The Halo Effect

Microsoft’s latest game release in the multi-billion dollar Halo franchise is set to release this September 14. Why is Halo such a popular series, with its many spin-offs, book and merchandise? The halo effect. While the name might be a bit ironic, the idea is simple. Described in depth in this Businessweek article, the halo effect has turned a one-time game into a gaming and internet icon. The original Halo release was as part of the debut for Microsoft’s X-box in, a revolution in console gaming. That was 2001. Skip ahead to 2010; the Halo franchise is looking at it’s 6th title release, and expecting record-setting results.

So what does the halo effect have to do with Halo’s popularity? The halo effect is described as a simple bias. The perception of one trait is affected by that of another. In other words, if the part of the series looks good, so does the rest. After Halo set major sale records in 2001, the plan for the sequel’s release was set for 2004. But what made Halo 2 sell so well? Halo 2 sold well because people saw and understood how good the original Halo was, and therefore decided (with bias) that the second one should be as well. That is, the perception of an aspect in the series’ first game affected that of the second, and then the second with the third and so on. This growing effect lead to the expansive growth of the series, with it’s release of Halo 3 in 2007 netting over $600 million. The franchise itself has an estimated revenue of $16 billion after June of 2010. And finally, this bias towards the solidity and other overshadowing aspects of the Halo franchise culminates as Microsoft is prepared to back it’s latest release with “the largest marketing budget it has spent on a game.” While Microsoft won’t disclose just how much it’s planning on spending on the new release, it can be estimated that sales will cover this cost and much, much more for the gaming and software giant.

The halo effect can also be applied to more vague aspects of economics. Take Halo for example. It’s simply a game franchise building on it’s previous releases, the same way shoe companies release new model cleats each year or car companies with newer, safer cars. You wouldn’t feel impulsive when buying a cleat or a car you knew nothing about. But based upon the cleats looks (say it’s shiny, with a large, vibrant logo on the side), you may feel the cleat as being superior to others. Price can also create bias. The general idea is that things that cost more are better. While this may be true in most situations, it is not always the case. If you can’t decide between two cars with exactly the same paint, frame, ratings and reviews, price might influence which one you think is superior, when in fact they are both equal.

Opportunity Cost

“Time is money” -Benjamin Franklin

A simple statement that helps define the concept of opportunity cost. Opportunity cost is not just the cost of the item or activity you are attending, but the cost of the activities, items and time you are giving up in order to obtain your want. Opportunity cost may at first seem to be only the cost of your activity (say $100 to see a baseball game), but it is really much more. To find the true opportunity cost of an activity, you need to account for the things you are giving up as  well. For example, in the 5 hours you are spending watching the baseball game, you could be doing other things, such as spending time with your family, or reading a book, or cleaning you house. These things can be priced upon personal value, meaning they can be compared against the value of the baseball ticket. So the actual price of going to the baseball game is not only the price of the ticket, but the personal cost of whatever activity you are choosing to give up as well. These things are known as alternatives.

You can sum together all of you alternatives into a single price to understand the real opportunity cost of your chosen activity, right? Wrong. You can’t sum these values together because you don’t have enough time to do them all. You only have time for one alternative. Let’s say for example that instead of going to the baseball game you could instead spend time with your family for 5 hours or work on a book you are reading for 5 hours. Now, the opportunity cost is not both of those activities because even if you did not attend the baseball game, you cannot spend time with your family and read your book because the sum of time is 10 hours, and you only have 5 available hours from not attending the baseball game. For this reason, you cannot sum together the value of all your alternatives as being part of an activities opportunity cost.

You Can’t Place a Value on Life

Today we looked at the ‘You can’t place a value on life’ activity. This activity requires you to choose from 6 patients which ones are given time on the dialysis machine. Factors that play into these decisions include required time on the dialysis, occupation, other illnesses and age. You are limited to a maximum of 100 hours of dialysis time weekly, meaning you can only save a few of the patients. This activity relates to medical situations in the real world, where the demand by patients is more then the supply of the machinery available at the hospital. In situations such as these, doctors must chose who can stay on the dialysis machine and who must look elsewhere for help. These decisions were not easy to make in the classroom, and I can only gather that they would be all the more difficult in real life situations. Situations such as these stress the moral base of a doctor’s true character, and whether he makes the decisions on the basis of the patients needs or the hospital’s funds. Keeping this in mind and understanding all of the factors that play into our decisions, our group set forth on deciding who lives and who is turned away in this activity. In the end, our group chose to save Peter, Todd and Tom on the decision that their situations could recover with the help of dialysis.

