econlife - The iPod, Starbucks, and Richard Thaler’s Behavioral Economics by Elaine Schwartz

Discussing the iPod he designed, Tony Fadell expressed his frustration with products that said “charge before use.”

He remembered arriving home excited about a newly purchased gadget. But then his emotional momentum would hit a wall when he discovered he could not immediately play with it. So Tony Fadell and Steve Jobs created a fully charged iPod that was ready to use.

Fadell and Jobs were not the only ones concerned with emotional momentum.

 

The Starbucks Consumer

Starbucks founder Howard Schulz also targets consumer emotion. When he developed the Starbucks concept during the 1970s, he said they were a “third place,” a home away from home. Now though, with a Starbucks on every street, the allure has diminished.

Globally, you could select among more than 25,000 Starbucks for a cup of coffee:

Realizing there was a niche where he could re-invent himself, Howard Schultz left his CEO position to focus on the chain’s roastery stores. The result so far is more than 30 coffee bars that sell high-end beans and Starbucks regular brews. The chain also projects opening larger roasteries with “rare and exotic” coffees. Resembling a wine bar, these upscale coffee stores will offer small-batch roastings that encourage consumers to spend $5 to $10 and more for a cup.

As was true for the original Starbucks, the experience matters as much as the product.

 

Our Bottom Line: Behavioral Economics

Asked how he was going to spend his 2017 Nobel Economics Prize, Richard Thaler said, “irrationally.” Dr. Thaler explained that (like all of us) he does a mental accounting of his consumption decisions that divides purchases into categories. In the slot reserved for extravagances, he was planning to use the Nobel prize money.

Dr. Thaler’s mental accounting lets us understand consumer spending that will not neatly fit into the logic of traditional economics. In the Thaler model, demand and quantity demanded do not necessarily decrease as prices rise. One reason is his “extravagance slot.”

Through behavioral economics, we can explain our spending on Apple’s products and a $7 cup of coffee (that is mostly water) by recalling the need for emotional momentum.

My sources and more: Sitting here in a typical suburban U.S. Starbucks, I wondered how they could create a better experience and found this Bloomberg article. But then I remembered Tony Fadell’s TED talk and (happily) realized it all fit together. To complete the puzzle, you might also enjoy this summary of Richard Thaler’s work as the father of behavioral economics.

Ideal for the classroom, econlife.com reflects Elaine Schwartz's work as a teacher and a writer. As a teacher at the Kent Place School in Summit, NJ, she’s been an Endowed Chair in Economics and chaired the history department. She’s developed curricula, was a featured teacher in the Annenberg/CPB video project “The Economics Classroom,” and has written several books including Econ 101 ½ (Avon Books/Harper Collins). You can get econlife on a daily basis! Head to econlife.

My Top Three Educational Sites for Middle School Social Studies by Mike Siekkinen

Brainpop.com- very reasonable pricing for a school license. Fun, fast and informative website for history, geography, economics and culture. I use the site to supplement my classroom instruction. Students receive a login and password and then go to the topic I assign. I have students view the video that is with each topic and then explore the area. There are games and activities associated with each of the topics as well as a quiz on the subject matter. I have my students email the results or take a screen shot of the final results. I place an 80% or higher requirement on students and they are allowed to retake the quizzes until passing grades are obtained. Site is fun and middle schoolers are not to “old” for cartoons!

Icivics.org- awesome free website on government and politics. Lots of games that are fun and educational. Also many levels, so this site can work for all ages. Games are interactive and are great to use when teaching government. Website has the endorsement and a founder of none other than Sandra Day O’Connor. Lots of fun and you sneak learning in. My students really enjoy this site.

Freedomflix.com- interactive online textbook that is great for teaching civics and history. Very reasonably priced for a site license. I design web quests for my students. Each lesson has a video, interactive text with vocabulary and includes maps, timelines and pictures. Really great site that I use weekly. My students are always on a web quest supplementing my classroom instruction. I assign students web quests in Google classroom where they have options for submission of my web quest information to allow for differentiation.

Dr. Mike Siekkinen, a retired U.S. Navy submariner, became a teacher as a second career. He teaches history at St Marys Middle School as well as Adult and Career Education at Valdosta State in Georgia.

econlife - The Story of a Nudge and the Nobel Economics Prize by Elaine Schwartz

A 70 out of 100 points and a 96 from 137 are the same grade. But Richard Thaler’s students did not think so. Told they got a 70, most were angry. But the 96 made them happy. Thaler even said that scores above 100 generated “a reaction approaching ecstasy.”

A rational thinking economist would say a 70% on a test is a 70% no matter what the point score. However, Richard Thaler is an economist who believes people can behave irrationally. And for that reason, he is the 2017 recipient of the Nobel Memorial Prize in Economics.

Thaler’s Nudges

By understanding the gap between economic logic and how we behave, Richard Thaler with co-author Cass Sunstein created a new niche for public policy called the “nudge.” Behavioral economists call it choice architecture. They are “organizing the context in which people make decisions.”

