As a long-time Newcastle United fan, I’m very pleased to announce that I have finally made the pilgrimage to the St James’ Park stadium, home of the Magpies.

After a tour around the grounds, I headed straight for the store, eager to get some evidence of my trip to Magpie-Mecca. Imagine my horror when I found our prestigious club logo emblazoned on everything from mousemats to sweets (pictured left) to garters.

“They stick the logo on anything and sell it for twice the price,” remarked my Geordie friend as he picked up a packet of Newcastle United Official Wine Gums (TM).

Then I put on my green-tinted glasses and put my economics brain to work. And I realised we shouldn’t be dissing the sweets — we should be thankful instead.

First we begin by determining what market the Newcastle United store is in. Is it in the business of selling sweets or soccer equipment or computer accessories? All of them can be found in the store, but that is not what the store is actually selling.

What it is selling is the brand: the Newcastle United logo stuck conspicuously on every single item, that gives the store the daring to put inflated price tags on them and still expect people to buy them. The logo is the tangible manifestation of the intangible brand.

Customers don’t go to the store to satisfy their sweet tooth, or to go clothes-shopping - they are there for the brand, and they know that they have to pay the price of an item plus the price of the brand to buy it.

So now we know that what the store is selling is not the shirt or the sweet or the mousemat itself, but the logos on them. The store is there to satisfy the demand for the Newcastle United brand by selling goods with the Newcastle United logo.

Now we can just do simple demand-supply analysis on the logos. The demand fluctuates with Newcastle’s fortunes - if Newcastle United wins the Premiership next season, expect more sales of everything from shirts to sweets. For this season, the store probably doesn’t have much business (we just ended a two-month win-less streak, thank god!). When demand goes up, prices go up. That’s why fans who grumble about the price should cheer when Newcastle United loses, or one of its star players are sold off, because each event diminishes the demand bit by bit.

As for supply, the store’s strategy of putting logos on everything is in fact simply increasing the supply of the brand. Increasing supply has the effect of pushing down prices and increasing the amount sold. So while fans may grumble that putting logos on such things as sweets dilutes the Newcastle United brand, Newcastle United sweets help to keep prices down and make the wishes of more Newcastle fans come true. Because they are cheap compared to the ‘luxury items’ like jerseys and footballs, they help poorer fans get their fix of the Newcastle United brand too, without having to shell out too much of their income. 

Yep, Newcastle United sweets are good for you.

P.S. I didn’t buy any though. Need to watch my blood sugar level.

Spotted @ Durham Castle

What win I if I gain this thing I seek,

A dream, a breath, a froth of fleeting joy?

Who buys a minute’s mirth to wail a week,

Or sells eternity for a toy?

A friend set me thinking about happiness recently. Why are we less happy than others even when we live in much more fortunate circumstances? And why does happiness seem to be a never-ending pursuit, with no happily-ever-after endings?

I came up with a model (”Economists: we do it with models”) for happiness to answer the two questions above, and which I hope can give further insight on the science of happiness. Interestingly, the model also reveals some surprising tips on how to achieve it.

I believe that everyone has some intrinsic happiness - some level of happiness that we have within due to our present circumstances. A CEO has a higher level of intrinsic happiness than a middle-class worker, because he has more material possessions and a higher income among other things. The worker in turn has a higher level of intrinsic happiness than a malnourished child in Africa, because he has the basic necessities of food and shelter.

I call this intrinsic happiness contentment. One important point is that contentment is not the feeling of exultant joy - the “happy” feeling - that most of us associate with happiness. A person with a very high level of contentment (such as a CEO) can be depressed and be void of any happy feeling. Conversely, a person with a low level of contentment can feel happy despite his circumstances.

The concept of contentment is illustrated below:

The contentment diagram above graphically illustrates the example of the CEO, middle-class worker and the malnourished child. The graph shows their level of contentment, keeping all things constant over time (or ceteris paribus, as we economists love to say). So no unhappy or happy events occur during the period of time covered by the graph, and the level of contentment is unchanged, showing a horizontal straight line.