Peter was our first choice knowing that he was the father and breadwinner for a family of 4 kids. He is also insured, and only 37 with no background illnesses, meaning he will live a long life with the help of dialysis. We chose Peter understanding that he was the main financial support of his family. If Peter was to die, not only would he suffer, but so would his 4 children and widowed wife. On this basis we decided that Peter could be allowed the 40 hours of dialysis he required weekly.

Our second choice was Todd, a 16 year old student who is uninsured, and has a slight mental retardation. We decided Todd deserved the dialysis since he has only had the illness for slightly over 2 months. Knowing this, we believe that Todd does have a large chance of recovery and the chance to lead a long and successful life, even with his slight handicap. Even if Todd was stuck with dialysis for the majority of his life, we believe that as a young student who’s illness has only been given 2 months to be treated deserves more time on the dialysis to determine whether or not he could be healed indefinitely. For this reasons we allowed Todd the 20 hours of dialysis he needs weekly.

Our final choice was Tom, the 45 year old politician with a wife and 3 kids, no background illnesses and insurance. We believe Tom deserves the dialysis treatment as he, like Peter, is the breadwinner for his family. Without Tom, his family would most likely suffer the effects of his death financially for years. Tom is also insured, meaning the medical costs would be largely covered and he would be able to afford the medical treatment in the long term as well. This would be a level of financial security for Tom’s life that made him a candidate for our selection, something other patients lacked. For this reason we chose Tom as our final patient, allowing him the 40 hours of dialysis he needs weekly.

Making these decisions, real or not, was a difficult task. I cannot imagine the hours of decision making that goes into making these decisions in real life. From a financial aspect, the decisions are simple. From the medical aspect, the decisions are simple. But combining the two makes for a very difficult decision, and not one that always has a clearly correct answer.

Kim Jong Il’s Successor?

Kim Jong-il is continuing secret trips into China, only six of which have occured since his rise to power in 1995.

I was cruising around the news when I read this Time article about a secret visit Kim Jong Il paid to China only days ago. The reason for the visit is unknown, though many different political and think-tank type groups are providing speculation. This is not the first trip Kim has made into China, his last trip being in May of 2010, around the time North Korea saw a rise in “satellite launch” tests, which were believed by many to be long-ranged missile testing. The aspect of this article that caught my attention was Beijing’s willingness to “go along with juvenile, Cold War-era games that at this point are beyond parody.” It’s really not in China’s best interest, now being the second most powerful country in the world by means of economics to be making such back-door type meetings. China’s leadership has shown no clear, successful action in trying to limit the North Korean dictator’s power or negotiations with the Chinese leadership. North Korea suffered floods this summer, adding pressure to North Korea’s already scarce food supply. A North Korea with Chinese involvement is “a failed state.” North Korea requires a large supply of Chinese supplied oil in order to fuel it’s militarization, especially following trade embargoes put in place by the U.S.

As for North Korea’s future, I can only foresee a more strained relationship between North Korea and the Western world as long as Kim Jong Il continues to pressure the U.S., China and Japan with Nuclear activity. One hope is that more diplomatic U.S. and North Korean relations will develop as Kim Jong Il’ son, Kim Jong-un, takes power as dictator of North Korea, a date set sometime in 2012. As Kim’s son begins to ascend as part of the political party in North Korea, many people begin to fear too much forced rise as a politician by the hand of Kim will produce an ill-fit leader who will only work against repairing the already fragile U.S. – North Korea relations.

Fundementals of Economics

– The Basic Economic Model

Economists assume two major things about consumers. All consumers are rational and that all consumers are self-interested. This means that consumers will not make irrational decisions, such as paying $4,000 for a piece of bread, something unimaginable by today’s economic standards. Also, consumers are self-interested. This means that consumers want to consume the most while producing the least. However, producers are also consumers, meaning they feel the same way. This leads to some price fluctuation as consumer and producer both try and satisfy their self-interest. Rationality is also dictated by opportunity cost. Opportunity cost is the cost of making one decision when many are available. For example, say you have $50 and you really want to go see a baseball game. The baseball ticket costs $50. However, you also saw a new shirt at your favorite clothes store yesterday that you really want. The shirt too costs $50. Having only $50 in your possession, you can only have one of the two available purchases. Whichever item you did not purchase is the opportunity cost of the item you selected. Opportunity cost is present in many different situations, such as the cost of going to college for 4 years or getting a job, or the cost of buying a new car to a used one.

