Promoting Individual Responsibility by Social Mechanisms

Let's start with an example. In the Netherlands, to use the public transportation, you should get a card/ticket, called OV chipcard, that is basically a rechargeable/reloadable card that one can reload it whenever s/he wants to use the public transportation, but how it works. The mechanism is basically as follows: when you want to check in the public transportation, you should introduce your card to the automatic machines (screen gates), the machine automatically reduces 4.00 Euros from your card, when you want to check out, you should introduce your card again and based on the number of kilometers traveled, that machine reduces the proportionate number of Euros. If you forget to check out, your total 4.00 will be gone.
Compare this to Italy. In Italy, and especially in Bologna where there is no subway system, you have a host of deals in getting the tickets to get on the buses. Hourly, daily, three days, monthly and annual passes. When you check in, these passes should be validated once and will be valid till the end of the period printed on the ticket. If you have an hourly pass, you should swipe it into the machine; otherwise you just do nothing if you have already validated it. There is a random check by the public transportation (ATC) officers to see whether the passengers have the tickets or not. If you do not have the tickets, you will be fined, how much is the fine, at the time I were in Bologna, it was around 40 Euros. And the hourly ticket was 1 euro (it is now 1.50). The fine was calculated as the one time travel fare times 40. Anyway, given the enforcement of this law by the ATC officers, if you multiply the probability of being caught by the inspectors by the amount of fine, it economically makes sense not to buy the ticket, get a free ride and be fined for violating the law, overall you would have paid less, if you wanted to get a free ride.
This is a law which is inherently self-defeating and encourages its own violation. One can see how one law encourages people to be alert and punishes the forgetfulness and absentmindedness and the other encourages irresponsibility and violation of the laws, though there might be some justifications for having these kinds of laws in place, the downside is drastically dangerous, spreading the irresponsibility in the society. These are small (micro) distinctions which make big (macro) differences in the long run.

The Interesting World of Finance

The world of finance amazes me all the time. I cannot help thinking about a saying of a friend of mine who once said that he could not understand why someone buys and someone else sells the same stocks at the same moment, think of it, the transaction happens at the same point in time. Needless to say, this transaction does not arise from a need to exchange goods or services, the parties just exchange financial assets. This is one of the most interesting phenomena I have ever seen in my life. This I cannot understand either. Information asymmetry, different technical and fundamental analyses, different expectations … Now, the thing that amazes me more is the mechanism by which speculators speculate on credit default swaps …