The difference in contentment between the worker and the child is more than that between the same worker and the CEO. This is due to the more basic and important needs - food and shelter - that the worker has met that the child has not, giving him a much higher level of contentment. The CEO’s material wealth over the worker fulfils a less urgent need, and so does not enjoy a much higher level of contentment. The relative importance of needs can be inferred from Maslow’s hierachy of needs.

So how does the happy feeling come about? We look at the example of the malnourished child in Africa who receives food and shelter from say, the charitable efforts of Oxfam. His level of contentment rises to a new equilibrium.

The child receives food and shelter at T1, and his level of contentment starts rising, first at an increasing rate, then it slows down and flattens to form a new equilibrium at T2. He gets an intense rush of happiness initially (imagine how you will feel after getting food, having starved for days). But that rush cannot be sustained: and as he gets used to his new circumstances of getting food and shelter daily, that feeling slowly wears off.

Happiness is thus the gradient of the contentment curve - how fast the curve rises. Conversely, you feel depressed when the curve falls, and the gradient is negative. Translated into mathematical terms, happiness is the rate of change of contentment.

We can see that the gradient at x is higher than the gradient at y — the child feels happier at x than at y. This diminishing feeling of happiness finally falls to zero at T2, and the child feels just as happy as he had felt when he had no food and shelter, even though he now has both.

This answers the two questions I asked in the beginning: why can more fortunate people feel less happy than the less-fortunate, and why there are no happily-ever-after endings. The CEO at the equilibrium portion of his contentment curve feels less happy than the malnourished child at the rising portion of his own curve. And happiness is fleeting - it lasts as long as the contentment curve is rising, and dissipates when the curve flattens out at the equilibrium. I call this the “taking for granted” effect.

We can apply the example of the malnourished child to any other happy event that occurs to other people - from winning the lottery to job promotion to marriage. All of them cause the same changes in the contentment curve; first a rising increase, then slowing down to an equilibrium. Thus, their curves all have the same shape, though with different magnitudes and slopes, and with different T1s and T2s - which I call the period of happiness.

This model can be also be used to explain other “happiness phenomena”, such as the unhappiness effect of jealousy. Why do envious people feel less happy? Using the example of the worker and the CEO, the worker may be envious of the CEO’s wealth. We can see him as comparing the levels of contentment between him and the CEO.

The worker envisions the rising curve to the new level of contentment (”Oh, how happy I would be if I had that Ferrari of his“), which is depicted by the dotted line. This is the imagined contentment curve, and though it is not real, it does have effects on one’s happiness. Because happiness and unhappiness are simply two sides of the same coin, the real lack of imagined happiness is a source of unhappiness to that worker.

Thus, the feeling of happiness is not only derived by positive gradients of the real contentment curve, but also from negative gradients of the imagined contentment curve. If the worker had compared himself to the malnourished child instead, and envisioned the falling curve to the child’s contentment level and the unhappiness it entails, he would have felt happy.

This is the first secret to happiness that the graph reveals to us: be thankful for your blessings. Remind yourself of the things you already have - friends, family, a healthy body, and imagine the unhappiness you will feel if they are taken from you. That, in itself, should give you some cause for joy.

The second secret is that we can prolong the feeling of happiness. Happiness, as we have seen, is merely a transitory effect. But we can deliberately enable ourselves to feel happy for longer, by stretching the time between T1 and T2. This sounds abstract, so let me give an example.

Say you are Andy from the 40-Year-Old Virgin and you have just got yourself a girlfriend. Like the starving child above, you should feel intensely happy after your own prolonged period of starvation (relating to another desire altogether). But you can choose how you want to “ration” that happiness, as seen by the two curves below:

If you choose curve 1, you can spend time with your new partner 24 hours a day, 7 days a week. Your happiness will be intense at first, but you will find that it diminishes quickly, and flattens to an equilibrium soon, leaving you feeling no more happy than when you were single.

Alternatively, you can choose curve 2, and restrict your time together to say, thrice a week. The effect is that your happiness, though less intense than in curve 1, lasts longer — you have stretched the distance between T1 and T2. I call this the ‘delayed gratification’ effect. I will advise choosing the latter, because relationships usually get into trouble when both parties are at the flat portion of their contentment curve.

