (might be even more at this very moment with its volatile nature) bitcoin is redefining investing in the 21th century.  What in the world is bitcoin? There are two distinguishing characteristics of bitcoin that sets it apart from traditional investing; it’s a cryptocurrency and it’s decentralized.

Cryptocurrencies are digital assets designed to function as mediums of exchange. Unlike traditional currencies cryptocurrencies or not tangible but instead stored in one’s computing devices. Systems of complex algorithms are utilized by cryptocurrencies to help secure transactions, control the creation of additional units, verify orders and even sort the order by which the translations are processed.

In addition to being a cryptocurrency, Bitcoin is also decentralized. There isn’t a central repository of information, no central management, and, crucially, no central point of failure. How it works is that every owner of Bitcoin has his or her own set of records on how much every other Bitcoin owner has. Theoretically, all records should match up. When a transaction is made, information would be broadcasted to all Bitcoin owners and all records would then be updated. As a result, the value of Bitcoin is not dependent on any single individual party.

Bitcoin happens to be the first decentralized cryptocurrency, and since its creation many other cryptocurrency has appeared on the market. Unlike stocks, the value of these cryptocurrencies is dependent on the faith that their users have in them. The price of such currency will continue to grow as long as people believe that the currency has value.

Classic Rivals

A few years back, some devious Coca-Cola employees sneaked off with the formulas to the best-selling soft drinks on the market and attempted to sell them to Pepsi. These fellows thought they were going to be rich! Little did they know, their futures entailed jail time.

With cooperation from Pepsi, these thieves were caught and Coca-Cola’s corporate secrets were safe once again. Now you might be thinking, why didn’t Pepsi capitalize on this opportunity to make huge profits? Were they just trying to “do the right thing”?

Well it turns out, knowing Coke’s secret is probably worth almost nothing to Pepsi. Here is why:

Scenario one: Pepsi decides to release Coke’s Formula to the public.

Under this situation, numerous producers would enter the market producing drinks that taste just like the Coke’s products. At stores, there would be options to buy a variety of generic Coke knockoffs that would cost less than the Coca-Cola brand. As a result, the price for Coke products would plummet which is obviously bad for Coke. However, it would most likely be bad for Pepsi, too. With cheaper soft drink options, consumers would drift from purchasing Pepsi products to cheaper varieties of Coke. Thus, Pepsi would lose profit.

Scenario two: Pepsi decides to produce their own Coke-like beverage.

If Pepsi decides to withhold the formula from the public while introducing their own line of Coke-like products, would it help them make a profit? In economics, Coke and Pepsi are considered substitutes. Consumers would often decide on one or the other to satisfy a certain need. However, if Pepsi started to produce their own Coke-like drinks, the products of the two companies would now be considered perfect substitutes. If there is no difference between the products of the two companies, consumers will always choose to purchase the cheaper ones. This effect would lead to what is called a price war which would ultimately drive down the prices of both companies resulting in less economics profit.

Benefiting From Higher Prices

We have all had moments where we wished something was cheaper so we can afford it. However, it has come to my attention that somethings are just better for the society if they were more expensive. Let me explain.

At the end of every school day, students who drove to school rush to get into their car in order to beat the traffic. Despite their efforts, the road in front of my school is still often congested resulting in long lines of idling cars. The wait can range from a few minutes to even half an hour! Not only is the time of the people waiting in the car wasted, but the cars also burn gas which costs money and is bad for the environment. These negative effects might not be significant at first glance but over time, they cumulate to be a huge loss of resources for our society. At this point you might be wondering: is there even a feasible solution to this problem?

Well, I believe one solution (probably an unpopular one) is to raise the prices of the parking spots purchased by the students at the beginning of the year. By doing so, students will reevaluate their choice of buying a spot and only those who really want one will purchase one. The overall number of spot sold would drop, resulting in less traffic every day. People might get angry at the raise of the price but if we think about it, the value of the spots goes up if less people end up purchasing them. With less spots sold, the wait time after school would be reduced or even eliminated. This change would reduce the time and gas wasted if there were more cars that needed to leave every day. The school might also raise more money that they can reinvest back into the betterment of the academic environment. Sounds pretty nice right?

This concept of raising prices to improve the overall efficiency of the society can also be applied to gyms memberships, gas prices, education etc. The basic principle is that all facilities have a optimal capacity of usage and when the usage is above the capacity, one can raise the price to help optimize the facility once again.3783492242_494f628a71_b

More Than Just Paper

 

During the weekends, I work as a host in a busy breakfast dinner. Every day, hundreds of customers would flow through the restaurant, filling their bellies with delicious food. Recently, one customer has caught my attention. Every weekend, this jolly old gentleman would take a seat at our counter and clip a note onto the ketchup holder for the hosts and servers to see. The note would start off with a friendly greeting that I always found to be heartwarming. Following the greeting, there would be a fun fact, ranging from historical backgrounds of obscure holidays to random behaviors of animals. Regardless of what it was for the day, the facts had never failed to amuse me. Lastly, to top it all off, the note would always end with his order which is the same every week.

As a student, I receive many sheets of paper on a regular basis, but rarely do a single sheet give me as much satisfaction as the note that this customer brings every week. I was blown away at how one sheet of paper worth less than a cent at the store can put smiles on the faces of my co-workers and myself. From an economics point of view, this guy is a master of maximizing utility!

In economics, utility is the measurement of satisfaction that one receives from a certain product or situation. Every decision we make in life can be viewed as a comparison between utility gained from one option to another. To obtain the most satisfaction from the limited resources that we have, we must think of ways to maximize utility.

A single sheet paper isn’t worth much by itself. Frankly speaking, one can easily buy hundreds of them without making a dent in his or her wallet. However, when one puts words or images on a sheet of paper, the value of the sheet has the potential to increase dramatically. The customer did just that.

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Economics – Allocation of Resources

Hello! Blank is my name, and I am here to share stories from my daily life through the lens of economics! As residents of a world with limited resources, I believe it is of our utmost interest to examine everyday choices and evaluate their effectiveness in achieving maximum efficiency.

Inspired by renowned economists, Steven Lewitt and Stephen Dubner, I strive to point out the non-obvious mechanics behind ordinary actions. Why do we pay for water in a bottle when we can get water for free? Why do we tip waiters but not flight attendants? Why did flight attendants get angry when I tried tipping them? These are just a few questions that Lewitt and Dubner tackled in their blog and I hope to address a few of my own in the future.

Personally, I believe it is a blessing that we reside in a world with the concept of money. It shows a fundamental level of trust between people across the world that allows for trade on even a global scale. Money acts as a tool that effectively allocates limited resources throughout trade networks. Assuming all else is the same, people who are willing to pay more for a product wants a product more than someone who is willing to offer less. Money allows the society to distribute goods to people who value the goods at a higher level, thus increasing the overall amount of satisfaction that can be obtained by a set amount of resources.

Unfortunately, not all circumstances can be simplified to the situation described above. The world is complex and I strive to gain an better understanding of it starting with the things occurring around me. As a economist in training, I will share with you the fruits of my investigation.