Dick Cheney on Realist Game Theory
(side note which i forgot in the last post)
To further associate the Bush administration with
the realist camp, Cheney's suggestion last week
that Kerry's election would increase the
proability of a terrorist attack is directly out
of page 1 of the realist Waltz/IR theory/game
Cheney is suggesting the following line of
If the electorate chooses Kerry, they are
effectively choosing to consume Quiche (signal for
soft) rather than choosing Beer (signal for
tough). Then in the 2x2 sequential move game where
the terrorists decides whether to attack, and the
US forms a respose, the "soft" Kerry
administration is more likely to rationally
appease rather than irrationally counter-attack
like the "crazy-type" beer drinking Bush would.
Thus the payoffs if the terrorists choose attack
in the first stage are increased, thus they are
more likely to attack.
of course this is a simplified model, but the
assumptions are for you to judge.
Theoreitcal Frameworks and Current Events: a theory for terrorism
see also: potentatus blog
plus ca change, plus c'est la meme chose.
It is amusing (to me at least) to put a
theoretical framework on the arguments concerning
American policy dealing with terrorism.
We once again have the realist realpolitik debate
against the constructivist culture driven one that
dominated the cold war public intellectual
discourse. (ahh, i love buzzwords).
In some ways, the sides will have difficulty ever
agreeing because in this argument people are
working with different theroetical frames and are
effectively talking past one another.
If you take the realist view that all that matters
are balance of power and rationalist incentives,
then the Bush approach may be the correct one. In
Bush's favor, recent research in political science
by Bueno de Mesquita and others have shown that
historically terrorists do respond to incentives,
and policies that raise the cost of terrorist
activities such as the Israeli punishment of the
families of suicide bombers are an effective
deterrent. Additionally, it was the hardline
realist approach rather than the appeasement
approach that can be credited for winning the cold
war, and has arguably been the dominant paradigm
of world order since Bismarck and beyond.
On the constructivist side, there are a large
contingent of academics that argue that culture
must matter. That in a unipolar world, the only
true power that remains is culturally based, and
only through reasoning and discourse, and
"diplomacy, economic aid, education, and the
spread of hope" can the culture of terrorism be
obviated. Additionally constructivists tend to
reinterpret the end of the cold war as the result
of the cultural hegemony imposed by the American
capitalist/hedonistic regime rather than a shift
in power relations.
(If all those political science theory classes
taught me anything, it taught me how to bull shit
with the best of them. Though this is an example
where bullshit theory [rather than the
mathematical kind that economists prefer] seems
Olympic Musing: Civil Society, Privatized Government, and Modern Art
what amazes me about america starts with the
world's fair of 1889, Paris premiers the eiffel
tower, the world's government's turn out to show
off their might, all except for the United States.
The government of the US takes no part and instead
the US pavillion is entirely privately funded and
has representatives of US indsutries, carnegie,
flash forward to 2004. Every man, woman, and child
in Greece is paying over $600 for the Olympics.
For a typical family of four, that's $2400.
Admittedly a lot of it is for infrastructure, but
for a country whose per capita GDP is around
$12,000, that's potentially nearly 3 months
income for a family. Are the citizens of Greece
well served? Compare to the US, where the US
Olympic Commission is entirely privately funded.
The games in Atlanta, largely so. What is amazing
is that in America, people volutnarily contribute
rather than being forced to.
in the arts, the US government indeed spends a
paltry amount on the arts, but the country as a
whole spends loads more on art per capita than any
other country. (i was just in the bellagio at
vegas where people are paying $15 a pop for a
small gallery with 15 lesser Monets. and it was
crowded to capacity)
it is a country where the amount of money i am
forced to spend on art is minimal, yet art
flourishes, because people choose to support what
they like. americans spend more on the performing
arts than on movies or on sports. The average
American is more likely to attend a museum than a
football game. and far more likley than the
average European. (every time i've been to the
Louvre, the number of Americans always seemed to
outnumber the french)
it is a system that makes america still the
leader of art, from madonna to eisner to
whatever's hot at the Venice Bienniale.
A Stale Stock Tip and the Endangered Parisian Konichiwa
The most common mistake people make when picking
stocks is that the trick is not to invest in a
company with good prospects, but to invest in a
company with better prospects than what the market
thinks. That's why, especially after working with
the big boys on Wall St. I tell most people it's
One exception, back in 2000, the trend I had
spotted was Chinese tourism. Of course, the
technical problem with that was I had no idea how
to invest in that (Chinese stock market is
undeveloped, tour agencies that target Chinese are
unlikely to be public, etc.), but I was sure that
in the coming years, Chinese tourism would go
nuts. Of course, perhaps I was too late then. It's
definitely too late now.
That was before I showed up at Killington Ski
Resort last Christmas. When we started skiing 10
or so years ago, we were typically the only Asian
family there. Last time, I counted, more than half
of cafeteria were East Asian.
That was also before the New York Times (I think)
and various other news outlets pointed this trend
out, as the Chinese are expected to be the biggest
tourist group in Paris.
That was before for the first time, I was greeted
with more ni hao ma's than konichiwa's when I
visited Paris this year.
That was before showing up randomly at Versaille
and finding ourselves surrounded by three separate
groups of mandarin language tours.
That was before this afternoon, when sitting
outside stanford's hoover tower for just an hour,
I saw four separate groups of mandarin speaking
tourists show up in front of the fountain and snap
the same picture.
Missed investment opportunity, but interesting
The Wisdom of Financial Experts
On NPR's ATC yesterday (Mon, 6/15)
Earl Pomerantz offered his opinion that financial
experts seem to have an explanation for
everything. This is my response.
Earl Pomerantz' self-styled naove commentary on
the Wisdom of Financial Experts on Monday is
perhaps the wisest words on the stock market that
I have ever heard on the radio. As a former
series-7 registered financial analyst at a major
investment bank and now as a PhD Candidate in
Economics at Stanford I am often asked about my
opinions of the stock market. To a first
approximation, most theory and empirical analysis
shows that the markets are beyond the ability of
even experts to predicts, ex ante, the best we can
do is offer explanations ex post. I, like most of
my economist friends, invest primarily in index
The Fundamental Attribution Error, Obesity and Cultural Differences
One of the main pillars of modern social
psychology is the Fundamental Attribution Error.
People, and Americans in particular (Asians tend
to demonstrate this bias less) when they observe a
person making a particular behavior, tend to
attribute the cause of that behavior toward the
disposition of the person rather than the
circumstances of the situation. The seminal
experiment by Darley-Batson is of what should you
infer if you see an injured party on a street and
a man just hurries by. Most people would say that
the man is a bad person, while experimental
evidence demonstrates that probably he was just in
a hurry. The FAE is something you see in everyday
life all the time. It is also readily applicable
Glaeser et others recently did an economic
analysis of why Americans are obese relative to
the rest of the world, Europeans in particular.
People have a tendency to attribute differences
between Americans and Europeans as being cultural
or differences in disposition. Economists tend to
view all people as being the same (though our
models don't depend on this) but people are just
given different incentives. Glaeser et al (being
economists) find that it is not culture that
explains obesity in America, nor evil marketing
practices, nor influx of fatty foods, not even
lack of exercise. Instead, it is two simple
economic phenomena, wealth and better technology.
As we become wealthier, and food becomes cheaper,
we consume more of it, it's that simple. In
Europe, this has been slow to catch up, as meals
take twice as long to prepare, and incomes still
lag far behind. However, as they are catching up
on both dimensions, their waistlines should as
well, as we are already seeing.
It is quite amazing how many of the differences
between America and Europe can be explained away
by economic variables. The fact that they work far
fewer hours can easily be explained by tax
differences. Their more generous social welfare
programs can be explained by lack of immigration.
