1) ........ people suddenly value objects more highly simply because they own them. They won't trade even when logic suggests they should. Economists call this 'the endowment effect'. (Realising 'endowment effect' is important to any investors as it explains why a lot of us failed as investors because of such emotional defect, i.e. we are not rational)
2) The endowment effect is irrational, and it's real - but it does not influence experienced people in realistic situations. (The key to overcoming our emotional defect is by realising it exists and with experience)
3) On playing poker: A player who never bluffs will never win a big pot, because on the rare occasions that he raises the betting, everyone else will fold before committing much money.
4) 'Of the two possible motives for bluffing,' wrote Von Neumann in Theory of Games, 'the first is to give a (false) impression of strength in (real) weakness; the second is the desire to give a (false) impression of weakness in (real) strength.'
5) The auction, by contrast, finds the biggest sucker. (Have you ever wondered why things need to be sold via auction. The primary purpose is to find the biggest sucker because usually the final price would far exceed the value of the material in an auction especially when there is active bidding. This is known as the 'winner's curse'. As such, to get the best value from an auction, we need to be rational and stick to our estimated value of the auction material)
6) ........... we are more fussy when we can afford to be and less fussy when we can't: crudely speaking, when it comes to the dating market, we settle for what we can get. (Of course, this is a general statement and applies to majority of the population but I would think it is true. Not between me and my wife though, ours is a match made in heaven. Hehe)
7) It is a harsh truth about the world of work that for many professionals, the more work you have done in the past, the more productive each additional working hour becomes: a perfect example of economies of scale. (That is the good thing of being a professionals such as Engineer, Doctor, etc. The reward usually commensurates with the effort put in. But don't forget the element of luck. Two people who is equally smart and puts in the same amount of effort will not enjoy the same amount of reward. The discrepancy is usually much smaller in professionals but more pronounced in professions where luck is perhaps more important - e.g. businessmen?)
8) .......what Adam Smith wrote about the excessive division of labour: 'The man whose whole life is spent in performing a few simple operations... has no occasion to exert his understanding or to exercise his invention in finding out expedients for removing difficulties which never occur. He... generally becomes as stupid and ignorant as it is possible for a human creature to become.'
9) When I wrote 'performance pay encourages performance', I was right, but with a crucial hidden premise - that performance can be measured, and thus rewarded. (Spot on. If someone refuses to accept pay based on measurable performance, I would doubt his capability).
10) So, workplace tournaments encourage workers to sabotage one another and to demand higher bonuses if success is largely a matter of luck. (Important to have transparent reward scheme and to award high performers in order to avoid encouraging workers from sabotaging one another)
11) ....... the more grotesque your boss's pay, and the less he has to do to earn it, the bigger the motivation for you to work with the aim of being promoted to what he has. (Honestly, I am not too sure about this statement. It could be a ploy to justify the high salary of bosses. Hehehe. But seriously, to me, this model has serious flaws because it can be subjected to exploitation. For instance, the boss may simply underpay his staff while giving them the false hope that they can enjoy the rewards "some day". When the staff realises his ploy, the staff will probably resign and then the boss will simply replace him with "fresh lamb". A more sustainable model would be based on performance all the way to the top)
12) Glaeser and Sacerdote found, for example, that it was tall buildings (rather than simply large ones) that really failed to keep the streets around them safe. Each additional floor in your building increases your risk of being robbed in the street or having your car stolen by two and a half percentage points - if your building has twelve storeys rather than two, your chance of being mugged rises by a quarter.
13) ......... your neighbourhood makes a big difference to your health and happiness, but that it will not drag down your test scores, lead you into crime, or prevent you from finding a job. Your neighbourhood matters, but it is not your destiny.
14) Countries that somehow created an environment in which smart, well-educated people could learn from one another would tend to grow rich. (The same applies to company?)
15) ....... struggling cities attract people with low skills, which means that they are unlikely to create the sort of exuberant innovation seen in more successful cities; and the more that modern economies depend on people with skills, the more serious and insuperable these disadvantages are likely to become. (This explains why property investors are always told to focus on location, location, location. This is because lousy location tends to be trapped in a vicious downward spiral of declining value!)
16) You could explain in a twenty-second TV spot why it's bad for the Prime Minister to be diverting taxpayers' money to his friend Tim, but good luck making the case for free trade in a sound bite. That's a major reason why trade barriers are a popular way to siphon cash to pressure groups: they are deliberately confusing, just as the stock option plans described back in Chapter Four are deliberately confusing. (For me, if any scheme is too confusing, it means that someone is trying to hide something and it is usually no good. For example, the subprime crisis with all the complicated CDS, bla, bla, bla which no one understood except that it created a bloody mess)
17) ..... it's rational to campaign for subsidies if you're in an industry that's expensive to enter and has poor long-term prospects, such as the car or steel industry.
18) A society with more capital investment and more entrepreneurship is also a society that is likely to enjoy higher wages.
In summary, this book provides pleasurable reading especially when you are in the airport waiting for the next flight. I may be ignorant and would like to apologise because I tend to agree with the popular opinion that economist can explain a lot of matters in hindsight but we should not rely on them for predictions about the future. Economics depend too much on a lot of factors such as human behaviour, environment, etc. in order for it to be an established branch of science and we should not expect it to be at the same level as physics, chemistry or engineering. But don't get me wrong, learning from what has happened previously and attempts to understand the underlying causes behind previous economic behaviour is important in order to prevent us from repeating the same mistake. For that, economics does have a role to play as long as we realise its limitations.
I would strongly recommend reading "Fooled by Randomness" by Nassim Nicholas Taleb after reading this book. It would make you think more!
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