Friday, February 26, 2010

Intoxicating Colors and General Equilibrium

Yes - it's another online color study!

In this case the study is from DEVO!

Just Click It!

The same day Tim sent me the above link Brian sent me a link to the paradox of toil. Coincidence?

The abstract of this paper is as follows:

"This paper proposes a new paradox: the paradox of toil. Suppose everyone wakes up one day and decides they want to work more. What happens to aggregate employment? This paper shows that, under certain conditions, aggregate employment falls; that is, there is less work in the aggregate because everyone wants to work more. The conditions for the paradox to apply are that the short-term nominal interest rate is zero and there are deflationary pressures and output contraction, much as during the Great Depression in the United States and, perhaps, the 2008 financial crisis in large parts of the world. The paradox of toil is tightly connected to the Keynesian idea of the paradox of thrift. Both are examples of a fallacy of composition."

The paper includes the following interesting quote:

"The reason for this is general equilibrium: When everybody does something nothing is constant. In models of general equilibrium, it can be highly misleading to build intuition and draw inferences looking at only one individual in partial equilibrium."