Quantum Mechanics

I haven't studied physics in years, and when I had studied physics, I only took a few introductory classes in it. I am hoping someone more knowledgeable will be able to answer my questions.

In quantum mechanics, electrons aren't in a specific location around an atom's nucleus. Instead, there is a probably density function that provides the location. There are places that the electron is likely to be, namely close to the nucleus, but there are places that the electron could be, like very far from the nucleus, but is actually very unlikely to be. Given the overwhelming number of electrons that exist, an extremely improbable event like the electron being very far from the nucleus is likely to occur occasionally.
How often do these events occur? What is the effect of it when it occurs?

The great Douglas Adams used these concepts in the Hitchhiker's Guide to the Galaxy books. I was hoping the popularity of his books would spur some research into the topic, but I haven't found anything useful yet.

QE2

Recently the Federal Reserve announced plans to perform more quantitative easing. The details of the plan, dupped QE2, have not been revealed, but analysts expect it to involve purchases of Treasuries. These purchases should drive down interest rates. The Federal Reserve's hope is that lower interest rates will lead to more growth in the economy and a reduction in the unemployment rate.

The Federal Reserve's hope seems misplaced. Interest rates are very low right now, and the economy is still not growing very much. Unemployment is also still at very high levels. The only outcome seems to be that it is easy for companies to raise money.

Companies have been taking advantage of the low interest rate environment to issue debt. The Wall Street Journal describes how Wal-Mart has issued bonds that pay very little interest. There's no evidence that this easy access to capital has spurred companies to increase their hiring in America. In fact, the companies are likely using this money to expand abroad. The Wall Street Journal article about Wal-Mart closes by observing of Wal-Mart's sales, "fastest growth coming from China and Brazil". This makes sense since economies like China and Brazil have been growing faster than America. By making money easy to get, the Federal Reserve is probably making it easier to chase growth abroad.

Meanwhile, states, counties, and cities across America have been cutting back. These cutbacks which include layoffs are rippling through the American economy. Many economists have noted that the benefits of federal stimulus spending has been undercut by cutbacks at the local level. If the Federal Reserve wants to improve the American economy by spreading money around, it should reduce the burden on local government. One seemingly straightforward thing would be to purchase municipal bonds with the money that would be spent on Treasuries. That would give local governments money to ride out the current recession.

It is still important for local governments to reach the right size. If that means shrinking, then they should shrink. By helping local governments in their current predicament, the Federal Reserve runs the risk of impeding needed corrections. The moral hazard of a bailout of local governments is a serious threat. However, QE2 is going to create moral hazard. In fact, there is evidence that QE1 is already creating moral hazard. If the Federal Reserve wants to embark on QE2, it is better for it to help local governments instead of helping inflate another bubble due to weak lending practices.

Opportunities in Car Insurance

Actuaries are the stereotypical boring people. There's no glamor or flash associated with their work, which is one reason why car insurance seems like such a prosaic business. However, in the last few years, there has been an epic wave of advertising by car insurance companies.

I am amazed by how many different ad campaigns have been launched by just one company. GEICO has run ads featuring cavemen, talking geckos, money with eyes, random celebrities, and at least one other theme that I am not remembering at the moment. The cavemen ads were so popular that a TV show spun out of them.

The other car insurance companies have not been sitting idle. While their ads are generally not as good, they have plastered our TVs, radios, magazines with their own gimmicks and celebrity spokespeople. I have not done any formal analysis, but it feels like the car insurance industry advertises far more than other industries.

It's interesting to think about the causes of this behavior. Do insurance companies lack other ways to acquire customers? Are customers so profitable that the costs of so much advertising are outweighed by the benefits of acquiring customers? How readily do customers switch car insurance companies? Is the advertising onslaught needed because consumers need many nudges before they switch companies? Or, is it needed to retain existing customers because customers switch easily? Does this advertising blitz help more with customers getting insurance for the first time?

It's also interesting to think about the implications of this both for the insurance companies as well as for consumers.

Could car insurance companies increase referrals or other word of mouth approaches? Social media is very popular right now. Does it offer any interesting ways to let potential customers know about an insurance company? Should an insurance company try to get its name mentioned in the news for example, e.g. by publishing research or advice? How do car insurance companies know their advertising is working? More specifically, how does GEICO know which of its many campaigns is effective?

Some of the biggest implications for consumers come from realizing that the spending on advertising is not flowing to them. How does a consumer capture some of the value that is being spent on advertising? For example, should consumers ask for a policy with a longer term and ask the company to return to them the advertising money the company does not have to spend anymore? Does it make sense for consumers to pool together and join in bulk, again asking the company for a rebate on the advertising?

Of course just coping with the advertising has implications for consumers. How can consumers choose between the various options? Unless all the advertising cancels out, consumers need to worry about the advertising introducing a bias into their decisions. A good guide to choosing between the myriad of options could be important, especially to avoid mistakes due to framing. While some of the advertising is amusing, it can also be overwhelming. Are there ways of avoiding the advertising that are specific to car insurance?

None of the above ideas may be valuable, but every time I see another advertisement on TV, on the radio, or in my mail, I wonder if there is an opportunity in car insurance.