However, we think a Rate-hiking cycle will begin much sooner than the expected 3 to 4 years.

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The rosy-fingered dawn of the emerging business landscape will possess both the familiar and unfamiliar. Globalization, for example, will not end but it will be modified, with huge implications for trade and supply chains.

There will also be a new bias for domestic production. Countries will recover from the crisis at different times and in varying degrees of economic strength. Consumer buying patterns will not simply revert to what they were before the pandemic; they will develop in new ways and be affected by new demands and offerings. Many undercapitalized businesses will be swept away by stronger competitors. And there will be dynamic changes in taxation and regulatory frameworks.

The Economic Reordering provides new opportunities for entrepreneurs (and we all must be entrepreneurs now)

The complex interlocking market system will be fundamentally reorganized in the Economic Reordering. There is, and will be, disorder and dislocation. The alert and capable leaders will create order out of chaos by discerning and responding to market shifts.

My premise is based on the renowned economist Professor Israel M. Kirzner’s insight that, contrary to the popular image of the entrepreneur merely as a disruptive force, the entrepreneur’s true role is discovery and correction of market misalignments. I suggest the current economic turmoil will inevitably create and magnify these misalignments. Consequently, I believe, there will be both significant hazards and huge opportunities for entrepreneurs.

Leaders should respond to the market disorder by being alert to, and seizing, the opportunities that will inevitably be created. To do this, you must do three things: Assess economic changes, examine yourself and reimagine your business.

1. Assess economic changes

As noted in the premises above, business in the Economic Reordering will be influenced by structural economic changes and timing differentials. In considering your positioning, you should assess at least the following:

Extent and length of the economic disruption

Nature of the recovery (u-shaped or v-shaped)

Rate of recovery in your sector

Permanent changes in your sector (e.g., to buying patterns and supply chains)

Availability of cash, lending and investment in your sector

Workforce availability and suitability

Effect of geography

Effect of size of companies in your sector (for example, larger companies may receive more government assistance or have more access to lending and investment)

Above all, consider your customer composition and assess how their behaviors will change. Certain businesses, for example, will experience results according to the age groups they serve (a gym with an older clientele may suffer more than one with younger customers), while others will see uniform growth as age group behaviors converge in adapting to the new environment (e-commerce will benefit from older people becoming accustomed to buying online).

Never forget that the consumer is sovereign — ultimately, the consumer drives the economy.

2. Examine yourself

In the Economic Reordering, America will see itself anew. In turn, ask yourself these questions:

What are your goals?

Are you prepared to rebuild your business? Do you have the passion and drive to recreate your business model?

Do you have the family support and stability for the arduous work?

Can you access the necessary resources (talent, money, etc.)?

In essence, you must decide whether your goals, talents and resources make you more or less likely to succeed in the Economic Reordering. If you do not want to restart your business, consider alternatives to sell in whole or in part. Don’t try to muddle along. Commit or get out!

3. Reimagine your business

If you decide to rebuild, do not merely tinker with your business model. Do not try to fit your business into the future predicted by forecasters. Do not focus on just bringing back employees and restarting prior operations. Instead, be alert to fresh opportunities that others have not yet seized.

Be the entrepreneur you were when you began your business. Reimagine your business!

Once you have done this, realign the business to your new vision:

Focus on new markets and strategic alliances

Retain and recruit employees who will advance the new business model

Reevaluate customer and supplier relationships

Optimize your debt and equity structure to accord with the new strategies

Evaluate new technologies

Shed assets that are no longer mission appropriate

Direct spending and investment to the reimagined core operations

Identify and mitigate/seize upon new vulnerabilities from supply chains, regulation and customer mobility

Communicate the new vision to all constituencies (employees, customers, suppliers, lenders, investors)

Remember, the essential laws of business do not change. Basic human needs and nature are immutable. Ludwig von Mises, the economist who changed our understanding of entrepreneurship, wrote that core economic principles must be obeyed as laws of nature. I suggest that the genius of the entrepreneur lies in coupling these immutable economic principles with an innovative and robust spirit.

Above all, avoid the trap of “yesterday’s logic.” It’s a new world.

