The Coalition wants to dump our 2030 emissions target, yet somehow hit 2050’s. Behavioural economics has a name for that

If you are anything like me, the nearer you get to a deadline, the more desperately you want to postpone it, no matter how much harder that makes things down the track.

It’s what the Coalition wants Australia to do about its 2030 emissions reduction target – the one signed into law in 2022 and registered with the United Nations Framework Convention on Climate Change.

The Coalition says it remains “fully committed” to the more challenging target of net zero by 2050, but it wants to postpone some of the work needed to achieve it until later, nearer 2050.

It’s a human impulse that until the 1980s had economists baffled. That’s when they came up with a new name for it: “hyperbolic discounting”.

Most of us put things off

Before then, economists had no problem explaining people putting things off. We’d long had the concept of a “discount rate” to explain why we do it.

If I offered you a choice of finishing an unpleasant task this month in return for $100, or finishing it a year later for 5% less, you are pretty likely to opt for finishing it a year later in return for 5% less.

Economists would say that meant your “discount rate” (the rate at which you discount what happens in the future) was greater than 5% per year.

It’s an incredibly useful concept, and one of the reasons we want to be paid interest when we lend money or deposit money in a fixed-term account.

Yes, it will be nice to get our money back – but getting it back when the loan ends won’t feel as good as having it now. If our discount rate is 5% per year, getting the full amount back then will be worth 5% less to us per year, so we will want interest of 5% per year.

Voters and politicians discount the future

It’s also how governments and businesses decide whether to fund major projects. If their discount rates are 5% (they are usually higher) and the eventual payoff from the project works out at less than 5% per year, it isn’t worth it. As a species, we are more concerned about what happens now than what happens in the future.

At least that’s what was taught at universities in 1970s: everyone has their own personal discount rate. For patient people it is low, and for impatient people it is higher. If you can find out what it is, you can find out what they should do.

Except that many of us don’t behave like that at all. We appear to have a discount rate, but it changes – dramatically – the closer we get to a deadline.

Near deadlines, our behaviour becomes extreme

Remember when I asked about finishing an unpleasant task this month or a year later? You might well have given an answer that implied a discount rate near 5%.

You would have probably given a similar answer if I asked about finishing the task a year after that, in 2027 instead of 2026. Your discount rate would be near 5%.

Except for the week before the task is due. In that week, you might well be prepared to sacrifice almost anything – an awful lot – to put it off for another week or another month, or two months or a year. Your discount rate would be off the charts.

On a chart, it wouldn’t look like a straight line – 5% or so per year – it would like a hyperbola, a line that had suddenly climbed enormously high. That has also been used to describe the concept of hyperbolic discounting.

Acting like a hyperbolic discounter – pushing out a deadline as it becomes imminent, even if it costs more to meet it later – as the Coalition now says it will do the 2030 emissions reduction target, is a way to never meet a deadline.

Of course, the Coalition says it won’t cost more to meet the final deadline of net-zero by 2050 because by then we will have nuclear power.

It’s a familiar argument to those of us who want to put things off. Something will come along that will make them easier to do later. If it doesn’t, maybe we will behave like a hyperbolic discounter again. Not that we expect to.

Nuclear power mightn’t make future choices easier

Except that the unexpected happens. Cost overruns are notorious in building nuclear power plants, even in countries that have lots of them and they are often delivered late.

And electricity is responsible for only one-third of Australia’s greenhouse gas emissions. Cutting electricity emissions to zero (a road we are already on, they’ve been falling since 2015) will leave another two-thirds of emissions untouched.

That’s unless we rapidly electrify other sources of emissions such as cars and trucks and the use of gas for heating, a transition the Coalition remains reluctant to embrace.

It’s hard to meet deadlines. Right now the government is on track to miss its 2030 emissions target of 43% below 2005 levels, although its officials say it is on track for 42% and it thinks it can make up the difference.

It’s tempting to put things off. If the Coalition persuades us, it’s because we are highly persuadable. Most of us don’t like hard choices now. We like them later.

This article is republished from The Conversation under a Creative Commons license. Read the original article.

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Behavioural ‘experts’ quietly shaped robodebt’s most devilish details – and their work in government continues

One of the things still worrying me about robodebt was the attention to detail.

By that, I am not referring to the crude system by which hundreds of thousands of Australians on benefits received letters between 2016 and 2019, wrongly demanding they repay Centrelink money they did not owe.

I am referring to the care with which the robodebt letters were designed – and the so-called science behind those devastating design decisions.

‘Nudging’ people to pay at all costs

What Centrelink wanted was for the recipients to quietly pay up, or go online and provide years of payslips they probably didn’t have, rather than jam up its switchboards asking questions.

The robodebt royal commission heard that details as specific as the colours of the letters were decided on after receiving advice from “experts in behavioural science”. (In the end, Centrelink went with black and white.)

An email about redeveloping debt letters using ‘behavioural insights’. Robodebt royal commission

So it made what Royal Commissioner Catherine Holmes found was a “conscious decision” not to include a phone number recipients could use to find out more.

That’s right, the letter didn’t include a phone number – a decision Holmes found was made “with the intention of forcing recipients to respond online”.

Where did the idea come from?

Holmes found it came from “behavioural insights”.

The human toll of powerlessness

People left with nowhere to turn and without ready access to, or familiarity with, using the internet felt powerless.

Witnesses told Holmes they wanted to end their lives. Holmes devotes an entire chapter to those who did.

Holmes found that while “behavioural insights” were sought, “no outside parties with an interest in welfare were consulted in order to understand how the scheme might actually affect people”.

Holmes wrote:

The effect on a largely disadvantaged, vulnerable population of suddenly making demands on them for payment of debts, often in the thousands of dollars, seems not to have been the subject of any behavioural insight at all.

And that’s the problem with the relatively new technocratic-sounding science of behavioural economics.

‘Choice architects’ shaping policy

That Centrelink used specialists in behavioural science ought not be surprising.

A year before robodebt began, the then prime minister Malcolm Turnbull set up what he called a Behavioural Economics Team Australia (BETA) unit in his department. It was modelled on the so-called “nudge units” set up by former US president Barack Obama and former UK prime minister David Cameron.

A “nudge” is a change destined to get someone to do something, sometimes also known by the Orwellian-sounding name “choice architecture”.

Cass Sunstein helped invent both those terms, coauthored the book Nudge, and headed Obama’s Nudge Unit. In 2015, Sunstein launched Turnbull’s unit.

I was a fan of behavioural economics, back when Turnbull set up his nudge unit.

Now, after robodebt, I’m starting to suspect much of it is no science at all.

Hollow science

A real science examines not only cause and effect, but also develops a theory of the mechanism by which that effect takes place. That’s another way of saying a real science examines more than correlations.

Psychology is one such real science; economics is (usually) another.

But the more I’ve looked at it, the more often behavioural economics seems hollow: not concerning itself enough with what needs to happen for results to be achieved.

The Behavioural Economics Team Australia is still active in the prime minister’s office. Its website is full of dozens of projects that look useful: how to lift organ donation rates, how to make energy bills easier to understand, how to get people to take part in the census.

Yet – and I am aware of the irony – even the best-known choice architects have sometimes lacked insight into their own work.

One of the most famous findings in behavioural economics, in a 2012 paper, was that people who signed an honesty declaration at the beginning of a form rather than the end were less likely to lie.

Two years ago the paper was retracted amid allegations the data was false.

