Economics newsletter edition #6

NOVEMBER, 2015

Neuroeconomics -

Why people like retro games

DUBAI COLLEGE

Successful Entrepreneurs

In the UAE

Economic Cartoons

- How they achieved success!

DC ECONOMICS Neuroeconomics: Why People Like Retro Games The human mind is a weird, weird thing. Let’s take, for example, the case story of the game ‘’Shovel Knight’’ for the Nintendo 3DS. The gaming industry prides itself on ‘’realistic graphics’’ they aim to replicate real life as much as possible, yet out of nowhere, ‘’Shovel Knight’’ delivered 16-bit graphics, yet was still praised and bought due to ‘’amazing graphics’’ as quoted by game reviewer, Kotaku. The game has sold nearly 1,000,000 copies, making it the one of the highest selling Indie games for the console.

Rationally speaking, this statistic is a nonsense. The economist views the situation objectively, and thinks to himself ‘’what the heck is going on?’’. It is in this respect that blindly modelling consumption with pure mathematics finds a few loopholes; consumers are not totally rational and don’t pretend to be.

Where Yacht Club Games may have turned to was the realm of neuroscience. The prefrontal cortex (PFC) of the brain is what controls decision making; it links internal goals with thoughts, and actions. To the gamer (the target market for the firm), the PFC contributes to nostalgia, which is, according to a study by The University of Hong Kong, a ‘’rewarding mechanism for turning to stimuli which have proven to be positive in the past’’. In essence, playing Shovel Knight is undergoing an activity that, in the past, has proven to be ‘’fun’’ (games of the 16-bit era often bring good memories to the aged gamer) , and as a result the body secretes dopamine to ‘’reward’’ the individual for playing the game.

This is the part that mathematics cannot capture directly (albeit the mathematics enthusiast would argue that all science is just an application of maths, and to them I say: ‘’get a different hobby’’). If people are being rewarded for things that have in the past proven to be good, then !1

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why doesn’t every firm in the gaming market release these 16-bit games? Would this not grant them success? What Yacht Club Games have done is prey upon a niche in the gaming industry, a property that no other firm has, and it is this niche that allowed Shovel Knight to succeed. Additionally, the positive connotations of a game with more ‘’modern’’ graphics likely outweighs the positive connotations of nostalgia, which is why non-16-bit games have gotten far more sales than ‘’Shovel Knight’’.

What this case study shows is one simple thing: mathematics does not and cannot model all allocation of scare resources. As stated before, humans are really weird and irrational in a mathematical sense, but when you delve into the cryptic secrets of behaviour, you start to uncover the truth behind irrational behaviour.

And that’s what neuroeconomics aims to do, the economics of the future. If you can scientifically model what was once regarded as ‘’immeasurable’’, scarce resources can be allocated extremely efficiently, with very little margin for error. So best keep our eyes and ears open for new ideas in the realm of science, because it may well be the explanation for why you may buy your next Polaroid camera! - Aditya Prakash

Entrepreneurial Minds: How entrepreneurs achieved success!

Pranay Jethwani did a project interviewing Sakkyann Della Cass, Dany Farha, Buddy Shakhashir, Sara Alemzadeh, Philip Bahoshy, and Mudassir Sheikha, he summed up his findings in a booklet called Entrepreneurial Minds.

When asked what advice they would give to the next generation of hopeful entrepreneurs all of whom are aspiring to emulate their success, each responded that being passionate is of paramount importance. The main take away from this process was the discovery that passion paves the way to success. This is extremely true during times of hardship and when problems arise; because if you are not passionate, then you may not be motivated enough to search for proper solutions to the inevitable challenges that will always present themselves.

Another major trait that the entrepreneurs noted as a key to their success is commitment. A lot of people think that companies can become successful within a year or two but this usually isn’t the case. Entrepreneurs have to put all of their energy into their business and have to accept that in order to really reap the rewards, they have to give it time and allow for growth.