Thaler reminds us that public and private programs shape our behavior. So why not “organize the context” to optimize results? Deciding whether to save for retirement, most of us take the default option. Consequently, that default should be an optimal choice. To maximize tax revenue, government’s nudge squads have discovered that they need to tell scofflaws that their neighbors pay taxes. Emphasizing a social norm gets more money than frightening people with penalties.

Similarly, Dr. Thaler explained that consumers will not necessarily do what economists expect. One tendency is to look back at sunk costs (what we have already sacrificed) rather than assessing future tradeoffs. If we wait for someone to pick up the phone, we have a greater tendency to continue waiting. If government starts a project, it is more likely to try and finish it. In each instance, the decision makers are ignoring the current cost of proceeding. Instead they are looking back.

In a The Big Short (2015) cameo, Dr. Thaler briefly tells Selena Gomez about the Hot Hand Fallacy:

  

You can see where all of this is going. The rational economic thinker cares about opportunity cost. Believing in the “hot hand,” she pyramids a bet and then loses. A behavioral economist can explain why our behavior is less than optimal.

Our Bottom Line: Libertarian Paternalism

Taking the final step with Richard Thaler’s work, we wind up with policy suggestions. In contrast to Adam Smith’s invisible hand, the nudge recognizes human irrationality. But like the invisible hand, it can bring the best out of us.

Talking about the nudge, Thaler and Sunstein called it libertarian paternalism. It is libertarian because you don’t have to listen to the nudge. But it is also paternalism because a more powerful authority is trying to manipulate your behavior.

And that returns us to a 96 on that 137 point test. You can recognize it as a 70/C or just be happy with your 96.

My sources and more: For Thaler the person, I recommend this Chicago Tribune article. Combined with this discussion of his work, you get a portrait of a fascinating gentleman and scholar. But, if you just want the grades story, it is in the NY Times.

Ideal for the classroom, econlife.com reflects Elaine Schwartz's work as a teacher and a writer. As a teacher at the Kent Place School in Summit, NJ, she’s been an Endowed Chair in Economics and chaired the history department. She’s developed curricula, was a featured teacher in the Annenberg/CPB video project “The Economics Classroom,” and has written several books including Econ 101 ½ (Avon Books/Harper Collins). You can get econlife on a daily basis! Head to econlife.

econlife - Choosing the Best Healthcare Country by Elaine Schwartz

The one number we can be sure of for the Cassidy-Graham Healthcare Plan is 141. Its length is 141 pages.

With no “score” from the Congressional Budget Office, lawmakers have no shared estimate of its fiscal and coverage impact. Meanwhile, predictions vary among respected experts. So, because the healthcare legislation has been in the news, let’s begin will a quickie summary of the plan and then an international overview that could be helpful in the future.

Under the Affordable Care Act, the federal government has a direct massive financial obligation in these three areas:

But, under Cassidy-Graham, those $1.4 trillion in federal obligations get shifted to individual states through block grants. And, each state can decide what it wants to do with those responsibilities. And, the amount states get will not necessarily correspond to what they now receive. So, depending on the state, a lot can change.

In this quickie video from a healthcare expert, you can get a sense of the legislation. Although Dr. Carroll’s bias is quite clear, still, the facts come across:

 The Best Healthcare Country

The Best Healthcare Country

Through a healthcare tournament, the NY Times let five experts and more than 50,000 readers choose a winning healthcare country. The competitors were eight nations. The ladder was like any in a tennis or soccer match.

Britain v. Canada

When Great Britain and Canada battled each other for the single payer title, Britain won. While Britain’s single payer has government paying and providing the care, the Canadians pay and then primarily have the private sector provide. Britain won for its lower cost and faster access. The expert vote was 4 to 1 while participants were 76% to 23% pro Britain.

U.S. v. Singapore

The main theme for the U.S./Singapore competition was the many ideas that each system combined. Here, the U.S. won for its capacity to innovate. Again, the expert vote was 4 to 1. Although Singapore spends much less and controls much more, there was considerable opposition to its 37% wage tax. The popular vote was U.S. with 56% to Singapore’s 43%.

France v. Australia and Switzerland v. Germany

In the rest of the ladder, we had France against Australia with France winning for its accessibility. Last, Switzerland beat Germany. Then, in the semi-finals, the U.S. lost to France because accessibility topped innovation. With Switzerland against Britain, the market drew more votes.

The Finals

That left them with Switzerland and France and a split opinion. Switzerland won, 3-2 for the experts who especially liked its public/private combination and cost control. But in the popular vote, readers favored France, 57% to 42%.

Our Bottom Line: Fiscal Policy

Because we define fiscal policy as spending, taxing and borrowing, healthcare legislation relates to all three. In the U.S., with the financial problems that Medicare and Social Security will soon experience, the expense of healthcare policy looms large.

However, Cassidy-Graham and the NY Times tournament show us that there is so much more.

