June 17, 2007

Infotopia

Filed under: Books,Incentives,Observations — admin @ 5:50 pm

Cass Sunstein writes

Participants in the blogosphere usually lack an economic incentive. They are not involved in any kind of trade, and most of the time they have little to gain or to lose. If they spread falsehoods, or simply offer their opinion, they do not sacrifice a thing.

I’m not certain I totally agree. Bloggers sacrifice time or attention. They have an opportunity cost and, thus, choose to forgo other opportunities to blog. Most importantly, they forgo making money. I suspect as information increases in accessibility opportunity cost will increase. In other words, individuals will be more selective in what they contribute because there so many other things they could have been doing.

June 11, 2007

The Economics of Gift Cards and Irrationality

Filed under: Books,Market,Observations,Public Choice — admin @ 6:56 pm

This is Josh Hendrickson commenting on Jennifer Pate Offenberg’s article about gift cards in the Journal of Economic Perspectives.

Essentially, this welfare loss arises from the stigma of giving cash. I have always been fascinated with the fact that giving cash is viewed as inappropriate, yet gift cards are somehow more acceptable. The gift card, as Offenberg points out, is simply a cash gift with a restriction on where the gift can be spent.

An explanation of the aforementioned observation occurred to me while currently reading “The Myth of the Rational Voter” by Bryan Caplan. Caplan explains that voters are more willing to make irrational decisions as the cost incurred from the decision decrease. Because voters face practically no cost for believing whatever makes them feel good (rational or not) they are more likely to pick bad policies.

Possibly gift cards are way of gifting the the psychological benefit of irrationality to recipients. Here, enjoy some extra coffee or a book from Borders that you would not normally buy because you act rationally in the market. In addition, the restrictions ensure that the gift card cannot be spent on something more useful (e.g. gas for the car).

Read more:
The Economics of Gift Cards ┬ź The Everyday Economist