Future and Decision

We are constantly making decisions relating to our future. Often we find it easier to make decisions to help ourselves to achieve something in the future than to make decisions to prepare ourselves for the future. Why is this the case? It is because once we have a clear goal for our future, we tend to know several ways to increase our chance of succeeding, at least we tend to believe we have several ways to increase our winning chance, although we cannot guarantee a 100% success rate. Under such circumstance, we are making the future, this is an active behaviour. However, on the other hand, when we are preparing ourselves for the future, it is a passive behaviour. Before we are making any decision or move, we have to figure what the future is like. It is impossible to be 100% certain about the prediction, so we are more likely to be indecisive and have divisive opinions.

Preparing oneself for the future is not only difficult for ordinary people, but also difficult for the experts. People with expertise may be able to get closer to the truth, but no one can be absolutely certain about their results. Moreover, future is uncertain by itself, lots of factors are influencing the outcome of the future. Maybe the outcome of the future involves one’s wrong prediction; in other words, if he or she makes the “right” prediction and makes the “right” move, the outcome of the future may change and his or her prediction and move are still wrong eventually. Therefore, we should not be any surprised to see government or institute is internally divisive when making a crucial decision for future.

An excellent price discrimination given by the smartphone industry

September is a busy month for the smartphone industry since many smartphone makers including those big names like Samsung, Apple and Samsung, unveil their latest products in

September. Most companies have several product lines, even Apple has created several iPhone categories, given it has a history of only releasing one model each year. Why do smartphone companies release various product lines? The answer is simple that they are doing this to discriminate prices in order to capture more consumers and gain more profits.

Consumers have different needs and aspects for smartphones, so the prices they can accept vary. Some people may be willing to pay awful a lot to get a new smartphone as long as the smartphone is equipped with the most cutting-edge technologies. Some people may be only willing to pay a significantly lower price for a new smartphone due to various reasons. A smartphone maker can certainly put all of their available cutting-edge technologies into one product and set a very high margin for this product’s price, the first group of consumers will be very likely to pay for this product willingly. However, the smartphone company does not want miss out the latter group of consumers who are not ready to pay high premiums for new smartphones, so the company provides this specific group of consumers with a relatively cheap smartphone with moderate specifications which they are much more likely to buy. By providing these two types of smartphones, the smartphone maker can capture those tech enthusiasts as well as ordinary consumers. In addition, some smartphone makers do not just stop over there, they are providing more than two product lines to capture an even wider range of consumers in the market. More levels of price discriminations these smartphone makers can create, more profits they can earn.

Of course, there are far more industries using price discrimination to gain greater profits; but the smartphone industry gives us an observable and classic example of price discrimination.

Better deals in larger countries

When I am surfing on the Internet in the UK, I occasionally get some information about discounts and deals happening in other countries, including the US, China and many other countries. It seems the deals and discounts in the US and China are much nicer than these in the UK. Here I am not talking about prices, since it is much more straightforward to understand why different countries have different price tags for same products and services. Of course, we can see discounts as another form of price tag, so it shares the reasons making prices different in different countries; however, I notice that it is easier to get better deals in larger countries than in smaller countries, why?

First, it can definitely be caused by my lack of access to all information. We generally gain more information about large countries than small countries, so I do not have enough evidence to say that larger countries have better deals. But I still think it is reasonable to have better deals in large countries than in small countries. Secondly, large countries have large sizes of population, so quantity may be much more important than margin when it comes to generating greater profits in large countries. And vice versa, margin may be more important than quantity in small countries, so it is reasonable to see better deals in large countries than in small countries. Thirdly, large countries may have more competitive markets, since in some small countries, some large companies may be capable of supplying one entire country productively under economies of scale and face very limited competitions. This can also explain why small countries do not have as good discounts as large countries have.

Overall, I do not have sufficient evidence to support my point and my observation, but I am not surprised if it is true for people living in large countries to have better deals than those living in small countries.