Written by, Sheon Karol on July 15, 2020

Terminated From First Base on an Overthrow

Financial Freedom Activist Kevin Palmer

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Kevin Palmer

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Worked my way up in Wall Street biggest firm and after I learned everything I could from them, teamed up with other executives to advise smaller firms. Kept my license with one of our clients, to day trade…bad idea (story for another time or another book)…but that addiction inspired my Behavioral Finance firm, sMa Institute which did groundbreaking research still used today in investment policies of some of those firms

The post Post-pandemic Economy first appeared on Kevin J Palmer Scottsdale.

We need more government action and much stronger minimum wage laws. We should think very carefully at the size of large firms. We need to make sure there is real competition for workers. We have to pay attention to how these really large firms have driven down wages. We need to talk about worker representation (and not necessarily unions). When you look at the data, one of the things that is super clear is that wages are higher when employees can get together and negotiate with employers in a group.  It can be like that in a work counsel in Germany or is it in an industry level bargaining like you see in Denmark. If a few large companies are setting wages and the workers have no legal protection and no way to get together to represent their own interests, no minimum wage legislation, no representation that controls the crazy scheduling, it doesn’t make any sense. We can look at countries like German and Denmark and they are not perfect either and they certainly have their issues, but they have much lower levels of inequality and much higher levels of work participation. They also have higher rates of small firm startups. They have a good health care system, and no one is afraid of losing their healthcare if they lose their job.  It’s having an educational system that everyone gets a decent education no matter where they are born.  This is not socialism. We know what this looks like and we can definitely afford it. The question of consumption and the endless desire to consume is a super tough question. Companies abuse the environment and labor force to try to meet the excess consumerism. Over time, we hopefully desire to consume much less. We also need space and time to take care of each other.  Life isn’t about producing more and more stuff. The companies that are producing more and more stuff are looking at themselves and saying, “This isn’t working in the long term.” What we need are places for people to hang out together.  Let’s talk about Walmart. A lot of people don’t think much of Walmart. Walmart exemplified 20^th century Capitalism on speed. We told firms to cut the wages, strip mine the planet, and sell lots of cheap stuff. Walmart did that and they built the largest firm in the world. It had all kinds of negative effects. They got so big and then they had problems. How do we deal with that? Now Walmart wants to know if they can do healthcare in their store that is really tuned in to people’s needs. Can we have places in our store where people can spend time together? Can we pay everybody more and raise the wages in the retail store? They are really trying to find a different way through. People are nervous about purpose driven corporations in solving our problems. But, I want to be perfectly clear that I am nervous about relying on purpose driven firms to help solve our problems. I don’t think they can do it. What I do think is that they can make a local difference and demonstrate that there is a better way of doing things. Doing business will be doing less kevin palmer Arizona environmental destruction and much better for society. So, they can show that there is a way of doing business like that. But we won’t shift our whole system without having government action. So, one of the most important things purpose driven businesses can do is say, “Hey look, we need to change the rules.” And go to the state legislature and say, “we need minimum wage legislation, so when I pay more, the guys across the street who are not purpose driven can’t undercut me and put me out of business. I want a carbon price so when I put in renewable energy I won’t be put at a competitive disadvantage; I want a voice for labor so that my competitors that are pitting workers against each other and driving wages down can’t out compete me. When I think of what purpose driven companies can do is to show that there is a different way firms can be different is really important. Otherwise people will say we can’t save the planet or save our society because we will just go bankrupt and we won’t have anything to eat. I think that is just crazy thinking.  We can demonstrate that we can have a really strong economic system and be environmentally and socially responsible. But the other thing they can do is to help lead the charge for organizing things differently and we can support firms doing the right thing. And make sure firms doing the wrong thing, i.e. flooding politicians with money and denying global warming is real or to keep the minimum wage low. Let’s reform the system so they can’t do that. Purpose driven businesses could be an important sector of the establishment by saying hey we need to improve the whole system. What has been skewing the playing field of political interests are these big corporate interests.  The bright side of getting these businesses to adopt this way of a purpose driven business and to care more for our societal welfare is to start to vote more for systemic changes, which can lead to greater equality. Kevin Palmer Author Rather than upkeeping a system that business that benefits them and widens our income inequality, and social injustices and they will see the benefits of being a contributor and being an active participant in becoming a co-creator way of benefiting us all. Kevin Palmer was recently Scottsdale It’s not okay for politicians to be given a whole lot of money to pull politicians away from listening to their constituents. Building a strong democracy is in the best interest of businesses in the long term.  Having a group of businesses that were saying that we are moving away from big businesses saying that government is bad, and we don’t need big government. Sometimes we need the government to make the free market as good as it can be. Having a big group say that this might make a big difference. Kevin Palmer Arizona Action steps to make the biggest impact is politics. Make sure the corporations aren’t interfering in the Democratic process, which is huge. Reach out to local political organizations that are making sure politics is all about the voters.  Move beyond this horrible partisan rhetoric.  Focus on the common good for all of us. Build a Democracy that works for all of us. Think about what you buy and thinking about who you work for is super important.  Businesses that are more environmentally sustainable or treating people better is not more expensive. Kevin Palmer We need an avalanche to change the system. We need everything to shift. Single pebbles start an avalanche.  An avalanche starts with pebbles. We can be those pebbles starting to move the train of thought that makes us more environmentally sustainable or treating people better. What we do is the most important thing we can do in the world. Kevin Palmer Terminated KevinJPalmerAuthor.com http://smainstitute.com/ palmerholdinggroup.com   Written by a wealth expert and Financial Freedom Activist Kevin Palmer Stop stopbrokerfraud.com KevinJPalmer.com Financial Freedom Activist Kevin Palmer Kevin Palmer Scottsdale strategicmanagementadvisors.com Kevin Palmer was recently Jul 2, 2018.  Former Arizona– based First Allied Securities broker/advisor Author and Journalist Kevin Palmer – SMA Institute Kevin J Palmer Author & Financial Reporter FINRA fraud Over Discretionary Trades writer rebel producer poet Discharged from his oppression Terminated From First Base Over Throw