Their anti-war stance potentially by the power
relations in the current international regime.
What is also interesting is that as these
variables converge between America and Europe,
behaviors have started to converge as well. Which
is a nice thought, that we are all the same in the
I am currently working on a paper that rationally
explains the fundamental attribution error as an
off-shoot on my paper about apologies and remorse.
Hopefully a draft will posted here eventually.
Bread and Teachers
Matt Humbaugh's blog makes the following observation:
"There is an inverse relationship between GDP per
capita and quality of baked goods around the
good point. though the model necessary to generate
this is not obvious. the obvious answer is that
the profession of a baker is relatively more
valuable in poor countries, and thus you attract
higher skilled people. so assume the demand curve
for quality of bread is the same in both
countries. the supply curve shifts in, and thus
quality of bread goes down. Of course, one would
expect a countervailing effect, where as incomes
go up, the demand curve shifts up, but clearly the
effect is smaller, though at some point, you get
the yuppies with the super high demand curves, in
which case you get places like Blue Ribbon Bakery,
and all the fancy places around Palo Alto, like
Boulanger, La Baguette and Douce France.
This observation actually has more important
implications in the realm of education. Martin
Carnoy points out that it is not just bakers that
are relatively better skilled in poor countries,
the teachers are too. In countries like Cuba,
Romania and China, known for having amongst the
best education systems in the world, a big reason
is that for college educated professionals, there
are few other options, as opposed to the US, where
options abound. Little wonder their kids do better
(though even that is questionable).
Delerium induced economic visions
So I caught a random stomach virus yesterday,
which left me running to the bathroom every hour,
and lying awake in a state of quiet anguish,
through it all, I got brief fits and starts of
momentary respite where I was able to sleep.
Curiously, each time, I was encountered with a
continuation of the same dream. My brain was
trying to solve an economic model. Sick, no?
The problem was there was some kind of binary
tree, and a path must be chosen from the root to
one of the leaves. The path would somehow
partition the nodes of the tree to those on the
left of the tree and those on the right. At each
decision node, the same choice was made, though I
never got a good handle of what each choice
represented. Something about opportunity and luck.
Perhaps something akin to consumption or
investment. Then, what mattered were the weights
associated with each of the links. Of course, to
fit this model into my dreamspace, the pieces were
metaphorically represented by a ski slope, and I
was snowboarding down, with a good bit of stress
at each decision node, because a wrong choice
could not be taken back (you can't go uphill on a
snowboard). Through the night, I was presented
with many variant cases though somehow it was
clear to me the optimal choice path in each one,
and though stressful, somehow I was getting the
hang of it, and thus the stress was reduced.
So what does it all mean? Perhaps it is just some
remnant of the snowboarding I did two days ago,
picking my way by myself down Whistler mountain,
with my muscles still sore from that experience.
Though thinking about it, it looks quite like a
possible solution to a dynamic programming problem
and one that I need to solve for my apologies
paper. In any case, weird no?
My Selfish Altruism
Economists tend to believe that everyone's
decisions are constantly governed by rational self
interest. Even modern economic notions of altruism
involve tacit implications of reciprocity. While
even I often pooh-pooh many of these models, never
has the model of selfish altruism been more
apparent than several examples in myself these
past few weeks.
Last weekend I found myself organizing my
department's ski trip. When the president of the
phd association was trying to get volunteers to
organize last fall, of course, no one, me
included, volunteered, knowing how much it would
suck, so it was pawned off on this first year girl
who having never skied or been to Tahoe, had no
idea what she was in for. So of course, as she was
lost, I offered to help, and wound up doing most
of the organizing, getting housing, organizing
lift tickets. Mostly a living hell, with people
arbitrarily canceling, me putting up $3000 of my
own money, hoping to get it back, getting enough
people for the group rate, getting everyone there
at the same time, making sure everyone had someone
to ski with, and everyone was only billed what
they thought was fair and was comfortable, making
sure everyone had fun, and dealing with one
daredevil who broke his back (he'll be ok
fortunately). Never was I so relieved when the we
checked out of the hotel Sunday morning, and I
could spend that day only worried about myself.
And yet, in the midst of the whole thing, I kept
thinking, what a living nightmare. But I couldn't
say I'll never do it again, because probably, next
year, having done it already, I'm the one best
qualified, and thus it would cost me the least,
and in the interest of maximizing social welfare,
I should do it. Stupid altruism. But not pure
altruism. For I ceaselessly complained. Cheerily
but incessantly. To anyone willing to hear it. I
complained until everyone felt so guilty that
people thanked me every chance they could get. And
that was good. Cause deep down, I need people to
The bigger recent event in my life was more
serious still. Four years ago, I walked into a
campus bone marrow typing drive, mostly because a
pretty girl asked me to, not really thinking of
the consequences. The chance of a match is less
than one in 10,000, something inconceivable to
human calculations. A couple months ago, my
grandmother and my mother got a FedEx letter for
me; they desperately were searching for me,
because a possible match had been found. The
prospect of general anesthesia and major surgery
loomed, even the possibility of death. My mother
urged me to ignore it, as did many of my closest
friends. I was sorely tempted to do just that.
It's not that I wanted the poor patient to die, it
was that I was hoping to free ride on the hope
they found somebody else. Yet, many people who I
knew less well, were enthusiastic. They were
fulfilling their duty in providing the appropriate
collective social approbation/disapprobation to
solve the collective action problem, the
prisoner's dilemma of daily life. This culminated
in an Asian American Activity Center dinner where
they were encouraging people to donate blood for
the database, to take that fateful step I blindly
took four years ago, and where I announced I was a
match, to warn others that that one in 10,000
chance is real, to make them face the cold hard
potential that step could take, or perhaps because
I knew I would get the round of applause the
subsequently followed. I felt dirty.
But I did go in, and donated an additional partial
unit of blood to check more precisely for the
match. Last week, I received a letter. It informed
me that I was indeed a match for the patient, but
that they had someone who matched closer. I was
off the hook.
One of the conversations in my life that still
sticks out amongst my forest of memories is one
with my best friend from high school, but years
later, when we had already drifted apart, but
happened to share a room once summer. Last one
night, he professed a deep admiration of Harry S.
Truman who spent his entire life after his
presidency performing anonymous acts of altruism.
I argued that anonymity was a useless conceit. If
public altruism made you feel better and thus led
to more altruistic behavior, than surely it is
socially preferred to the anonymous variety. He
argued that there was another orthogonal dimension
that economic value could not capture. That
conversation stands out for how amicably it was
resolved. I however, am not sure, on which side I
Bush Economic PolicyHappy Thanksgiving
I was about to launch off into a diatribe about the
state of partisanship and complain about the Bush
domestic policy critics who complain about the short term,
even though Bush did everything possible for short
term growth, and then they lament the long term
impact of high interest rates when interest rates
are near record lows and falling, and fears of
deflation and zero interest rates are not far
away. And then this is a pretty partisan posting,
and so I should clarify to say that i don't
really know what the correct policy is, just that
most pundits and wags certainly don't either.
Oh well, I guess I Went and did it anyway. I am
sitting here with Natlalie Cole playing in the
background, which was good at putting me in an
appropriate holiday mood, so i'll just leave it at
that, and say happy thanksgiving. enjoy the
gluttonous repast followed by the obligatory
postdiluvial consumeristic orgy... god bless
The Problem with California Schools
An interesting article in San Francisco magazine
today, about the Chinese Americans protesting the
new busing to achieve diversity in San Francisco
schools. Though the article tiptoed around it, it
did not hide the fact that the primary purpose of
the plan is to put high-achieving kids with
involved parents (the Chinese-Americans) in poor
performing schools, so that the low-achieving kids
can benefit at the expense of the high.