The most important lesson that the curve teaches us, however, is that the pursuit of happiness is doomed to be futile, insofar that one seeks a permanent level of happiness. It entails constantly improving levels of contentment, which are harder to achieve as one moves up the graph. Not only that, Maslow’s hierachy tells us that the improvement also becomes smaller and smaller, because less basic needs are met.

To make the malnourished boy very happy for a while, give him food. To make the now-fed boy very happy for a while, you have to give him a house. To make the now-fed and now-sheltered boy very happy for a while, you have to give him a million dollars. The cycle goes on, each time with ever-increasing needs in order to attain happiness.

Sooner or later, one achieves his optimal amount of contentment. To pursue any more happiness will entail more costs than benefits; the costs on one’s time, effort, money and loved ones will outweigh the benefits of a temporary happiness.

At this point, I propose an alternative to the pursuit of happiness: the pursuit of contentment. Happiness, being the gradient, is the rate of change of contentment; the feeling of contentment itself needs no change. Thus, when you have a flat contentment curve you cannot feel happy, but you can feel content.

Differences in feelings of contentment are reflected graphically by the distance between the current level of contentment and the minimum sustainable level of contentment. Only above this minimum can you feel content. Below this minimum, you cannot feel content, because some basic needs are not met. We can see this below:

As we can see, the middle-class worker can be content with what he has, but not the child, who still lacks basic necessities like food and water.

Thus, perhaps the secret to happiness is that one has to set his own optimal end-point in the never-ending pursuit of happiness. Set it too low, and you never realise your potential. Set it too high, and the costs outweigh the benefits. Once reached, one should aim for the more sustainable aim of contentment instead, which, unlike happiness, can tolerate not only flatness in the curve but falls as well, all the way to the minimum level of contentment.

P.S. Those versed in economics may notice some similarities of this happiness theory to Solow’s exogenous growth model, by replacing happiness with economic growth. Like Solow’s model, where economic growth can only be automatically sustained by the exogenous factor of technological progress, sustained happiness can only be achieved by external factors such as lottery wins and the like.

Recent debates have centred on whether economic growth should be the main aim of the government of already well-off countries, given the costs that it imposes on the people, and if other objectives such as low inflation should be pursued instead. Andrew Oswald of the University of Warwick suggests replacing Gross Domestic Product (GDP) with Gross National Happiness (GNH) in measuring people’s welfare.

Ebenezer Scrooge, at the peak of his miserliness, labelled Christmas ‘humbug’. Economists, on the other hand, label it ‘economically inefficient’ - proving that we are not just depressingly dismal creatures, but incoherent ones at that.

Professor Joel Waldfogel of Wharton was the first such Christmas-bashing economist. In his 1993 paper, “The Deadweight Loss of Christmas“,  he argued that Christmas - as well as all other occasions where gifts are given or exchanged - imposed a cost on the economy. Why? Because the recipient usually does not value the gift as much as the giver had paid for it. That’s why you see so many new expensive-looking ties being auctioned off on eBay at $0.01 on Boxing day.

Waldfogel estimated that the total cost of Christmas to the American economy in 1992 alone was between $4 billion to $13 billion - roughly equal to the loss imposed by taxes. 

Is Santa really as bad as the IRS?

Let’s take a closer look at the cause of the inefficiency behind Christmas. In his study, Waldfogel blamed the discrepancy between what givers paid and what recipients valued on information asymmetry: one party (the giver) is less-informed than the other party. As a result, givers give presents that recipients don’t really want. After all, who knows what you want better than you do?

To solve this problem, Waldfogel recommended giving cash gifts instead. No more giving $50 gifts that are worth only $5 to the recipients - a $50 note is worth $50 to everyone. Problem solved…right?

Not so. Information asymmetry does not make Christmas inefficient; in fact, it is the opposite. In a world of imperfect information, gifts are a necessary and efficient way of closing up the gaps.

To see this, we divide gift-giving into two categories - one-sided giving and two-way gift-exchange - and analyse them in turn. During Christmas, the first scenario occurs between parents and their children, and the second occurs between friends, in which both parties exchange presents.

Giving without taking: gifts as signals

Why would a boy spend his weekly allowance buying flowers for a girl, without expecting a gift in return? Unrequited giving puzzles economists, who are trained to maximise their consumption bundles with their given budgets using constrained Lagrangians. So instead of asking why, economists like Waldfogel ask what happens, and then evaluate if giving without receiving is efficient or not.

