I’m on the Fair Trade diet!
Many, if not most, people want to buy products from companies that are socially and environmentally responsible. However, just because a product is good for others doesn’t mean it’s necessarily good for you. In a recent study, people simply assumed that a brand of chocolate described as “fair trade”--meaning that the company treats its cocoa farmers well--had fewer calories and should be eaten more often. This halo effect was especially pronounced for people with high ethical food values.
Schuldt, J. et al., “The ‘Fair Trade’ Effect: Health Halos from Social Ethics Claims,” Social Psychological and Personality Science (forthcoming).
Buying the better brawler
If you get sued or want to sue someone, you’ll want to hire the best lawyer you can afford. For about a century after the Norman invasion in 1066, things worked similarly in England--except that your representation was a brawler, not a barrister. To resolve property disputes, judges arranged a duel, for which each claimant could hire a brawler; better brawlers commanded a higher price. According to an economist, this was a “sensible and effective” way to resolve property disputes in the context of a feudal system with encumbered ownership and no real estate market. This approach tended to award property to the claimant who paid for a better brawler, and therefore put a higher value on the property. In addition, this approach encouraged less corruption than a regular auction and had the ancillary benefit of entertaining the public. And, like our present legal system, most claimants ended up settling anyway, often right before trial, especially after getting a glimpse of the opposing counsel.
Leeson, P., “Trial by Battle,” Journal of Legal Analysis (Spring 2011).
Pot: the beer of teenagers
People use drugs in order to achieve an altered state--and, a new study suggests, they may not care just what kind of altered state that is. Since drugs are costly and may not go well together, they sometimes act as substitutes, which is an economic term for when use of one commodity displaces use of the other. Comparing the reported drug use of people just below and just above the age of 21, two economists found that marijuana use declines by about 10 percent after one can drink legally, especially among women. This suggests that one of the downsides of a minimum drinking age is that it pushes young people into alternative drug use.
Crost, B. & Guerrero, S., “The Effect of Alcohol Availability on Marijuana Use: Evidence from the Minimum Legal Drinking Age,” Journal of Health Economics (forthcoming).
Yesterday’s economic news today
Wall Street is the quintessential market. With thousands of traders (and their computers) analyzing, buying, and selling stocks and bonds, it can be worth a lot of money to respond to market signals in a logical, timely way. Yet, even given the possible rewards, many people on Wall Street seem capable of falling for outdated information. A recent study found that the monthly release of the US Leading Economic Index--an average of previously released economic statistics, revealing nothing traders couldn’t have already figured out on their own--is nonetheless associated with a temporary rise and fall in stock and bond prices around the time of the release. The pattern is such that a sophisticated investor could make a significant return, especially in more volatile stocks, just by buying or selling in line with the index up to the time of its release.
Gilbert, T. et al., “Investor Inattention and the Market Impact of Summary Statistics,” Management Science (forthcoming).
When better technology leads to risk
Technological innovation is great--except that we sometimes become so reliant on it that it leads us to take unwise risks. According to a recent analysis, golfers are no exception. In the 2010 season, professional golfers faced new restrictions on how deep and sharp the grooves on their golf clubs could be. Grooves allow golfers to impart spin on the ball and control how much it rolls once it lands. Nevertheless, the number of strokes golfers needed to finish a hole mostly decreased after the rule change. In other words, golfers had been relying too much on the groove technology, taking excessive risks in placing their shots.
McFall, T. & Treme, J., “Pandora’s Groove: Analysing the Effect of the U-Groove Ban on PGA Tour Golfers’ Performances and Strategies,” Applied Economics Letters (May 2012).