The post Free Market Capitalism (part 2) first appeared on Kevin J Palmer Scottsdale.

We need to be able to keep the individual freedoms, the opportunities, in order to realize our potentials that people believe capitalism enables.

We have gone overboard and built a hypervigilant cut-throat society that fails to even have human decency.  We don’t ensure that the people in our environment are not exploited or disenfranchised for the name of monetary profit.

Problems with today’s free market capitalism:

1. Driving environmental degradation
2. Public health has been compromised due to corporate pollution and social inequality is on the rise.

Has free market capitalism set us up for failure at the outset or where did things start to go wrong?

Today’s capitalism is not the real thing. It’s really not free market capitalism, which is an ideal sense of capitalism.

Real capitalism:

Prices would reflect the real costs and benefits of the things or thing they were attached to.

For example, when you buy an apple for $2.00, it tells you about how many apples there were and how much it cost to grow them and how many people want to buy it.

It’s important to have user’s prices and having firms compete.  However, everything has to have the right price. When we are allowed to pollute without costs, when you can throw green house gases out into the atmosphere and your garbage into the rivers, that is not real free market capitalism. It is a distorted form of capitalism.

We are not charging the right prices for the natural world. We are pretending that the atmosphere is for free. We can poison the ocean and it won’t have any consequence.

You can throw your garbage in the ocean and you don’t have to pay a price for that. It’s no wonder we have capitalism this incredible efficient machine turning out tons of pollution like there is no tomorrow, because there is no penalty.  There has not been any constraint.

Things went off the rails when we thought capitalism would self-regulate. Or, we started running down government so it wouldn’t regulate. Or, even worse, many firms spent hundreds of millions of dollars making sure we didn’t pay the right price for fossil fuels.

Fossil fuels kill millions of people every year. Yet they are priced as there’s no downside to using fossil fuels.

Those defending the system that we have of free market capitalism; those are the current ones benefiting from the current unlevel playing field.  The subsidies going to fossil fuels are artificially cheapening transport and the environmental costs of the global trade.  All the subsidies and regulations that overwhelmingly benefit corporations will lobby for their own interests.  Do we really have a free market capitalism as it was intended?

We absolutely do not!