But it is necessary to understand why. Gifts function as signals. The boy is signalling his interest in  the girl through expensive flowers (which he will do good to “accidentally” leave the price tag on). If he had given her money instead, my guess is his chances of success drop dramatically lower than if he had not done anything at all.

The flowers may not be worth as much to the girl as the boy had paid for them, but they are the best choice in transmitting the signal that the boy intends to. And the best person to make that choice is the boy, not the girl, so Waldfogel’s survey would have had inaccurate results.

If everyone had perfect information about everyone else, signals will be useless. But everyone does not, and signals are not. They serve as an efficient way to close up information gaps, to the benefit of both parties. Girls are more likely to go out with guys whom they know are interested in them. The money spent on the gifts is money well spent - economic efficiency is achieved.

Exchanging gifts - and information

In two-sided giving, the gifts being exchanged are usually of roughly equal value - people don’t give chocolates expecting Rolexes in return. And in most cases, people do actively seek alignment in the value of the gifts being given; for example, friends may commit between themselves to spend a certain amount of money on each person (that’s what my housemates and I did).

In this case, it will be perfectly efficient to adopt Waldfogel’s suggestion and simply give each other equivalent amounts of cash. It is also perfectly stupid. Zero information has been conveyed, and the gift exchange loses its meaning.

The divergence in value that Waldfogel identified as a deadweight loss is precisely what gift-giving is all about. Giving each other gifts in kind rather than in cash gives us clues about the depth of the relationships we share with each other. If you gave me a Chelsea FC jersey, it gives me grounds to seriously doubt our friendship. The opposite is true if you gave me exactly what I wanted without me telling you (an economics textbook perhaps). That information of a party’s commitment to a relationship is valuable, particularly in businesses.

We have thus seen how the deadweight loss of Christmas can be misconstrued in one-sided gift giving, when gift-giving is used as a signalling tool. In two-sided gift-giving, this deadweight loss is used to convey information about the two parties to each other.

Gifts function as powerful and effective tools of conveying information in a world of imperfect information. Even when they do not maximise the utility of the recipient, gift-giving is a necessary and economically sound activity.

Santa is safe.

Chelsea footballer Ashley Cole has been slapped with a six-month ban - not on the pitch, but on the bed - by his wife Cheryl for his infidelity, involving lots of booze and a hairdresser.

Unfortunately for Mrs Cole, game theory predicts that her strategy won’t work. Why not, and what should she do?

We can see Mr and Mrs Cole as engaged in a two-player sequential game (ignore the hairdresser in this case). Mr Cole moves first, and he has two moves: cheat or don’t cheat. After his move, Mrs Cole, who has full knowledge of his choice, then chooses between two options: sex or no sex.

Mr Cole, promiscuous bugger that he is, gets a payoff of 1 whether he has sex with the hairdresser or with his wife. This explains his best payoff of 2 when he cheats and still gets it from Mrs Cole. His worst payoff of 0 comes when he remains faithful but is still banned from the family bed.

Mrs Cole, on the other hand, gets a payoff of 1 if her husband remains faithful, and 0 if he cheats on her. However, because she is also human, she gets a payoff of 1 if she leads a normal sex life, and 0 if she imposes a sex ban. Thus her best outcome of 2 comes when her husband doesn’t cheat, and she has sex with him (which is what any wife deserves).

The problem is immediately clear: Mrs Cole’s sex ban is a non-credible threat. At each of her decision nodes, she will be better off without the sex ban. So even though she may verbally declare a sex ban, she is likely to renege on her decision and still choose sex. If Mr Cole knew a little bit of game theory, he would know this and do a little backward induction as follows:

With the knowledge that Mrs Cole will choose sex at each decision node, Mr Cole will chooses the move that gives him the highest payoff - that is, cheat.

Mrs Cole’s sex ban has come to naught, simply because she wants sex as well. If anything, it might speed up Ashley’s decision to cheat, since his raging hormones are not to be denied. This is reflected in the report:

“She wants Ashley to appreciate her and realise what he has got. But he’s a red blooded fella and it’s not going to be easy.”