The fall of London

Since the Brexit referendum in 2013, people have been talking about how London will lose its significant position in the financial world. This year, London has slipped even further behind New York; however, we also need to notice that before New York took over London as the world top financial centre according to the global financial centres index compiled by consultancy Z/Yen, London was the world financial capital for five straight years despite the Brexit referendum in 2013. Why did London start falling recently rather than earlier?
First, many “leave" campaign politicians promised a bright future for Britain leaving the European Union. These promises could maintain some degree of market confidence and mitigate the shock brought by the referendum result. Secondly, shortly after people learning the referendum result, people expected a talk and a deal between the UK and the EU and the prime minister at the time, Theresa May, promised the British population a satisfactory deal between the EU and the UK. Right now, it seems that the probability of a no-deal Brexit is increasing as approaching the 31st of October, since both the split between the UK and the EU and the split within the Parliament seem widening even after a new prime minister took the office. Thirdly, it seems we are approaching the date of Britain leaving the EU for real this time. Companies including financial firms and institutions are more anxious to make a response to the changing outside environment than previously.
Overall, if there is a fall of London, the troubling handling of the Brexit could be the most significant factor in this, since London remained as the world financial capital after the Brexit referendum.

How do consumers build up their habits?

Today I am going to discuss consumers’ habit, especially how consumers build up their habits. Before answering this question, I think we need to talk about why people have habits. Having a habit means people doing something repeatedly without too much thinking, this can help people save time and efforts and give themselves the results they can at least accept. Habits are usually built based on people’s experiences, so they can have good predictions about the outcomes from following their habits. People may have some bad habits, but even bad habits give people some short-term pleasure (these bad habits can be drinking, smoking and etc.).

Because they have habits to make their life easier and less risky, these habits are generally built based on positive previous experiences. Once they have some good experiences with a certain product or service, they start to stick to this particular product or service without considering other alternatives. Of course, to build up a habit requires repeated practices, each successful practice accumulates consumers’ confidence, and a habit is successfully built up when confidence is accumulated to a certain level where people believe their purchase decisions do not have much risk. Of course, there are other factors which help people build up their habits faster. For example, first impression may help people like or dislike something easier, thus building up their habits faster (continuously avoiding something can also be seen as a habit). Any factor which help people to build up knowledge about a particular thing that interests them is helpful for building up habits.

Overall, from people building up habits, we may be able to conclude that people build up habits to mitigate the complexity of facing too many options.

Are consumers changing back and forth?

I have forgotten what exactly Steve Jobs said about consumers’ preferences (maybe it is just a rumour), the quote is like a company does not need its consumers to tell what they like, instead the company should tell what its consumers like and need. Apple has successfully guided its consumers’ preferences, even have guided how other smartphone makers make their phones. In 2017, Apple launched its first iPhone with FaceID. Immediately after the product release, many people saw the notch as a very ugly feature, even Samsung made a video to mock Apple for the notch. However, shortly afterwards, many other smartphone makers also produced their phones with different forms of notches, because of Apple’s successful sales of its iPhone.
Then why do consumers still buy products which they complain about? First, we cannot ignore the power of Apple’s brand. Apple is a very influential company that although some people may not like Apple’s new design, they still want to try Apple’s new products. Moreover, some people merely want to own an iPhone, since they think that owning the latest iPhone can show they are having a comfortable lifestyle. Secondly, people purchase the products they do not like, not because they change their preferences or opinions, but because other factors overcome the features they do not like. This happens to all our daily purchases, we do not like paying money, so anything with a price has something we do not like, we make our purchases once other benefits overcome the price. Thirdly, as Steve Jobs said before, customers do not know what exactly they want until they are offered. Looking does not give a consumer a full experience, a consumer can gain a full experience by actually using the product. The experience from just looking or reading keynotes can be seen as a subset of the full experience, this experience may not effectively reflect the full experience.
The above three factors could make people behave differently from what they say; however, there is still one important missing factor, habit. Habit, in my opinion, is much more interesting than the mentioned factors are, and worth a much more detailed discussion.