Blind to empathy

So widespread are behavioural economics “findings” that cannot be replicated, the prime minister’s BETA unit has done a podcast on that “replication crisis”.

And now, under the Albanese government, there’s another unit. This one is being set up in Treasury under the eye of Competition Minister Andrew Leigh and will be called the Australian Centre for Evaluation (ACE).

Its brief, a bit like BETA, will be to find out what works.

But if it only does that, without examining how it works, it risks being as blind to the potential costs on real people as the “behavioural insights” that shaped the robodebt letters.

This article is republished from The Conversation under a Creative Commons license. Read the original article.

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Top economists in no rush to offer cash incentives for vaccination

Australia’s top economists are reluctant to endorse the use of either cash incentives or lotteries to boost vaccination rates.

A survey of 60 leading Australian economists selected by the Economic Society has instead overwhelmingly endorsed a national advertising campaign (90%), vaccine passports for entry to high-risk settings such as flights, restaurants and major events (85%) and mandatory vaccination for high-risk occupations (81.7%).

Offered six options for boosting uptake once supply was in place and asked to pick as many as they liked, only 35% picked cash incentives and only 31.7% lotteries.

Many said advertising and vaccine passports should work on their own.

Others, such as Uwe Dulleck from the Queensland University of Technology, suggested that while cash and lotteries might also work, “maybe a little bit”, they were ethically no better than coercion.

The panel selected by the Economic Society includes leading experts in the fields of behavioural economics, welfare economics and economic modelling. Among them are a former and current member of the Reserve Bank board.

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Read more: Paying Australians $300 to get vaccinated would be value for money

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Michael Knox of Morgans Financial said the most important thing for getting Australians vaccinated was “trust”.

Trust could be built through a national advertising campaign delivered via doctors and chemists as well as the media.

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Others supported advertising in principle, but doubted the government’s ability to do it well.

The Australian government’s A$3.8 million “tacos and milkshake” campaign about sexual consent did not inspire confidence, said RMIT’s Leonora Risse.

The University of Sydney’s Stefanie Schurer said an easy and effective measure would be to simply reduce “transaction costs”. Many vaccinations don’t take place simply because they are difficult to arrange.

‘What’s in it for me?’

Former OECD director Adrian Blundell-Wignall said as a child in the 1950s, if you turned up on the day the polio or smallpox caravan was at school, you were either lined up and injected with a vaccine, or else given a lump of sugar with vaccine on it to swallow. “There was no debate, thank heaven.”

Underlying the reticence of two-thirds of those surveyed to endorse vaccine payments — along the lines of the $300 suggested by Labor or “VaxLotto” suggested by the Grattan Institute — was a concern that it would change the debate to “what’s in it for me?”.

Reserve Bank board member Ian Harper said “what’s in it for the rest of us” was at least as important.

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Read more: Why lotteries, doughnuts and beer aren't the right vaccination 'nudges'

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Macquarie University’s Elisabetta Magnani said cash incentives could “validate mistrust”. The University of Sydney’s Susan Thorp was concerned they might set a precedent.

“Would people expect another cash incentive in future for COVID vaccination boosters or for flu shots or childhood diseases?” she asked.

‘My body, my choice’

Two of the 60 economists surveyed backed “no additional measures”. UNSW Sydney economist Gigi Foster said the choice should be an individual’s, made without social shaming, goading, moralising or outright coercion.

But others strongly disagreed about individual choice. The University of Melbourne’s Leslie Martin said while personal choice mattered, it “should not come at a cost to others”. And Stefanie Schurer said in a world where individual freedoms were already wildly curbed, vaccination mandates and passports did not seem off the charts:

A requirement for children to meet immunisation schedules has been attached to childcare payments since 1998 and for the Family Tax Benefit A supplement from 2012. Families can access their family-related Centrelink payments only if their child’s vaccination schedule is up-to-date. In 2015 exemption rules were tightened to make it harder for so-called conscientious objectors. States such as NSW have also introduced vaccination mandates for children to access childcare centres.

Several of the economists who supported cash payments and lotteries said they should be held in reserve and used only as a “last resort”.

The Grattan Institute’s Danielle Wood said even if they only shifted the dial a few percentage points, there was a big difference between getting 75% of people vaccinated and 80%.

Eighty per cent might be enough to get a re-opening of the economy to “stick” without the need for further lockdowns.

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Enjoy the Hottest 100, but it's not all it seems

Wanna rig the Hottest 100?

It's surprisingly easy. I am not talking about blatant write-in campaigns of the kind that attempted to push Shake It Off to the top in 2015. They've been headed off by a new rule that says "votes made as part of a competition that promotes a song or artist, or a campaign that undermines the Hottest 100 may be disqualified or ignored".

I am talking about the kind of manipulation that happens all the time, where songs are pushed to the top of the charts and into the crevices of our hearts without us knowing.

Senator Cory Bernardi, who this week took the unusual step of creating his own alternative "Conservatives 100" in protest at triple J moving the Hottest 100 from Australia Day, achieved little. The best way to control what people want to hear is to control what they do hear.

US station manager Todd Storz twigged to the idea in the 1950s. Like most radio stations, his had been playing a bit of everything, what he thought people wanted. Then as he waited in a restaurant to pick up his girlfriend, who was a waitress, he noticed that the other waitresses were programming into the jukebox the same songs they had been hearing all day. They had come to like what they had been forced to hear. He invented Top 40 and never looked back.

But triple J is different. Its listeners have minds of their own, right?

Liam Lenten and Jordi McKenzie, economists and music tragics from La Trobe and Macquarie universities, think not.

They've just completed what is probably the only economic analysis of Australian pop music charts. Published in the Economic Record, it was intended to be a study of what kept songs at the top of the all-time Hottest 100 and what let new ones in.

The Hottest 100 comes in two forms. The annual survey, which these days is limited to tracks released in the previous year, is followed by a release of a double CD. The best tracks of all-time survey, which used to be annual, now takes place once every 10 or so years. Both are decided by popular vote.

Lenten and McKenzie's initial findings were that songs released in the lead-up to the best songs of all time polls did unreasonably well, and that there was something special about Joy Division's Love Will Tear Us Apart. It has been always been at or near the top.

Then a different, one-off, Hottest 100 put them on to something fascinating. It was conducted in 2013 and limited to the best tunes of the previous 20 years. In each of those years triple J had released Hottest 100 CDs, but because of copyright and other restrictions, none had included anything like the entire 100. Many didn't even include the hottest of the 100. In Lenten and McKenzie's words, "a significant proportion of songs featured each year were low-ranked".

Yet these low-ranked songs, not overly liked at the time, turned out to be over-represented in the hottest of the past 20 years list, eclipsing some that had made it to the top five. They only thing they had that many of the better-liked songs did not have was inclusion in the CD. Lenten and McKenzie conclude that "the radio station itself played a significant role in the results" by what it chose to put on the CD.

A decade ago two Columbia University sociologists asked people to rate 48 songs and download those they liked most. Half were told the truth about which had been the most downloaded. Half were lied to and told the reverse, that the least downloaded were the most downloaded. They downloaded the initially unpopular songs surprisingly often.

Enjoy the Hottest 100, it's democracy in action. But democracy is imperfect. We're more easily manipulated than we think.

In The Age and Sydney Morning Herald

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Why Richard Thaler thinks we've two brains, in one body

The winner of this year's Nobel Prize for Economics nearly lost his first job as soon as he got it.

