An article in the most recent JDM makes two valuable points – sometimes winning is losing, and we’re ok with that. Some individuals are more likely to over-bid, purchasing a lottery for more than it’s best possible value. Why might they do this? Because to some people, very competitive people, it seems that “winning” is as (more?) important than making a genuine profit. This effect is probably reinforced in circumstances that meet the Winners Curse, in which optimism about ones incomplete information is compounded by a desire to “win”.

I’ve wondered about the following question a number of times: How might the fact that we operate in base-10 (0,10,20…100…200) influence our decisions? We all know that we occasionally make decisions based on simply rounding up or down. But do round numbers influence trading in the stock market - for example, when setting stop or limit orders? Consult a new paper in Management Science: This paper provides evidence that stock traders focus on round numbers as cognitive reference points for value.

The vast majority of research on individual investors’ performance gives a depressing view. The conclusion is usually that individual investors hurt themselves by their trading, and would achieve higher returns adopting a more passive buy and hold strategy. This implication is often incorrect, and many of the studies need to read critically to understand exactly what they are saying. I think there are three implied questions which are answered by these studies:

Historically, I think Americans have been pretty happy with procedural fairness. If we know the rules are applied fairly, we can accept unfair-seeming outcomes. And this is most relevant when seemingly unfair outcomes happen, when some people take home a much larger slice of the pie. However, what if we don’t know how “fair” the rules are? How am I supposed to know if the modern economic system is fair, in terms of procedure?

Do wages in the banking sector reflect “conspicuous consumption?” Yes, bankers like showing off their wealth. But perhaps that’s not the problem. I see the opposite end of this in my volunteering. I help out at an employment center, and was helping a woman write up her resume. She had cleaned and done inventory for a living, and was still searching for a job in similar low-wage occupations at the age of 50.

My senior thesis was on the potential effects of wind energy on electricity markets, so I was very happy to see questions (HT MR) about the short-term/long-term dynamics of electricity markets. I want to focus on exactly the same issue, but as regarding wind-power. Photo by Thomas Reaubourg For a quick background, electricity markets are one of the more unusual, in that generation capacity takes a long time and a lot of money to increase (in the form of generation plants), and the larger the up-front capital costs of the plant, the lower the per-unit marginal costs of generating electricity.

Over at the NYTimes Bucks Blog, people are angry that a bank might actually charge you for the services they supply. This reminds me of people who think they shouldn’t have to pay for investment advice either. Why would someone invest their time, resources and set up the required infrastructure for [running a bank account / giving investment advice] unless they thought they would make a living doing it? They need to get paid somehow too, and the question is, how?

Holidays and vacations are wonderful. They give use a break from the stress and monotony of the workplace, a time to catch up with friends and family, and a chance to see new and exciting places. And part of the enjoyment of a holiday is looking forward to it. Knowing that you have something good coming up lets you enjoy that experience before you even have it, and can change your well-being long before you actual experience it.

Last week saw a couple in Scotland win the £161 million Euro-millions lottery, a truly enormous amount for any individual to suddenly have in the bank. Research indicates that they need to approach their new-found wealth as a source of potential danger as well as happiness. What do we know about the effect of winning the lottery (or unexpectedly inheriting a significant sum)? Obviously, they are now freed from the worries and stresses that come with not having enough money.

From the department of “No, really?”, a new paper showing that we are happier on weekends: This paper exploits the richness and large sample size of the Gallup/Healthways US daily poll to illustrate significant differences in the dynamics of two key measures of subjective well-being: emotions and life evaluations. We find that there is no day-of-week effect for life evaluations, represented here by the Cantril Ladder, but significantly more happiness, enjoyment, and laughter, and significantly less worry, sadness, and anger on weekends (including public holidays) than on weekdays.