RS 4: Would You Let a Coin Toss Decide Your Future?

Daniel Harrington, age 26, was a racecar driver 2 years ago making millions. He felt like he needed a new profession because he was at a place where he didn’t know what to do with himself on a day to day basis. He eventually quit racing and got a master’s at Duke University. He now has a great job for an energy company in Raleigh, North Carolina. But now, he has the same feelings. He’s considering leaving what he is doing now to go somewhere else, or to stay at his current job. He is a VERY indecisive guy.

He flips a coin to make small decisions in his life. When his girlfriend and him decide to go to dinner, they flip a coin or play rock paper scissors to decide where to go.

“Quitting has a bad rap, but strategic quitting could be a great thing!” Sometime quitting has great secondary affects due to the opportunity cost of our jobs, religions, friendships, etc! Freakonomics looks at the benefits of quitting...and flipping a coin? 

A woman who quit running decided to quit her passion for running because she felt like she had gotten the most out of it that she possibly could. She fell into the habit of running and being a runner and didn’t really love it anymore.

A website was created through the Freakonomics webpage. If you have a tough choice or decision, they will walk you through a few steps and if you are still undecided, they will flip a coin for you. Don’t worry, you can even flip for best two out of three. All they ask for in return is for you to fill out a short survey to figure out if quitting or not quitting turns out to be good or bad to be the right decision.

Levitt wants to find out whether or not there are default messages about decision making that people should follow. For example, should we go for the big change or stay safe and remain the same? What is the go to answer or the status quo?

Doesn’t this sound ridiculous? Flipping a coin to decide a decision that could affect you every day? Every year? The rest of your LIFE?! Maybe not. Information is costly! Taking the time to decide what decision should be made based on the pros and cons of the choice you are making is costly. The release that comes from a decision being made is a good one, and not having to waste time thinking about what to do makes it even better.

People may think it is ridiculous that ANOTHER person flips the coin for you. But by filling out information and answering questions to the people at Freakonomics, most people would have hopefully decided what they want to do by the time flipping a coin comes along. There is psychological evidence that if someone else flips a coin for you, you will have less guilt or regret. If you flipped the coin yourself, you would hold regret if the decision ends up not being your most favorable outcome.

When asked if someone brought up a dangerous or potentially violent question, Steve Levvitt didn’t know what to say. He is thinking about adding some more information to the FAQ page. This web page will absolutely become an ethical problem. What if people have questions about whether or not to embezzle money, to kill someone, to put their grandma in a nursing home, to blow up their ex boyfriend’s house, to fail out of a class? I guess they have some more questions to answer before they can answer other people’s questions! 

RS 3: A New Mom And The President of Iceland

The most recent financial crisis in  the small frozen island in the middle of the ocean has been a long standing battle over savings accounts located in a bank that went bankrupt in 2008. NPR Planet Money talks about the recent update on Iceland’s financial troubles.

Before financial crisis, Iceland had become known as a major international banking center. Between 2008 and 2011, when their crisis occurred, people in the United Kingdom and the Netehrlands put their money into Icelandic bank accounts because of good interest rates. The bank suddenly failed and people oversees who had investments could not get their money out of the bank and returned to them. The problem with this was that people from Iceland did have access to do so, stirring trouble with out of nation-ers. A bill was created that promised Iceland would pay back the UK investors, however according to international law the country held no responsibility to actually do so. In 2011, the Prime Minister of Iceland vetoed the bill that meant that it would have to go to a public vote to pass.

David from NPR and his Icelandish NPR intern replay a podcast from Planet Money from 2011 when it was time for the vote to take place.

His issue is a case of secondary effects, in my opinion. As the Icelandic intern said and I agree, not paying back the foreigners could be seen as a case of discrimination, could cause hate towards Iceland, and could eventually could hurt their economy if nobody wants to invest in Iceland or hold deals with them anymore. In this case, the ends do justify the means, and what would the public decides the means were? This was a serious case to be voting on. The people of Iceland had tons of questions…

If Iceland paid back depositors of their own country, so is it discrimination under the law not to bail out foreign depositors?

Is it fair that someone bought shares and was wiped out because of a mistake?

Is it fair that we pay for the bankers’ mistakes?

Will I be paying more taxes to fix this situation?