When the tournament’s experts expressed their votes, they cited taxes and wait times. They were concerned with accessibility and quality for all socio-economic groups. They brought up efficiency and innovation.

Where does this leave us? With many different variations of universal coverage.

My sources and more: You could start or end with the 141 page Cassidy-Graham Plan or skip it entirely. Instead, I recommend the NY Times Tournament and a series of superb YouTube videos. They covered key healthcare topics and were brief. The Graham-Cassidy video is above. But Aaron Carroll also did healthcare system overviews of the eight countries in the “tournament.” It was a perfect shortcut to some grasp of a complex topic. At the least, it will help you decide and defend your own opinion more knowledgeably.

Please note that I had to decide between Cassidy-Graham and Graham-Cassidy. In the media, there was no consistency.

Ideal for the classroom, econlife.com reflects Elaine Schwartz's work as a teacher and a writer. As a teacher at the Kent Place School in Summit, NJ, she’s been an Endowed Chair in Economics and chaired the history department. She’s developed curricula, was a featured teacher in the Annenberg/CPB video project “The Economics Classroom,” and has written several books including Econ 101 ½ (Avon Books/Harper Collins). You can get econlife on a daily basis! Head to econlife.

Fall Wall by Alicia Stansell

Loving what you do is sometimes easier said than done. As a teacher my heart rejoices when a student reaches understanding of a difficult concept or when a student gets excited about coming to class. During late Fall though it is all too common place to fall on the other side of love, the painful side where circumstances try to convince you that you do not love your job. You put your heart, soul, emotions, and sometimes well being into the job, and wonder if you are making a difference. Seeing growth in student’s takes time, and burn out is high in the teaching profession. It is important to focus on the little milestones. The day to day has many joys and much heartache, so it is all about staying focused on the good you are making in the classroom. Actively seek out the things that made you choose teaching and try to block out the rest. 



Teaching in late Fall is much like swimming to a distant shore. The paperwork, the e-mails, and low grades can create an ocean so deep and vast that you feel alone without hope of survival. You feel your muscles fatigue and contemplate giving up. The more you swim and use those muscles, the greater the pain sometimes feels. Sometimes you just have to lay back, relax, and take a deep breath while watching the clear blue sky. Doing so allows you to float while you recharge those aching muscles so you can find your inner calm. Once your strength is back you can regain your treading towards the shore that will eventually come. Find the good in the day-to-day, search for the clam, and do not be afraid to let yourself relax so you can come back stronger the next day or the next week. 

Give yourself a break so you can keep loving what you do, even when times are hard.

Alicia is in her 8th year of teaching STEM contents with public schools. She believes in the power of education to improve peoples lives. 

econlife - Fracking and India’s Guar Bean Bubble by Elaine Schwartz

Like me, you might have seen guar gum in the ingredients list of a pint of ice cream. Who knew it was crucial for fracking?

The Guar Bubble

Around Lordi, in India’s Rajasthani Desert, farmers grow the guar bean. For centuries it was a dietary staple. But then Western food processors and pharmaceutical companies realized that guar’s ability to absorb water could come in handy. (It’s the guar gum that keeps the ice cream thick.)

For fracking also, guar is a thickener. Because of guar, the water becomes stiff enough to shoot sand sideways through rock. Once the shale fractures, sand particles keep the cracks open for oil and gas to seep through.

We all know that fracking vastly increased U.S. oil and natural gas production. In addition, it spiked demand for guar and pushed prices skyward. However, with acreage increasing, substitutes emerging, and then fracking demand subsiding, after 2013 (see below) guar markets reversed:

It is rather amazing that more than 13,000 miles from the fracking fields, India’s guar bean farmers, traders and processors thrived like never before. FT called it a bean bubble. Farmers built stone houses and bought tractors. There was more money for trips, for dowries, for elaborate weddings.

Our Bottom Line; Supply and Demand

Like peanut butter and jelly, fracking and guar seeds have a complementary relationship. When the demand for peanut butter goes up, we want more jelly. So too, with fracking and guar seeds.

And as you would expect, when price popped, the supply side had the incentive to produce more and develop cheaper alternatives. Supply (and quantity supplied) increased, demand decreased and guar prices dropped. When oil prices crashed in 2014, the boom truly became a bust.

Now? Guar prices are rising again as fracking activity accelerates.

My sources and more: For all you could ever want to know about the guar bean, do go to the NY Times, here, and here, and to Quartz. Then, for the price update, Business Standard data is here and here. Perhaps most interesting though is seeing how guar’s ups and downs resemble fracking’s sand suppliers.

Ideal for the classroom, econlife.com reflects Elaine Schwartz's work as a teacher and a writer. As a teacher at the Kent Place School in Summit, NJ, she’s been an Endowed Chair in Economics and chaired the history department. She’s developed curricula, was a featured teacher in the Annenberg/CPB video project “The Economics Classroom,” and has written several books including Econ 101 ½ (Avon Books/Harper Collins). You can get econlife on a daily basis! Head to econlife.