I am actually in favor of diversity, and as a
social welfare maximizer, I should be in favor of
redistribution to have more equality between
schools. However, this can have disasterous
consequences as Tiebout and Buchanan show
theoretically through their theory of clubs, and
which California as a state showed with their prop
Club theory, and Tiebout choice, show that people
optimally assort themselves geographically. Thus
in our SF example, people who care about education
a lot and are willing to invest a lot in their
children will be willing to pay more to move to
areas with good schools and exert positive
externalities on each other, while in other areas,
people exert less effort and get less. At least
some schools are good. However, people who
externally impose equality may reduce the
incentives of everybody to exert effort,
dramatically reducing welfare for everyone. The
high-achieving kid in the poor school may be so
discouraged, (by the long commute or whatever) or
the parents, unable to volunteer and contribute
(because of the long commute or lack of
externalities from others), will lead all kids
This is precisely what happened with Prop. 13
which capped property taxes. Wealthy California
spends only half the national average on
education. This is because in most states,
educaiton is financed at the local level, where
people that care about education are willing to
pay more for it because the benefits are invested
in their own community. However, in California,
where education is funded from on high, the
benefit of higher taxes is diffused to far more
people, (becasue of income inequality) and thus
all educaiton spending measures are largely
Thus it was a fitting and amusing end to the
article when it turned out that the Chinese
American activist they were interviewing vowed to
fight a new proposal to increase funding to city
schools. When diversity causes parents and
students to sever links with their local schools,
they will no longer support the larger entity.
Just as the models predict.
Equality ever increasing
I am an Anne Frank idealist. I believe the glass
is half full. That the world is a good place.
People are generally good. And that things on the
whole are getting better. And on almost every
measure (income, environment, science, culture,
health, technology, medicine), that is true at
least as far as the broad trends go. However, one
measure that gloomy doomsayers are always
emphasizing is what appears to be inexroably
rising inequality post 1970s. I always recognized
this as a severe problem, (though not as bad as
many, after all, a rising tide and all that, who
cares if inequality increases so long as we're all
better off) but a problem nevertheless, as it
ruins my perfect world.
But is it a problem after all? If you look at the
world country by country, inequality between
developed and developing does seem to be
increasing, but that's cause in that case China's
only counted once. A professor of mine points out
that if you consider the overall inequality among
the people of the world, the incredibly increase
in wealth of the 20% of world population that
lives in China, (and to a lesser extent India)
means in fact that world inequality measured by
income is shrinking.
However, inequality is still increasing in the
United States. Though if you dig deeper, you find
that a great deal of the inequality is not
perpetual, but temporary. That people who are poor
early in life are wealthy later. That many if not
most of the impoverished are recent immigrants who
are far better off monetarily than they were
before, and whose children will be better still.
But even so, we should perhaps still address the
problem. However, is it actually getting worse.
How come, though many are loathe to use money to
evaluate welfare in other circumstances, they are
so quick to use it when condemning inequality.
Why do we use money?
Bjorn Lomborg notes that if instead of money, one
uses life expectancy, inequality in the US has
gone down dramatically. As economists, why use
money in talking about inequality. Why not some
measure of welfare? Economists tend to believe
that welfare is perhaps some convex function of
money. Thus someone with twice as much money as he
had before is not twice as happy.
For example, consider a world with two people. In
the first, one has $1, the other has $2. In the
next, one has $2, the other has $4. Though
inequality in dollar terms is the same, in terms
of welfare, it has gone down. Thus, even as
inequality increases in dollar terms, it is quite
possible that so long as the society is getting
richer, inequality could well be going down.
Now if only I could find some way to quantify
this, this would qualify me for an Economist
magaizine mention, I'm sure!
confessions of an intellectual property thief
Randy Cohen, New York Times self-proclaimed
ethicist often roundly and self-righteously
decries theft of intelectual property. Downloading
software, mp3s, movies, all activities of morally
bankrupt people whose pathetic rationalizations
cannot justify the evil amorality of their
While I acknowledge that as society, downloading
mp3s and movies are potentially problematic, it by
no means makes it unethical. Let me run down the
1) Who cares if its against the law.
While it is nice to follow the law, often times
laws and ethics do not coincide. Jaywalking is
against the law. Slavery was once legal.
Homosexual sex is still illegal in many states.
Copyright is essentially a government created
monopoly enforced by the threat of government
violence. Aren't monopolies a bad thing?
2) What is property?
In the end, there is nothing particularly
inviolable about property rights, though in this
country we tend to accept John Locke's notion of
life liberty and property.
And in particular, intelectual property is
particularly nebulous. We define theft of
phystical property as the deprivation of the
owner's ability to use his property. However,
information being non-rival, we can both use it
and both be happy.
Patent laws actually hurt society with regard to
current products. They're benefit only comes from
the potential future products they inspire.
3) There is precedent.
It seems absurd and is illegal to patent a
theorem. Why do we protest Disney's right to
Mickey Mouse or a pharmaceutical company's right
to a drug design, but insist on defending
madonna's right to Like a Virgin? All academics
produce content without copyright. So do open
source software writers. There are alternatives.
4) There are potential economic benefits to
Economists Slive and Bernhardt have shown that
companies could potentially derive benefit from
piracy. For example, Adobe Photoshop is freely
pirated by individuals, who learn how to use it,
who demand it at work, which pays the exorbitant
5) Cause it makes me happy, and everyone else is
Yeah. I admit that this free flow of information
is going to be problematic for maintaining
incentives in an information economy. I think a
lot of the technology and the lawsuits now are
ridiculous because none of it can stem the tide,
and only are unfair to pioneers such as napster. I
acknowledge that something has to be done. But to
stand on your soap box and call it unethical is
How to get a job.
I have of late been coming into contact more and
more often with various undergraduates and
masters students, and as graduation rolls around,
one hears the horror stories of the jobless and
dejected. Those old enough to remember the heydey
of the late 90's, but young enough to have missed
it. I was lucky, because in 2000, it was probably
the easiest time in the history of mankind to get
a job for overeducated elite college graduates.
Perhaps it would have been a bit better a few
years before, to jump in on the stock option
bandwagon, but at least finding a job was simple,
with recruiters hounding us constantly. I
rejecting Oracle at least a dozen times.
Now it is quite different. The jobs all
dissappeared in 2001. Then, came the flood to grad
school. The grad school spots all disappeared in
2002. Leaving the current grads high and dry.
Finance has been ready for a collapse for some
time. The ridiculously high salaries led to a huge
oversupply just as econ predicts. Now that it can
no longer be sustained, the glut of financial
labor supply is hear to stay for a while.
Similarly for computers. I have remarked earlier
on how amazing the vast shortage of computer
scientists in this country, a problem that would
devastate the economy for the next decade (as some
were predicing) was solved instantaneously by
Indian labor. Quite incredible.
So what is the solution? This week's Time has the
answer. Nursing. This country has a ridiculous
shortage of nurses. Anecdotes from friends of
family members tell of high wages, and nice travel
perqs. The canonical example in intl trade
economics: barbers. Services that cannot be
imported. Thus plumbers should do well. Teachers,
interestingly enough, should do well also. Likely
professor's jobs will only get better compensated.
Kinda nice when theory meets practice...
Lies, Damned Lies and ...
I thought I had better put something up. It has
been quite a while, and I must keep what few
readers I have out there entertained.
I have talked about this before. The import of
STatistics, and how this is one thing Harvard does
right, in requiring all of its students to take a
One thing that an economics degree does provide
you, is a healthy understanding, of as Twain is
said to have called them "Lies, Damned Lies and
Statistics." Statistics being the applied half of
The feaure I am complaining about today are the
recent reports of local town in New Jersey having
the highest rate of breast cancer in the country.
