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Showing posts from April, 2010

Behavioural politics, day 22 of 30

A bit of personal news first: CountMyVote was mentioned on Rory Cellan-Jones' blog and over 7,000 people arrived via that or the twitter links that followed it - an excellent combination of PR and viral marketing. Some very striking results emerged - the Lib Dems are way out in the lead on 62%, with Tories and Labour both in the mid-teens. This of course reflects a very specific demographic on twitter, but more importantly the emergence of a nascent movement, Obama-style.

Other campaign news today:

The Institute for Fiscal Studies has accused all three parties of hiding from voters the extent of public spending cuts required after the election. I would dispute their economics a little, but the behavioural point is that it creates an opportunity for one party to get some social proof by changing course and publishing a list of cuts which might win IFS approval. The IFS, incidentally, is universally described as a "respected" think tank whenever it's quoted on TV or ra…

Behavioural politics, day 21 of 30

End of week three of a campaign that has been very unpredictable. Yet despite the twists, I find myself frequently impatient for something else to happen. Am I spoiled by life at the speed of twitter? "Internet speed" doesn't quite describe it any more - I realise with amazement that I'm not far from my twentieth year on the Internet, and life certainly didn't feel like it was unfolding at this pace when I started.

I built a new website from scratch on Thursday, launched it on Sunday and it reached 7,000 visits on Tuesday. Yet I'm already impatient that it only had 3,000 on Wednesday and trying to work out how to promote it further tomorrow. Tonight I've been interviewed on the BBC and tomorrow I'm meeting a major industry figure to discuss the rise of behavioural economics. So why do I need extra political news to keep me even busier? Well, today we've definitely had some of that. However, I'm still a couple of days behind on these reports, s…

A new behavioural economics buzzword: Fudge

Martin Wolf has described the eurozone rescue package for Greece, correctly, as "a fudge".

However, he thinks this is a bad thing. Here's why it might not be.

One of the key goals in designing a rescue package is to avoid creating moral hazard - the risk that other countries look at the bailout, assume that they will be rescued too and therefore continue to borrow.

If the rules for the bailout are clearly stated, that creates an anchor which encourages people to trade up to it. The most obvious example is the Maastricht treaty rule which stated that countries in the EU must keep their fiscal deficit below 3% of GDP. Guess what size of deficit most countries ended up with? Around 2.9% was a pretty common figure.

So if the rules for the rescue were made explicit, it would give governments very clear guidance on exactly what risks they could take. Inevitably, some would be tempted to push it to the limit - and fall over that limit, in the knowledge that the rescue would com…

Behavioural politics, day 20 of 30

If Labour's going to make a fightback, it better start today.

Nick Clegg may have made his first tactical mistake - allowing himself to be led, in a TV interview, into making an apparent commitment not to enter a coalition with Gordon Brown as prime minister if Labour comes third in share of the vote. This is a surprisingly concrete commitment, and provides more ammunition for opponents to use against him than it does for him to strengthen his position. By precommitting himself, he loses a lot of power in electoral game theory; he has to hope that it gains him enough to make up for it.

The other problem for the Lib Dems is that the News of the World has dug up a poll showing their support falling by about eight percent, putting them well back in third place. Together, these events offer the other parties the chance to create a narrative about Lib Dem hubris, overreach and collapse.

Some policy today. Labour with a believable, therefore clever, attack on Tory policy - suggesting th…

Behavioural politics, day 19 of 30

Saturday is often a quiet day in the campaign, and both Nick Clegg (day off) and David Cameron (sister's wedding) were spending time with their families today.

Gordon Brown wasn't - instead, he spent it with an Elvis impersonator in a somewhat ill-judged campaign stunt.

