Archive for May 9th, 2011

Nudging to save lives!

May 9, 2011

A good friend Nirajan Rajadhyaksha sends this superb article which shows how behavioral insights are being used to save lives in Mumbai. (Nudges Blog pointed to an earlier article as well)

People in Mumbai usually cross railway tracks in order to get quickly on the other side, leading to many accidents and loss of lives:

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Nudging to buy more mangoes..

May 9, 2011

Alphonso mangoes in Mumbai usually sell in dozens. These usually cost beginning from 1000 Rs per dozen in the beginning of the season to Rs 150-Rs 200 per dozen in peak season when supplies increase.

I noted a store was instead selling the Alphonsos as Rs 100 per kg. For a moment I said this looks cheap. Then I just reflected and said hey this is a smart nudge.

In 1 kg when gets around 4-5 mangoes and this would mean around Rs 250 – Rs 300 per dozen. This is higher than the otherwise price of around Rs 200 per dozen one is getting in the outside market. So the store is not selling cheap but making more money by offering a deal which sounds cheaper to the mind. Only when one does the calculations does he realise the difference.

And people do not make these calculations (as a rational econ would usually say) as there was quite a rush to buy the so called cheap mangoes.

Asset price bubbles: how they build up and how to prevent them?

May 9, 2011

A nice review of issues by Gertrude Tumpel-Gugerell of ECB.  He looks at two issues on asset prices and bubbles:

  • Why do asset price bubbles arise and why are they so dangerous for the health and stability of the financial system
  • What can policy do about asset price bubbles?

He says asset bubbles are all around us:

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Was CFA enrollment affected in the global crisis?

May 9, 2011

The growth did slow down as per this interview of CFA Institute Managing Director Thomas Robinson.

Are you seeing more people expressing an interest in obtaining the CFA qualification in the last few years? 

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What if Frank-Dodd Act was enacted before the crisis?

May 9, 2011

Federal Deposit Insurance Corporation has prepared this interesting what-if paper which looks at what would have happened if Frank-Dodd  Act (FDA) was enacted before the crisis. Would Lehman have been saved? How would the events flow if we had DFA in place?

This paper looks at the evidence and shows how a global meltdown could have been averted if we had acted on these risks earlier. Under FDA, FDIC gets new powers which allows FDIC to act for systemic financial firms like it does for banks.

The paper starts from reviewing how the events transpired after fallout Bear Stearns. Lehman came on to the radar for the next fallout i- bank. Its executives started to talk with market participants and some were willing to place equity in Lehman. But thanks to the overconfidence of Lehman execs who believed firm was worth more than the offerings, the placements did not go through. And then as people became nervous of its shaky assets and liquidity conditions, people withdrew leading to bankruptcy.

Now, the report asks what would have happened if FDIC could resolve Lehman just like it does for banks? It first lists what FDA allows FDIC to do. It then goes back to Mar-2008 to see how FDIC would have done things differently and helped prevent fallout of Lehman. The reports concludes as:

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