Interaction Effects

This article needs no motivation. The Return Trip Effect, which is the perception that the return trip seems shorter than the initial trip, even though the distance traveled and time spent traveling are identical, is observed by almost everyone I know.  I couldn't explain how this was possible until I recently came across a paper by Van de ven, Van Rijswijk, and Roy (2011), that we shall call VVR henceforth.  The first possible reason for the return trip effect could be that the initial trip deals with an unfamiliar and unpredictable route, whereas the return trip is relatively more familiar and predictable. Research has shown that unfamiliar or unpredictable tasks are often remembered to be longer than familiar or predictable ones. The second reason is motivated by research that suggests that people often underestimate the time required for tasks. If this is the case, then people are likely to underestimate the time of their initial tri...

For the most part of my time in the library, I need to wear a sweater. If I'm in the library for too long, then I sometimes have to wear a jacket above the sweater. I began thinking about why the library is so cold. Another way to think of this is as follows: given that the library is cold, why hasn't it gotten warmer. One reason for this could be, what researchers have christened, "Diffusion of responsibility". In a nutshell, it says that nobody takes responsibility ( telling the librarian that it is too cold) because they think someone else would do it. In the next few lines, you can read the process that goes on in my head and my conversation with a few others. Me to Myself: The library is too cold. Maybe it's just today. Me to Myself: The library is still cold. Maybe I feel cold because I am from the India. Me to Sophie: The library is too cold. Sophie: Yeah even I feel cold. I think a lower temperature is conducive to studying and so they deli...

Economic theory suggests that more choice is better. Indeed, companies around the world have been offering more variety in their product and services, in order to cater to different individuals with different preferences. People can choose a smartphone based on 30 different attributes, with each of these 30 attributes having subclassifications.  Barry Schwartz in his book "The Paradox of choice" presents a list of products that he came across in the market in the US. He says that there are 285 varieties of cookies, 230 soup offerings, 175 salad dressings, 275 varieties of cereal, 75 varieties of iced teas, 15 flavors of bottled water in the food section. In the pharmaceutical section, he found 61 varieties of suntan and sunblock, 80 different pain relievers, 40 options for toothpaste, 116 types of skin cream. In the electronics section, he found 6,512,000 possibilities of different stereo systems, 110 different televisions, and 85 different telephones excluding cel...

One of the biggest criticisms that psychologists and behavior economists face is about external validity. External validity is a term used to describe the generalizability of experimental results conducted in the lab, to the real world setting.  There are several studies that look at the extent that people cheat in the laboratory (see  Rosenbaum et al., 2014 )  but we can only conjecture that people who cheat in the lab, cheat outside as well. We can never know for sure. One could argue that participants don't think it is bad to cheat in the lab as it doesn't completely resemble a real life situation.  Potters and Stoop (2016) , in a well-designed study, show that cheaters in the lab cheat in the real world as well. This is an important finding because now studies about cheating in the laboratory can use this evidence to justify external validity. They conduct a variant of the Mind game as in  Jiang (2013) . There are twenty cards with the to...

In the Book Nudge by Richard Thaler and Cass Sunstein, I had read that the urinals in the toilet at the Schiphol Airport, Amsterdam, contain the image of a fly. The image of a fly nudges people to aim and try to pee on the fly. The fly is said to have reduced spillage and hence the cleaning costs, considerably. When I got off the plane at Schiphol airport two weeks back, I was most excited to see if this actually exists and I ran to the toilet. In the toilet that I went to, I didn't find an image of a fly but that of a flag. I did, however, find the image of a fly in the toilet at Tilburg University. The tagline of urinals should be "Let's make peeing great again." Permanent link

Diwali is a festival celebrated in India in the month of November. The date of the festival varies from year to year. It’s a festival marked by happiness. Given its auspiciousness, the NSE opens the stock market for an hour on this day, which is referred to as “Muhurat trading”. The word “Muhurat” means auspicious. It is a symbolic and old ritual which has been going on for several years. It is believed that trading on this day, brings wealth and prosperity .  Diwali also marks the beginning of the fiscal year for several businesses.  Historical information about market behavior at the time of Diwali is useful to make a generalization, if possible, about the effect of Diwali on the stock market and would allow arbitrageurs to make decisions based on this information. The key questions we can ask here is does Diwali lead to higher returns and higher volume of trade in the Indian markets? The seasonal effect of Diwali violates the Efficient Market Hypothesis (EMH). EMH...