Labour seems to be showing a bit of desperation in its strategy at the moment. I'm all in favour of lots of activity - the more you expose yourself to voters, the more chance one of your messages will resonate. It's the salami-slicing principle again. But there are two caveats to this:

The first is that the UK's balanced coverage laws mean that even if Labour holds five times more campaign events than the Tories, they have to get the same amount of TV and radio coverage. So it may be better to have a small number of events with a highly focused, controlled message than dozens of half-hearted low-quality promotions. This argument doesn't apply to newspaper coverage, and it could be a successful st…

Behavioural politics, day 18 of 30

Note: blogging has been slightly delayed the last few days - I've been working on a new website, CountMyVote, where UK voters can state their voting intentions in order to gauge whether their chosen party has a chance or if it's worth voting tactically. If you're in the UK, please click through and cast your vote and help us build a picture of likely voting across the country.

Friday, of course, was all about debating the outcome of Thursday's debate.

The consensus that emerged (after a disputed Yougov poll put Cameron slightly ahead) was that everyone was about equal, but some were more equal than others. Gordon Brown got more negative than positive ratings, and Labour continues to trail in most polls.

Better news for Brown in the real world, as the economy grew by 0.2% in the first quarter. David Smith thinks this number is likely to be revised upwards, with good reason. Labour still have about twelve days to capitalise on this, but they'll have to start soon.

The…

The economics zeitgeist, 25 April 2010

Image
This week's word cloud from the economics blogs. I generate a new cloud every Sunday, so please subscribe using the RSS or email box on the right and you'll get a message every week with the new cloud.
The words moving up and down the chart are listed here.
I summarise around four hundred blogs through their RSS feeds. Thanks in particular to the Palgrave Econolog who have an excellent database of economics blogs; I have also added a number of blogs that are not on their list. Contact me if you'd like to make sure yours is included too.
I use Wordle to generate the image, the ROME RSS reader to download the RSS feeds, and Java software from Inon to process the data.
You can also see the Java version in the Wordle gallery.
If anyone would like a copy of the underlying data used to generate these clouds, or if you would like to see a version with consistent colour and typeface to make week-to-week comparison easier, please get in touch.

Behavioural politics, day 17 of 30

The two stories of today are all about Nick Clegg:

There's a debate tonight. Would Clegg perform as well as last week and maintain momentum, or would he be successfully neutralised by the other two (mainly, that is, by Cameron)?The Tory-supporting papers have decided now is the time to focus all their fire on Clegg. Will it work?The debate itself was quite interesting - a much more even performance than last week's.

Brown is clearly hoping that people will focus on policy by now, but it's too early for that. The debate format is still a novelty - all the attention is therefore on presentation and on what the three leaders have learned or changed since last week.

This inevitably makes it another expectations game - Clegg was expected to be not quite so dominant, Cameron to be a bit better, Brown to be the same old Brown. And nobody did anything obvious to break out of expectations - so the debate will have mostly triggered the confirmation bias for voters' existing attit…

Behavioural politics, day 16 of 30

I'm writing this at the end of day 17, which has been much more exciting. But back to day 16 (Wednesday) first.

David Cameron has been hit by an egg, which seems to be a tradition of political campaigns nowadays. No real harm done except that eggs are only thrown at people with a chance of winning (and occasionally at people like Nick Griffin of the BNP, but that's a different motivation). So, paradoxically, the egg is probably good for Cameron - confirming that he's still the front-runner. This brief history of egg-throwing confirms that most politicians who've received an egg, a punch or an unexpected buttonholing have gone on to win the election - the exception being Harold Wilson in 1970.

The story of the day, insofar as there is one other than tomorrow's debate, is the IMF. Not the IMF's bank tax, which could trigger an interesting policy discussion. But whether, under a hung parliament, the IMF would have to bail out the UK's public finances. Ken Clar…

Behavioural politics, day 15 of 30

Are we really only halfway through this election campaign? Things are no longer moving at the pace they started out. But there are still a few interesting nuggets each day from the behavioural point of view.

Gordon Brown is using a (by now standard) concession-and-request strategy, admitting that the liberalisation of drinking laws was a mistake and therefore gaining credibility on his defence of other policies.