With a rate 3 standard deviations higher than the
national average. Panic ensues. It must be those
corporate fatcats to blame. Or the republican
administration. Whatever. In the news today, was
some similar concern in California. Idiots. No
matter what policy you choose, someone will always
be the highest, and in a country as big as the US,
just plain chance will make the highest quite
different from the national average. Get over it.
You're not special. We don't have to go chasing
after scapegoats. And frivolous lawsuits. And yet
we always do.
Thoughts on War
I thought I might as well make some note to the
conflagration currently underway at the Gulf. But
I will be brief for a change.
This is excerpted from an e-mail I wrote in
defense of my defense of the president.
"Oh, and the other thing is that I wanted was to
clarify my position on the war just so you don't
leave with the impression that i'm some crazy
jingoistic neanderthal. I suppose its driven
mostly by my naive idealistic image of government,
and though I've probably taken enough nearly
courses in political science to earn me a master's
that say the opposite, my faith in government
holds true. When large numbers of really smart
people with a lot of information say that there is
a good reason to be wary of Iraq's nuclear
aspirations, I trust their judgement. I suppose,
deep down, war makes no sense particular from an
economic point of view. Producing goods merely to
destroy them "free disposal as they say" is stupid
and wasteful, without even concerning the loss of
life. But what i've learned from politics, and
what i've learned from history (i.e. Hitler's
Lebensraum) shows that at times causes are indeed
not light and transient, and in those cases, war
may be the only recourse."
Pat Buchanan's Ok, but still bring me your huddled masses
(A reply to a rant against immigration)
I love it, people come in as immigrants and then
try to slam the door behind them. Actually, I
somewhat agree, but only somewhat. I actually tend
to feel that Pat Buchanan gets way too much flak
for his opinions, called nasty names, though his
views are quite similar to those found in such
so-called enlightened countries like France or
Germany. (Incidentally, Australia also has a
pretty liberal immigration policy as well. Canada,
US, Australia. Interesting pattern in a way...)
However, while your argument is well argued, it
does not quite stand up to the facts. There have
been many economists who have tried to calculate
the costs of immigration, and most such studies
tend to find the net effect to be fairly neutral.
Unskilled immigrants do have costs for all the
reasons you mention, but then, they are cheaper
for many reasons as well. Many, before they become
citizens, pay taxes, but are not collecting
benefits for those taxes. Also, they mostly come
in the prime of their life, having been educated
elsewhere, so we avoid those costs as well. We may
be paying for their children's education, but
those children will likely grow up to become
productive members of society, and pay taxes
themselves. In fact, the solvency of the Social
Security system depends on continued population
growth, which immigration provides, and which all
workers in America pay. This does not even begin
to account for the main impact, which is that the
prices we pay for everything from Fast Food to
Farm Products are significantly cheaper. Also, as
a side benefit, immigration acts as a nice valve
to help stabilize the Mexican economy which in
turn stabilizes their political structure.
That being said, most of the empirical studies on
the matter have shown close to zero net economic
Thus, to properly consider this question, we must
consider more subtle effects. On the Con side,
they do change American culture. More and more
immigrants are coming, not with the intention of
staying, but as a temporary circumstance.
Alternatively, they are coming, and finding enough
fellow immigrants, that they often don't have to
learn the language, and choose not to assimilate.
This is indeed problematic.
On the Pro-side, America has always been a nation
of immigrants, and not just rich elite white
collar ones, but rather the poor, the starving,
the huddled masses. If we are to maintain our
history as being "the city on the hill" we should
take immigration not as a problem, but as a
challenge. Immigrants, regardless of stripe
introduce vibrancy and dynamism, change and
The current situation is broken, the current
quasi-illegal status is inefficient. We shouldn't
open the flood gates, but we shouldn't close them
tighter. Instead, use innovative policy. Mandate
that they learn English. Legalize so that the
inward migration that will happen anyway does so
in the open where it can be controlled rather than
in secret where it funds the underworld. All steps
that Bush probably would have taken had 9/11 not
intervened. What a shame.
There has been a lot of confusion lately regarding
the dividend tax cut. The Daily Editorial (Jan 29,
2003) asserts that 95% of the tax cut would go
into "the pocketbooks of the wealthiest 1 percent
of Americans" and then makes the flippant remark
of how this money would go into "off shore
accounts." This characterization could not be
further from the truth.
Now this mistake should be forgiven. Even this
week's issue of Time magazine makes the same
boldly incorrect assertions. However, some
clarification needs to be made.
An important question in public finance is the
question of tax incidence, in other words, who
actually pays the tax? Consider the expected
response to the tax cut. Companies will realize
that they can reduce the amount of dividends they
pay out allowing them to reinvest more their
profits. Alternatively, the level of dividends
stays the same, which makes the stocks more
attractive, thus more people invest, and here too
the capital stock increases. In both cases, the
cost of capital is reduced. Far from going to
offshore accounts, the money will largely go into
America's lackluster capital markets, spurring
investment, and thus long-term growth, higher
productivity, lower cost goods, greater job
creation, and all sorts of good things.
Admittedly, benefits also accrue to the owners of
capital, increasing income inequality, but many
economists have made their careers demonstrating
that capital is taxed at too high a rate anyway,
and that inequality can more efficiently be
addressed through other means. (By efficiency, we
are referring to the fact that most any tax leads
to some dead weight loss to society, and thus we
would like to minimize this loss. Many papers have
argued that each dollar collected from corporate
taxation leads to as much as twice as much loss as
a dollar collected by income taxation.)
Both Time and the Daily advocate instead tax cuts
for the poor, though under the Bush plan, the poor
(those with kids anyway) will hardly pay any
income tax at all. Thus the cuts can only come
from the Social Security tax. This may be a good
idea, but then this totally destroys any notion
that Social Security is some kind of savings plan,
where individuals take personal responsibility for
A lot of the confusion comes from the old
fashioned Keynesian idea that the proper medicine
to economic slowdown is tax cuts and government
spending, which may work, but not well. Fiscal
policy is a lumbering beast and not very effective
at responding to cyclical downturns. The key
benefit of tax reform is the impact is has on
behavior, on how much people work, on how people
invest, and on how firms utilize their money, and
the long-term consequences of such changes.
Admittedly, the Bush administration's rhetoric has
not done a good job at making clear this
distinction, but from my time spent in the Clinton
White House (does that sound impressive or what,
ok, so I was an intern) I realize that political
rhetoric never does.
It should also be noted that the dividend tax cut
also reduces the distortion that causes
corporations to favor debt over equity. It also
eliminates the tax advantage of stock buybacks,
encouraging more firms to offer dividends, and
ultimately lead to more honest accounting.
Given all this, can I say that the elimination of
the dividend tax cut is definitively a good idea?
Of course not, I am an economist and I have two
hands. What I can say for certain, however, is
that much of the rhetoric surrounding the tax cut
has largely been uninformed.
Education Paper ideas
The affirmative action debate plus my experience
as an MIT Tour Guide, who as a matter of
profession interest also attended the Harvard and
Stanford tours, piqued the following stylized
fact: all the top schools with affirmative action
have the same ratio of races. Roughly 16-18%
black/hispanic, 30%-40% Asian, 50% white. What is
the cause? Is it some tacit collusion? Is
affirmative action non-existent, and this merely
the efficient market outcome? Is this some optimal
level of diversity? Is it the market equilibrium
of some oligopolistic market with the same
bonoficing utility function? One good way to find
out is to compare with similar non-practicing
institutions like UC Berkeley or UCLA.