Probably one of the most popular games in the world is Rock-Paper-Scissors. It is a game usually played by two people, where players simultaneously form one of three shapes with an outstretched hand. The "rock" beats scissors, the "scissors" beats paper and the "paper" beats rock; if both players throw the same shape, the game is tied. This game can be analyzed using game theory. If both players play the same shape they both get a payoff of 0. If one player plays a shape that beats the other player's shape then he gets a payoff of 1 while his opponent gets a payoff of 0. This situation yields what Game Theorists call a Mixed Strategy Equilibrium. This means that a player would randomize between rock, paper, and scissors, playing each of these strategies with an equal probability of a third. This makes sense considering that the probability of winning by playing any of the three strategies is the same. Von Neumann and Morgenstern [1] in one of the...

In the Movie "Focus", Will Smith has a series of bets with a supposed stranger while sitting in the stands of a football field, all of which is won by the stranger. He looks at the stranger in desperation and tells him to look for any player on or off the football field. If his friend (Margot Robbie) guesses the jersey number of the player picked by the stranger, the stranger would have to pay him  $2 million. Else, he loses $2 million.  After the stranger looked through his binoculars and picked a player, Margot does the same. To her surprise, she looks at someone she knows sitting on the bench and screams "The number 55". The stranger was shocked that he had lost the bet.   Although Margot guessed right, she picked the person on the field who she knew. She had no idea that the stranger would pick the same number. Will explains that he had been priming the stranger the entire day. The lift in the hotel of the stranger had a poster with the number 55. Thi...

I found this board in a cafeteria at the Indian Institute of Management, Bangalore.  The sign board mentions the wastage of food in weight (Kilograms) of the previous day and the number of people who could have been fed with that amount of food.  Although breakfast at the cafeteria is a limited serving, a considerable proportion of the people can't finish their meal. To know if the sign board indeed helps reduce wastage, there are several aspects that we need to consider. Firstly, the sign board can, as hoped, make people actively ask for the quantity of food that they think they can finish. This is troublesome for people who are new to the cafeteria. Regular customers, however,  would know exactly how much they would eat and would have no qualms in asking for a smaller quantity of food. Secondly, the sign board could also work as an incentive for people to try harder to finish all the food on their plate. Economists are probably the only ones wh...

The evolving technology has brought touch screen laptops to the market, but they are in general more expensive than the non-touch-screen laptops. Touch screen saves time but is more expensive. The amount you would save by not buying a touch screen laptop is clear but the time saved by buying a touchscreen laptop is rather obscure. The calculations that are about to follow will involve a prudent estimate, meant to identify the least possible time saved. The calculations are also a generalisation not backed by research. Let's assume you save one second per click by using the touchscreen interface rather than the mouse. Let's also assume you use the laptop for an hour a day making approximately 500 clicks per day. This means you would save 500 seconds per day. This implies that  you would save 3500 seconds a week, which is 58 minutes or about 1 hour a week. You would then save 4 hours a month and 36 hours a year. If you use your laptop for two hours a day all the above estim...

This is how they nudge me not to not use a tissue in the toilet (see picture). I found this in a toilet in the Indian Institute of Management Bangalore (IIMB). The sign reads "Each day 27,000 trees are cut for producing tissue papers. Use handkerchief as much as possible". Since I don't carry a handkerchief with me, I wiped my hands on my shirt and walked out of the toilet. The nudge works! Permanent link