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0px 0.0px 0.0px 0.0px; text-align: justify; font: 20.0px Helvetica; color: #000000; -webkit-text-stroke: #000000}span.s1 {font-kerning: none}span.Apple-tab-span {white-space:pre}ol.ol1 {list-style-type: upper-roman}Executive summary  This paper aims to explore the possible economic impact on South Korean from North Korea’s threats.

The analysis is based on the news stories that has an impact on decision-making in both micro and macro elements. The thinking system and theory will be explain and analyse according to the book: Thinking, Fast and Slow by Daniel Kahneman. This book explain our thinking pattern into different kind of heuristic. It shows basic system of how human mind works. Additionally, the economic impacts will be analysed based on the news reports that can be found in the Appendix.

Various aspects of economic impact  are discussed in this paper such as financial sector, tourism and government expenditure. The other economic impact is analysed based on the consequence faced by the conflict in the Korean peninsula. Background The Korean Peninsula has been in conflict since World War II. The once united country is now divided into 2 part with North Korea having a dictatorship leader and South Korea with a democratic leader. Korea used to be ruled by Japan from 1910 – 1945. After the Japanese surrendered, the Soviet troops occupied the north area (also known as 38th parallel) and the US troop occupied the south. The differences between democracy and communism has been the centre of tensions between North Korea and South Korea.

With South Korea being under democratic leadership, it allowed them to prosper meanwhile North Korea who became isolated under the ruling of dictatorship of Kim dynasty. The current president of South Korea is Moon Jae In who has been taking the role since may 2017. For North Korea who has been under a dictatorship ruling of Kim Jong Un since 2011. The 2 countries remain divided with an ongoing tensions. (source:BBC)Micro decision-making  The analysis is for people South Korea in decision making.

Following the intensifying threats between North Korea and United States, “South Koreans snap up war survival kits amid fears of looming conflict with the North” the online news headline from Telegraph UK, 27 September 2017 by Nicola Smith. Summary of the news article The rising threat of conflict between United States and North Korea cause a rising demand for war survival kits in South Korea. As the annual Chuseok holiday (a harvest festival where South Koreans honour their ancestors) approaching, South Korean people usually give a gift of food or hygiene-related but this yeas is a little different with people gifting each other a war survival kits. Wartime survival kits normally contain food rations, first-aid supplies, lightweight sleeping bags and hand-operated radios. Hong Soon Chul, head of marketing communications team at E-bay Korea told the Korea Herald that “There has been a recent surge in demand for survival kits”.

Mr. Hong continue “we do not advertise such products because it could raise unnecessary concerns, but the demand is out there”. With the demand of combat rations increased to 77% and portable radios increased to 46% between September 2 to September 5 which is around the time that North Korea conducted its sixth nuclear test as reported by an online shopping site, Auction. According to report of yon hap news agency, it reported that one shipping company with a headquarter in Seoul already send out survival kits to their employees.

In an official announcement from that shipping company, they asked their employees to pick up the packages containing “emergency survival products necessary in the current situation in and out of our nation” One of the worker told Yonhap that “I was confused at first, but I thought it wouldn’t be bad to have a war survival kit at home after watching recent news” The current situation is South Korea being caught up between conflict of North Korea and United States. People in South Korea are becoming anxious about the risks and with an ongoing dispute of USA and North Korea. The purchase of survival kits in Seoul is a sign that proves South Koreans raising concern of the war threats. “Seoul’s Interior and safety Ministry has advised citizens to prepare at least one go-bag per family, which could sustain them for at least 72 hours” as reported in the article. *The full article can be found on Appendix I This article shows an example of decision-making in a Microeconomic pattern which will be discuss below.

Book Discussion IChapter 8: How judgement happensHeuristic #6 Judgement Our way of thinking is based on 2 main system which Kahneman refers to it as system 1 and system 2. System 1 solely relied on an intuition which “operates automatically and quickly, with little to no effort and no sense of voluntary control” said Kahneman (page 20). Where as system 2 “allocates attention to the effortful mental activities that demand it, including complex computations.

The operations of system 2 are often associated with the subjective experience of agency, choice, and concentration” said Kahneman (page 21). When system 1 is working we tend to ignore “sum-like variables” (page 93) but instead we often rely on unreliable intuitive feelings. Human being like to automatically and subconsciously matching dissimilar traits of certain things because we are too lazy to bring system 2 into action so we replace system 2 with making judgement with our system 1.

  As mention in the article, the purchase of survival kits in South Korea shows that people are getting more about the situation. Based on their intuition they made there purchases. It good to be prepared but overly doing something can just cause more stress. In the past, there were a war between South Korea and North Korea and this might trigger the sense of fear for the South Koreans.