As a young professor, Richard Thaler designed an exam that would easily sort the students into three categories: the superstars, those who understood things well enough, and those that couldn't. It worked, but he faced a revolt. The average score turned out to be just 72 out of 100.

The number out of 100 made no difference to the eventual grades. The As, Bs, and Cs were awarded in accordance with the standard grading curve, and he told his students so. But he says they still "hated my exam, and they were none too happy with me".

Worried he wouldn't keep his job, he redesigned the exam (but not the questions, and not the ultimate allocation of As, Bs and Cs) so that it was marked out of 137 instead of 100.

"The students were delighted! No one's actual grade was affected, but everyone was happy," he wrote in his 2015 book Misbehaving.

He chose 137 for two reasons. "First, it produced an average score well into the 90s, with some students even getting scores above 100, generating a reaction approaching ecstasy. Second, because dividing one's score by 137 was not easy to do in one's head, most students did not seem to bother to convert their scores into percentages."

He even said so, writing to his students that the scoring system had "no effect on the grade you get in the course, but it seems to make you happier". None of them complained again.

A few years ago I took part in a mass experiment conducted by one of Thaler's colleagues. He asked each of us to take out our driver's licence and write the last two digits of the identification number at the top of a page. Then he showed us a bottle of red wine and asked up to write at the bottom of the page our guess as to what it was worth; anything between 00 and 99 dollars.

Astonishingly, those of us with licences whose last two digits spelled out a low number thought the wine was cheap. Those whose licences produced a high number thought it was expensive.

In both cases we were misled by an anchor; the students by the anchor of 100, and those of us in the experiment by the digits at the end of our licence numbers. As Thaler accumulated more and more examples, and tested them in experiments, he set them out in a list on his backboard entitled "dumb stuff people do".

"Dumb" was too harsh. We are lazy more than we are than dumb. Most of us could make a proper guess as to the value of a bottle of wine, and most of us could work out percentages, but, as Thaler puts it, we have "limited time and brainpower". We find it easier not to bother, to fall back on shortcuts.

And yet mainstream economics has been built around the assumption that we are always calculating and mostly getting it right. When shown that we don't, that we consistently get things wrong, traditionalist economists have excuses: "If the stakes are high enough people will get it right; in the real world people learn and avoid mistakes; in aggregate errors cancel out," and so on.

Thaler's greatest contribution has been to show that our mistakes aren't random; that they are predictable, and that they are often worse when the decisions are big. We are good at grocery shopping. We do it all the time. But only rarely do we buy a house, or enrol in a savings plan. It's these decisions that we often get spectacularly wrong, in predictable ways.

One of his greatest practical contributions has been "Save More Tomorrow", a US scheme in which companies sign up their employees not to squirrel away more of their pay packet today (when it would hurt) but to do it later, when they get a pay rise. It came from his insight that rather than acting as if we are rational when it comes to decisions about saving and splurging (or dieting and eating) we act as if we are two separate beings fighting for control of ourselves.

It's been more or less proven. In one experiment, economists from Columbia and Stanford universities offered 6000 Americans the chance to take part in a lottery. They were given a choice of what to accept as a prize: either $55 in cash, or a lesser-value $50 bottle of wine. Astonishingly, about a quarter chose the wine.

When asked why, they said things like: "If I chose the cash, I would probably spend it on something I need rather than something I would really enjoy" and: "This way I will have to pamper myself ." Part of them is trying to escape from a straitjacket strapped on by the other part.

Thaler might be best known for his appearance in the movie The Big Short where he explained collateralised debt obligations to the pop star Selena Gomez; and also for his co-written book Nudge, now used as something of a guide by governments in the UK, the US, and now Australia and NSW who have set up behavioural economics units. He is on to something big.

In The Age and Sydney Morning Herald

 

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Harford. A messy symphony that almost hits the crescendo

Messy
Tim Harford
Hachette, $32.99

The best pop songs start by giving you what you want, and then build up to so much more.

Tim Harford is a virtuoso of pop economics. Originally a development economist, and the coauthor of an excellent but little-read book about aid, he flicked the switch to pop a decade ago with The Undercover Economist, an examination of topics such as why Starbucks charged the way it did, why you were always ripped off when you bought fair trade, and why you could never get a good price for a second-hand car.

Like the early work of the Beatles or the Beach Boys, it was fascinating but straightforward. Then a few books later came Adapt, which piled layer upon layer of stories from psychology, evolutionary biology, anthropology, physics, maths and music to build to an unarguable case that success is trivial and ephemeral unless it comes from the ground up, from recovering from the worst mistakes.

Now there's Messy, a book that presents itself as an impossibly simple account of the virtues of a messy workspace, then builds to something extraordinary.

The chapters on workspaces are books in themselves. BHP gets special attention. Its 11-page edict to its office workers in Perth ("If you wish to display an award, that's okay – but only if you remove the A5 photograph") is a gift to proponents of messy workspaces, as are those of the Los Angeles advertising agency Chiat/Day which tried to create a "workforce of the future" by banning paper as well as personal desks. Harford says employees had to improvise ways to keep hold of the paper copies of contracts and storyboards and concept art. "Some staff stashed binders in heaps in the corner, others used their cars as storage, heading to to the car park to file and retrieve important documents."

In contrast, Manhattan's appallingly unorganised Brill Building and the makeshift Building 20 at the Massachusetts Institute of Technology produced some of the greatest music of the 1960s and the greatest technological advances of the 20th century.

Harford sees battles over neatness as battles about control. By browbeating their employees over something that's visible, employers think they'll be able to control what's invisible, which is how well their workers work, although it usually works the other way.

Our own attempts to control our thinking fail for much the same reason. To-do lists are notoriously ineffective, piles of paper are far more efficient than filing cabinets, email search is quicker than logically arranged folders or tags, near-random hookups succeed better than carefully matched dates. Then Harford broadens the field. Generals succeed best in war (and chess) when they are unpredictable, musicians when they are placed in near-impossible situations, hospitals and ambulance services when they abandon clear targets, pilots when they don't always rely on autopilot and great speakers when they depart from the script.

Martin Luther King's most famous phrase "I have a dream" came mid-sentence when he didn't like the next pre-prepared line. Casting around for something better, he heard someone behind him yell: "Tell 'em about the dream, Martin."

But Harford stops just short of the ultimate crescendo. It would be to acknowledge that just as rules can't exert control, neither can we. Most of what we do comes from our unconscious, with our central control unit merely taking the credit. I think he didn't go there because he doesn't believe it. Like most of us with a healthy ego, he likes to think he does it himself.

In The Age and Sydney Morning Herald think he does it himself.

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Giving is like sex, it makes us human

Want to make someone incredibly happy? Give them $5, or $20. But you can't stop there.

A few years back researchers Elizabeth Dunn, Lara Aknin and Michael Norton approached students at the University of British Columbia Vancouver in the morning and administered a happiness questionnaire, after which they gave them either $5 or $20. They told half to spend it on themselves as soon as possible, and the other half to spend it on someone else.

The first thing they discovered when they readministered the happiness questionnaire at 5pm was that the amount of money made no difference. Five dollars did just as much as $20. And for those who had spent it on themselves (on magazines, at Starbucks and the like) that was nothing. They were no happier than they had been before.

But the half that spent the money on someone else (on toys for children, donations to the homeless and so on) were a good deal happier.

Without fully realising it, Dunn, Aknin and Norton had helped crack what's known as "happiness paradox" or "Easterlin paradox", named after the economist who came up with it. Based on inadequate measurements and broadly accepted until about a decade ago, it seemed to show that, when measured over time or between countries, more money didn't create more happiness.