Nick Clegg has made a populist suggestion that Goldman Sachs should be suspended as a government adviser while it's under investigation by the SEC for misrepresentation. A clever tactic, because it feels cost-free but satisfies voters' desire for fairness. Labour, as governing party, was forced to say that it would not be doing anything of the sort - of course, they probably have no choice (contract law, after all, being a rather fundamental part of our lives) but it makes look less tough on the banks.

David Cameron has ripped the head off a chicken (a human chicken th…

Is the IMF taxing the wrong things?

I have no objection in principle to higher taxes on banks. But the IMF's surprising proposal (outlined by Robert Peston here) may not quite be taxing the right thing.

If the goal of the tax is to pay for the externality imposed on taxpayers by bank behaviour, that's fair enough. In line with the principles of Pigovian taxation, the tax should fall on the activities which impose those costs. That way, it's fair and also creates the right incentives, to shrink those activities if they do not benefit society enough to justify them.

The first part of the IMF's tax seems to fit this principle. Peston doesn't explain what this "flat rate" would be levied on - I assume it isn't literally a flat rate, otherwise Goldman Sachs or Citigroup would pay the same amount as the Cheltenham Building Society or the Third State Bank of Des Moines. Presumably therefore it will be in line with the recent Obama proposal: a percentage levy either on total assets or on risky,…

Behavioural politics, day 14 of 30

As the second week of the campaign draws to a close, it's becoming clear that (whatever the parties want to announce) the media's only interest is in the fights debates on Thursday evenings.

There's a small window for policy announcements today - about four days after the debates, the gossip has died down a little - but tomorrow it will pick up again in advance of Thursday's foreign policy debate.

So what are the parties doing to take advantage?

Not much - most of the discussions are meta-conversations about whether a vote for the Lib Dems will let David Cameron in, or let Gordon Brown in, or if a hung parliament will be good for the Ulster Unionists or bad for the bond market.

But if we can ignore that, there a few other issues showing through the fog:

A Labour candidate in Birmingham has created a leaflet claiming that the Liberal Democrats want to give paedophiles the vote. A risky tactic - it may well work emotionally, pushing a combination of buttons to do with fea…

The economics zeitgeist, 18 April 2010

Image
This week's word cloud from the economics blogs. I generate a new cloud every Sunday, so please subscribe using the RSS or email box on the right and you'll get a message every week with the new cloud.
The words moving up and down the chart are listed here.
I summarise around four hundred blogs through their RSS feeds. Thanks in particular to the Palgrave Econolog who have an excellent database of economics blogs; I have also added a number of blogs that are not on their list. Contact me if you'd like to make sure yours is included too.
I use Wordle to generate the image, the ROME RSS reader to download the RSS feeds, and Java software from Inon to process the data.
You can also see the Java version in the Wordle gallery.
If anyone would like a copy of the underlying data used to generate these clouds, or if you would like to see a version with consistent colour and typeface to make week-to-week comparison easier, please get in touch.

Ten ways to (c)ash in

Profitable and not-at-all exploitative recommendations for transport and accommodation providers seeking to make the best of this week's Icelandic volcano:
Create a steep demand curve for your tickets but start low. If you simply ramp up the prices of your train tickets, ferry berths or car rentals, you'll be accused of price gouging. Short-term gain but long-term hit to reputation. Instead, sell the first few tickets at the same price as you normally would, so that you can claim not to be exploiting anyone, but as your capacity fills, increase price steeply. I suspect this is what Eurostar is doing, but they're still being criticised for exploitation - so the next tip is:

Make a big noise about how you're contributing to the rescue effort. We're all in this together you know, it's the Dunkirk spirit and all that. You're laying on extra buses, trains and ships - and while you need to ask a fair price to help cover your costs, you're saving people hundreds…

The axis of Asia

David Cameron has been criticised for saying during the debate that China was a potential nuclear threat to the UK.

However, Chris Huhne's slip of the tongue in the post-debate analysis went almost unnoticed. He claimed that the risk was not from China, but instead from rogue states like Iran...and South Korea.

I now await the set to be completed with David Miliband's declaration of the imminent nuclear threat from Japan.