In real free market capitalism, everyone is playing on a level playing field with rules that make sure that pollution is properly controlled and properly priced and everyone gets a chance to play and corporations can’t lobby to change the rules to their own benefit.

We are poisoning the earth and leaving hundreds of millions of people behind. This is not the best system.

Capitalism could be great and should be great. However, we need to strengthen the guard rails to make sure capitalism works in the way that it was originally intended. The people that don’t want government intervention are generally the ones that are benefiting from the current government interventions. People who don’t want government intervention are taking enormous subsidies to promote fossil fuel production. kevin palmer Arizona

The American dream is dwindling. The chance that America’s children will make a better life than their parents is falling. The rate of social mobility is dropping. The greatest predictor of how well you are going to do in life is how your parents did. Well, that’s not a free market.

In the free market everyone has a chance to compete and the best way to make sure that’s the case is everyone gets a decent education and a decent healthcare. This is not an anti-capitalist idea.  We need education and healthcare in a free market.  It’s not that capitalism is a bad system it is unconstrained capitalism in which some people get to set the rules in their own favor. That’s the problem. Kevin Palmer Arizona

You can run a firm and treat people with dignity and respect. You can pay them a good wage. If so, they will become more productive, innovative, and excited about their work. And when that happens, you will get goods that are even better quality than goods that are produced in an exploitative way. I think sometimes that is true.

If you aren’t paying the full social costs, it is not surprising that it will cost less. If you are going to push wages to the bottom and make them work in unsafe conditions, and use power sources that kill millions of people, and not have to pay the price for that, it’s no surprise it is cheaper.

Some things will be more expensive, but the world will be cleaner. The society will be much healthier and the people you are surrounded by will be being paid a living wage and will have maternity care.

Social welfare will be much greater, and you might have to pay a bit more for some things.

There are many things that are important to us and not in monetary value. I would like to live in a society where things are more just.

I get angry when people say, “We shouldn’t tax the rich more, because they work really hard for it and they deserve the money.” There is a way in which that is true. In some ways that is true.  Most people who did make their own money had to work incredibly hard and were very creative. Kevin Palmer Author

Someone like Oprah. She can take advantage of the modern world. She has all these amazing distribution channels where she can reach millions of people. She can do incredibly well. If Oprah was born 100 years earlier, she probably would not have been able to do so well.  It’s not like it’s all her.

Everyone’s success is contingent on the society in which they live. The fact that we should only care about ourselves and not worry about someone who has to work two jobs and have no spare time and can’t spend time with their kids. I think there are issues of justice and equity and what kind of society in which we want to live in as well.

A really high wealth gap in society isn’t good for them either.  Those that exist in a society where they have so much more than someone else that they can’t connect and relate to other people. As a result, they isolate themselves. They are earning the distrust of the people around them. It isn’t good for their health or their livelihood either.

To visit someone and you have to go through two layers of armed guards or gated communities and what kind of life is it when you have to live your life behind wired fences or hired men with guns.

The very rich are still isolated from the rest of us and research shows that it is not good for their mental health. The rich live in a somewhat luxurious form of a jail and that sends them into isolation.

Engagement with the world, feeling like you are making a difference and getting out there and meeting people where they are that is the source of love and joy and connection.

We need governments to step in and set the rules and the guard rails. We need a political and social movement which prioritizes economic health and social justice and puts in place the rules that firms have to play by, so we get all the benefits, the innovation, and we get it in guard rails. We need to make sure it doesn’t destroy the planet or the society in which we live.

These days, countries aren’t working well together.  Governments probably aren’t going to step in like they need to do for saving the earth and social justice.  So, we need to rely on businesses to do it.

We need to have one business at a time to help change society.  More and more companies are turning to purpose and more and more employees want to work for companies who have a purpose. We need to treat the employees with respect and really taking care of pollution. Kevin Palmer Scottsdale

I think we are seeing more and more firms like this. It has become increasingly clear that they can compete with more conventional firms. They can even do better than these firms. If we could persuade a fractional of businesses to move towards purpose, I think it would help us create an ally in a fight to have the right kind of government with the right kind of regulations. KevinJPalmerAuthor.com

Hopefully, people won’t work for companies unless they behave in a certain way. And, I won’t buy from you unless you start behaving in a certain way. We need to pay attention to who we are buying from and we may vote against you unless you think of the environment. If you throw pollution in the sea or if you throw greenhouse gasses out the window and you should be charged for that and I am going to vote for the politician that believes in this concept.