Everywhere you went people were discussing interest rates. Heida, an Icelandic woman, said that the people of Iceland were well educated and did feel obliged to know what they are voting on, but it was still very strange that they were voting on something like this. It’s a strange situation when a new mom like Heida and the President of Iceland have equal say on the fate of their country’s economy could be.

Now, in 2012, the case officially came to a close. Iceland does not have to pay back their foreign investors and it hasn’t caused any financial upset for the country…so far. The countries still get along fairly well according to the British lawyer for Iceland of the court case (ironic) and Iceland’s economy is slowly turning around.

But, luckily for British and Dutch governments, they are still receiving money from a different investment in Iceland they had made, and that money is worth more than it used to be thanks to Iceland’s re-growing economy. 

RS 2: A Billion Dollar Bet Against Weight-Loss Shakes

As NPR so graciously explains, “Herbalife, a company that sells weight loss shakes, vitamins and other similar products, is worth billions of dollars. The company has been around for more than 30 years, and it's traded on the New York Stock Exchange.” This story interested me for multiple meanings, which I will explain. One, it mentions the paradigm of multilevel marketing companies, and two, it suggests the idea of an investing prophecy.

David Inehorn, a man who called into a public Herbalife company conference call, is a man who strikes fear into the heart of a CEO. He is a short seller who bets against companies and bets they will fail. He asks how much of their final sales are sold outside their network? Sounds stupid, but for people in the know, the meaning made sense. He was really just asking if the company was a fraud! After this conversation, their stock dropped 20%. Bill Ackman is a hedge fund owner that has exposed a billion worth of Herbalife stock and tried to prove the company is fraudulent. That’s what he does, short sells stocks to whistleblow on pyramid scheming companies. But here’s the trick. To me, this financial short selling idea is a prophecy. If Ackman or Inehorn can convince enough people or create trepidation among stockholders about Herbalife, he will profit because people will pull their investments from the company. His hedge fund will succeed. Do I think Herbalife is a scheme and Ackman is correct? Partially.

Who is buying Herbalife products? If it is mostly people who are buying products just to get in on the action and become distributors, then it is a pyramid scheme! Pyramid schemes could only continue by recruiting more sellers. A Herbalife distributor interviewed claims that without his new recruits he would still be just fine.

CEO of Herbalife reacted quickly defending his company claiming they are not a pyramid scheme. Ordinary people sell Herbalife products, it is a home based distribution business similar to something like Candle Light or Avon. These types of companies are known as multilevel marketing, a type of brand very close to my heart. My mom has worked for three different home based multilevel marketing companies, Creative Memories Scrapbooks, lia sophia jewelry and as of two weeks ago, she became the first U.S. manager for a Canadian company called Simply You Jewelry during it’s United States launch. My mom’s team makes a whopping 6 figures per year, more than easily, and she values her down-line like no other manager I have seen before. The more recruits my mom gets, the more value her team has, the higher her position becomes, and the more money she makes. However, even though my mom has no need to hold parties anymore because her team is sufficient enough to do so, my mom works hard training her girls and helping them market their company since real people purchase their products.

In the NPR clip, they describe a video online of a distributor talking about his car and trading it in to a Lexus dealer because he could afford one thanks to working for Herbalife. My mom was able to pay for my high school education, since I went to a private Catholic school, after only one year of working with lia sophia. She was able to spend a little more of her money and offer up more money for bills…her company DID make a difference just like the man with the Lexus did. My mom has always believed in the products that she sells, not the scheme or the money making aspect of her companies. However, the distributor’s of Herbalife products don’t seem emotionally invested in their product and therefore I do believe the company is slightly schemey.

Another thing I think is schemey? Ackman. “I’m rich already, I don't need this.” What an asshole. 

RS1: How to Be A Genius

This blog post is about what I thought about the article “How to Be a Genius” by David Dobbs. This article appeared in the September 2006 edition of the New Scientist.

In David Dobbs’ article “How To Be a Genius”, his theory and research claim the idea that a genius is molded, not born. According to his research, to be considered genius, a person must be an “exceptional person in exceptional conditions,” quoting psychologist Benjamin Bloom words. Aside from having an innate ability alone, to be a genius requires being in an environment that infiltrates hard work ethic into a person’s system and requires the guidance of people or mentors who encourage and support. So, maybe the typical genius is not a genius after all, but just your average workaholic, privileged overachiever. 

