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Posted 05 Mar 16 by arbelos in Musings on Economics

Most people are taught in introductory economics courses that they should ignore "sunk costs" (costs that cannot be recovered) in their introductory economics courses. But sometimes decisions involving sunk costs can be tricky, as a recent example I came across illustrates.

I have a "friend" who booked a spring break trip to the Dominican Republic with her two kids and husband nine months in advance. About two weeks before they were scheduled to leave, she realized they didn't have a passport for their younger son. They didn't forget, they didn't procrastinate, they didn't think he DIDN'T need a passport (their older daughter had one) - they just didn't think about it. It's one of those inexplicable things like a woman who doesn't realize she's pregnant until she goes into labor. On top of that, American changed their flight itinerary in a way that would make them have to spend a night in Chicago on the way there and probably on the way back. So they were not happy.

As it turned out, it was possible to get a passport on such short notice, but it would involve driving to Chicago (which is 2.5 hours away) during a work day with the son. But the question is, should they do that? Or should they cancel their vacation and stay home? Unsurprisingly, the answer depends on whether or not the airfare and hotel are refundable.

If the trip is not refundable (= sunk cost), it should make my friend MORE likely to go on this vacation than if it's refundable. Why? Because then the (marginal) cost of the nice vacation becomes the time and effort to drive to Chicago, the two nights' hotel stay in Chicago, and the unpleasantness of dealing with all that. That's not too bad for a fancy week-long vacation in the Dominican Republic. On the other hand, if the trip is fully refundable, then you have the costs already listed PLUS the money paid for the trip (because you could get the money back, it's as though it's still sitting in your bank account and you're considering whether to buy the trip). And while my friend was willing to buy the trip when the flights were easier and the document issue was not on her mind, adding these things into the mix tipped the balance against the trip.

As it turns out, the trip was almost fully refundable, so the family decided to cancel the trip. The moral of the story is that whether or not a cost is sunk changes the marginal cost of doing something and you should consider that next time you forget that you need a passport to go to Canada and find yourself without one.

And I'll be staying in Champaign over spring break...



Posted 04 Feb 16 by arbelos in Science

Recently, the CDC recommended that sexually active women who don’t use birth control don’t drink. I’m not talking about not drinking heavily or not getting buzzed. Not drinking at all. Not even a little bit. Not even half a glass of wine. Because who knows what could happen? Even though there seems to be no good evidence that drinking half a glass of wine here and there will do anything bad to your baby, even if you know you’re pregnant (see here, here, and here, for example), why risk it?

So in the spirit of not risking, I think the CDC should extend their recommendations to women who aren’t on birth control to include: no skydiving, no skiing, no biking, no hot tubs, no ibuprofen, no caffeine, no deli meats, and no jogging. Wait, you say. But can’t pregnant women jog? Yes, but we actually don’t know whether it’s safe or not. Even though there isn’t good evidence that it’s NOT safe, why risk it? Clearly, pregnant women shouldn’t sprint, so maybe jogging is bad too.

Oh, and let’s not forget that pregnant women and their unborn babies die in car accidents all the time (here’s one from yesterday). I’m surprised the CDC has not recommended that pregnant women not get into cars. Or even non-pregnant ones. Let’s stay at home barefoot like nature intended.

Update: this article does a great job discussing other issues with the new CDC recommendations. Summary: CDC, I'm very very disappointed in you.



Posted 02 Feb 16 by arbelos in Science

There has been a lot of sickness around my household, prompting me to try to figure out what I could do to prevent myself from getting sick. I found myself taking probiotic pills, even though the germs around my house were not the kind a probiotic could help against. I also drank vitamin C mixes and in general kept wondering about what other non-clinically-tested thing I could take that maybe marginally works. And then I remembered one thing that we know works very well in many situations - sugar pills, aka placebos. In fact, they sometimes work even when people know they're taking a placebo (see here and here). So here's my great business idea: someone should sell placebo pills that people can take when they feel sick.

