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.