Idea the second: The importance of social
networks. Typically in the racial diversity
debate, Asians are seen as an extremely
overrepresented minority (though to be fair,
Filipinos are only a little bit overrepresented,
but that is not my focus here). The issue is
discussed below, but briefly, it is that there are
only 80 Asian American PhD students in the
Humanities and Social Sciences and Education and
Business. Why? Perhaps it is an issue of taste,
and then we can't say anything, but I believe it
is a social/cultural capital issue. It is
especially stark as I am the only chinese-american
phd student in the GSB. Yet there are many in the
Economics department. My program is lesser known,
and required exploitation of social networks. Here
is a testable theory potentially, if we can defeat
Idea the third, for Woody's class: this came up in
one of the readings, but the difference between
donations of time and donations of money. This
goes to my annoyance at soup kitchen volunteers
as well as peace corps. From an economic
standpoint, they are hugely selfish and hugely
inefficient. They are designed largely to make the
donor feel good, rather than to help the needy.
The alternative explanation is that the presence
of these people lead to psychic benefits, and
preference alteration, such as showing the third
world friendly helpful Americans, or showing the
homeless a friendly rich person (thus to palliate
(ooh, good word) class antagonism and mitigate the
chance of class warfare.) Whether this can be
separated remains to be seen. This has
implications especially considering the unequal
tax treatment between donated labor (untaxed) and
donated income (partially but not fu9ll
deductible, thus taxed). See Roomkin/Weisbrod for
labor donation theory of wages.
The Value of Shunning
One possible empirical experiment would be to find
the dollar equilvaelnt value of shunning. One
typical way of resolving the prisoner's dilemma,
is that if groups are small enough that monitoring
is possible (Gladwell's /The Tipping Point// puts
this number at 150), then defectors can be shunned
, and thus this serves as a deterrent to
defection. The question is, what is the dollar
value of shunning? Is it linear in the number of
people shunning you. What is the dollar value of
shunning someone else. Is it a good or a bad (ie
is the price positive or negative). What is the
precise theoretical link to observability. The
probability of getting caught?
Aha! Thesis Idea
Happy New Year. first of all. So talking today to
a high ranking executive in the computer
consulting industry (my mom) gave me a good idea
for a dissertation idea, one that expands on
Eddie's entrepreneurship, and continues my
interest in organizations.
Before i continue, note my other ideas:
(Institutions, perhaps with NGOs and
multi-governments; and Educaiton, perhaps with
So talking about the nature of organizations, we
were discussing differnt organizational structures
and how her more entrepreneurial division is now
run with a more "operations" guy in charge.
Basically, there is some kind of "matrix function"
that takes the inputs of many different divisions,
(accounting, sales, development, invoicing,
strategy) etc, and routes them with others
(similar to the "Garbage Can models" [see Bendor
for reference]). The entrepreneurial manager does
dynamic modification of this "transfer function"
(thank you course 6), while the operations manager
uses static optimization. A static transfer
function, (stable org structure) allows fine
tuning of the staff, to operate closer to 100%
capacity. A dynamic system requires perhaps 80%
capacity but is more adaptable to change.
This also necessitates having a different kind of
work force. Why are some groups entrepreneurial
whereas some are operations? Perhaps the nature of
the business. Or the nature of the employee. But
to avoid the dirty notion of 'tastes' which I
abhor, how do we differentiate employees. The keY,
is Eddie Entrepreneurhsip model.
Ok, all this when written out looks unwieldly, and
perhaps a dead end. but we'll see. i do feel
something is there...
The Sicilian's Duel
Today, we talked about how people reason in games,
and how they learn, and how they don't achieve
infiite regress, but they get to a certain point,
which reminds me of the Sicilian's Duel with the
intrepid hero in the true classic, The Princess
Bride, where after besting the swordsman and the
wrestler, wesley confronts the sicilian, in a game
of which cup to drink out of. which one might
think you can reason out using the i know you know
i know you know i know strategy, but really, it's
basically random, and you might as well guess
But maybe not. You need two assumptions, one,
which is the focal point, to be the start of
reasoning. And then, after that, how many levels
deep would you use. Experimentally, two seems a
good number, though three is also pretty good.
There is the magic number 7 +/- 2. If you can
figure this out, perhaps you can win more that 50%
of the tme, just like you can win
rock/paper/scissors more than 50% of the time
(which we all can infer by reading Cryptonomicon).
anyway, if i ever write a paper on these
heuristics in reasoning, (along wth heuristics in
morality) i know the quote i will start with.
psychology vs. econ
psychology assumes we're stupid and irrational
econ assumes we're perfectly rational.
many more to come...
My Current Research
I'm spending a lot of time on a project for Eddie,
trying to connect his entrepreneurship work with
education, and perhaps taking into account
institutional situation. This has gotten bogged
down a bit, while trying to deal with data issues,
I have been trying an initial test of the theory
using data from India, because of their federal
system that gives institutional consistency, while
still having variance in educational systems
The work that I would like to use for my first
year paper is an attempt to put organizations in a
market setting. For example, considering the
principal agent problem in the context where the
firm itself is competing
against other firms dealing with the same problem.
Or alternatively, from a political economy
standpoint, how do the models of legislative
bargaining work in the context of world issues,
e.g. how do international NGOs influence decision
making about issues such as free trade or the
To go about this, I am considernig perhaps a
principal and agent playing either a one sided
trust game, or prisoner's dilemma. That determines
either a cost of production or other relevent
variables, and then trying different market
environments. Though I'm still learning the tools
in John Levin's class, in order to actually solve
On the side, I am also pondering some behavioral
questions, basically thinking about bounded
cognition, and better ways to do behavioral
economics than the current prototype of willy
nilly modification of utility function. But that
is an outside project.
An economic manifesto
To revolutionize the future of economic thought,
(no humility here), I propose a simple but new way
I have lamented earlier the problem with
behavioral economists putting all sorts of crazy
randomness in utility (utility for knowing ones
ability, utility for other people's happiness
[kreps], utility for emotion and arousal), random
things that though they jive with psychological
observations, are too easy. With such wanton
manipulations of utility, you are allowed too many
degrees of freedom, and run the risk of having a
theory that explains everything.
Thus, I'm a big fan of vanilla utility. However,
how do we explain things like cognitive dissonance
and reciprocity. The answer is that they impede on
our consumption. Particularly consumption of
leisure, in terms of time spent on cognitition.
One of the weakest assumptions in the economics
``paradigm'' is optimality. how somehow people
achieve optimality, and not just close. Close is
good enough for us to approximate with true
optimality in some cases (there are papers on
this), but in most cases (as in the aggregation
for macro) it is horribly wrong.
Thus we must model people with constraints on
cognition. Hence heuristics and pattern matching
(ala neural net ais). Cognitition can be about
finding an optimum, but this takes time, like in a
search model, or one of Bendor's bounded rat
stochastic markov chains.
ok, the juice has run dry. i will ponder further.
in the meantime, carry on, carry on. the
revolution will however come..
Models of Morality (Extracted from letter to peter)
my current pet theory of morality is a form of a
heuristic, that we as people must take
axiomatically, because if we don't, and start
thinking about it too much, we would all play
defect in the prisoner's dilemma game of life, and
then life would suck. So that morality does in
fact arise as some socially optimal equilibrium
path of play.
Models of Cognition
This is something I have been thinking about quite
a bit. How to do cognition, how to do model
behavior, and today, in Kreps' seminar, how to
model dynamic choice. Behavioral economics of late
has had a predilection for just putting everything
and the kitchen sink into utility, and calling
that behavior. I don't like it. (see earlier may
entry). Kahneman (and Tversky) got the Nobel prize
last week for their work identifiying heuristics.
A much more convincing to me paradigm. (Bernheim's
notion of priming also is nice, though it still
depends on optimization.)
