Euro zone.

The euro-zone appears to be emerging from a three year crisis that began with doubts of European banks’ balance sheets, and quickly turned to concerns over rising level of government debt. The euro-zone economy finally expanded in 2Q13, following six quarters of contraction.

Despite slow economic growth, euro-zone consumer confidence has risen to 2011 levels. This rise in consumer confidence has had a positive impact on consumer spending over the last quarter and is continued to do so in the fourth quarter. Unemployment, however, remains at record high levels, which continues to weigh on economic growth and confidence.

In an effort to avoid a re-run of the previous three years, the European Central Bank (ECB) announced today it will begin a thorough review of over 100 large financial institutions across the euro-zone (about 85% of the euro area banking system) in hopes of strengthening private sector confidence in the soundness of euro area banks and in the quality of their balance sheets.

This comprehensive assessment comes in advance of the ECB assuming its role as the single supervisor of euro-zone banks at the end of next year.

Source: European Central Bank.

Commuting.

Commuting makes us unhappy.

The time spent commuting from point A to point B (and back) is time that you are not spending with your loved ones, exercising, take up a new hobby, participating in social events or doing meaningful work. It is time you spend building up stress, getting a headache, feeling lonely, frustrated in traffic or rocking on a train. No joy comes from spending over 90 minutes in traffic, alone, twice a day, five days a week. (Yes, the occasional morning drive with nothing but a great playlist is quite nice – those days are few and far between).

And if those trade-offs weren’t bad enough, commuting is also unpredictable. We know how long our commute takes on average, however, we can’t always predict the time it will take us to reach our destination each day. There are often unexpected delays – accidents, construction, malfunctions – events we cannot plan for. That is something we can never get used to.

So why do we keep doing it?

Economists have noted for decades that when we make the decision to commute, we rarely take our time into account. The house with the backyard, cheaper rent, or better location take up the whole picture. What is missed are the costs a household, or individual incur in both time and money. Not just housing and transportation costs, but in time. Economists Stutzer and Frey found that in order to be compensated for a 23 minute commute to work, a person would have to earn 19 percent more per month, on average, in order to be compensated for their time.

A persons’ decision about where to live, work and how long to commute is one based on the value of time, specifically, loss of spare time. This is an extremely interesting topic as there are no set guidelines on how to make this decision. Each person values time differently and assessing the cost of lost time is a challenging one.

At the end of the day, commuting is a choice we make and its negative impact on our health and well-being should be factored into that decision.

Sources: Census Bureau, The Commuting Paradox, Alois Strutzer and Bruno S. Frey.

Uncertainty.

When dealing with uncertainty, Tverskey and Kahneman found that there are consistent biases to our responses and that these biases can be traced to mental shortcuts – heuristics. There are certain heuristics that are engaged when making decisions in an uncertain environment, which if better understood, could significantly improve judgements and decisions in situations of uncertainty.

  • Availability of instances: we expect that samples will have much less variability than they actually do and believe them to be much more representative of the population than they actually are.
  • Adjustment from an anchor: we tend to base estimates and decisions on known anchors or familiar positions, adjusting the baseline.

We also tend to make inferences from our own experiences. When we are confronted with a decision, we are trapped within our own reality, our own emotions. If something triggers a thought of a previous instance, we are immediately drawn into the emotional state we were in at that moment. This becomes our foundation of our reality.

Our irrational behaviors are not random. The divergence of human intuition from optimal reasoning can be traced and it is our responsibility to identify them, take down the barriers, and reach a more objective view.

Source: Judgment under Uncertainty: Heuristics and Biases, Amos Tversky & Daniel Kahneman

Postponing.

Lawmakers agreed to a three-month funding of the government and suspension of the debt ceiling, which will hopefully be passed today. The bill includes:

  • Government funds approved until January 15, 2014, at current spending levels.
  • Debt ceiling suspended until February 7, 2014.
  • Income verification required for people seeking health-insurance subsidies under the Affordable Care Act.
  • Medical devices tax maintained.

Democrats and Republicans remain far apart on fiscal policy, which merely set the stage for another spectacle in January. The government shutdown may have had a limited impact on the economy (as a default was avoided); however, postponing the discussion for three months from now is far from a reassuring solution. This round alone caused a loss of USD 3.1 billion in GDP from lost public services plus additional costs to the rest of the economy (which can only be accounted for once delayed economic data is available). The indirect impact caused by uncertainty only harms the already weak economy, highlighting the lack of confidence in the government’s ability to reach an agreement. If the US government doesn’t start getting it together it risks a further slowdown in the economic recovery.