Everybody knows one. The person in your class who never shows up in sweatpants, whose GPA is more important to them than their social life and friends, and whose resume is a laundry list of activities, all of which they show the utmost loyalty to. This character, or portrait, is that of a classic overachiever. In younger years, often times overachievers are categorized as the “smartest” or “most intelligent” because the work they accomplish in and outside the classroom is done so easily and so profoundly. People whose work ethics mature at a young age often make difficult tasks for an average student, athlete, musician, artist, etc. seem juvenile. For a young overachieving student, finishing a brilliant five-page essay in two hours is a no brainer, because it was the only way they were ever taught how to finish a five-page paper. 

I agree with Dobbs, geniuses definitely aren’t born, but maybe instead they are molded into overachievers in the toddler years. Eric Kandel of Columbia University in New York discovered in his studies that focus and practice literally do “make perfect.” As Dobbs explains “focused study and practice literally build the neural networks of expertise. Genetics may allow one person to build synapses faster than another, but either way the lesson must still be learned. Genius must be built.”  Overachievers strive for perfection, and when they fall short, they try harder. 

Baby Genius, a company “committed to providing music-based products that are entertaining, educational and beneficial to the well-being of babies and young children” is an example of the nurturing of children’s brains at unbelievably young ages.  The company believes that their programs and DVDs tap into and nourish the innate ability of a child from an early age, giving them a head start advantage in social skills, academics, and the arts. Geniuses are built early on by instilling the workings of an overachiever into their brain. Any athlete would agree, the longer you practice, the better you become. Would Tiger Woods have been as great of a golfer if he had not been learning the technique and expertise of the game since the age of 3? If a student is taught early on how to begin and end a five-page paper proficiently in elementary school, come middle school their knowledge of writing a paper should be near perfected from learning the technique early on. Thus, Baby Genius’ theories apply. 

The quote “if it were easy, everybody would do it” continuously pops into my mind when I think of the word genius. If being a genius were a simple task, and all you needed was some brainpower and hard work, why wouldn’t our world be filled with prodigies? The number of people who are geniuses in our world must be limited because not every person is given the same opportunities as the next. Anders Ericsson, professor of psychology at Florida State University, was quoted in the article relaying this idea in a slightly shocking but candid manner. He says that geniuses “don't necessarily have an especially high IQ, but they almost always have very supportive environments, and they almost always have important mentors. And the one thing they always have is this incredible investment of effort." Without being given these elements, I truthfully believe geniuses couldn’t exist.

I’m sure that antagonists to this theory will argue that people from slum cities and horrible upbringings have utilized their “natural buoyancy,” or ability to always stay on top, to reach genius levels. From my education and common sense, I would respond to those adversaries very simply. The further down you are pushed, the higher up you want to be. A genius can be born into a privileged life and work hard to gain their success, or a person can be born into a not so privileged life and search for mentors and environments throughout their life to aid their innate abilities to gain their success and move up on the ladder. People come from different walks of life, and people with an incredible ability to become genius will push their way to the top to find resources to make that option a reality. This idea communicates to the masses that anybody with a brain and determination can reach their highest goals and very possibly become genius in their field or trade. From a marketer’s perspective, this presents that there are different ways to advertise to the younger generations how a genius gets to be a genius since a genius is no longer “born” but instead “bred.” Genius!

In all honesty, why would a person WANT to be a genius? Personally, I wouldn't want all the pressure and expectations people would put on me...nor would I want the bullying! The genius of the class is always coined the nerdy kid or teacher's pet, and nobody wants to deal with that! But, nerds do get the chicks and the dough!

RS9 Have a Coke and a Smile

I hate soda. I think the carbonation in any type of soda is absolutely horrifying when it is guzzled down your throat stinging your stomach when swallowed. But, for a nickel a pop, I think I would've made myself a fan of Coca Cola.

In our economics class, we discuss about how prices go up and down because costs change and because supply and demand changes. But this podcast from Planet Money on National Public Radio fights against this theory of prices getting higher or getting lower, at least for Coca Cola soda products for 70 years.

In 1886, Coca Cola was born. A soda syrup soon became a hit popular beverage and over a century later is still one of the most drank sodas in the world. When the soda was first produced, company executives decided to sell it for only 5 cents a piece. The glass of soda would cost five cents no matter where you bought it, and the company did their best to control that promise. Years after the company began, two lawyers coining a bottle came to the president of Coca Cola begging for him to allow his product to be sold in their bottles. To get them out of his office and away from him with their crazy ideas, the president promised to sell the Coca Cola syrup to them for an extremely low fixed cost, forever! (Man, was he feeling the secondary effects of that decision later...) Once the soda became bottled, people everywhere went wild for the 5 cent soda. It was marketed as the cheapest, but best quality, soda there was, and Coca Cola made sure to control it's serving size at all venues that sold it's product by providing companies with specific sized glasses and bottles. The soda remained at 5 cents for 70 years.