It's now widely accepted that it does, at least for big changes in income. And it should. There's a lot you can do with more income, including giving it away. To the extent that more income does not create more happiness, that could be because people aren't doing the right things with it. As Dunn, Aknin and Norton put it, "how people spend their money may be as important for their happiness as how much money they earn".

So they surveyed workers at a large Boston firm one month before and two months after they received their annual bonuses, which averaged $US5000 ($6800). The more of their bonuses they had spent on buying things for someone else or donating to charity, the more their happiness had increased.

Even toddlers seem to delight in giving. Aknin videotaped children between the ages of 22 and 24 months who had been introduced to a puppet (a monkey) they had been told "liked treats". The researcher then gave them some treats (goldfish crackers) and asked them to share some with the monkey. Then the researcher "found" an extra one and asked them to pass it to the monkey.

Coding of the facial expressions by two assistants showed the children were happier passing the treats to the monkey than they were receiving them themselves. But they were the happiest of all when they gave up treats they already had to share with the monkey.

At the US National Institutes of Health neuroscientist Jordan Grafman conducted the same sort of experiment on adults, with their heads in a brain scanner. After money had been placed in their "accounts", they were presented with a list of charities and told they could pick some to donate to, or decide not to and take some of the money home.

Whenever they decided to donate, parts of their middle brain lit up, the same parts that control cravings for food and sex, and also the same parts that were activated when the money went into their accounts.

He concluded there was nothing particularly sophisticated about the decision to give. It was as basic as the need for sex, and food.

And sex comes into it. There was another bit of the brain that lit up: a small part of the frontal lobe that's full of receptors for oxytocin, the so-called "love hormone" that's released during sex, childbirth and breastfeeding.

Whereas adrenalin gives us "fight or flight", oxytocin gives us lust and trust. It makes us both more loving and more loyal, bonding us to each other. It's what most of us want.

Many of us are unhappy at Christmas. The Paul Kelly song How to Make Gravy is about someone who can't be with the ones he loves. He isn't feeling miserable because of what he won't get, he is feeling miserable because, this year, he won't be able to give; because this year he won't be flooded with oxytocin.

That makes it sound selfish, but it isn't. Giving is a human duty. It's what we do because we're part of the species. That's why it makes us feel better.

In The Age and Sydney Morning Herald

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Cheap wine is better, but hide the bottle

I get anxious going into bottle shops. That's partly because I was brought up Methodist, and partly because I never pick the right thing. If I spend too much, I'll be wasting my money; if I spend too little, my guests will think I'm serving rubbish. And to me, it's all the same.

The reassuring if depressing news from the American Association of Wine Economists is that I'm not alone. (Yes, there is such a group.) One of the most widely cited papers in its Journal of Wine Economics is "Nothing Good Ever Came from New Jersey: Expectations and the Sensory Perception of Wines".

In the first test they gave "experienced wine professionals" reds from New Jersey and California and asked them to tell the difference. They had been told nothing about where the reds came from and couldn't. But in the second they told the tasters that some (but not which) of the wines came from New Jersey. The professionals became dogmatic, saying that the wine they thought was from New Jersey was plainly inferior, even if it was really from California. They still couldn't pick which was which.

In Predictably Irrational, economist Dan Ariely describes how he gave students two small samples of beer and asked which they would like in a larger glass. One of the samples had vinegar added. The students rated each pretty well. Then he ran the experiment again, this time telling the students one of the samples contained vinegar. They picked the one they thought it was, and hated it.

Back to price. Ariely gave students electrical shocks, asked them how much they hurt, then handed out tablets to "relieve the pain" (which actually were vitamin C tablets). They worked, but what really worked was the price. If the students were told they were expensive, they worked extremely well. If they were told they were cheap, they were less effective.

Which is where wine comes in. Study after study finds that more expensive wines taste better, when people know they are more expensive. When they don't, the shocking finding from an analysis of 6000 tastings entitled "Do More Expensive Wines Taste Better?" is that, "on average, individuals who are unaware of the price do not derive more enjoyment from more expensive wine. In fact, they enjoy more expensive wines slightly less".

It bears repeating: on average, people unaware of the price enjoy expensive wines slightly less. If price is a guide, it's a guide for what not to buy.

Curiously, there was one small group which enjoyed what turned out to be the most expensive wines slightly more. They were wine experts; which is only half reassuring. They are experts at something, but it's not predicting what you and I will like.

My best advice (and I'm the worst person to give this sort of advice) is to race in, get something cheap, get out, and pour it into better looking bottles. Your guests will be doubly grateful.

In The Age and Sydney Morning Herald

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Win the election, buy some wheels. Seriously

Before the election that swept Tony Abbott to power in 2013, his incoming treasurer, Joe Hockey, forecast an explosion of spending as consumers opened up their wallets in celebration of a Coalition win.

As unlikely as it sounded, that's exactly what happened for some voters, even though the official figures didn't show it at the time.

The Reserve Bank has gone back and examined spending by postcode and used it to calculate what happened to spending by the supporters of each side of politics.

In the years after the 2013 election, Coalition supporters bought far more cars than did Labor supporters. Yet in the years after Labor took office in 2007, it was Labor voters that spent big on cars, an effect economists Christian Gillitzer and Nalini Prasad describe as far from trivial.

"Going from a hypothetical postcode with only Liberal/National voters to another postcode with only Labor voters is estimated to have increased per capita motor vehicle purchases by around 30 per cent four years after the 2007 election," they say in a research discussion paper released on Monday.

The purpose of the study was to try to find out whether the answers to questions in consumer confidence surveys reflect actual buying intentions. Those surveys invariably show that after each change of government, supporters of the party that won suddenly become more rather than less confident than supporters of the other side. If the surveys reflected actual buying intentions their purchases would shoot up relative to those of the other side, even though overall purchases hadn't changed.

That is what the study found: "evidence that self-reported spending intentions are indicative of actual consumption behaviour". And it has told us something else: we take politics seriously enough to vote with our wallets.

In The Age and Sydney Morning Herald

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The true cost of our insanely low Newstart allowance

You'd be forgiven for thinking that money matters to everyone except those who don't have it.

Last week, after months of anguish, the government gave ground on its plan to to wind back the super tax concessions directed to the wealthiest 4 per cent of the population. It didn't want them to suffer too much.

This week, at the National Press Club, Social Services Minister Christian Porter dismissed suggestions that it needed to lift the Newstart unemployment benefit of just $264.35 per week.

"The fact that people who find it challenging to subsist on Newstart do so for short periods of time might actually speak to the fact that that's one of the design points of the system," he said. The low rate was "working okay because the encouragement is there to move off those payments quickly".

As it happens, there's nothing "designed" about the rate of $264.35 per week. If there was, it would stay constant relative to other payments instead of drifting lower. A decade ago Newstart was 20 per cent of full-time average earnings. This week, it'll be just 17 per cent; and that's after Thursday's increase. Newstart climbs each March and September in line with a more miserly formula than the pension and most rates of pay. This week's increase is just 55¢ per week. That's right: 55¢, taking the weekly rate from $263.80 to $264.35.

By contrast $271 is the minimum amount per night Porter has charged, on top of his wage, for travelling away from home according to the most recent set of records. At times he has charged up to $438 per night. Living is expensive.