With this fear and nervousness people ignored the fact that the dispute in the Korean peninsula has been going on for about 70 years. Even after numerous nuclear threats and missile testing, the actual war has never been broke out. The whole situation might be a show off between two big powers because of their egos. Chapter 12: The science of availabilityHeuristic #12 The Availability Heuristic When ask to do an estimation of certain things, the result of these estimations are related to personal experiences. For example, people will overestimate potential of danger and risk if they themselves had experienced things related to these situations, but if they have never been faced with these situations they tend to underestimate the potential of danger and risk.  The story from history might not be directly or personally related to each individuals of current generations of South Korean. But with its history, people learn about their roots and pasts.

From the stories of history, they might develop personal attachment which can be equivalent to personal experiences. Korean history shows that the nation were in a miserable states from various war such as Japanese invasions from 1592 – 1598 (source: New World Encyclopaedia), Japanese colonial period from 1910 – 1945 (source: Asia for Educators), Korean War 1950 – 1953 (source: Encyclopaedia Britannica). These situation affect’s people mentality in trust and self-defence. This fear of past history led to this specific course of action of South Korean people buying war survival kits. Chapter 13: Availability, Emotion and Risk Heuristic #13 Availability Cascades  We tend to be overrating to a small problem because we hear various number of negative news stories than positive ones. For example, a recent terrorist attack makes us think that going outside (in a crowded place) is more dangerous. With the news media sensationalise the stories, it urges our fear with a possibility of over reaction  The news media outlets plays a huge role in our decision-making.

With so many negative news about the dispute of North Korea and USA, people of South Korea stated to get scare of the consequences that be will followed if the actual war will break out. So after they hear all the negatives story about the situations of the dispute, they feel the need to be prepared. In this case they choose to buy wartime survival kits as something that will reassurance their fear.Chapter 30 Rare EventsHeuristics #34 Overestimating the likelihood of rare events  Humans usually overestimate the probabilities of unlikely-to-happen events and we overweight this particular events in our decisions as well. We don’t ask ourself of how likely things are going to happen. With this way of thinking, it can lead to a manipulation of information for one’s benefits.  After the sensationalisation of the news stories about the threats, people are likely to overreact and overestimate the unlikely events which in this case is the breakout of war.

During this time it will be easy for one party to take advantage of this situation where in this case there were numerous media telling story about people buying war survival kits which automatically makes other people to buy it as well. All the benefits of this go to to survival kits manufacturer which might as well manipulate the informations in order to gain sales. Marco decision-making The analysis will be based on Macroeconomic framework on the affecting countries on the nuclear threats such as South Korea, Japan and USA. The example of thinking scheme comes from an online news article from The New York Times with a title “North Korea rouses neighbours to reconsider nuclear weapons” written by David E. Sanger, Choe Sang Hun and Motoko Rich on 28 October 2017Summary of the news article.  After North Korea’s rapid development of advanced nuclear weapons which could threaten Los Angeles or Washington.

The neighbouring country such as South Korea and Japan are arguing weather or not to also adopt nuclear weapons as well. Both are worried that USA might hesitate to defend their counties because it might provoked a missile launched from North Korea to the American cities. Other country such as Australia, Myanmar, Taiwan and Vietnam are also considering the possibility of having nuclear arsenals as well. “Heightening fears that North Korea could set off a chain reaction in which one nation after another feels threatened and builds the bomb” as written on the article. While President Trump who openly supporting Japan and South Korea to build nuclear arms. He also think that a talk with North Korea is a “waste of time”. But for President Moon Jae In, he is opposing to having nuclear weapons. His reason being if South Korea started building nuclear weapons it would be more difficult to negotiate with North Korea to stop their nuclear program.

The closer North Korea can show their power to strike USA, the more nervous South Korean cause USA might abandoned them and they fear the invasion of North Korea. A former presidential secretary for security strategy said that ” If we don’t respond with our own nuclear deterrence of some kind, out people will live like nuclear hostages of North Korea” Meanwhile in Japan, Shigeru Ishiba, a former defence minister argued that Japan needs to debate its nuclear policy because of the threats from North Korea. But Japanese citizen are opposed to this idea given the past history off Hiroshima and Nagasaki.

If South Korea will adopt nuclear weapon, it can certainly change this opinion because of the strained relations between Japan and South Korea. *The full article can be found on Appendix II  This article shows an example of decision-making in a Macroeconomic pattern which will be discuss below.Book Discussion IIChapter 21: Intuitions vs Formulas Heuristic #22 Ignoring Algorithms  People normally believe in their gut feelings more than statistical information. It is better to favour facts, statistics and numerical records and not relying on feelings or intuition. You’re likely to make fewer mistakes if you use system 2 to make decision because system 2 is always a reasonable one.  In this news articles, it clearly show 2 types of thinker where the first types responds to things with intuition and feelings. For example President trump who responds to North Korea threats by his feelings/attitudes toward North Korean’s leader.