Now I know what you're going to say - there are many "placebos" out there in the form of homeopathic treatments and herbal remedies. Those things, however, are fairly expensive. Although there's some evidence that more expensive placebos provide more relief (see here and here), the market needs some cheap placebos too. And the best part is that you don't even have to deceive people. In fact, I was surprised to see that no one makes such a thing already (if you want to have a good laugh, google "placebo pills"). You're welcome.



Posted 27 Jan 16 by arbelos in Musings on Economics

Vaccines prevent diseases and that's awesome because even relatively mild diseases like measles and chickenpox kill or disable a minor share of the people they infect. So it is without a doubt that vaccines have prevented billions of sick days and saved many many lives (don't even go there, anti-vaxxers).

But there's another important benefit of vaccines that I've never seen highlighted - the time they save the parents by reducing the amount of time they have to spend taking care of sick children (I had this epiphany last week when both of my children were sequentially sick and home from daycare). And if your child is constantly home sick, even with routine childhood diseases, it makes it difficult to hold down a job. Undoubtedly, in the pre-vaccines era, this burden would have fallen largely on women. Of course, children still get sick, but my guess is that vaccines made it significantly easier for women with children to hold steady jobs. So the research question is, "What is the effect of vaccines on female labor supply?" Potential title of paper: "Vaccines and Female Labor Supply". You're welcome. 



Posted 10 Jan 16 by arbelos in Simply Amusing

Over the past few years, I've noticed an interesting pattern on my Facebook feed - lots of my friends were sharing articles about how to handle/understand introverts. I was surprised because I didn't think introverts were so rare that there was a need for special instructions about how to deal with them and because some of the people posting did not seem like introverts to me. So I decided to ask my friends (a) if they thought they were an introvert/extrovert and (b) if they thoughts their FRIENDS/FAMILY considered them an introvert or extrovert. A few days ago, I posted a SurveyMonkey questionnaire with those two questions on my Facebook feed.

Of course, lots of caveats apply to my discussion of the results. I'm not a psychologist and this is not research. I didn't define extrovert/introvert either in the questionnaire or in this post, so presumably people just went with their own ideas of who these types are (you can read about the "official" differences here). The people who completed the questionnaire are almost certainly not random. From the two questions, it was probably pretty obvious what I was trying to get at. This post is NOT peer reviewed and may be duplicating existing efforts. Etc, etc.

Anyway, here are the results. Of the 74 people who took my survey, 48 (65%!) considered themselves introverts. This is quite high! The best stat I could (quickly) find says that about half the U.S. population can be classified as an introvert. So this either means that my friends are different (this link claims that people with higher IQ are more likely to be introverts, so maybe my friends are just smart) or that people tend to identify more with the idea of being an introvert, even if an official test would not classify them as an introvert. I also consider myself an introvert, so maybe I'm just more likely to befriend introverts. That's not the interesting part of the survey anyway.

The interesting part is that only half (24) of the self-identified introverts thought that their family and friends would classify them as an introvert. The rest either didn't know (11 people) or thought that their family would classify them as an extrovert (13). So if you extrapolate from this, at least a quarter of all introverts think that they're misclassified by their loved ones. Maybe that's why they were posting all those news articles in the first place!

Now what about the extroverts? There were 23 of them (a few people who took the survey didn't know whether they were introverts or extroverts). A whopping 22 said their family and friends also consider them extroverts and 1 person didn't know. Not a single extrovert said that their friends/family thought they were an introvert!

This is roughly in line with what I was expecting, at least qualitatively. And maybe you're also not surprised, but I think it's nice to confirm ideas with data (subject to many caveats). Thanks to everyone who took the survey!



Posted 21 Oct 15 by arbelos in General

One of my colleagues recently put up a story on her door that can be summarized by the quote "Good decisions come from experience, and experience comes from bad decisions". I can certainly relate to that sentiment. I learned how to make most of the good decisions I make the hard way (and some from watching others make good/bad decisions). But the main reason I want to share this quote is because I think, among many things, it applies to doing research in economics. In particular, I can attest that "Doing good research comes from experience, and experience comes from doing bad research"; "Writing good papers comes from experience, and experience comes from writing bad papers"; and "Making good presentations comes from experience, and experience comes from making bad presentations."