For almost everyone, it's more expensive than $264.35 per week, which is why, on request, Centrelink will dole out the allowance weekly rather than fortnightly. There are people who can't wait.

Even those who can wait suffer, in ways that are more serious than generally imagined.

The latest set of Boyer Lectures on ABC radio are eye-opening. Michael Marmot, an Australian who lives in London, is perhaps the world's leading expert on what kills us: not just the immediate things such as cancer and heart disease, but the mental and physical conditions that bring them about.

"How can an older person lead a life of dignity, take their place in public without shame, if they cannot buy presents for their grandchildren?" Marmot asks. How can families with children live without stress if they can't buy them new clothes or entertain their friends?

In the Whitehall study, his most famous, Marmot examined the lives and deaths of 17,530 British civil servants. There is nothing particularly remarkable about civil servants, he explains in his lectures. They are "neither the richest nor the poorest in society".

Yet those public servants on the lowest rate of pay, with the least control over how they spent their days, were extraordinarily more likely to die in any given year than those at the top. Even when he controlled for risk factors (comparing non-smokers to non-smokers and so on), those at the bottom were twice as likely to die as those at the top.

Even those on step 2, just one rung below the top, were far more likely to die of all causes than those at the very top. His explanation is stress. Hormones such as cortisol can kill, through all sorts of mechanisms. People who don't know how they will make it through the week are loaded with them.

In their new book Scarcity: why having too little means so much, economist Sendhil Mullainathan and psychologist Eldar Shafir describe what they call "bandwidth tax". Many of us can easily cope with unexpected calls on our finances such as traffic fines or emergency visits to the dentist.

But if we are short of money our stress system kicks in. Worrying consumes our mental bandwidth as well as poisoning us. At an American mall, they asked high income and low income shoppers how they would cope if their car suddenly needed a $3000 service. The low income shoppers performed incredibly badly on a series of intelligence tests administered immediately afterwards; much worse – an incredible 13 IQ points worse – than low income shoppers who hadn't been asked to think about the $3000 service. The high income shoppers performed no worse.

Thirteen points is the difference between "superior" and average intelligence, it's the difference between average intelligence and "borderline deficient". It could be the reason why people stressed by trying to live on $264 per week (plus whatever they can scrounge) do so poorly at job interviews.

Porter wants to get people off welfare, which is fine. But getting them out of anguish-inducing poverty is important regardless. Instead he revealed at the press club that the Turnbull government plans to press ahead with the Abbott government's decision to extend the waiting period for Newstart from one to four weeks. It would be better off dropping the measure (which was never likely to get through the Senate) as a gesture of goodwill. Unemployed Australians might even believe the Coalition can imagine how they feel.

In The Age and Sydney Morning Herald

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Wondering whether to end a relationship? Toss a coin, seriously

What's the best thing to do when you are faced with one of those gut-wrenching decisions like whether to quit your job or have a baby or end a relationship?

When I was weighing up whether to leave the Treasury to work as a journalist a few decades back, my mother acted as if it was one of the most momentous decisions I would ever make. My father, who was more relaxed, said it would all be fine.

It turns out dad was right.

The perpetually curious Steven Levitt (best known as the author of Freakonomics) has just published an ingenious study titled Heads Or Tails: The Impact of a Coin Toss on Major Life Decisions and Subsequent Happiness.

Levitt was frustrated that most of the laboratory studies involved small decisions such as whether to take an inconsequential gamble.

So for months he set up his own high-stakes website: FreakonomicsExperiments.com.

His greeting read: Have a problem? We can help. Sometimes in life you face a major decision, and you just don't know what to do. In the end, whatever you choose will essentially be a flip of a coin. Help us by letting Freakonomics Experiments flip that coin for you.

If they went further they were invited to choose a question or write one of their own, take a survey which had buried in it a question about happiness ("How happy would you say you are on a scale of 1 to 10?") then get the machine to toss a virtual coin, and complete follow-up surveys two and six months later.

The most asked question was "Should I quit my job?" followed by "Should I break up?"

As unlikely as it seems, 3869 people used the website to guide them through those decisions. Another 415 asked whether to have a baby  and 22,511 used it in total.

Roughly 63 per cent of those who took part did what the coin said, more than the 50 per cent that would have been expected by chance.

After two and six months the people who had thrown their lot in with the coin were happier than those who had not and must have used some other means to make their decision. And it's not just that they said they were happier. They were also asked to nominate third parties who were asked about their happiness both before and after.

For the really important questions (those about jobs, relationships and babies) the difference in happiness was "especially large – around one full point on a 10 point scale".

Doing what the coin said seemed to really matter. Levitt thinks he knows why. The people who did changed more often than the people who did not. Left to our own devices we've an inbuilt bias against change. Yet more often than we realise it's the best thing we can do. Levitt's no counsellor (he leaves that to his machine) but his advice would be that it's often worthwhile taking a leap into the unknown – far more worthwhile than we think.

In The Age and Sydney Morning Herald

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Creepy and foolish. Why most research findings are wrong

Perhaps the creepiest science experiment ever conducted was called Personal Space Invasions in the Lavatory: Suggestive Evidence for Arousal.

It examined the behaviour of men at urinals. (Yes, I know I discussed urinals in a previous column; I'm not going to make a habit of it.)

The researchers hid in a toilet stall and used a periscope to observe the behaviour of men standing up attempting to urinate. When the men had, another man standing beside them they took longer to start, 6.2 seconds after unzipping their flies compared with 4.9 seconds. When another man (someone helping out with the experiment) stood behind them, they took even longer – 8.4 seconds.

And they finished up more quickly too. It's not comfortable when someone's invading your personal space.

I don't doubt for a moment that it takes men longer to start when someone is standing next to them. But the experiment had two major flaws. One is the researchers knew what they were looking for. The other is that they timed only 60 men.

The Australian Bureau of Statistics employment survey is conducted on about 25,000 men and 25,000 women each month, and even it gets things spectacularly wrong. National employment didn't grow by 71,375 in November as reported, it probably grew by less than 6000. And it didn't soar by 121,000 last August and then sink by 172,000 last September either. The spikes and troughs were artefacts, brought about by the way the survey was conducted. Little things such as the order in which questions are asked make an enormous difference, as the Bureau has discovered to its cost.

Yet we are repeatedly asked to trust the results of studies conducted only once on tiny numbers of people.

One of my favourites is the gourmet grocery store jam study...

The Californian researchers set up a jam tasting booth, which at times had only six varieties on it, and at other times 24. When the booth offered 24 varieties, customers were less likely to end up picking one to buy at a discount. Too much choice made it hard to choose. But the survey involved only 242 people. Would it stand up if it had been conducted again in a different location by different researchers?

There are reasons to think it might not.

In the mid-1990s some New York University psychologists performed scrambled sentence tests on 60 students. Half were asked to unscramble sentences containing ordinary words. The other half were given words specifically related to ageing, such as old, lonely, and grey. As the students walked out, a researcher with a stopwatch timed how long it took them to reach the lift. Those who had been "primed" took longer. It became an accepted psychological truth.

Except that when other researchers performed the experiment two decades later using infrared detection instead of a stopwatch, the effect disappeared. As with the stopwatch in the lavatory, the people doing the experiment had been able to tilt the results in the direction they wanted.

Three years ago, University of Virginia researcher Brian Nosek embarked on an epic "reproducibility project", an attempt to reproduce 100 of the results reported in leading psychology journals throughout 2008. His shocking finding, almost a decade later, is that fewer than one-third stand up.