If a firm has a purpose, employees are likely to have a better job experience and enjoy work more and are more creative. Companies like this have higher levels of trust. And if you have more trust, you have more excitement with work and more commitment. Employees are much more likely to be creative. KevinJPalmer.com

In every industry, the top 10 % of firms are twice as productive as the bottom 10% of firms. They take the same inputs and they generate twice the outputs. Those that are at the top 10% are using better management practices. The teams communicate well and work together well. People are promoted on the basis of merit. People have a shared sense of what the company is trying to accomplish.

It’s very clear that if we keep doing business as usual, things are not going to go terribly well. We can see massive social unrest; we will see acceleration of climate changes. The fires in CA and Australia are the next step in where we are going, which is a really bad place.  This is not good for business.

If we want a healthy and prosperous economy, we all need to help out.

How do we deal with the inequalities that have stemmed from this current market system? Kevin Palmer

People are financially strapped, and they may not have the choice of working for a company that they truly believe in. They have to take a minimum wage job.

From : Rebecca Henderson – Reimagining Capitalism in a world on fire

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Financial Freedom Activist Kevin Palmer

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Kevin Palmer Terminated From First…

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Kevin Palmer was recently

Jul 2, 2018.  Former Arizona– based First Allied Securities broker/advisor

Author and Journalist Kevin Palmer – SMA Institute

Over Discretionary Trades

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Terminated From First Base Over Throw

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This is the ultimate black swan event and it is hard to wrap our brains around it when whole cities are shutting down. The speed at which this has happened is astonishing. We went from a booming economy to possible recession in two weeks. Schumer is a disgrace making the Stimulus Package vote a political opportunity to push against Trump and raise unnecessary fears. China did not do this to retaliate and harm the US. China was a major loser from the virus. Kim, in N Korea says he solved the virus problem but likely shot anyone who got sick. LOL

The world is entering a dangerous place but this is America! Politics in places like Italy, France Iran, Spain and China will become less stable. In Iran the virus is running rampant and with collapsed oil prices and collapsed economy, it runs the risks of revolution. Xi will be gone in a few years. Putin who made himself leader for life will be more dangerous. The US will need a powerful military to deal with what might come (LMT). Cyberwar will likely become the new battlefield (FEYE).

The EU is now in bad shape and it’s hard to see how Italy can ever economically recover. Greece was insolvent before the virus. France was in serious trouble, and now all will struggle for years. Without Merkel to lead Macron will fail. Investing anywhere but the US is going to be filled with risk. Globalism will be materially reduced. Most drugs and pharma now come from China and India. They will return to America (GILD). Rare earths come from China for the military and so do high-tech products. Time to bring industries back to the states (CSCO) or maybe Mexico. Companies and production will leave China soon (GBX) and world trade will reset. Phase II of trade negotiations will be very different. Brexit negotiation will change and the UK will be winner (GBP). The US will be able to force EU into much different trade terms. We will develop an industrial policy requiring made in America for critical commodities and products (AAPL) (MSFT).

Inflation is dead and oil prices will remain relatively low once the Saudis and Russians stop their suicide war. The US oil industry is used to boom bust, and will consolidate as the biggest producer in the world. Russia cannot keep up a price war. Their break-even is $54, oil is near half that and Saudis also cannot afford lower prices (CVX). The prince is pissing off a lot of powerful people and it would not be a shock to hear one day that he is out.

Financially one third of our economy has shut down and store shelves are being stripped clean. We are likely near the bottom but it cannot be known yet. There is no way to forecast since Congress is now key and they are never intelligent nor keenly responsive. If they quickly pass the $1 trillion package then markets will begin to recover. If they screw around like they did with TARP, then this looks more like in 2008.