From an economics viewpoint, this seems unreasonable and frankly crazy. The fact that Coca Cola was sold at the same price for 70 years absolutely obliterates the law of demand. The law of demand is concerned with the inverse relationship between price and quantity demanded. If the price of an item never changes, then who cares about the quantity demanded of that item as long as they are breaking even? 

One note in the podcast that absolutely boggled my mind was regarding Coca Cola's "ninth bottle objective."Every ninth bottle of soda in a vending machine was empty, so that the customer would put in another nickel to buy a full bottle...assuming the next bottle would be full! From a marketing perspective, I ask this question. Is it not the duty of a company to satisfy the customer and bring them happiness through their product? If I was EVER a ninth bottle customer, I would be livid and boycott the product immediately...but maybe that's just me! When this objective was put in place, but not for long, the average price of the bottle of Coca Cola rose to 6.25 cents and did gain the company some small revenues. 

Ultimately, I think it was a great marketing scheme for Coca Cola to hold their price at 5 cents per bottle for such a long time. They created a brand and a name for themselves in the years before the gold standard was gone, and their long standing customer basis is what allows them to continuously thrive as a major soda company today. So for consistency and smart marketing, bravo to you Coca Cola. But, for making economists happy, you lose. 

RS8 Manufacturing the Song of the Summer

Global pop star Rihanna has three hit songs from her most recent album, and this month she’s going for her fourth with her latest hit “Man Down.” Zoey Chase, from NPR’s Planet Money, wonders how much it costs to put a song on the pop charts and create a “hit single.”

When we see a song at the top of the iTunes chart, hear it for the first time on the radio, or see the music video for the first time, we generally think that the artist’s “hit” new single is “new” because it’s gaining popularity. Oh, but are we wrong. A hit new single is a hit and is new because of the marketing and PR that the artist’s record label does to brand it that way. Costs to make a hit single (along with a video) can easily rise up to 1 million, 178 thousand dollars.

Here’s the breakdown:

Record writing camp pays $20k - $25k to the best of the best to come and write songs, Rihanna ends up choosing what she likes and each song on the album = $18k

Song writers = $15k

Song producers = $20k

Vocal producers = $10k - $15k

Extra studio fees = $10k

TOTAL COSTS FOR ONE SINGLE: Roughly $78k

A crappy Rihanna song that gets stuck in your head because it’s overplayed: Priceless

Notice the key word, “single.” Rihanna’s song Man Down may have only cost a mere $78,000, chump change obviously, but the costs to make it a HIT single are what sky rocket that $78,000 to over $1.5 million. A million dollars can be attributed to what record producers call the “record rollout”, comprised of marketing, moving artists from place to place, and radio. PR specialists for artists want to make sure that when their single drops, it drops it like it’s HOT. Every radio station, every billboard chart, and every musical television show should be playing their song. Oh, and the music video you ask? Add another $100k to $150k for that as well! The most annoying part about "hit" singles? They aren't popular and on the radio because people like them, they're suddenly popular and suddenly on the radio because their publicists paid for them to be! 

Assuming a hit song by Rihanna costs $1.75 million dollars, I did some research. Savethechildren.org is a website where donors can sponsor a child in a third world country for $28 dollars a month, less than a dollar a day, which provides them with food, clothing, and shelter. With the $1.75 million that it took to create Rihanna’s hit single Man Down, she could be providing for 62,500 children in a underprivileged country for a month. Or, she could be providing for 625 children for 100 months, or almost 8 and a half years each.

To me, this is a huge issue of values in our culture. A bulk of our society would rather spend almost 2 million dollars on a crappy Rihanna song than donate money to try to save the world. The things that people do for pleasure and instant gratification are the things that make them happy, but they are also the things that create a materialistic society. Values are subjective, but the insane amounts of money spent on digitalized, autotuned, songs that sound just like the one before it is absolutely crazy! Sure, the money doesn’t necessarily need to go to savethechildren.org, but isn’t there somewhere else it could be benefitting?