And in most of those that do stand up, the effect is weaker than first reported. And not only in psychology. In all disciplines, from physics to economics to medicine, findings seem to get smaller each time an experiment is repeated. Drugs that seem effective when first tested appear to get weaker with each successive test.

Nosek thinks he knows why. Low sample sizes mean its very hard to get a finding that is statistically significant. When it does happen, it's often the result of chance. But it gets written up as a result. There's usually no attempt to get a second result. If there is, the cards will almost always fall the other way, making it less-impressive.

I have no doubt that many of the findings I have reported during the past few decades have been wrong. I've latched on to them because they've been written up in prestigious journals, and because they have seemed right. I shouldn't have. It's the outcomes that seem right that we should most distrust. Not because they are necessarily wrong, but because the researchers who found them wanted to find them. Next year I'll be less trusting.

In The Age and Sydney Morning Herald

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Just a nudge. Why Malcolm Turnbull is embracing behavioural economics

There's something odd about the urinals at the Netherlands airport. Each one has what appears to be a fly embossed in the porcelain right at the point designers want men to hit.

Normally pretty bad at aiming with precision, men can't resist trying to hit it and wash it away. So much so, that adorning the urinals helped reduce "spillage" 44 per cent.

Cass Sunstein loves telling the story. In Australia to help prime minister Turnbull launch his own behavioural economics unit, Sunstein used to run the US office of information and regulatory affairs under President Obama. It was known as Obama's 'Nudge Unit', for good reason. Sunstein co-authored the book Nudge, and is an expert in using behavioural economics to change behaviour.

Three years ago Australia's present cabinet secretary Arthur Sinodinos ridiculed the idea in a press release entitled "Nanny state wants to nudge you!". But that was when Gillard was in power. Turnbull likes nudges. Their best selling point is that they are cheap.

Sunstein explained on Monday that in the US poor children were eligible for free school meals so long as their parents signed up. But whether because many were too busy or too embarrassed millions of children missed out.

So the authorities allowed schools to automatically enrol any child they thought might be eligible. Parents who wished could still take their children out.

The result was an extra 12 million children obtaining meals to which they were legally entitled...

>"It was just a nudge," he said. "We switched the default."

Sunstein also tackled low college enrolments among low-income students by sending each a text message just before the deadline. Low-income enrolments jumped 5.7 per cent.

The ideas don't just come out of his head. They are the result of incredibly large real world trials. When the US Internal Revenue Service wanted to increase the honesty of businesses reporting sales it tried adding an extra signature box to the top of the form. Reported sales boomed.

Critics say that nudges engineer outcomes, but so too do badly designed forms, such as ones that don't have signature boxes at the top. It's just that they do it thoughtlessly.

In Australia the Tax Office has been doing it thoughtfully for half a decade.

If you are late paying your tax this year you'll get a letter that says: "When you pay this debt you will be joining the millions of Australians who pay their tax to support our country and Australia's way of life."

The words weren't chosen at random. They were the result of real time experiments trying out different combinations of words on millions of taxpayers.

This year the letters are in different coloured inks: first blue, then amber (signalling a warning) then red. Cheryl-Lea Field, the deputy commissioner in charge of debt recovery, says this simple change has pushed up the number of recipients paying within 30 days from 30.3 to 36.8 per cent. The number making partial payments has jumped from 44 to 50 per cent.

And she's sending reminder texts to perennial late payers. The most effective include the taxpayer's name ("Peter") and arrive just before the payment is due. Last year an extra 65,000 paid by the due date, at a cost of only 9c per text.

The office has even has discovered the power of "thank you" texts. Late payers feel their effort has been appreciated and pay more quickly next time.

Her phone staff no longer use inflexible scripts. They used to have to ask "can you pay today" even after the caller had made it quite clear they couldn't. Now they are allowed to listen and help draw up payment plans.

There's even an online calculator to help late payers draw up plans themselves. And it'll soon come with gentle warnings, pointing out where, in the view of the software, the plan could be too optimistic.

In September President Obama signed an executive order requiring all US agencies to make use of behavioural insights. NSW premier Mike Baird has set up his own behavioural insights unit using staff and ideas borrowed from the British PM David Cameron. And now Malcolm Turnbull's on board. On one level they are doing no more than requiring agencies to think about how they interact with us. On another they are asking agencies to manipulate us.

It's something we're used to: advertisers have done it for years. Turnbull wants to even the score.

In The Age and Sydney Morning Herald

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Deadline stressed? You've brought it on yourself

You probably shouldn't be reading this.

You've got too much to do. But that's one of the odd things we do when we've too much to do: we thumb through newspapers, we check our email, we read articles like this about how to get through our list rather than actually getting through our list.

We act as if we've taken leave of our senses.

Just about everyone knows the way to get through a list. It's to take on fewer projects, start big projects earlier and finish them sooner. But almost no one does it. It's as if, when we are busy, we lose the mental strength to escape from our busyness.

That might sound familiar. It should. It's the way dieters approach dieting. Everyone knows that the way to do it is to eat less and to eat less often. Yet most can't manage it. We start to diet, then we get hungry, and lose the mental strength needed to keep going.

This isn't just an analogy. Harvard economist Sendhil Mullainathan and Princeton psychologist Eldar Shafir​ reckon it's the same thing. They set out their argument in their new book titled Scarcity: The New Science of Having Less and How It Defines Our Lives.

They believe that scarcity (whether of time or food or money) makes us temporarily dumber.

They're even prepared to say how much dumber. They say it's worth 13 to 14 IQ points.

Thirteen points is enough to move you from "average" to "superior" intelligence, they say. "If you move in the other direction, losing 13 points can take you from average to a category labelled borderline deficient."

Not for one second are they saying that busy people are dumb or that dieters are dumb or that poor people are dumb...

They are saying that when we get into those situations we become dumber and that that makes those situations worse. As they put it: "scarcity creates its own trap".

Here's how it worked with a group of shoppers they surveyed at a New Jersey mall. Just before administering the IQ test they asked about auto insurance:

Imagine that your car has some trouble, which requires a $300 service. Your auto insurance will cover half the cost. You need to decide whether to go ahead and get the car fixed, or take a chance and hope that it lasts for a while longer. How would you go about making such a decision?

Rich and poor shoppers answered the question in much the same way, and were roughly matched in the intelligence test that followed. Then they administered the test to a new group of shoppers, but changed one detail of the question. Instead of it being a $300 service, it became "an expensive $3000 service".

A rich shopper is easily able to handle $3000, but for a poor shopper it is almost impossible. The rich subjects did just as well as before in the intelligence test. The poor subjects did far, far worse.

They'd been made worse because they had been made to think about financial problems, which soaked up their "mental bandwidth".

As Mullainathan and Shafir put it: "The mind orients automatically, powerfully, toward unfulfilled needs. For the hungry, that need is food. For the busy it might be a project that needs to be finished. For the cash-strapped it might be this month's rent payment; for the lonely, a lack of companionship. Scarcity is more than just the displeasure of having very little. It changes how we think."

Someone desperate for enough money to make it through the week will be attracted by a payday loan, whatever the interest rate and the likelihood of paying it back. Their critical facilities will be weakened and they'll become poorer still.

A dieter unable to think about anything but food will relent (just once) telling themselves they will make it up the next day, without realising they'll probably relent the next day as well.

Someone mired in deadlines and an overwhelming workload will say yes to just one more project (so long as it is in the future) without realising that they've just made things worse.