Another factor that plays into rationality in a consumer’s decisions is risk. Risk is the chance that a purchase or investment may have an unsatisfactory outcome. For example, say in the earlier example you chose to buy the baseball ticket. The day of the game though, a major storm rains out the game and your ticket isn’t refunded. You are now left with no money, no shirt and no baseball ticket; less than you started with. The same idea can be applied to other aspects of economics too, such as investments. Take high risk investments to low risk investments. In a high risk investment, you may have a high risk of losing the money you invested, but also a high chance of having a big payout should your investment be successful. In a low risk investment, you have a lower chance of your investment failing and higher chance of your investment being successful, but your revenue will be much less than that of a successful high risk investment. In this sense, both opportunity cost and risk factor into the rationality of consumer’s decisions.

Economics has also developed along side psychology. Economists are studying more often the behavior of consumers and producers in relation to what they are consuming and producing. It can be assumed that consumers want to buy products of equal value for less, and producers want to sell those products for a bigger profit. but producers are also consumers. Producers of say, computers have to consume the individual parts such as a processor, the case, the plastics and wiring, the battery cells or the metals to make them all. This means that producers too want to pay less for what they consume, in order to create a bigger profit or to lower their prices to produce more sales by making their product more affordable. By having consumers that want to consume for less and producers that want to produce for more of a profit, prices in an economy are kept very stable as competition between companies keeps product prices down and a high demand keeps it up, benefiting the affordability of products for consumers. In this sense, if Company A is offering their product for $45  and Company B is offering the same product for $90, rationality would dictate that consumers will buy the product from Company A. This forces Company B to lower their prices to compete with Company A, keeping the average price of the product down. Thus, rational decisions on the consumers part helps keep prices down.

Japanese Economics

Japan's Prime Minister Naoto Kan delivers his policy speech at Parliament in Tokyo Friday, June 11, 2010

New Prime Minister of Japan Naoto Kan pushed for tax raises in late spring of 2010. Kan proposed a raise on the national tax – now at 5%- to help reduce Japan’s growing national debt. Kan fears a national debt crisis could result in a catastrophic collapse in Japan, similar to what happened to Greece earlier this year. Japan’s economy is still dependent on exports to China for much of its income. Kan looks to change this by raising the national tax and enacting spending limits in later 2010. While this raise was originally rejected by public opinion, Kan and the Democratic Party of Japan (DPJ) are still hopeful in gaining enough support to effect a tax raise. The Liberal Democratic Party (LDP) are also looking for a raise in the national tax. Kan is hoping that with support from both the major parties, and a major growth in party support for the DPJ,  an agreeable tax raise can be put into effect by late 2010 to offset the Japanese growing debt.

While Japan seems to be in an economic lull at the moment, with spending rates average, the yen showing good trading strength and the economy in suitable shape, the Japanese government is looking at increasing internal stability. Japan’s economy has been based around export sales ever since its fundamental economic rebuilding during the post WWII era. While Kan and the Japanese government understand this cannot be changed, they are looking for ways to secure the country’s economic future by making it more internally stable. The main fear of the Japanese government is not it’s internal composition, but that of the other major economies. Both parties share the fear that even a subtle upset in a foreign consumer’s economy (say that of China, or the US), could cause major upset in Japan. While this would inevitably have a dramatic effect on the Japanese economy, Kan and the new government are looking to limit that damage and secure Japan’s economic stability by starting to offset the national debt now.

Why I’m taking Economics

I’m taking 2 years of consecutive HL Economics for one reason: I believe everyone should have at least a basic understanding of economics before making serious career decisions. Understanding economics is beneficial to people of all working fields. From making a small investment decision to buying and selling entire multimillion dollar corporations to better understanding the evening news, economics is essential. For this reason, even though I’m planning on pursuing a career that has no foothold in the field of economics, I still find the understanding of economics personally benefiting. I will most likely never end up being the CEO of a large company, put in a position of major economic decisions, and for this reason will most likely not continue my studies of economics past high school, but I look forward to using my new found knowledge to use in my every day understanding.