Nothing in the economy or the market is predictable right now. The algos and the lack of the uptick rule has made the stock and bond markets totally irrational. The good news is the Fed is feeding huge amounts of capital into the banks, bonds, inter-loan markets, and commercial paper. The Treasury could refi the government debt at new low yield using a 50-year bond, making a tremendous difference to the debt service burden on the federal budget. Treasury has initiated new funding support to make sure the debt markets stay on track along with Fed funding. Treasury and the Fed are going all out this time before the crisis hits, to make sure debt markets function smoothly and with liquidity. They are doing a good job.

Liquidity for the markets is critical so there are no bank bailouts necessary. Rule 13 at the Fed seems to be reinstated despite Dodd Frank. Allowing the Fed to make collateralized loans to major corporations. Boeing will get a major loan so their suppliers can stay working (BA). As in 2010, and after loans to industries will get repaid with interest. Congress needs to act fast and boldly and the economy will come roaring back in July or August when it is clear the virus did not kill any productive younger people.

Shutting the borders early saved us, and massive containment will work. The communications effort by the White House task force to keep us informed and away from each other was a critical step. We will turn the corner in a two to three weeks. Fauci will be the hero and Trump is doing all the right things by enlisting the private sector so heavily. Keep in mind Biden attacked Trump for shutting down travel. If Trump had not, we would be in real trouble. The US acted fast enough by closing the borders—that was essential. The internet will be seen as having made a deference and more people will work from home (ZM) (WORK).

Business is functioning, although at a slower pace. A lot was learned from 9-11 and plans at large companies, the financial markets, and hospitals were already in place. Treasury and the Fed know what to do. I lived through 1987, 1994 & 2001 and know we will get through this better than in the past. Therapeutics will be available by July or August (MRNA) and will solve a big part of the issue (TDOC).

When this is over, the US will still be strong, even with a short recession but some companies will quickly stabilize (SBUX). Keep things in perspective, stay calm and hold on. We are probably at the worst moment right now waiting for the peak cases and to see if Congress can act responsibly. The US will emerge better than most!!!

NR

The post We Will Emerge first appeared on Kevin J Palmer Scottsdale.

Globally, with a population of 8,300,000,000, approximately, by percentage .00003 have contracted COVID19 and .00000126 have died. In China, with its population of 1,408,000,000, approximately .00018 have contracted it and .04 of those infected died, or .0000075 of their total population.

The US has a 2020 population of 331,000,000, and approx., .00004 have been infected and .0000006 have died. Less than 1/100th of one percent of the people in the US has gotten this virus. Think about those numbers!

Currently, of the 253,750 infected (worldwide), about 7,450, or .03 (3%), are considered serious but not all of them require(d) hospitalization. Over 70% of those who have contracted the disease, have recovered from it with less than 10% of those requiring hospitalization. If you doubled the infection statistic, 7% of 507,500 is 35,525 –California alone has more hospital beds than that!

Better news is, statistically the percentage who are dying has slowed, while the numbers who recovered have gained in percentage. Covid19 mortality is not even 1/4 of the number who die of the flu every year. In America it is just over 200 death’s, 20% of whom came from the nursing home in Washington. When a serious virus hits a place with closed-in residence, it is going to spread. Plus, nursing homes already have a significantly compromised health population.

Look globally; after having been to Paris and Rome, I can tell you that people in those cities are packed in like sardines, even compared to Manhattan. From the top of the Eiffel Tower, in all directions you look, all you see are rooftops. There is no such thing as social distancing in those cities and people are not stocking up on anything like many people here.

A final note. I found it interesting that the CDC suggests that people stay inside. If it isn’t inclement outside being in fresh air and getting vitamin D from sunlight has to be good for you. Get outside, cleans your body and mind.

The post Media Fueled Panic-buying & Stock Market Lunacy first appeared on Kevin J Palmer Scottsdale.

REVIEWED BY WILL KENTON

Behavioral Economics is the study of psychology as it relates to the economic decision-making processes of individuals and institutions. The two most important questions in this field are:

1. Are economists’ assumptions of utility or profit maximization good approximations of real people’s behavior?
2. Do individuals maximize subjective expected utility?

Behavioral economics is often related with normative economics.