I tend to like simple vanilla utility based on
consumption, and have the work come from how
choices are made. My bias for pattern matching, I
recognize, comes partly from my training in AI,
(ala Neural Nets) which sees cognition as pattern
matching. (see Scientific American Frontiers at
the media lab once again yesterday). Or perhaps
Marvin Minsky's Society of Mind.
Hypocrisy of Joe Average (in progress)
Will flesh this out later. But, why do Americans
insist on being average. (see My Fair Lady).
Most would like a sociological explanation or a
psychological one. But not me. How about
Shiyan has a good story on this. Perhaps we will
(to be revised)
Economics of Altruism
So the US, by far and away is the most country in
the US. One standard reason for this is tax law.
In addition to the obvious tax benefits of
charitable giving, in the us, unlike Europe, since
the government does not take responsibiltiy for
many social services, charities must instead, so
people feel more compelled to give. This is like
the idea that if people got paid for giving blood,
less people would donate.
Additionally, there is the strong god fearing ness
of the US that might explain this trend.
Finally, if we assume tipping is a form of
charity. This is the only good explanation i have
of why we do it, then the US also tends to tip
significantly more than other countries too.
There definitely seems to be a paper here. good
empirics, good theory.
Air travel woes
First, people whine too much. A good npr
commentary recently noted this as well, but most
such commentary whine and whine and whine. I have
never personally lost a bag. Security, after some
pain early on, is now very fast. I once again get
to the airport 40 minutes early, and never have a
But more importantly, it is the economics that
people must understand. To marvel at how
amazingly incredible that we can jaunt about the
world at such low prices.
Fact, the airline industry is one with tremendous
fixed costs but negligible marginal costs. Thus,
if they weren't able to capture monopolistic
profits, ie had to set price == marginal cost,
they would all be more bankrupt then they already
are, most likely non-existent. Thus they have to
price monopolistically. But if they did that,
prices would be so high, non-busines consumers
would not be able to afford them. So they price
discriminate, leading to a pareto improvement. By
having complex pricing, they are able to charge
business travels exorbitant prices so that
consumers can fly at ridiculously low ones. So
Gordon Gekko's Greed is Good
Listening to Talk of the Nation on NPR today
talking about Greed, I was struck by a pang of
Ruttenesque "these guys are all idiots." Quite
simply, greed is good. Or as Ayn Rand declaimed of
the "Virtue of Selfishness."
Evolutionarily, any organism that accumulates the
most will be the "most fittest" (in Chaucer
language). And economics shows that self-interest
leads to social optima.
So the real question is why has biological or at
least social evolution led to the notion that
Greed is bad which we all take for granted. Why is
it one of the seven deadly sins, or why does
Buddhism rail against greed?
Perhaps because happiness is the satiation of
wants, rather than the sum of our possessions. And
thus, this anti-greed belief reduces our wants and
See also for example Frontier House, where as
their expectations were changes, as their status
quo shifted, they grew happy living in squalor,
and unhappy when they returned, an indication that
status quo is multi-dimensional.
Aristotle - "he who wants the least is most happy"
see prospect theory
see Mathew Rabin
So watching HBO's special :03 seconds, on the
calls of the basketball final in the 1992
Olympics, the vote was split 3-2, with 3 eastern
Bloc judges voting against 2 western judges. Oh,
how often this happens. The most common being
Olympics scoring it seems, and perhaps most
currently salient being the 2000 presidential
election. How do objective measures, questions of
law, have outcomes so split by party line? More
fuzzily, there is the problem of discussing the
Israel-Palestine issue with a Jew or Muslim. The
bias is always huge even among normally very
So the question is why? Kahnemann-Tversky looked
at this, and I should follow up. Heteregenous
priors offers a nice explanation. Though we could
perhaps do the same with common priors and private
information. Perhaps other explanations might be
two dimensional preferences, and something like
Death of Death of a Salesman
Talking to Larry today, we were considering wage
contract theory for our final tommorrow, and larry
was pondering why the existence of fixed wages
with flat increase, leaving no room for wages to
act as an incentive in teaching, in government, in
all of Japan, etc...
Contract theory would tell us because there is too
much risk. Not only is performance not
contractable but, even subjective evaluation is
too risky to justify its use. Larry's idea is to
consider how other incentives fit in. Not so much
firing, as is perhaps the japanese model, but
yelling, culture, etc...
One interest point is the historical dynamic here.
An obvious reason is that our utility function has
shifted. We are less risk averse. A simpler
explanation is that our wages have increased, we
are less risk averse. In the 50's, wages were much
lower than they are now. Therefore, we wanted
lifetime job guarantees. A secondary effect (more
institutional, rather than economical) is the
memory of the Depression, and how norms are slow
to change. Today, wages are higher than ever, thus
we are more willing to change jobs often, work for
startups, accept permance pay for teachers,
collective stock options, work for bonuses.
Perhaps the reason is simply we are richer which
any intro econ textbook will tell you, means we
are less risk averse.
A hedonic regression model studying the
matching/search process in match.com. Just as ebay
became a data-heaven for auction researchers, so
too could match.com shed light on the mating
ritual. Granted there are self selection issues,
but oh the possibilities.
Beauty can be proxied by number of initial clicks.
Finally we can test the theory of whether
opposites attrack. I wonder if it's already been
Utility? Jetez-la par la fenetre
Yes, economics is flexible to accommodate any sort
of behavior, but that is only because, as Gary
Becker showed us, we can put everything and the
kitchen sink in the utility funciton. Perhaps, it
is time to revisit micro foundations, and
reconsider utility functions.
I am really starting to like this similarity
measure that nageeb has been working with for
time-value. Apparently, Tversky has long proposed
something similar he called "Elimination by
Attribute" But apparently, it has not been much
There's been a lot of post 9/11 hero worship. The lionizing of the
firefighters and policement who were doing their job, who perished or
battled in the line of duty on 9/11. For some reason, this strikes me
as curious, but perhaps i am too detached and cold. The same thing
struck me as odd, about how Veterans Affairs is a cabinet level
But thinking about it, it makes sense. These are people who gave their
"last full measure" to their country. They do indeed deserve proper
lionization. I dunno, not sure if this is economics, but it is a
Economics is the study of markets. In the information age, markets are
increasingly electronic, smoothing inefficiencies, reducing
transaction costs. Well, what about the "meat market."
talking to one of my fellow students currently using match.com, it
seems like a study of the market mechanisms and norms in match.com
might be a fruitful enterprise. perhaps fun at least anyway.
Acting as equilibria
Random weird thought, but it seems that actors tend to act in the same
sort of way consistently. Let me illustrate with a long weird
anecdote. So, in Lucas defense, I said that perhaps we thought
Anakin's lines were horrible in the latest star wars because hollywood
has made us think that teenagers in love talk a certain wa, when in
fact they are immature, sappy, and prone to say stupid things. An
example being when a friend of mine saw a fire on television, and
said, damn those are crappy special effects, and then it turned out to
So I was reminded of the 18th century art device, those tetes a
somethings, where every expression that a painter could use to express
a given emotion was laid out very explicity. In the same way, actors
today, seem to use the same old tropes, not because they are accurate,
and not because they are force, but because that is what they are
expected to do.
It's funny what economics claims credit to being able to talk about.
Grants, Governments, and Free markets.
It's interesting the system of grant applications the United States
has. It seems like it is an activity that people spend tons of time
on, for no obvious good reason. It a more centrally directed economy,
somebody would just say, you, you get x dollars, you get y, and so on.
But I guess, this is another example of boundaries of the firm issue.
By forcing agencies to apply for grants, it allows for accountability
and competition. So though time is spent on grant applications, time
is saved on bureaucracy and waste. In theory anyway.
Economics of Capacity?
What are Special Interests reviled, but people seem to like NGO's,
which are just special interests?
