Economic Decisions and Overconfidence

As I was outlining my response for this blog post, I realized I make little to no economic decisions. I do not spend money because I do not have to and spending money gives me major anxiety. I save nearly every penny I earn and do not have to pay for food or tuition because of ROTC. I am very fortunate in that manner. I even had enough money to pay off my loan from freshman year. That has been the most significant economic decision I have made recently, but as I looked at the works of Nate Silver and Daniel Kahneman, I did not see myself falling under any of the biases. Maybe I am just turning a blind eye to my poor economic decisions, but I am not seeing it.

Looking at the works of Nate Silver and Daniel Kahneman, significant biases exist when making economic decisions. Silver emphasized the over confidence bias. This bias exist when people are more confident about a situation than the parameters of the situation would permit.  Silver gave the example of economic forecasters who only predicted 2 out of the last 60 recessions, yet continue to believe their predictions on the economy are correct. Considering that they were only correct 3.3% of the time, they should not be confident about their economic forecasts, but they are.  That is overconfidence.

Kahneman delved into a similar bias with the optimistic bias. The optimistic bias occurs when people take on significant risk even when they have evidence to prove that they will likely fail. Kahneman gave the example of restaurants. Restaurants open all over the country every single day, but 60% of these restaurants are out of business in three years. Looking at the data, most people would think “wow statistically, I will fail,” but people that open these restaurants do not believe that data pertains to them. Many of them believe they have a 70% chance of being successful. That is the exact opposite of what the data tells them. They are victims of the optimistic bias.

When looking at my economic decisions so far in my life, I do not believe I have fallen under any of these biases. Statistically, I will fall under one of these biases, but at the moment I do not make enough economic decisions to do so. In regards to paying off my loan, I decided to pay off my loan because it was rapidly accruing interest and I felt like it would be best to pay it off now with $200+ in interest after 6 months rather than wait as the amount of interest continued to increase. Ultimately, the little amount of economic decisions I have made has limited my biases, which to me is a good thing.

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The Investment Behind Slaves

When thinking of human trafficking, I never once considered buying a person an investment. Not only is slavery illegal, but it is morally wrong and any person with a conscious would realize that. That being said, in the eyes of people without a conscious, slave are a huge investment, making those that buy them a significant amount of money. According to Siddharth Kara’s article on Supply and Demand: Human Trafficking in the Global Economy, a slave can be bought for $420 from a pimp. These slaves will then
generate 300-500 percent in annual return on investment. The percent of annual return depends on the industry, but looking at the numbers, slave are a good investment. In a world where consequences for human trafficking are minimal, buyers really have no risk by being involved in human trafficking. How can we combat human trafficking when people all over the world are being rewarded for their investment?

The incentive behind human trafficking needs to be diminished. It’s just like drugs. Drug dealers make thousands off of selling drugs. Why would they stop if they can make more selling drugs than working at some random place? Traffickers mindsets are the same. They make money with little consequences if they get caught. Without the incentive of money, there would be little demand for human trafficking to exist. I do not know how to change the incentive. I cannot think of a way to make coffee farmers lose money from free labor or the pimp lose money from selling people like they are just a piece of property. The demand for trafficking is through the roof and needs to be decreased, but from the looks of the numbers, labor trafficking will continually be in demand if their owners make 300-500 percent in annual return. The consequences of human trafficking must be increased, while finding a way to persecute more traffickers and those who own slaves. If the authorities cannot find the traffickers, an increase in consequences will not have a huge effect on the demand for human trafficking.

As I looked at the numbers behind human trafficking, I could not help but thinking “well of course people will be involved in trafficking.” Trafficking provides a HUGE profit for pimps and those that buy people for labor. Unfortunately, the huge profit leads to the huge demand. It is a never ending cycle of buyers and sellers looking for money. Until the profit involving human trafficking is demolished, trafficking will continue on.