So what should poor Mrs Cole do to keep her husband from fooling around? If she wants to stick to her present strategy of banning sex, then she has to practice commitment to her threat - deliberately alter the payoffs so that she prefers a sex ban over having sex. The only way I can come up with to accomplish this is to undergo surgery to make sex painful, which I don’t recommend.

What she should do is choose another strategy instead. Her strategy must accomplish two things to work:

1. Her threatened action must incur a cost on Mr Cole to deter him from cheating.

2. Her threatened action should not incur a cost on herself, so that her threat is credible - she will have no incentive to renege on her threat when it comes to crunch time.

One way is to get him to take some very “personal” photos, and threaten to sell them to the tabloids if he cheats. Another way is to get him to sign a contract that will transfer a sum, say, $10 million, from his bank account to hers if he cheats. A lawyer will be given control over the cash, and facilitate the transaction once he finds sufficient evidence of Mr Cole’s infidelity.

Have fun thinking of other methods - remember to check them against the two rules above

Back to the issue of red light cameras again, which we have talked about previously. This time, the problem is a good one to have.

When the Dallas government installed 62 of the cameras around the city, it underestimated how effective they would turn out to be. The number of offences fell to the point where the fines collected could no longer sustain the operating costs of the cameras. Revenue estimates fell by over 50% from $14.8 million to $6.2 million, indicating a corresponding drop in the number of offences.

Indeed, there can be a situation where there are too few criminals, and an increase in the number of crimes will actually be to our benefit. Gary Becker, the Nobel Prize-winning economist, acknowledged that a society could not - and should not - eradicate crime beneath a certain level, because it becomes too expensive to be justified. The case above is one example.

It seems counter-intuitive that having some crime can be better than no crime at all. But if having no crime means overspending on policemen, prison buildings, and so on, then taxpayers are better off being robbed by criminals than being robbed of more money by the government to put the criminals in jail. If you were given a choice between getting $1 or a 0.00001% lower chance of being robbed, which would you choose? Most people would choose the $1.

So how do we solve this problem of having too few criminals? We turn to the theory of optimal enforcement.

Under the theory of optimal enforcement, some crimes have to be allowed to happen (because zero crime is too expensive), and some criminals have to be allowed to go scot-free (because hiring the policemen needed to catch every single criminal is also too expensive).

The theory states that there exists an optimum crime rate, which can be achieved when punishments are set such that the costs of committing a crime is equal to the benefits of committing the crime. Remember that we are talking about economic costs and benefits here, so it encompasses all costs and benefits.

For example, if you are fined $1,000 for pickpocketing $50 off an old lady, that $1,000 consists of not just the $50 cost you imposed on the old lady, but also the cost of the time and effort of the policeman to nab you, the prosecutor to try you, and the judge to, well, judge you. There’s more.

Because not all pickpockets are caught, the judge also has to factor in the probability of nabbing one when calculating your fine. If only 1 in 10 pickpockets are caught, then in order to maintain the equilibrium between costs and benefits, you, the unlucky bugger who got nabbed, have to pay 10 times the costs you imposed. That’s why fines are always so much more expensive than the the costs of the offence - you also have to pay the penalty for your fellow criminals who went scot-free.

By setting the punishments right, we can achieve the optimum crime rate. In this situation, criminals only commit an offence when the benefits outweigh the costs - and we allow it, because then their action produces an economic gain!

Let me illustrate this point. Assume that we have determined that the cost of speeding at $100, after adding up all costs (increased accident risk, cost of operating speed cameras, etc.). We then set a fine of $1,000 to factor in the fact that only one in 10 speeders get caught.

As a potential speeder, you too weigh the costs and benefits of speeding. You know that you have a 10% chance of getting caught and being fined $1,000, so your expected cost is $100. Let’s say that you are running late to a meeting to close a million-dollar deal, and you decide the benefits of getting to the meeting on time outweighs the $100 costs. You put your foot on the accelerator, with our blessings. Your decision is an economically-sound one.

In this way, we can thus view crime as a good and the punishments are the prices. Just like you buy something only if is worth the price, you commit a crime only if you believe that it is worth the punishment.