Behavioural politics, day 13 of 30

Finally on Sunday, there was a new political issue to talk about, other than whether Nick Clegg is as loveable as he seems.

Unfortunately for the parties, it wasn't an issue of their choice. A group of Sunday newspapers have contrived to blame politicians for the eruption of an Icelandic volcano. Politicians are wasting time campaigning while a million British people are stuck abroad, seems to be the message. Nobody is sure quite what Brown or Cameron can do to get volcanic ash out of the atmosphere, but no doubt they should be doing something.

So the Tories have released an eight-point plan for tackling the problem, and Brown has convened an emergency meeting or two to decide on the government's actions.

It's not obvious what the political fallout (ahem) from this will be. The Tories have the advantage of being able to propose plans without having to implement them; while the government has the advantage that its statements will actually be listened to, because they will …

Behavioural politics, day 12 of 30

Is it just me, or has the whole election campaign shut down?

What started out as quite a hyperactive campaign - understandably, because events get attention and attention attracts votes - has atrophied in the aftermath of Thursday's debate. The Liberal Democrats are being allowed to entirely control the agenda with an unqualified positive story - a suicidal strategic choice by their opponents.

Labour and the Tories - I'm hesitant to call them "the two main parties" any more - are toying with attacks on the Lib Dems as a way of blunting their progress. The problem with this tactic is that it legitimises the Lib Dems as a serious competitor. And as we've mentioned before, one of the key barriers for the third party in winning votes is the perception that they can't win. If the other parties are running scared, that proves that they can.

There is a more effective technique than warning of the risks of a hung parliament (Cameron's strategy) or trying to make …

An online content business model: The pointless tweet chain

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A really rather odd phenomenon on twitter the other day.

I saw a tweet looking something like this:

This isn't an unusual format - it comes from someone who has set up an automated retweet command, and at the end of each message is a link back to the original tweet. Normally you can click straight through to the original link, but as you can see in this case, the link itself has been truncated, so I need to first click on the bit.ly link to see what it is.

Often I can't be bothered going through this two-step process - Twitter is very much the Internet equivalent of the impulse buy, and two clicks is often not worth it. But this was a story I was interested in.

So I click on the link:


As expected, it's another shortened link - so I click on that too, in order to read the story.

Or so I thought - for some reason, it takes me to yet another landing page:


Maybe @myfxdeals is making his own landing pages for every story in order to generate more clicks? In any case this trunca…

Behavioural politics, day 11 of 30

Nothing seemed to happen on Friday except for post-match analysis of the leaders' debate. But this highlighted an intriguing aspect of the deliberative process: social reinforcement of beliefs.

There have been a number of recent research papers around the idea of deliberation, including John, Smith and Stoker's "Nudge Nudge Think Think" which compares the effects of choice architecture to the effects of open debate among citizens prior to decision-making. Although deliberation arguably gets better results than nudging (though it has a cost, which is the extra time it requires), one of the drawbacks is the risk that everyone converges on a common opinion.

A famous experiment by Solomon Asch demonstrated the power of social conformity in shaping opinions. Even on questions with a clear, objective answer, subjects felt a huge pressure to agree with other observers against the evidence of their own eyes. And in the political world, full of subjectivity, self-fulfilling p…

Behavioural politics, day 10 of 30

That was much more exciting than I expected.

Following the leaders' debate on Twitter added a hilarious dimension - a peanut gallery for the oh-so-serious talk going on on screen. The side-effect was that I hardly noticed what they were saying, and could pay attention to the proper subject of a behavioural analysis: how they were saying it.

On this basis, Clegg undoubtedly came out on top. There were lots of reasons for this:
Expectations. For some reason people thought Cameron would do best (even though he's not a very inspiring speaker at all), and so he was compared to the standard of expectations instead of reality. Brown was expected to be dull and earnest, and mostly was - though a few jokes at Cameron's expense will have delighted Labour partisans. And most people hadn't given much thought to Nick Clegg, so it was the easiest thing in the world for him to beat those non-existent expectations.Mean reversion. In a comment a few days ago, Min pointed out that mean r…

The Prime Ultimatum

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No, it's not a Matt Damon film...


