Last week, we solicited your questions for economist Emily Oster, a Freakonomics favorite and author of the new book Expecting Better: Why the Conventional Pregnancy Wisdom Is Wrong-and What You Really Need to Know. Oster’s answers are below and address everything from how fertility declines with age to whether pregnant women can still safely indulge in caffeine, fish, and transatlantic travel. A big thanks to Emily — and to all of you for your excellent questions. Read More »
A new paper in the American Economic Review (abstract; PDF), summarized here, finds that Americans aren’t very consistent when thinking about financial risk. Liran Einav, Amy Finkelstein, Iuliana Pascu, and Mark R. Cullen, analyzing how people choose health insurance and 401(k) plans, found that “at most 30 percent of us make consistent decisions about financial risk across a variety of areas.” Their data set includes 13,000 Alcoa employees:
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Because employees were making decisions in both the health-care and retirement domains, the researchers had the opportunity to see how the same individuals handled different types of choices. Or, as Finkelstein puts it, the economists could ask: “Does someone who’s willing to pay extra money to get comprehensive health insurance, who doesn’t seem willing to bear much financial exposure in a medical domain, also tend to be the one who, relative to their peers, invests more of their 401(k) in [safer] bonds rather than stocks?”
Our latest Freakonomics podcast, “The Season of Death,” explored the relative danger of some favorite summertime activities — all of which claim many more lives than the much-feared shark attack. Foreign Policy has compiled a list of 10 things that kill more people than sharks. Our favorites: trampolines, roller coasters, and vending machines. Also on the list: aggressive TVs or furniture:
Crushed by television or furniture: 26.64 deaths per year. As I’ve noted, this is a bigger killer of Americans than terrorism, which led to this Colbert Report Threat Down warning against the perils of “terrorist furniture.”
Our latest Freakonomics Radio on Marketplace podcast is called “The Season of Death.” The gist: Summertime brings far too many fatal accidents. But the numbers may surprise you.
If you’re a longtime reader, you probably already have an idea of what we’re talking about. Human beings are, in general, quite bad at assessing risk. We tend to be scared of big, noisy, anomalous events – like shark attacks, which in an average year kill fewer than five people worldwide — while overlooking the seemingly quotidian reality of, say, drowning deaths (about 4,000 per year in the U.S. alone) and motorcycle fatalities (about 4,500 U.S. deaths annually). We have been exploring this idea since Freakonomics, where we asked whether a gun or a swimming pool is more “dangerous.” Read More »
According to new research from psychologist Heath Demaree, of Case Western Reserve University in Cleveland, Ohio, people who’ve experienced surprising outcomes in various situations — whether those outcomes were good or bad — are less likely to take risks in the future. In other words, it’s not whether you win or lose, but whether the outcome is expected. People appear to decrease their risk-taking levels after experiencing any surprising outcome — even positive ones.
“Surprising events are known to cause animals to stop, freeze, orient to the surprising stimulus and update their schemas of how the world works,” Demaree said. “Our recent research suggests that surprising events also cause people to temporarily reduce risk-taking.”
New research (summarized in the BPS Research Digest) from psychologists Jonathan Weaver, Joseph Vandello, and Jennifer Bosson indicates that men whose masculinity is threatened become “myopic and more prone to take risks.” Here’s the abstract:
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Among the conjectured causes of the recent U.S. financial crisis is the hyper-masculine culture of Wall Street that promotes extreme risk-taking. In two experiments, we found that threats to their manhood motivated men to take greater financial risks and favor immediate (vs. delayed) fiscal rewards. In Experiment 1, men placed larger bets during a gambling game after a gender threat as compared to men in an affirmation condition. In Experiment 2, after a gender threat, men pursued an immediate financial payoff rather than waiting for interest to accrue, but only if they believed their decision was public. When the decision was private, gender-threatened men did not show the same desire for immediate reward. These results suggest that gender threats may shift men’s financial decisions toward more risky and short-sighted public choices.
In The Atlantic, Megan McArdle traces the economics of ransom negotiation:
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Economists would describe hostage negotiation as a bilateral monopoly price negotiation that is structurally just a special case of chicken. That is, unlike a barrel of oil or a freight car full of soybeans which can trade on an extremely liquid market with innumerable buyers and sellers, a hostage has exactly one seller (the kidnappers) and exactly one buyer (the employer and/or family of the hostage). When there is only one buyer, the opportunity cost for ransoming the hostage is zero.
A reader we’ll call H., who’s in the rental-property business, writes in with a bizarre story about his bank. Assuming it is at least 60% true from both sides (his side and the bank’s), what are we to make of this?
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My partner and I were looking to obtain a small business loan. Our banker told us that loans are very hard to obtain because banks are being very stringent. Not like we were going to shut down without a loan, but we figured it could help us grow the business. So, in an effort to build credit (and a good relationship) for our business with a major U.S. bank, my partner and I proposed to our banker that we would give him $50,000 cash to hold onto and in return, have the bank loan us $50k for 5 years. Basically we were securing the loan with cash as collateral. This way, we could prove to the bank that we are a responsible business and were hoping that after this first loan, the bank will be willing to lend to us in the future with more favorable terms.