Interestingly, although all six of the business owners are extremely content with their current profession, only two always wanted to be entrepreneurs.

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Recent News Headlines That Have Caught Our Eye… ‣ The U.S economy grew at 1.5% in the third quarter. ‣ Norway keeps interest rates low and uses expansive fiscal policy to help demand. ‣ The number of Americans filling for unemployment benefits went up by 16,000 to 276,000 in the week ended October 31st. ‣ Inflation in Russia has increased to 15.6% ‣ Dutch inflation rate increased by 0.7%.

Perhaps due to the increase in ticket prices and petrol prices. ‣ In October, in the US unemployment rates fell for teens and the elderly. ‣ In China the one-year lending rate was cut and is now 4.35% ‣ Beijing reported a 6.9% of GDP growth in it’s third quarter - the slowest it’s been since 2009

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DUBAI COLLEGE

As for the other four, they took a wide variety of career paths that ranged from corporate lawyers to investment bankers.

The important thing to take out of it is that a change in career path is by no means a negative. In fact, those individuals who studied Math or Computer Science in university are at a huge advantage in the business world. Having a co-founder or partner is the other major commonality amongst the six entrepreneurs.

Although not all six have a co-founder, the importance of having someone by your side was stressed by each.

In a startup, where there are huge ups and downs, a cofounder can give you strength in times of weakness. In today’s tech business world, having an internal programmer is vital. Therefore having a co-founder with a tech background is another huge advantage for tech companies.

Finally, it’s important to acknowledge that not every business is going to succeed which is not something that an aspiring entrepreneur wants to hear. Many of us only hear about the success stories of those that set out to build the future and change the world. The lessons learned from an entrepreneurial journey are precious and the mistakes made along the way will result in better insight and industry instincts the next time around. - Pranay Jethwani

In the UAE: The UAE is well known for having one of the most open economies in the world. This tradition of welcoming business and trade goes back to early Gulf history, when ships sailed to India and along the coast of East Africa as far south as Mozambique.

The UAE continues to be a strategic hub, with business-friendly free zones and a quickly growing economy. The country has shown exceptional economic growth averaging a GDP growth of about 8.4% from 2000 to 2006—the highest in the Gulf Cooperation Council, which averaged 6.5%. The GDP for 2014 ($419 billion) reflects the rich natural resources in the UAE, which owns 10 %of the total world supply of oil reserves and has the fifth largest natural gas reserves in the world.

Not only is the country a prominent supplier of energy, the UAE is now becoming an increasingly relevant consumer of energy consuming over 8271.5 kg/a of energy per capita per annum, almost three times that of the UK. In order to reduce reliance on oil and transform its economy from a conventional, labor-intensive economy to one based on knowledge, technology and skilled labor. The federal and individual Emirate governments have invested heavily in sectors such as aluminium production, tourism, aviation, re-export commerce and telecommunications in order to create a diverse market that catches the eyes of prospective investors, and entrepreneurs.

Perhaps the most well-known industry is tourism which has played a significant role in the success of economic diversification. Abu Dhabi's 156 hotels recorded their best year ever in !3

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terms of visitor numbers in 2014, while Dubai's 634 establishments have also experienced a significant increase in guests. Other emirates are following suit. The UAE's two world-class airlines, Etihad and Emirates, as well as constant upgrading of aviation infrastructure, have played a major role in the advance of the tourism industry and are key contributors to the economy. Dubai, in particular, expects that the aviation industry will contribute 32% to its GDP by 2020.

In conclusion not only does the UAE have vast quantities of oil and natural gas that they have used to generate high revenue in the past, but the UAE also had the foresight to diversify their markets creating the perfect environment for small start-ups to rise, and unemployment to fall. - Yash Bhansali

Economic Cartoons:

- Captions by: James Lemon - - Illustrations by: Ishaan Arora and Siddarth Pillai !4