Instead of thinking carefully about making certain statement, often time his statement cause more controversy which lead to worse situation than before. (mistake of making judgement using intuition) On the contrary for President Moon Jae In who carefully tackling the problem in the Korean peninsula. He doesn’t let his intuition play a part in his decision which allowed him to contain the situation and prevent any further damage. (benefit of making judgement using formula). Mr Moon who realised the impact it can have on South Korea and other countries due the cause of his action as a leader of South Korea.  III.

My own decision-making The decision will be analysed based on the news stories from previous sections (micro and macro decision-making) Chapter 7: A machine for jumping to conclusion Heuristic #4 Confirmation Bias System 1 make decisions based on intuition where we guess and interpret things that fit to our stories. With system 1 in charge, whatever we hear/see we tend to directly jump to conclusions without considering any other facts and possibilities. According to Kahneman “System 1 is gullible and biased to believe, System 2 is in charge of doubting and unbelieving, but System 2 is sometimes busy and often lazy” (page 81) After I’ve read the news about people in South Korea buying survival kits and also saw viral clips of many Korean blogger reviewing the kits, I directly conclude that the war in the Korean peninsula is actually happening. My conclusion came at an ignorance stage where I did not bother to do further search on the actual situation and other facts about the tensions. Probably, if I were a South Korean living in Seoul I would do the same as the other would do which is to buy the survival kits. Even though I’m not a South Korean this has effect me in someway and my action might effect other thing in other way as well.

The news report came out on September 26 which was the time I was planning a winter break trip to South Korea with my sister and friends. It certainly did effect our decision because we decided to change our destination because our parents were concern about our safety. Our concern were so high that we overlook the facts about the likelihood of rare events, I mean how easily it is for a war to happen. Now in December, the situation is not worst nor better but everything seems to be doing fine in South Korea. IV. Economic Impact: South Korea Government Spendings With South Korean government considering to have Nuclear weapons, it means the government spending is likely to increase. They have to invest in building nuclear weapons on a scale that it has be significant in order to protect themselves against the enemies.

The government will have to spend more than they usually spend in order to build this particular weapon. Financial market  Every time North Korea tested one of its weapon, the stock price in South Korea rapidly drops. With an example of Kospi index (measure stock price from large cooperations such as Samsung Electronics and Hyundai Motors) where it shown a drop of 2% (source: The Telegraph). Maybe 2% is not a significant number but if this keep happening it could lead to instability of financial market in South Korea.

The stock market does have certain amount of impact on the economy. For example withdrawal of investment due to country’s unstable situation and decrease in consumers’ spending due to the economic slow down.Tourism industry As mentioned in previous section when the tension in the Korean peninsular became intense, my decision about going to Seoul also changed as well. Many people who are planning to visit South Korea might think the same as me and changed their mind about going to South Korea as well.

This would effect Korean tourism industry because they will loose numerous amount of tourists. It would affect the hotel (accomodation) company/ tour company and if this continue to be the case if could result in bankruptcy of certain businesses. Migration  This particular topic might not be related to the news stories discussed in this paper, but migration has been in the spotlight in recent years. Since the separation of the two Koreans states.

North Korea became one of the most isolated place in the world (source:BBC). Due to poverty and suppression of basic human rights problem in North Korea, each year about 1000 North Korea try to escape to South Korea (source: The Independent). North Korean defectors who managed to escape into South Korea, 57 percent of them work as farmers and manual workers. (source: The Telegraph) Conclusion  The decisions made based on micro and macro element does have an impact on an economy one way or another. Our single decision can impact the economy because the other people might also be making the same decision and this turn into a phenomenon that will have an impact on something. Taking a example from South Korean people buying the wartime survival kits. If just one or two people buy it, it’s not gonna do much change to the economy.

But when a group or large number of people buy it, this will certainly have an effect on the economy by increasing in production and consumer spendings. The company that manufacture these kits will saw the most change with their income. For the macro decision-making made by government/company/organisation, its likely to have larger effect on the country’s economy since these decisions are made on a large scale.

Thus it is important to be rational when making decisions by using system 2 to weight reasons and statistics in order to minimise the mistakes. When decisions are made using system 1 it can do more damages than good things because it uses impulse and intuition rather than facts. In the long run, it’s always more sustainable to make rational decisions on both micro and macro elements.