In other words, if crime does not pay, don’t do it. If it does, then follow Nike’s advice:

With our newfound understanding, we can now go about solving the Dallas government’s problem. It is clear here that the price of beating a red light is too high, so that not enough drivers are ‘buying’ it.

The most simple and direct way to remedy the situation is to reduce the fine for beating a red light. It may seem counter-intuitive: how can a reduction in the fine lead to an increase in revenue to support the red light cameras? Yes it can. We have seen that the demand for beating a red light is price-elastic: an increase in price led to a more than proportionate decrease in quantity, which led us to to the current conundrum of too few criminals. If we reduce the price (i.e. the fine), then total revenue actually increases, because the increase in quantity offsets the decrease in price.

But that is too ridiculously simple and hard to implement in practice (try selling the idea of reducing fines to increase revenue to a group of legislators). Instead, I suggest that we focus on the probability side of the price. Remember, fines factor in the probability of the criminals getting caught. If you have a 10% chance of getting caught, you pay 10 times the costs of your crime.

So if we want to lower the price of committing a crime without touching the amount of the punishment, we can lower the probability of getting caught instead. Potential offenders, now faced with a lower chance of getting caught, are now more willing to commit the crime.

In this case, if you beat a red light with a red light camera watching, you are 100% certain of receiving a letter from the police department soon. We can lower that 100% probability by switching off some of the red light cameras, chosen at random each day.

Let’s say we want to reduce it to 50% probability. So, in any given day, we turn half of the red light cameras off and keep the other half in operation. The choice of which cameras to keep operating is randomised, so drivers cannot guess whether the camera in front of him is turned on or off.

Now drivers face a different cost-benefit analysis, from Is it worth beating the red light for a $1,000 fine? to Should I beat the red light, knowing that there is a 50% chance of a $1,000 fine? You have reduced the price of beating a red light without touching the fine at all.

What is the expected outcome? Firstly, you halve your operating costs, because half of your cameras are turned off. Secondly, because the cost of beating a red light has been reduced, more drivers do so - the crime rate moves up towards the optimum level.

The first positive effect is definite, but the second negative effect is not. Why? Because there is asymmetric information: you can choose not to tell the public that half of the red light cameras are duds on any given day. Withhold that information, and you can enjoy your cost savings without having an increased crime rate, because drivers continue to act as if all of them are in operation.

Whether you can sustain that suboptimal crime rate, however, depends on how long the public takes to find out the truth. The Dallas government will hope never.

The spooks at FBI are now using a “novel” tactic to snare paedos: put up fake hyperlinks advertising child porn, and then track down who clicks on them through their IP addresses.

A screenshot of the now-defunct website where Special Agent Wade Luders posted hyperlinks that he advertised as pointing to child porno. Instead, they pointed to a covert FBI computer in San Jose, California.

This method raises several questions, one of them being entrapment. In this sense, this tactic is not “novel” at all: supermarkets have been implicitly “trapping” grocery shoppers for ages, using a similar technique employed by Special Agent Luders.

The genius of supermarkets lies in the fact that most grocery shoppers don’t even know they are being “trapped” into buying more stuff than they planned to fill their trolleys with.

Entrapment is defined as the act of inducing a person to commit an offence which the person would not have, or was unlikely to have, otherwise committed. In the case of supermarkets, replace “commit an offence” to “buy a product”.

Isn’t that just common advertising? you ask. It is not. The big difference between common advertising and supermarket tactics lies in the “trapping”. Advertisements act only as lures, and you can choose whether to watch them. Grocery shoppers, on the other hand, have no such choice.

If you’ve ever done grocery shopping - one of the highlights in the sad life of yours truly since entering university - you may have wondered why supermarkets position their goods the way they do.

That question first occurred to me on a particularly rushed shopping trip at Tescos. I had about 10 minutes to stock up on the week’s essentials, drop them off at home, and then rush to school.

But Tescos wasn’t making it easy for me. I found myself pushing my trolley at a frantic pace to all four corners of the supermarket, to get just the basic stuff: milk, meat, fruits, and so on. Nothing fancy like Cadbury’s or a new blender, but the supermarket still made sure I covered all the ground.

Wouldn’t it be smarter to put them all in one section so we can just pick them up and head to the counter? I wondered, before the sheer absurdity of that question struck me.

