The Economics of Christmas

A very interesting article on the Wall Street Journal explaining the economics of Christmas caught my eye. The article titled, "How Christmas Brings Out The Grinch in Economists", talks about how some economists say we would be better off without Christmas as its an inefficient mode of connecting consumers to what they buy by squeezing all the purchases in a year end buying frenzy. Moreover, people spend hundred of dollars on unwanted gifts that might just be put in a box and kept in the closet.

This phenomenon can be explained by the economics of a gift. Studies show that people always prefer $50 as opposed to a gift of an equivalent amount. Hence, its safer and makes more economic sense to give cash. But this practice lacks the sentimental aspect that is connected with a gift. This Christmas, consumers are expected to spend more than $457 billion, which is approximately $4000 per household.

According to a study by Professor Joel Waldfogel of the University of Pennsylvania, consumers would save at least 25% of their spending if they bought their gifts themselves. That is close to $10 billion. In fact, gift cards for Christmas alone amount to a whopping $25 billion. That's makes the Economics of Christmas worth more than $500 billion if you take the total cost into account.

Merry Christmas....

Putting Elliott Wave Theory to the Test

When I found out about Elliott Wave Theory, I couldn't wait to put it to test and find out whether the theory actually holds good in practice or not. To put things in perspective, Elliott Wave Theory derives its argument from the concept of Mass Psychology, i.e. the general tendency of people to behave in a general way in the long run. For example say when we eat something spicy, the general tendency is to drink a lot of water while only a few probably go for a glass of juice or beer or something else.
The Elliott Wave Theory proposes that market prices unfold in specific patterns, which practitioners today call Elliott waves. The wave principle posits that collective investor psychology (or crowd psychology) moves from optimism to pessimism and back again. These swings create patterns, as evidenced in the price movements of a market at every degree of trend. (Source: Wikipedia)
To put the theory to test, I have picked the BSE 30 stocks and marked the Elliott Waves for each of their stock prices. Based on this, each of the stock prices should reach a certain bracket within the next 3 months. Whether it actually happens or not will tell us based on a probability study whether the principle holds good or not. The graph below for GMR explains the concept.

As per the Wave Theory, the next wave should be that of an upward trend or the "motive" wave. Based on this GMR should reach a price between Rs 95 and Rs 105 within the next 3 months. Similar would be the analysis for the BSE 30.


Lets wait and watch whether the Wave Theory actually works or not.....

Liar!! Lying!!

An interesting study by the Harvard Business School, MIT, Princeton and Yale tried to unlock the human psyche of cheating. Being dishonest is actively used in some way, shape or form in the capital markets. Here, being dishonest does not mean performing an illegal act. It could simply mean trying to push the odd in ones favour by lying about price, information etc. That keeps the phenomenon of information asymmetry active and feeds it.

The study found that the risk of being caught does not change the level of dishonesty. On the other hand getting people to contemplate their own standards of honesty on religious or sentimental grounds prohibits them from lying to a large extent( For example reminding about a code of honesty, or the ten commandments or a religious text). The study also found that indulgence in an activity that indirectly relates to money tends to double the likelihood of cheating (Falsifying financial reports, fake deals etc.).

The findings tend to point in the direction of the regular practise of lying and misleading to control information flow in financial markets and how these practices at times are done unconsciously and as a reflex action driven by profit.

Pic Source: www.offthemark.com

Give Me My Sandwich!!

The whole issue picked up this April when Selfridges & Co. claimed that it was going to offer the world’s most expensive sandwich at £85 which is close to Rs 7000 approx. The sandwich is called The McDonald. It is apparently made of rare Wagyu beef which is its key ingredient.
In fact BBC came out and also said that the sandwich apparently had more than 5 advance orders. Just post this a huge word-war started taking place on BBC newsforums with 2 classes of people taunting each other.

More than 245 comments were posted in less than 5 days.

Someone said that he would like a golden brick in the bread if he ought to pay £85. Another said that the filling should be of £20 notes. This probably offended a few who thought that they had a right to eat a £85 sandwich (Honestly, I believe that they do). Then the discussion soon turned into a heated argument and comments such as “I can't believe how miserable everyone with a comment here is. If you don't like the price don't buy one. If someone wants to spend some money on some nice food then why not?” started coming in.

This just shows me how passionate people can be with money. Just the thought of it spending makes them chuckle. And this same passion turns into word-war if the amount of money involved does not conform to their belief of “Value”.

I see flavors of the key elements of Behavioral Finance in this entire e-brawl and that’s psychology with the Endowment Effect. People’s unparalleled passion for money coupled with their headstrong approach towards their beliefs is a flammable mix. That’s what I saw when I read those comments. We all have the right to have an opinion. Usually these opinions are intoxicated with our beliefs.