Richard Wiseman has an interesting experiment over at his blog this week. Have a look at it before you read on - or if you do read my post first, please don't participate in his experiment in case you bias the results.


Back now?

The experiment combines two really interesting cognitive principles. It's an example of the ultimatum game, a game theory experiment which measures our attitude to fairness. In a rational world, the person making the split should offer their partner just £1 (or even £0) and the partner would have no reason to refuse. In the real world, people do tend to refuse offers less than about £3, and knowing this, the offerer tends to offer an average of about £4.40, with a strong peak on the even split, £5.

One thing that interests me is that many of the commenters - even though they are on the blog of a leading popular psychologist - have evidently never heard of the ultimatum game, which is one of the most famous experime…

Behavioural politics, day 9 of 30

Wednesday was the Liberal Democrats' chance to hog all the media attention - possibly the first time that sentence has ever been true.

Just to make them wait a little longer, though...I'm first going to mention Gordon Brown's surprising admission that he was mistaken not to regulate the banking sector more tightly when he was Chancellor.

This is an excellent example of concession and request, taking advantage of our bias towards reciprocity to try to create better feelings towards him. It's a dangerous game though, as it competes with a confidence bias which leads us to place more trust in people who are confident. You could argue that by admitting his mistakes he shows greater, not lesser, confidence - certainly when we say somebody's "defensive" it usually means we think they are unconfident. But doing it two years after the crisis started might not be a good tactic. On balance I think it's positive.

So how about those Lib Dems, eh? Striking a balan…

Behavioural politics, day 8 of 30

On day eight, it was the Conservatives' turn to get all the attention as they launched their manifesto.

The most notable aspect of this was the 'big idea' of giving control of public services back to the public - the "Big Society". In fact, the biggest difference between the Tory and Labour manifestos is that the Tory one has a big idea. The Labour document does not have much of a unifying theme while the Conservatives are clearly aiming to define a long-term vision for the country.

Will this work? I have my doubts. The Tories don't need to create a vision - their biggest advantage in this election is the visceral dislike many people feel for Gordon Brown. The more new ideas the Tories create, the more work they have to do to win people over to those ideas - people who could have been in their column by default.

Tim Montgomerie of Conservative Home agrees - the manifesto should have been full of tactical, short-term, salient policies which would resonate with …

Wolf fixes the British economy

Martin Wolf outlines what has to happen to get the UK's fiscal deficit under control while keeping the economy growing [note the similarity to Chris Dillow's argument a few days ago]:
Policymakers must bear four points in mind: first, they must promote the essential strengthening of investment and net exports; second, they must realise that this big economic adjustment is a necessary condition for a durable fiscal improvement; third, they must also prevent the fiscal deficit from crowding out the needed rebalancing; and, finally, they cannot assume that today’s huge fiscal deficits can be comfortably financed indefinitely, should the rebalancing of the economy itself fail to occur.This is going to be a very tricky policy performance.I agree with the diagnosis. But it raises a different question which is not answered: why does not the market solve this problem?

Some would argue that public sector borrowing itself causes the problem - if the government did not run a deficit, the …

Behavioural politics, day 7 of 30

And on the seventh day...Gordon Brown launched the Labour manifesto.

This was a good opportunity for Labour to deepen the public's engagement with their ideas. The more rational the conversation, the more the two main parties are likely to equalise. Both are skilled at targeting the median voter - democracy provides a strong competitive pressure to build a coalition of voters just big enough to win, without becoming so centrist that your base vote doesn't turn out.

Therefore, if the choice is made purely on the issues in the manifesto, the parties should end up with a similar share of vote - which would certainly be a position Labour would be happy with, given where they are starting out. What's more, the media gave Labour most of its attention throughout the day, temporarily free of the obligation of balance (the Tories are launching tomorrow and will no doubt get the same favour).