It would be stupid to do so: the supermarket was deliberately scattering the essential stuff - the stuff that everyone buys - so that people are forced to make a trip round the store to get them.

And while they are making their compulsory journey round the store, the supermarket plants all the non-essentials - the chocolates and the DVDs - along the way, with signs to entice shoppers into buying the goods they would otherwise not have bought. You don’t want a DVD enough to push your trolley all the way to the next aisle to get it, and you may not even have thought of buying one in the first place, but you end up doing so because you had to pass the DVD section with all the fancy ads on the way to get the eggs.

Which brings us back to the FBI and its “novel” tactic. The FBI is doing with child porn hyperlinks what Tescos does with its DVDs - putting them in the way of people doing otherwise legal activities on the Net.

So you may not be paedophilic enough to take the trouble of visiting a child porn site, or you may not even have thought of watching child porn in the first place, but because there’s a link advertising a porn video of a “supercute” young girl (which is what Luders put up), you end up clicking it - and going to jail.

Sounds like Tescos-style entrapment to me.

PS: Techdirt points out the potential for abuse of the FBI’s method of arresting people by virtue of their clicking a link without looking at the referrer of that link (which is what the FBI has done). For example, if I had provided a link here saying that it linked to some economics website, but directed it to the FBI site instead, you would have been screwed.

Moral of the story: click with care.

For those who lost everything except their sense of humour. Selling on eBay here.

Nothing is sacred to economists -seemingly “priceless” things such as marriage to happiness have all gone under the economic knife to be analysed and price-tagged.

Even life itself is not spared. Using a range of novel methods to tease out exactly how much people value their own life (asking them directly is unlikely to work), economists have been able to calculate its value. Studies put the average life to be worth $6.1 million.

Combine this information with a recent BBC report which directs our attention to the grisly trade of human bodies. Turns out even our corpses have quite a fair bit of monetary value - how does $7,000 for your heart valves and $6,000 for your corneas sound?

Since dying is now getting more lucrative (for your relatives, not you unfortunately), and given that we can quantify the value of life in dollars and cents, it poses the uncomfortable question: when do we start being worth more dead than if we are alive?

First, a brief look as to just how economists have managed to put a price tag on life.

One way is to look at the willingness of people to pay to reduce the chances of death. For example, if you are willing to pay an extra $1000 on your car to reduce the chance of a fatal accident by 1 percentage point (such as installing better airbags, or not buying a China-made car), you implicitly put a value on your life at $1000 x 100 = $1 million.

Another way to measure the value of life is to measure how much extra you need to pay someone to take a risky job. If a parachute tester, whose chances of dying on the job is 10 percent higher than a computer programmer, is paid $100,000 more than his geeky counterpart, then the value of his life is also $100,000 x 10 = $1 million.

An important finding from studies using either method of valuation is that people value their lives less the longer they live. Not because they grow tired of living, but because they have less time left. A 20-year-old who expects fifty good years ahead of him places a higher value on life than his 70-year-old granddad who is taking it a year at a time.

To simplify things, we ignore other subjective factors and extrapolate this decrease in value of life over time all the way to zero. That means the graph of value of life against time will look like this:

As long as you are alive, life has a positive value, which falls as time passes and you have less and less life left. Notice that the value of life falls to zero at T0, your natural death date. Simply put, T0 is when time has run out for you.

But now we incorporate the value of death into the graph. I will wantonly assume away (something all economists are good at) all other considerations such as insurance payouts, and focus on just one value - the money your corpse can fetch in the market. Again assuming that 1) you have the full set of organs and body parts and 2) their value remains constant over time, your body will be worth about $250,000 in total.

Inputting that into the model:

Introducing death into the equation has very interesting results indeed. The Life and Death curve intersects at T1, when you are worth as much alive as you are dead. Beyond T1, you are worth less than if your corpse.

So when is this T1? If we assume that the average lifespan is 75, and that the average value of life is $6.1million spread out linearly over those 75 years, then we hit the $250,000 mark at about 72. Still not too bad - but with current demand for cadavers steadily pushing the price of corpses up, expect that age to be pushed back as well.

Anyone still wondering why economics is called the dismal science?