Small changes big differences
This was first formally introduced by the learning by doing
literature, particularly, that by Krugman (I think). In Krugman's
literature, small differences in comparative advantage along with
increasing returns to scale will lead to huge differences as one
country monopolizes production of that good and production elsewehre
this simple insight has big implications all over the place. Like the
2000 presidentail election. Small differences in national voting
prefernce leads to big difference in outcomes. a 50/50 electorate.
Only one wnner. So that even though on a color coded map, it looks
like the coasts were very pro bush and the center was very pro gore,
the differnences are mostly small. It rarely varied by much more than
20 percent. But the color makes it stark. In New Jersey, Gore won by a
mere 16%, in Kansas, Bush won by 20%. That means nearly 40% of the
population of Kansas still votes for Gore.
So another election issue: the Congress should look like the people.
Maybe. But on the assumption that blacks will almost all vote for a
black candidate. (clearly the presumption when talk of Colin Powell
for president is floated), then it is reasonable to presume that whits
will almost all vote for a white candidate. Thus, one would expect
that even if blacks made up 49% of the US population and white's 51%,
it should not be surprising that Congress is all white. Perhaps
another flaw in democracy... Definitely a fact.
The physical metaphor that this brings up is a seasaw and tipping
point, or a chemical reaciton moving beyond the activation energy,
when the color changes from blue to red, or other things. (should
start company like romer to make computer animation of economic
concepts, in particular indifference curves.)
Been reading a lot about globalization recently for my Education
classes. One article, Deacon (1999) talks about the economic studies
of globalization. Carnoy (1993), Stubbs and Underhill (1994). But my
feeling is these aren't really economic studies. Not in the "real"
sense that we do here. (sarcastic quotes there). Was wondering if
anyone has studied globalization formally in economics...
What we have to account for is how global norms impose themselves on
local norms. How norms become adopted (ie tipping point). how norms
reenforce themselves or destroy themselves. adjust the parameters for
which they work. how open from autarcky lets other norms in.
globalization is spread of norms.
further consider what is inevitable, and what only acts as a catalyst.
to pass activation energy.
The latest notion of liberal/controlled economies like Bush's school
plan is for free markets, but greater accountability. Governmetn sets
targets, standards, you follow them however you want. Regulate
outcomes, not processes...
Mitsubishi-ism - the replacement of task specification by target
setting -= from New instiutional Economics (Seddon, p 176) 'explains
the workings of social life and its various institutions, and the
construction of relationships and co-ordination of individual and
collective behavior, in terms of the choices and actions of the
Another issue is my mom's notion of the betrayal of America's white
trash. This ball (1998) article mentions it, as the shift from the
corporatist economy to the knowledge economy. No longer can unskilled
mindless factory jobs support a middle class lifestyle, hence the
remants are the white trash trailer towns that dot the midwest like in
ohio where we lived, or the burnt out cities along the mississippi.
group association and alumni effects
Some thinker once lamented (from Piore's PE thought class) the decline
of group association in the United States. The decline of clubs, of
associations, of unions, of masons, of men's clubs. A common problem,
neighborhood association declines as well.
But the need to associate is innate. In the Contact Singapore/ERC
proposal program today, one proposal was a Singapore Club, like a
Harvard Club, which reminds of me of a friend's startup: instant
gorilla, and the concept of Company alumni. Groups may have died, but
ties, social networks, alumni groups have grown to take its place.
leng lim's cultural change
leng lim, harvard divinity, harvard mba, great thoughts today on how
culture/identity is the substructure of economics.
Sidewalks and Sugden
So on NPR, this American Life, in a great episode on office poliics,
it describes the "office politics" of the street vendors. The strict
rules and "institutions" that have developed among the homeless and
vagrants, The "spontaneous order" that arose to make order out of the
An excelletn case study, or at least anecdote, for a possible market
development class. Something to talk to McMillan about.
The Game of taking offense
Combine Game Theory with Organizational Behavior Theory with Faux
Pas's that offended the sensibilities of on Al Gore campaigner in my
class of Education, and the book signing of Yellow about racism toward
Asians, and a theory is forming in my head.
Offensive words like Chink, or such charged ones as the N word, are
only offensive because of the cultural associations people have with
them. Blacks are allowed to say the N word because we know the
underlying connotations are not there. Other races are not. Making
jokes about dog eating is bad because it conceivably connotes
inferiority. Boston rsions of an intellectual property thief
Randy Cohen, New York Times self-proclaimed ethicist often roundly and self-righteously decries theft of intelectual property. Downloading software, mp3s, movies, all activities of morally bankrupt people whose pathetic rationalizations cannot justify the evil amorality of their actions. Bah!
While I acknowledge that as society, downloading mp3s and movies are potentially problematic, it by no means makes it unethical. Let me run down the reasons.
1) Who cares if its against the law.
While it is nice to follow the law, often times laws and ethics do not coincide. Jaywalking is against the law. Slavery was once legal. Homosexual sex is still illegal in many states.
Copyright is essentially a government created monopoly enforced by the threat of government violence. Aren't monopolies a bad thing?
2) What is property?
In the end, there is nothing particularly inviolable about property rights, though in this country we tend to accept John Locke's notion of life liberty and property.
3) There is precedent.
It seems absurd and is illegal to patent a theorem. Why do we protest Disney's right to Mickey Mouse or a pharmaceutical company's right to a drug design, but insist on defending madonna's right to Like a Virgin? All academics produce content without copyright. So do open source software writers. There are alternatives.
4) There are potential economic benefits to piracy.
Economists Slive and Bernhardt have shown that companies could potentially derive benefit from piracy. For example, Adobe Photoshop is freely pirated by individuals, who learn how to use it, who demand it at work, which pays the exorbitant $700 pricetag.
5) Cause it makes me happy, and everyone else is doing it.
Yeah. I admit that this free flow of information is going to be problematic for maintaining incentives in an information economy. I think a lot of the technology and the lawsuits now are ridiculous because none of it can stem the tide, and only are unfair to pioneers such as napster. I acknowledge that something has to be done. But to stand on your soap box and call it unethical is just stupid.cently tried, and BU did, ban the "Minority"
because of the connotations of inferiority that it comes with.
But it shouldn't be this way. Ideas should be expressed unfettered.
But our beliefs, our offenses don't constrain us, they only constrain
others, therefore, there is an incentive problem, an externality
problem. For me, I play the top left box in the PD, I never get
offended. This seems dominant to me. Why is it not so for others?
(note, the economist a while back spotlighted something on the
economics of political correctness. I should look it up, though I
think it was mostly only a signalling model.)
Game Theory depends on mixed strategies to work. This is what Nash's
big fuss is all about in some ways. The common complaint is people
don't randomize. I think they do. I had some good examples, but I
forgot them, here, I will make a list:
Dividing a Check in a restaurant.
Alternating between He/She in a restaurant
Foreign affairs: (i guess this makes sense since this was the original
use of game theory, one of them anyway)
Chinese Foreign Policy
- from the great class I took at MIT from Thomas Christensen, we see
that the US policy on Taiwan. From the Shanghai Communique and the
like, it is clear that if the US commits to defending Taiwan, China
will get pissed, Taiwan will cocky, and war will break out. But if
the US commits to not defending Taiwan, then China will surely
invade. So, the US mixes between the two.
- The US cannot commit to nuking. That would be stupid. But if it does
not, then despite what many migth think, that would be bad too. See
the truly great bad movie, /Deterrence/.
Just to get the word in before this becomes fashionable, I have been
advocating the idea that the world faces not overpopulation, but
underpopulation for a long time. Ever since a Washington Times report
on some loony who was advocating the idea, it just makes sense. Yay
with Lomborg, and down with Ehrlich and his ilk. Recent population
data that shows dramatic declines in population growth in places like
India and Brazil back me up. As people get rich, they have fewer
children, (in fact, fewer than replacement). People are getting
richer, or for those who aren't, we should help them get richer.
