Category: Economics

The Median Voter Theorem and Political Moderation The MVT posits that in a majority-rule electoral system with two parties, candidates have strong incentives to align their policies with the preferences of the median voter — the individual whose position lies at the exact middle of the ideological spectrum. This alignment minimizes the risk of alienating…

Ricardian equivalence is an economic theory that challenges the effectiveness of government spending as a tool for stimulating economic activity. The theory posits that when a government borrows to finance spending, rational consumers anticipate future tax increases required to repay the debt. As a result, they save more, neutralising the stimulative effect of the spending.…

The consumption smoothing theory in economics posits that individuals aim to maintain a stable standard of living over their lifetime, balancing income fluctuations through saving and borrowing. Rather than spending excessively during periods of high income and cutting back drastically during low-income phases, people distribute their consumption more evenly. According to this theoretical model, people…

Swedish economist Assar Lindbeck once said, “Rent control appears to be the most efficient technique presently known to destroy a city — except for bombing.” The reason for this stark statement is rooted in economic theory: rent control reduces the incentive for new housing developments. By capping potential rental income, landlords and developers are discouraged…

The tragedy of the commons refers to a situation where individuals, acting in their own self-interest, deplete shared resources, leading to long-term collective harm. This concept highlights issues that arise when externalities—costs or benefits incurred by third parties—are not reflected in market prices. The inherent conflict between individual incentives and collective welfare often demands solutions…

Tragedy of the commons If a business was pumping mercury into a river depended upon by a village, you would hear collective outrage. The affected village has a strong interest in stopping the pollution, and will beat on the war drums to spur the rest of us into action.  Carbon diffuses through Brownian motion, distributing…

Game theory is about anticipating the reactions of the other party and making your move based on that reaction, projecting it out into the future. However, it is often reduced to iconic examples like the Prisoner’s Dilemma, a scenario so frequently cited that it risks trivialising the depth and breadth of this field. While the…

Despite a staggering increase in interest and valuations of Non-Fungible Tokens (NFTs), there is growing doubt about their value as the era of easy money ends and speculation is curbed. NFTs have often been lauded as a revolutionary way to create a new digital art market, with some NFTs achieving valuations comparable to iconic works…

Is a university degree still worth it? For many in Gen Z, the question feels more urgent than ever. Despite skyrocketing tuition fees and growing student debt, university enrolment continues to rise, with a seemingly zero price elasticity of demand. On the surface, this makes sense—higher education has traditionally been seen as the path to…

Humans are inherently risk-averse. This means that, when presented with a choice, most people tend to prefer a certain, lower reward over a higher potential reward that comes with greater risk. The St Petersburg Principle involves a hypothetical game where a fair coin is flipped until it lands heads. The payout for the game doubles…