The solution they propose is to consciously build slack into our systems: to only accept work that won't overload us, to go on a less demanding diet, or to further lower the living standard we accept. They are solutions that might make sense if so much of our brains weren't tied up worrying about the next crisis.

And that's the problem.

In The Age and Sydney Morning Herald

 

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Hockey's most dangerous idea: We're neither lifters nor leaners

Of all of the factoids bequeathed to us by departing treasurer Joe Hockey, the most dangerous is that the Australian population can be divided into two:"lifters" and "leaners".

Hockey was following in the footsteps of United States presidential challenger Mitt Romney when he used the words in his first budget speech. Romney had claimed the US could be divided into "the 47 per cent" who were dependent on the government, and everyone else who did the work.

Hockey's opposite number in Britain, George Osborne, made the same point about "strivers" and "skivers".

"Two groups need to be satisfied with our welfare system," Osborne said. "Those who need it – who are old, who are vulnerable, who are disabled, or have lost their job. And there's a second group – the people who pay for this system, who go out to work, who pay their taxes and expect it to be fair on them too."

Hockey and Abbott made it crystal clear which side they backed. Days before Abbott was rolled they unveiled a new slogan: "Backing Hard-working Australians".

Lifters versus leaners is a dangerous notion because it seems to contain an element of truth. Many of Hockey's other claims could be dismissed: that "higher income households pay half their income in tax," that Australia might "run out of money" to pay for health, welfare and education, that "the poorest people either don't have cars or actually don't drive very far in many cases". They were just Joe being Joe.

But the idea that a majority of taxpayers work hard to support a large minority of dependents strikes a chord with many of us who pay tax, all the more so because the treasurer sends us "tax receipts" at tax time showing how much of hard-earned is spent on "welfare", on other people...

Except that it isn't like that. Only in the short-term does money flow from "givers" to "takers", from lifters to leaners. Over a lifetime most of us are both. We fund pensions while we work and then receive them when we retire. At any moment we can lose our jobs or lose our health or become disabled. Later we can recover. We can move from being "lifters" to "leaners" and back again.

All it takes is luck. But we seem to be hard-wired to not recognise the role of luck in our lives and to attribute what happens to either our skill and hard work or to our general uselessness.

Andrew Leigh outlines fascinating instances in his new book, The Luck of Politics. Leigh was an economics professor before entering parliament and becoming Labor's shadow assistant treasurer.

He says that in a series of experiments students were asked to play games and randomly made either "lucky" or "unlucky". In Monopoly the "lucky" ones were given $200 for passing go and a double roll of the dice. The unlucky ones got $100 and could only a single roll. Pretty soon the lucky players began taunting their opponents, banging their pieces and eating more food from the snack bowl. They behaved as though they were superior even though they must have known they were not.

And almost everything that happens to us is a result of chance. Joe Hockey would almost certainly not be the member for North Sydney were it not the result of a principled decision by his predecessor to retire early before he was eligible for the parliamentary pension. Leigh would not have got preselection for the seat in Canberra's north had the Australian National University (and his house) been located in Canberra's south.

All it takes is a tiny difference in a chromosome for someone to be born a woman instead of a man and be less likely to get promotion, or to be born shorter and be less likely to become a politician.

British economist John Hills reckons that in Britain at least most people get back roughly what they put into the welfare system. The wealthier are leaners as well as lifters because they are more likely to live longer and take advantage of subsidised health care and tax breaks on investments. The poor get don't get to put in much, but don't get to take out much either.

His book is called Good Times, Bad Times: The Welfare Myth of Them and Us. It's a myth Hockey might like to consider as he ponders what it's like to be treasurer one day, on the political scrapheap the next.

In The Age and Sydney Morning Herald

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Why our most livable city is Melbourne - or Sydney, or Canberra

You want to live somewhere better than where you are, right? Who wouldn't, given the weather we've been having? It ought to be easy enough to work out where. At this week's economists conference in Brisbane, Melbourne-based Daniel Melser, a senior lecturer in economics at RMIT, outlined the results of calculations by human resources firm Mercer, the Economist Intelligence Unit and the Property Council of Australia.

Each calculates a livability index from the bottom up. They aggregate scores for things such as the natural environment and access to housing and health services to come up with a total livability score. Two of the surveys assign their own scores to the component parts, one surveys Australians to work out the scores for the component parts.

The overall winner (according to Mercer) is Sydney. It's the 10th most liveable city in the world, beaten internationally by only Vienna, Zurich, Auckland, Munich, Vancouver, Duesseldorf, Frankfurt, Geneva and Copenhagen. Melbourne is further behind in 16th place, behind Toronto.

Which is odd, because when the Economist Intelligence Unit does the calculations, it finds Melbourne to be Australia's most livable city. Actually it finds Melbourne to be the world's most livable city – out of 140 – eclipsing stars such as Vienna, Vancouver, Toronto, Adelaide, Calgary, Sydney, Perth and Auckland.

The Property Council might be expected to come to similar conclusions, given its local knowledge, but instead it finds Canberra to be Australia's most livable city, ahead of Adelaide, Hobart, Melbourne, Brisbane, Newcastle, Wollongong, Sydney, Perth and Darwin.

There's nothing much wrong with the methodology of each survey and probably nothing much wrong with the scores assigned each city for each attribute. The problems come when they try to add them up. How do you weigh the environment against transport? How do you weigh education against access to shops?

Melser thinks that rather than guessing the weights to work out what city Australians "should" prefer to live in, we should instead look at what Australians actually do.

It's called a "revealed preference" approach. Here's how it would work for Coca-Cola and Pepsi. Instead of assigning scores to the ingredients and adding them up according to a weighting, we look at what Australians actually buy.

If more of us buy Coke than Pepsi (we do) it can be safely assumed we like Coke more. We have "revealed" our preference. There's no need to examine anything.

At RMIT University, Melser got together with Curtin University academic Grace Gao and tried to apply the idea to cities. If all cities were equally good, their reasoning went, there would be no need to pay any Australian a premium to live in one instead of another.

Naturally some employers offer higher wages in some cities to compensate for higher living costs. But any extra premium, over and above what's needed to make up for living costs, would suggest that a city had a low quality of living or something else unpleasant about it that required compensation.

Using census data on incomes and housing costs across 56 different regions they determined that Australia's most pleasant places to live are Sydney's north shore and northern beaches and Sydney's eastern suburbs, followed by inner Melbourne and Melbourne's inner south.

The people who live there might be well-paid, but not so well paid as to overcompensate for the costs of living. They live in inner Sydney and Melbourne because the love it.

It's the same on the Gold Coast, the Sunshine Coast, Coffs Harbour and Warrnambool. People live there because they like it, not for the excess pay.

Australia's least-pleasant locations turn out to be in Perth, the Western Australian outback and the Northern Territory. People are often very well paid there, but in order to keep them there rather than merely because it's expensive.

Canberra is in the middle. It's neither a hardship post that requires special compensation, nor so wildly popular that people put up with high prices in order to live there.

What do the good places have in common? Weatherwise, Melser and Gao find they are not too hot, with plenty of rain. Facilitywise, they have large arts and recreational sectors and lots of restaurants. On the other hand they are not particularly well endowed with shops. Melser and Guo find the bigger the retail sector, the less popular the location.

Their groundbreaking survey suggests you probably prefer to live where you always thought you would prefer to live, and where you've probably been quite rightly telling yourself you can't afford.

In The Age and Sydney Morning Herald

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Stress. The hidden cost of having children

Ever wondered why people who've had children keep hinting that you should too?