The manifesto reads well (at least the part on the economy, which I read in detail). It has…

Gift voucher arbitrage

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I received the following emails today:


What should I do? Are these two offers exactly equivalent?

The John Lewis voucher somehow sounds better, because they sell better stuff. I could get (a fortieth of) a Macbook!

Then again, I buy stuff in M&S more often, so the voucher is more likely to be used - and I could get a very nice dinner there for £25. If they'd offered to buy me dinner in return for my time, I'd probably be even better disposed towards them.

And yet, if a client offered me £25 cash for 30 minutes work, I'd turn it down. Is it possible that I feel more positive towards B2B Marketing and Vocus than I do to my clients? Hardly.

The only possible rational explanation is that I am less worried about establishing a reputation for cheap work in the eyes of a market research company than in the eyes of my customers. If this were happening, it would be a strange form of intuitive price discrimination. But this isn't really what is going on.

It's simply that…

Behavioural politics, day 6 of 30

An interesting challenge to Labour today - they have been accused of using personal medical data to send leaflets to cancer patients, claiming that care would be cut back under the Tories.

We don't yet know the truth of this - Labour has denied this kind of targeting and I'm not sure how they would get access to such data anyway. But it's quite likely that the mailing is not targeted at all, and the suspicion arises from a horoscope effect or dog-whistle rhetoric.

Imagine you open up the newspaper to read your horoscope. Today, it says, you're going to face the recurrence of a challenge from the past but your innate fortitude will help you overcome it. And a communication from a friend will remind you that you're well-loved. Well, it isn't too difficult for that prediction to come true - we can all map our lives into this kind of vague "prediction".

Similarly, dog-whistle phrases are recognised and resonant with those to whom they're important, wh…

Behavioural politics, day 5 of 30

The "marriage tax" is the dominant discussion of Saturday, and illustrates an important point. The influence of an issue does not depend on its financial value.

There's a relatively tiny amount of money at stake - £150 a year for about 3 million people - but the Tories intend it to send a clear signal that they are the party which supports marriage.

The price elasticity of marriage is very low (though not zero) - there has been some actual research on this, though I think the paper reveals more about people's aversion to blood tests than it does about money. In any case, it seems unlikely that many people will actually get married (or stay married) because of this. But the Conservatives would like to be associated with the moral position that people should be married.

This is a common tactic in the commercial world. Remember in the 1980s when you used to get free glasses for buying petrol? The value of the glasses was probably no more than 1% of the price of the petr…

The economics zeitgeist, 11 April 2010

Image
This week's word cloud from the economics blogs. I generate a new cloud every Sunday, so please subscribe using the RSS or email box on the right and you'll get a message every week with the new cloud.
The words moving up and down the chart are listed here.
I summarise around four hundred blogs through their RSS feeds. Thanks in particular to the Palgrave Econolog who have an excellent database of economics blogs; I have also added a number of blogs that are not on their list. Contact me if you'd like to make sure yours is included too.
I use Wordle to generate the image, the ROME RSS reader to download the RSS feeds, and Java software from Inon to process the data.
You can also see the Java version in the Wordle gallery.
If anyone would like a copy of the underlying data used to generate these clouds, or if you would like to see a version with consistent colour and typeface to make week-to-week comparison easier, please get in touch.

Behavioural politics, day 4 of 30

Day four (Friday) and we're still hearing a bit about national insurance. The focus has moved firmly away from discussion of the tax itself, and onto whether the required spending cuts will endanger public services and/or the recovery; and onto the meta-debate about the political effects of talking about this policy. From the BBC:
Could the tide be turning in the National Insurance row? Several newspapers lead with attacks on the businessmen who have backed the Conservative stance. Perhaps the Tories hope their married couple's tax break will move the debate on over the weekend before any sort of potential backlash can gather steam...Other than that, it's hard to discern much a theme in the day's events:
A bit more heuristic optimisation in the Lib Dems' game theory, trying to get the benefits of tactical voting without losing out on it to Labour, while simultaneously avoiding burning any potential bridges with either main partyThe Tories are accumulating yet more so…