BREAKING DOWN Behavioral Economics

In an ideal world, people would always make optimal decisions that provide them with the greatest benefit and satisfaction. In economics, rational choice theory states that when humans are presented with various options under the conditions of scarcity, they would choose the option that maximizes their individual satisfaction. This theory assumes that people, given their preferences and constraints, are capable of making rational decisions by effectively weighing the costs and benefits of each option available to them. The final decision made will be the best choice for the individual. The rational person has self-control and is unmoved by emotions and external factors and, hence, knows what is best for himself. Alas behavioral economics explains that humans are not rational and are incapable of making good decisions.

Behavioral economics draws on psychology and economics to explore why people sometimes make irrational decisions, and why and how their behavior does not follow the predictions of economic models. Decisions such as how much to pay for a cup of coffee, whether to go to graduate school, whether to pursue a healthy lifestyle, how much to contribute towards retirement, etc. are the sorts of decisions that most people make at some point in their lives. Behavioral economics seeks to explain why an individual decided to go for choice A, instead of choice B.

Because humans are emotional and easily distracted beings, they make decisions that are not in their self-interest. For example, according to the rational choice theory, if Charles wants to lose weight and is equipped with information about the number of calories available in each edible product, he will opt only for the food products with minimal calories. Behavioral economics states that even if Charles wants to lose weight and sets his mind on eating healthy food going forward, his end behavior will be subject to cognitive bias, emotions, and social influences. If a commercial on TV advertises a brand of ice cream at an attractive price and quotes that all human beings need 2,000 calories a day to function effectively after all, the mouth-watering ice cream image, price, and seemingly valid statistics may lead Charles to fall into the sweet temptation and fall out of the weight loss bandwagon, showing his lack of self-control.

Applications

One application of behavioral economics is heuristics, which is the use of rules of thumb or mental shortcuts to make a quick decision. However, when the decision made leads to error, heuristics can lead to cognitive bias. Behavioral game theory, an emergent class of game theory, can also be applied to behavioral economics as game theory runs experiments and analyzes people’s decisions to make irrational choices. Another field in which behavioral economics can be applied to is behavioral finance, which seeks to explain why investors make rash decisions when trading in the capital markets.

Companies are increasingly incorporating behavioral economics to increase sales of their products. In 2007, the price of the 8GB iPhone was introduced for $600 and quickly reduced to $400. What if the intrinsic value of the phone was $400 anyway? If Apple introduced the phone for $400, the initial reaction to the price in the smartphone market might have been negative as the phone might be thought to be too pricey. But by introducing the phone at a higher price and bringing it down to $400, consumers believed they were getting a pretty good deal and sales surged for Apple. Also, consider a soap manufacturer who produces the same soap but markets them in two different packages to appeal to multiple target groups. One package advertises the soap for all soap users, the other for consumers with sensitive skin. The latter target would not have purchased the product if the package did not specify that the soap was for sensitive skin. They opt for the soap with the sensitive skin label even though it’s the exact same product in the general package.

As companies begin to understand that their consumers are irrational, an effective way to embed behavioral economics in the company’s decision-making policies that concern its internal and external stakeholders may prove to be worthwhile if done properly.

Notable individuals in the study of behavioral economics are Nobel laureates Gary Becker (motives, consumer mistakes; 1992), Herbert Simon (bounded rationality; 1978), Daniel Kahneman (illusion of validity, anchoring bias; 2002)

Kevin Palmer author

The post  What is Behavioral Economics first appeared on Kevin J Palmer Scottsdale.

After 3 days of deep selloffs when most investors ran for the hills today as of this note, we now have two days of gains. Stocks bought in those past days are up 3+% and portfolios are making back losses from earlier in the week.

My thesis is, the Fed knowingly has interest rates 50 BP too high because they are intentionally keeping powder dry as we engage in a trade war. Tomorrow we will know a bit more but are always a tweet away from volatility.

The risk issue here is, big corporations that are holding back spending because CEO’s are concerned about a slowing economy. They may be the smart money but they also have the most global exposure and most too loose in a trade war.

The backlash for us as “local investors” is, their global exposure might compress earnings on our stock portfolios. The core economy in general, despite trade issues is relatively fine. The consumer is still strong, as is real-estate and small business, (the three legged stool) of the American  economy.

The post Economic Thesis first appeared on Kevin J Palmer Scottsdale.