A related sentiment that one of my MIT professors expressed when I was in grad school is that you have to give X bad presentations before you start giving good presentations and you have to write X bad papers before you start writing good papers (X was not specified; I suspect that it's a lot higher for me than it was for that professor). The moral of this is that you should start writing papers and presenting ASAP so you can make it through the bad ones and get to the good ones!



Posted 29 Jul 15 by arbelos in Musings on Economics

Answer: when you find yourself citing a paper that cites your working paper.

(or maybe I'm just slow)



Posted 28 Jul 15 by arbelos in General

This is a completely unproven and untested theory, which is why it's in a blog post and not a paper (and maybe there already is a paper).

  • Assumption 1: Most health conditions, at least in the modern world, disappear on their own (e.g., colds and flu)
  • Assumption 2: Most people don't like simply waiting for a health condition to resolve itself and try to do something to cure it.

Result: If you don't account for the fact that you would have gotten better without doing anything, almost anything you try will appear to improve your health (e.g., eating soup/lemons/capers, standing on your head, applying a warm compress to your back, etc).

I'm guilty of this myself. It's very tempting to think that some weird remedy "worked", but you have to ask yourself whether you would have felt better anyway.

 



Posted 30 Jun 15 by arbelos in General

Ever since a class I took in college, I've been skeptical about whether organic fruits and vegetables are better for you in any meaningful way. What happened in that class? The professor pointed out that the term "organic" does not mean that the produce was grown with no pesticides or herbicides; only that it was grown with non-man-made ones. But surely that's better than synthetic pesticides and herbicides? Maybe. Nature has produced some pretty toxic crap (think of all the plants out there that are poisonous to humans). It's not clear that being restricted to a subset of chemicals (i.e., ones approved for organic farming) will mean that organic food ends up covered with less harmful ones. Indeed, the best available evidence, summarized here, is that organic isn't necessarily better for you.

I think it's entirely appropriate to worry about the pesticide and herbicide levels in our food. But the organic label is at best a distraction because the distinction between man-made and natural chemicals is quite meaningless. At worst, it's harmful because it leads people to believe that they can avoid the negative impacts of chemicals by eating organic. What we really need is a way to know what was sprayed on the food we're eating and how much. Unfortunately, as long as people believe that "organic" = "healthy", that's unlikely to happen.



Posted 25 Jun 15 by arbelos in Musings on Economics

Taylor Swift has been enjoying her market power in the music world lately, pulling her music from Spotify last November and, most recently, standing up to Apple over its proposal to pay no royalties for songs that Apple Music users listen to during a free three-month trial period. In response to Taylor’s public denouncement of Apple (coupled with her pulling her new album from the service), Apple backed down, promising to pay royalties during the free period as well. So did Taylor Swift score one for the music industry? I say “yes” and “no”. Here are the two ways of looking at this (I’ll start with the counterintuitive “no”).

“No”: What ultimately matters is the total amount of compensation the average artist receives. While it may be tempting to conclude that all artists will now earn more from their music, that isn’t necessarily the case. Apple has not finalized its terms with the artists and the effect of this policy change may be to lower the overall royalty rate. If this happens, artists whose music gets played a lot by people who sign up and then leave when the free trial is over will win; artists whose music is played a lot by paying customers may very well end up with lower payments than they would have received under the original agreement. Will this kind of offsetting effect actually happen? That depends on how much market power Taylor Swift  v. Apple have. Which brings me to my next point.

“Yes”: Taylor Swift is incredibly popular, giving her a lot of market power. If negotiations with Apple were artist-specific, she could certainly negotiate a great compensation package for her songs. But it seems pretty clear from what I've read about the negotiations that there are at least some terms that apply to everyone. To the extent that (a) there are common terms for all artists and (b) Taylor can affect those terms, her actions did indeed raise all artists’ profits. And, of course, there is the question of public relations. Ultimately, both Apple and the music artists are counting on subscribers for revenue; if the negative PR generated by not paying artists during trial periods costs Apple a lot of paid subscribers, it may be better to pay more, period.

The overall point of this post is similar to that of the previous one: it’s important to pay attention to the total compensation package, not just individual parts.



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