Mental Accounting in Behavioral Economics: 3 Examples

An example of mental accounting in behavioral economics as a man looks at charts in a conference room.

Why do people perform mental accounting when it comes to their finances? What are some examples of mental accounting? One of Richard H. Thaler’s arguments against constrained optimization is that people perform mental accounting. Behavioral economics describes this as a cognitive bias that causes people to place different values on money. We’ll focus on three key examples of mental accounting. Let’s take a look at three common examples of mental accounting.

Fairness in Economics: 2 Examples That Prove It Doesn’t Work

A person abiding by fairness in economics as they write on a paper with coins.

Should fairness be accounted for in economics? How does fairness conflict with budget optimization? Economist Richard H. Thaler argues that consumers are concerned with fairness and cooperation, even when these concerns get in the way of their budget. This is shown by two experiments: the ultimatum game and the prisoner’s dilemma. Discover why fairness in economics doesn’t always have a happy ending.

What Is the Law of One Price? How It Disputes the EMH

A man thinking about the law of one price with dollar signs as eyes.

What is the law of one price? How do closed-end funds violate the law of one price? According to economist Richard H. Thaler, one argument against the efficient market hypothesis is the violation of the law of one price. This is a thesis from traditional economics that a security should never sell at two different prices at the same time. Continue reading to learn more about why the law of one price isn’t consistent with the efficient market hypothesis.

Voluntary Poverty: Thoreau’s Simplicity in Action at Walden Pond

A log cabin by a lake in the woods.

What’s voluntary poverty? What was Henry David Thoreau’s attitude toward poverty and charity? Henry David Thoreau’s simplicity is a major theme of Walden. During the time he lived in the modest cabin in the woods, he practiced voluntary poverty—stripping down his life to the bare necessities to fit the lifestyle he chose. Continue reading to learn about Thoreau’s practice of voluntary poverty and a bit about his attitude toward people who lived in poverty.

How to Simplify Your Life: 3 Tips From Thoreau’s Walden

A woman simplifying her life by watering plants.

Does your life feel cluttered and complicated? Do you sometimes feel like you should escape to a simpler time or place? One reason why Henry David Thoreau went to the woods was to live a simpler life. To accomplish this, he adopted a certain mindset and made specific choices. From his example, you can simplify your life by considering what you can do without, managing your resources wisely, and savoring what you have. Keep reading for three tips on how to simplify your life with insights from Thoreau.

Sam Bankman-Fried Found Guilty: What It Means for Crypto

A pile of gold coins.

How did FTX’s risky practices go unchecked for so long? Can trust in the crypto industry be restored after this high-profile failure? Is meaningful regulation coming that could stabilize the volatile crypto market? The recent conviction of Sam Bankman-Fried, founder of crypto exchange FTX, highlights regulatory gaps that have long enabled risky practices in the crypto industry. Experts say the crypto industry must oust bad actors in the meantime to restore trust. Continue reading to learn how Sam Bankman-Fried’s guilt might affect the crypto world.

What’s an Arbitrage Strategy? Explanation and Example

Guaranteed Basic Income: Creating A Better Tomorrow

What’s arbitrage? How did John Meriwether’s arbitrage strategy earn Salomon Brothers a profit? Arbitrage is where investors exploit small differences in price for similar assets in two or more markets. When John Meriwether learned this technique, he used it to his advantage, earning more money than ever. Continue reading to learn more about how arbitrage works in the stock market.

What Is the Efficient Market Hypothesis? A Real-Life Example

What Is the Efficient Market Hypothesis? A Real-Life Example

What is the Efficient Market Hypothesis? How did John Meriwether use this hypothesis to perfect computer trading? The Efficient Market Hypothesis is a financial theory that states stock prices reflect all existing information. In the early 1980s, Meriwether used this theory to introduce computer-based mathematical modeling into trading. Discover how the Efficient Market Hypothesis played into Meriwether’s strategy.

Arguments for and Against a Global Billionaire Tax

Arguments for and Against a Global Billionaire Tax

How would a global minimum tax on billionaires’ wealth work? What are the main arguments for and against the tax? Does the proposal have a shot at becoming a reality? A proposal for a 2% minimum tax on billionaires’ wealth aims to raise revenue and address inequality, but faces skepticism. Proponents say the billionaire tax could generate $250 billion annually while critics argue that implementing the tax will require global coordination that will be tough to achieve quickly. Continue reading to learn about the different opinions regarding a billionaire tax.