The US federal government deficit

According to US Treasury data released on Thursday, the US federal government budget deficit reached $1tn. This number is very likely to keep climbing up in my opinion. In his previous election campaign, the current US president, Donald Trump, said that the US budget deficit could go down under his tax cut policy, because although the tax cut will reduce the tax income from individual parties, the economic growth boosted by the policy will not only compensate the losses but also increase the overall tax income. So far, his claim seems to be false that although the economic growth during the Trump presidency is comparatively strong, the economic growth boosted by the expansionary fiscal policy fails to reduce the budget deficit.

Now, some economists predict an economic slowdown ahead of the US economy as well as the global economy. With the 2020 presidential election ahead, Donald Trump is under pressure to keep the economy growing. This means that the expansionary fiscal policy. Furthermore, the ongoing trade war between the US and China has also added some downward pressure on the US economy, this makes the economic stimulus more needed. The US president has pressured the Federal Reserve chairman to lower the base rate and choose expansionary monetary policy.

Under such circumstance, there is not much hope that the US federal government budget deficit will fall anytime soon.

Why do people get addicted to gambling?

Gambling is not a good habit and many people get themselves bankrupt because of gambling. Why do some people get so addicted to gambling? To answer this question, I would like to exclude one factor from this issue, the joy gained from gambling, the activity itself. I think in the key to this problem is prospect theory. People tend to overestimate small probabilities, this means people can overestimate their chances of winning in gambling. This could increase people’s incentives to participate in gambling.But this is not the whole story, since this only explains why people start their first gambling but does not explain the addiction to gambling.
When people suffer a loss, why do some of them still keep gambling? People are generally loss aversive, so if there is a way to overturn their losses, they will consider it. Of course, there is a way to overturn their losses, which is to keep gambling. So people will consider this choice. They  may still overestimate the probability of winning. More importantly, some people do not see each bet they place as an independent event, but rather see the entire gambling as one event. In this case, they believe although the chance of winning one bet is low, the chance of losing the entire gamble is low if they place a significantly large number of bets. Because of such belief, they increase their money put into gambling after each round, then at most time, their losing rate is increasing over time.
Overall, there are two main reasons for some people getting addicted to gambling, one is these people tend to overestimate their winning probability, the other is they fail to see each bet they place as an independent bet from other bets they place.

What is humiliation? Why do we get angry?

According to Collins Dictionary, the definition of humiliation is the embarrassment and shame you feel when someone makes you appear stupid, or when you make a mistake in public. When we are humiliated by others, especially in public, we are very likely to get angry and want to get a revenge. Why do we get angry, especially when we are humiliation in public? If we assume that we always behave rationally and even our emotions behave rationally, then we rationally get angry for a reason when we are humiliated.

If we are humiliated but do not get angry or try to revenge, then we are afraid that we are likely to be exploited more in the future. In order to avoid such circumstance, people find getting angry and trying to revenge a more effective way to protect them from being humiliated and/or exploited in the future. Therefore, it is rational for us to get angry and try to revenge when we are humiliated. Moreover, when we are publicly humiliated, it means if we do not fight back, more people will see the chance of exploiting us and a higher risk lies in front of us, then we should fight back even harder especially when we are publicly humiliated to protect ourselves.

(Inspired by the work by Eyal Winter)

The global problem: tax

How to collect taxes from multinational cooperation has been a big problem for many countries around the world, since multinational companies have so many ways to dodge taxes. According to the study by the IMF and the University of Copenhagen, nearly 40% of worldwide foreign direct investment is for minimising companies’ tax liabilities. There are several institutions and governments studying how to effectively tax these multinational companies.
 For governments, they do not only need to consider how much money they are able to collect from companies, they also need to consider how many jobs these companies create. Any move to increase their abilities to collect money from companies is likely to reduce these companies’ business activities in their countries, so the jobs created by these companies tend to decrease. Therefore, multinational companies have enough bargaining power when negotiating with governments.
Because multinational companies can create significant numbers of jobs for some districts in one country, it can have influence over district representatives in the political system thus influencing law-making especially the tax law. This makes the process of law making to strengthen central governments’ abilities to collect taxes from multinational countries weaker when central governments do not enormous power in the law-making process.