Weight In Gold

Much thanks to Pete Everson for this nugget:

Gold is priced £32,845.67 per kg.

The average professional footballer weighs 73.5kg.

So that means that any footballer earning £2,414,156.75 a year, or £46,426.09 a week is being paid their weight in gold.

Some of professional footballers get paid multiples of their weight in gold!

Meanwhile the average annual salary in the UK is £26,500, less than one kilogram of gold.

Does this strike you as fair?

If you are concerned about fairness then you run this risk of being considered irrational by economists...

Fair Coffee?

As a Masters student I am frequent visitor to the Arts and Social Science Graduate Centre at the University of Nottingham. Possibly the best thing about the Grad Centre (other than the absence of pesky undergrads, obviously) is the coffee machine which offers all types of tea and coffee for 25p. This makes it a hot attraction compared to the other machines of campus which charge at least 90p and especially compared to Costa which charges anything over £2.50.

Apparently in the first five weeks of term the Grad Centre machine served 5000 drinks, making it the busiest machine on campus.

Then, this week, the price doubled to 50p. No warning. No apology. The cost of coffee just doubled overnight. Outrageous! So unfair!

My reaction was probably not dissimilar to many. But why is it unfair for the price to rise? I have happily paid £3 for a coffee elsewhere, and it's not like going without coffee will kill me (I'm not an Arts student). If the price had always been 50p I would have had no complaints. It's just supply and demand.

People's perception of fairness is a very interesting area of study within behavioural economics.

For example, is it unfair for a shop to put up the price of shovels when it snows? An economist would answer no and point to the laws of supply and demand. A consumer, however, might think it exploitation.

Behavioural economics has shed a lot of light on what people consider fair and what they do not, but for now I'll conclude by simply noting that my degree in economics was not enough to stop me thinking a rise in the price of coffee was fair.

Diamond Greed - Sweet Caroline

The recent Libor fixing scandal in the City of London just claimed its largest victim yet; the Barclays' CEO Bob Diamond. The scandal raises a wider question about the morality of greed...

The BBC coverage quoted two contrasting emails from members of the public:

C Abbott in Leeds emails: "It's a disgrace how the media and politicians are persecuting Bob Diamond and Marcus Agius for doing their jobs. We all live in a capitalist society where CEOs and chairmen are employed to make profits for their shareholders. If these regulations allow the rate fixing then the heads of Barclays and the other 20 banks under investigation are not to blame. The FSA and the politicians who set the rules and regulations should be held accountable. Instead of this self-righteous drivel that Cameron and Miliband are delivering to the public."

Neil Mcintosh in Worthing emails: "The right decision and about time. Too much mud has now stuck and all under his watch to allow him to stay and maintain the confidence of the market, shareholders and customers. Greed is not good and now it is being dealt with as it should have been since 2007. Now we need successful prosecutions with long prison terms and deterrent penalties such as seizure of profits made from such activities or all of this will have been for nothing. That in my view is the only acceptable course of action."

In other words:

Anything that legally makes profits for shareholders is justified.

or

Greed is not good.

How do you view greed? Is there such a thing as responsible capitalism? Is greed a virtue? If you were a banker, would you have fixed Libor? If you had the power, would you regulate in order to restrict human greed?

Recommended listening:
Sweet Caroline by Neil Diamond

The Ultimatum Game - Black and Gold

The Ultimatum Game is probably the most famous economics experiment ever to have graced the face of this planet. First designed by Daniel Kahneman, Jack Knetsch and Richard Thaler in 1986, it has been replicated countless times.  It goes as follows...

You have been put into a pair with someone else, but neither of you will ever learn the identity of the other. You are told that there is £10 to share between you. You are the 'proposer', your partner is the 'responder'. You get to make an offer to your partner about how to split the £10. Thus you could choose to keep for yourself one of the following sums:

£1,  £2,  £3,  £4,  £5,  £6,  £7,  £8,  £9,  £10

The responder has two options: Accept (in which case the money in split as you proposed), and Reject (in which case neither of you gets any money).

As the proposer, how much money would you offer?

Traditional economic theory would suggest that no-one would ever reject a positive offer. There is no benefit to rejecting money, even if the offer seems unfair. Therefore, in the knowledge that people will not reject positive offers, proposers should propose that they keep £9. But study after study has shown that people do not behave in this way.

Typically, responders reject offers that give them less than £3, and proposers rarely offer less than £3 and often offer an even split. Why?

It would seem that fairness is important. People prefer everyone to have the same, even if that is nothing, rather than one person having 90%. It would also seem that when put in the position of proposer people regard fairness as important (or at least they know that the other person regards it as important).

The significance of the Ultimatum Game is that it offers evidence against the assumption that people only care about their own monetary benefit. Factors like fairness are very important.

Given your response above, how important is fairness to you?

And if fairness is important to you, why?


Recommended listening:
Black and Gold by Sam Sparro