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The economics of valentine’s day

The one day in the year, when couples have the right to be clingy and the singles are allowed to complain about being single. I’m talking about Valentine’s day of course. Besides the day being about celebrating the people you care about, it is also one of the days that make a lot of economic profit. In this article, I will tell you some more about that.

Behavioural Economics Part II (Christmas Edition)

“It’s beginning to look a lot like…money spent on gift buying, Christmas deadweight loss and chaos in the market.”

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It’s that time of the year again. The end of the year is rapidly approaching and everyone is looking forward to seeing their presents under the Christmas tree on the morning of the 25th.

However, since Christmas is also about being selfless, economists have analysed the impacts of gift giving around the winter holiday period, as well as why people tend to behave less rationally from an economic point of view.

As it has already been established in Part I, people tend to display unexpected, irrational behaviour despite the microeconomic assumption that people are rational.

According to Joel Waldfogel, gift-giving has a healthy effect from a macro perspective as it positively affects spending. From a microeconomic perspective, gift-giving may actually lead to deadweight loss. The most evident reason is why it may lead to deadweight loss is the possible mismatch of preferences. The person offering the gift may not be familiar with the preferences the other person has. Furthermore, it has also been proven that the recipient undervalues the actual value of the present as he or she is not perfectly informed, ultimately destroying a third of the value of the gift. Since holiday expenditures average around 40 billion dollars/year, the deadweight loss of Christmas gift-giving is a tenth as large as the deadweight loss of income taxation (Waldfogel, 2014).

So what would be the most effective present that would lead to a reduced deadweight loss?

Money. And gift cards. Such a present will allow the recipient to maximize their level of satisfaction by making their own choices with the received money – or so that is objectively the ‘ideal’ economic situation.

However, people don’t always think in terms of efficiency or reduced loss when purchasing a present. Since emotion and social factors are a driving force in decision making, some may find it impersonal and self-interested to give banknotes to friends, family members or a significant other. Therefore, retailers observe the unpredicted behaviour of consumers and take advantage of their irrational decisions during the festive season. One of the ways in which retailers take advantage of people’s irrational behaviour is entailed by the endowment effect and loss aversion. People tend to evaluate the price they are willing to for a product, based on their relationship with the product. Simply owning the product seems to make it more valuable to us. “Losing” the product by not purchasing it sometimes has a stronger influence on our decision making than purchasing or “gaining” the object.

Another way in which people’s illogical behaviour can be an advantage for retailers is the illusion effect. When purchasing presents, people tend to think of the impact that the present has at that moment, also known as the “wow” effect – rather than evaluation how practical the present will be in the long-run. Knowing this, retailers manipulate consumers’ decisions by placing certain products at more accessible shelves or decorating stores in yellow, giving free samples; because subconsciously, yellow gives people the tendency to feel happier.

In short, markets know how to jog with people’s consuming behaviour during the cold season. So choose presents wisely this Christmas. :)

 

Bibliography:

Albertson, Kevin, and Manchester Metropolitan University. “The Economics of Christmas.”

World Economic Forum, 2013, www.weforum.org/agenda/2014/12/the-economics-of-christmas/.

Waldfogel, Joel. “The Deadweight Loss of Christmas .” Www.amherst.edu, 2001,

www.amherst.edu/media/view/104699/original/christmas.pdf.

Weissmann, Jordan. “The Behavioral Economist’s Guide to Buying Presents.” The Atlantic,

Atlantic Media Company, 16 Dec. 2011,

www.theatlantic.com/business/archive/2011/12/the-behavioral-economists-guide-to-buying-presents/249993/.

 

Customer expectations

Customer expectations [Shortread]

Marketing – In an ever increasing globalizing world marketing, both online as well as offline, is vital for the performance of the modern firm. An immense growth of the service industry, including increased competition  between service organizations, has led to an increased focus on customer expectations and perceptions.  In this article mainly the concept of customer expectations will be addressed. Furthermore, customer expectations will be put into perspective regarding customer perceptions and satisfaction, making a clear distinction between the two.

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Health care insurance, an evergrowing expense

Last Monday was the deadline day for health insurers to announce their insurance rates for the upcoming year. On average, the increase in insurance rate is almost 6%. This is for the basic insurances, if you want to have more freedom of healthcare choice, the rates go up a little more than the 6%. In the annual budget the cabinet predicted how much the premiums for health insurance would increase, which would result in an increase of 10.33 euros per month. This would be a total of almost 124 euros a year.  Therefore, the actual increase is lower than the predicted increase. In this article, I will discuss the main factors that cause the health insurance premium to rise.

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Abolition dividend tax, reconsidered

The abolition of the dividend tax in the Netherlands has been the topic of discussion in the house of representatives for the last couple of months. A big player in the decision was Unilever, who would possibly move their headquarters to the Netherlands if the dividend tax was abolished. This was one of the main reasons to abolish the tax. When Unilever announced that they weren’t so sure about moving their headquarters to the Netherlands anymore, the house of representatives took another look at the abolition  of the tax.  This time, they came to the conclusion that the abolition did not yield enough economic benefits that outweighed the possible costs of the abolition.

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Economic news in CEE: a unique paradox in Europe [informative 3-minute read]

The Romanian economy has grown significantly; by 27% in the past decade. According to an analysis by Coface Romania, this growth has entitled Romania as Central and Eastern Europe’s (CEE) growth champion in September 2018.

Despite the economic lift, most companies in Romania are currently confronted with a higher risk of bankruptcy now, compared to 10 years ago.

Discussie Duurzaamheid of Mededinging

Discussie: Duurzaamheid of Mededinging? [Longread]

Micro-economie – Dit artikel gaat over de netelige kwestie of de economische ideeën van duurzaamheid en mededinging op gespannen voet met elkaar staan. Voor dit artikel heb ik een interview afgenomen met prof. E.E.C. van Damme, hoogleraar economie aan Tilburg University, om insights te krijgen over deze twee concepten. De aanleiding van dit stuk is een artikel van Van Damme (2017) genaamd ‘Goede marktwerking en overige publieke belangen’ in het economisch tijdschrift Markt en Mededinging (M&M) en zal dan ook de leidraad vormen.