It could be because they want you to suffer, like they did... so that you'll understand.

It's long been suspected that an awful lot of suffering is involved, especially for women. Surveys show parents are on average no happier than non-parents, even though most are keen to nominate their children as one of the most important things in their lives.

Many studies find that, all things taken together, couples with children are somewhat less happy than those without. Others find they are only slightly more happy. Most agree during the moments they are actually with their children they are less happy.

It could be that while having children does indeed make them happier people, there's something else going on at the same time that makes them feel terrible.

It would be stress. Mark Wooden and Hielke Buddelmeyer from the Melbourne Institute have quantified it in a new study written with a leading United States economist Daniel Hamermesh called The Stress Cost of Children.

They looked at two types of stress: financial, and being short of time. After examining data from surveys in Germany and Australia they found that financial stress wasn't that important. Time stress was critical.

To measure it in Australia the parents were asked: "How often do you feel rushed or pressed for time?" In Germany they were asked: "Think about the last four weeks. How often during this period did it happen that you felt rushed or under time pressure?"

In Germany, the birth of a child added enormously to the mother's time stress and not at all to the father's.

In Australia, both parents became more stressed, but for the mother the effect was three times as big...

Worse, it never really vanished. Whereas whatever financial stress a child brought disappeared quickly, the time stress for women continued for at least four years – the limit of the survey.

But how much stress?

The researchers used complex econometric techniques to answer the question: what transfer of earnings from the father to the mother would be needed to reduce the mother's financial stress by an amount equal to the increased time stress generated by the birth.

The answer shocked them. (They are all men by the way.)

In Australia the transfer would need to be more than twice as much as the father earned.

"Clearly, there is no reasonable transfer of earnings from husband to wife that can compensate for the increased time stress that she experiences with the new child," they concluded.

"These simulations suggest that the psychological cost of a new child is huge in comparison to the monetary cost. While other simulations would generate different monetary comparisons to the time stress experienced by new mothers, given our estimates it is doubtful that any reasonable simulation would suggest that these costs are small."

The extra stress is all the more shocking because before birth new mothers are likely to be unusually free of stress. It dips before birth and then soars. The report says that might be because parents pick times of unusually low stress in which to have a child. It might also be because women are more fertile when they are less stressed.

At the other end of childhood emptying the nest might be expected to dramatically lower stress in the same way that gaining a child raises it. But their study of a different group of parents whose children left home found what they called an asymmetry. Departures eased stress only gradually. Stress began subsiding four or more years before the child left and then kept falling at roughly the same rate in the years that followed. It's as if the child never really left, or as if the child began withdrawing before they said goodbye.

Wooden and Buddelmeyer found that having children generated "a permanent lifetime increase in perceived stress".

Which doesn't necessarily mean it's a bad thing. There are upsides from having children as downsides: pleasure, a feeling of importance and a feeling of contributing to humanity are among them. But they are likely to be forever offset by a feeling of being tired, or anxious or short of time.

None of these are reasons not to have children. But they are reasons to think about it carefully. Once made the decision can't be undone. And I don't know of many parents who would like to undo it.

It just means that when parents tell you how wonderful it is, they're not giving you the full picture.

In The Age and Sydney Morning Herald


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Ridiculous, but they work. Why we continue to make New year's resolutions

New Year's resolutions are ridiculous.

Think about it. People who want to change their behaviours  decide to change their behaviours and then all do so at once at midnight. But if they really wanted to change their behaviours they would do it of their own accord, without waiting.

At least that's what anyone who has ever studied economics has been taught. People are meant to be straightforward, literally single-minded.

But we're not, and the success of New Year's resolutions proves it. That's right, success. Because despite all of the jibes the truth is that New Year's resolutions work, and work far better than alternative of simply deciding to change behaviour and then changing it.

The reasons why give us an insight into what it means to be human and into why many of us are never quite sure who we are.

Here's the evidence, assembled by a US psychologist John Norcross. In the leadup to New Year's Eve 1995 he and a team from the University of Scranton in Pennsylvania phoned hundreds of Americans at random and asked whether they were planning to make a specific measurable resolutions at midnight or whether they weren't but still had measurable goals they would like to achieve.

Half a year later an impressive 46 per cent of those who had made resolutions claimed to be meeting their goals, compared to only 4 per cent of those who had not.

Conceding that self-reported success might be exaggerated, he said his findings should be seen "in a comparative context - compared to what".

"In this case, the success rate of resolutions is approximately 10 times higher than the success rate of adults desiring to change their behavior but not making a resolution."

His findings have been replicated repeatedly: resolutions work.

And they suggest that rather than being single-minded many of us are better thought of as having at least two minds, each fighting for control. One might be the saver, the other the spender; one the worker, the other the shirker; one the dieter, the other the eater.

Economist Richard Thaler had his epiphany when he invited a group of graduate students to his house for dinner. While he was cooking he brought out a bowl of cashews.

"We started devouring them," he later explained. "I could see that our appetites were in danger. After a while I hid the bowl in the kitchen. Everyone thanked me."

And then it hit him. He was being thanked by graduate economists. They wouldn't be thanking him at all if they really believed human beings were rational. "After all," he recalled in his biography, "if we wanted to stop eating cashews, we could have done that at any time".

Economics has traditionally explained away what appear to be two separate selves by saying each of us is one self with stable preferences moderated by a discount rate. Because we care most about the present we "discount" whatever good or bad things are likely to happen in the future when comparing them to the good or bad things we are facing now. We are said to have a constant discount rate of around 8 per cent per year.

But the explanation doesn't stand up. Rather than being constant, our discount rate seems to climb the closer we get to the choice we have to make.

Ask someone today to choose between working seven hours on April 1 or eight hours on April 15 and that person will almost certainly choose the easier day on April 1. But ask again when April 1 arrives and the same person will almost certainly choose the harder day in a fortnight's time.

The example comes from US economists Ted O'Donoghue and Matthew Rabin who in 1999 published a paper in the American Economic Review eviscerating the traditional idea of a constant discount rate and proposing instead a model of two selves in which the first was concerned only about the present (always wanting to put off anything unpleasant) and the second was concerned about where that would lead.

The two fight it out. There's no single 'self' always in command.

If they are right it explains the success of resolutions - they are a tool the long-term self can use to trap the short-term self into acting.

And it explains why certain types of resolutions are more likely to succeed than others - those that are specific and are made in public and no room for backing out.

John F Kennedy did it most famously in 1962 with his commitment to send a man to moon "before this decade is out" and just as effectively a year earlier declaring that the US would regard any attack on West Berlin "as an attack upon us all".

In both he was influenced by Thomas Schelling, an adviser to President Truman who later won the Nobel Prize in Economics and probably invented the concept of Mutually Assured Destruction, which against all odds has kept the world free of nuclear attacks for seven decades.

His insight was that closing off options can be empowering. The US was formidable when it declared that it would send a man to the moon no matter what, frightening when it declared it would defend Berlin no matter what and terrifying when it declared it would respond to nuclear force with nuclear force no matter what.

His advice for tonight is to eschew vague resolutions and go for absolutes: "Just as it may be easier to ban nuclear weapons from the battlefield in toto than through carefully graduated specifications on their use, zero is a more enforceable limit on cigarettes or chewing gum than some flexible quantitative ration."

And say it out loud. Lock yourself in. You might be surprised at what you can achieve.

In The Age and Sydney Morning Herald


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