Before long, population will decline. Anyway. just to get this on the
Nomoethetic vs Idiographic knowledge
I just finished off James C. Scott's /Seeing like a State/, about the
value of metis vs scientific knowledge. Echoing hte technocratic
conformity of the Matrix from Whitewolf's Mage, it argued for
intuitive, cunning, wisdom, local knowledge.
Extrapolating to my other classse, it's an argument in favor of the
idiographic disciplines (history, anthrpologiy, psychology once upon a
time) rather than the nomethetic (economics, sociolgoy).
Being something in Bendor's class, likely a formal model is good.
Value of Academia
Having just completed a paper on why academics enter the academy
despite the lower pay and other opportunities, the converse question
is what is the value of academics to society. I guess this is
something akin to the value of a man on the moon, something in teh
cold calculus of economics, or at least objectivism, has no value.
I'm reading Taylor's book right now analyzing the process of EIS
(economic impact studies) and the NEPA, and am interested in all this
bueracracy. How much has value. Or take Atlas Shrugged exampe, and say
it's all a waste. Unquantifiable mish mash. I suppose this is like the
goodwill on balance sheets, the Total factor productivity (TFP) in
valuations. what is the value of this stuff?
Two Quick ideas:
Stereotyping comes from teh fact that we are not perfectly rational,
ut instead use a pattern matching heuristic.
Consider media as agenda setter and gate keeper in a democracy.
Capitalism and Socialism
Briefly for now. Enron is what's right with capitalism. In any other
economy, the government would have tried to bail it out (see Credit
Lyonnais, etc.), and covered up the corruption. Corruption happens
everywhere. In the US, you will eventually be made to pay.
Second, Jobs and Macintosh show what's wrong with socialism. I admire
the Macintosh products. They appeal to my sense of aesthetics, their
engineering. This is because all is owned under one power, and under
one unified monopolistic vision, it is possible to create such
visions, but only at high costs. The market has shown that what worked
was replacemable parts, Low costs, practicality, not aesthetic beauty.
The great philosophers, Marxists have grand visions, but often the
visionaries get trumped by the real world, and a free economy can
bring that to light.
2.16.02 The Godel of Economics
Hilbert asked if mathematics could be formalized. Turing showed that
some problems can't be computed. Godel showed that mathematics is
inherently incomplete. Pretty amazing stuff. in the subject of a
but good article in American Scientist today.
So this reminded me of a theory I've been trying to work up the
audacity to puruse. Assuming the probem of physics can be solved, we r
ealize that all that quantum god playing dice was nonsense, and that
we can classically work out and predict the deterministic working s of
the universe, what does that buy the field of economics?
Deep issues of philosophy here, which I am not prepared for, but a
question a bit far afield for an economist. And just as Godel and T
uring revolutoined the world, perhaps this will too.
If we had such a magic box, is there a difference between positive and
normative? What would be the purpose of economics...
Luck and human nature.
I've been playing bridge with a few friends of mine for a few years now, goddamn i'm old. Anyway, we each have over the years well established luck profiles. One is known for consistently great hands. One, for consistently bad, with occassional flashes of the extraordinary, one for consistently mediocre, and me, well I don't believe in that luck nonsense anyway.
So we have been discussing the common luck bias boundedly rational people seem to have. So if luck doesn't exist, where do the above profiles come from, and what does that tell us about ourselves?
One dimensional choice and fuzzy logic?!
So much of economic theory tends to depend on inflection points. Unitary points where something becomes qualitatively different. Where a choice is made. One policy is better than the other. A tipping point. Too many of these seem like unstable equilibria. Something to ponder...
The Prisonner's Dilemma and Hobbes' beastiality of man
(Warning, my knowledge of Hobbes and philosophy is limited to a thorough perusal of the book, Philoosphy for Dummies)
In a book talk about Jared Diamond's (highly problematic) knowledge
spanning tract, Guns, Germs, and Steel, it was noted that it seems to
be the natural state of man to seek to dominate others. All human
societies from the dawn of man, to perhaps to the mid 20th century,
have shown a need for conquest rather than cooperation when
encountering their neighbors, whether it was primitive New Guinea
tribes, or Cherokee indians in pre-columbian America, or Western
Europe's colonization of the rest of the world, a pattern of conquest
Are we doomed, as Hobbes said, to our beastial instincts. Is man a
The prisoner's dillemma provides a nice analytical framework. The the
Prisonner's Dilemma (PD), the classic problem in Game Theory, two
prisonners have two options, cooperate or cheat. The way the problem
works, though the two would be better off if htey cooperated, they
wind up cheating each other, and therefore arrive at the worst
possible outcome. (incidentally, this is the Nash equibliria, ala Mr.
Nash of Beautiful Mind fame).
In interactions between societies, the past has been characterized by
almost exclusive antagonistic conquesting interaction between
societies. However, perhaps man is not inherently bad. Perhaps man
recognizes that everyone would be better off if we all cooperated, but
up until now the rules of the game, and the cold unflinching dicates
of rational game theory have forced him down the antagonistic route.
But always, man was hoping for some mechanism to commit to the
cooperative outcome. In the PD game, more sophisticated studies have
shown that in repeated games, where the players learn the other's
responses, they can be brought to cooperate. In today's world, as we
build institutions: police forces, diplomats, courts, norms of respect
and decency, we are moving toward the cooperative equilibrium.
Admittedly, this equilibria are unstable, and cheating by some (a war
of conquest), could bring the system down. That is why vigilence is
necessary. But this suggests that it is not hopeless after all.
Perhaps peace and cooperation can indeed be the inherent character of
human organization after all.
Economics of Diamonds - why high prices are good
Diamonds are the trendy issue of choice nowadays. It is trendy to rail
against the monopolistic practices of DeBeers, and the celebrity issue
of the moment is the (see Ariana Huffington) is the so-called "blood
diamonds" that go to finance oppressive governments.
Ok, fine. Sure, DeBeers (along with OPEC) is perhaps the textbook
example of monopolisic pricing by cartel leading to inflated prices
and dead weight loss and consumers getting shafted.
However, has anyone considered the economics behind all this?
Why do we buy diamonds? They are pretty? Sure, but that's not why we
buy them. As Frontline so nicely showed, all a Diamond is is a carbon
crystal, not much different than coal (heck they burn like coal), and
science has provided the technology to make a diamond more perfect
than nature, that was the easy part. It has even perfected the
technology to add imperfections that make man-made diamonds virtually
indistinguishable from the nature-made kind, and for only pennies a
pop. So, again, why do we buy diamonds?
The answer: Because they are expensive. As DeBeers commercials so
nicely show, Diamonds are forever, they symbolize committment, value,
savings, love, whatever you like. We like diamonds because they are
the only way a woman can carry three months' salary on her little
Now, as the DeBeers cartel slowly dissolves. As Canada and soon Russia
slip away. As DeBeers itself recognizes the futility in maintaining
its grip on the market as diamonds slip onto the market through its
clutches. Economists and consumers should rejoice. The kneejerk
anti-monopoly zealots like those of the FTC should be ecstatic.
Diamond prices should plummet faster than the price of a gallon of
The value of that diamond anniversary band that she so treasures will
shrivel up overnight. Hmm, uh oh.
Economists recognize, (in fact they have proven) that price is the
only mechanism needed for a free market to function properly. However,
when the price becomes something of value in and of itself, things are
not so simple. Perhaps it is valuable to have a price gouging monopoly
As pundits and wonks cheer the demise of DeBeers, I am not so
sanguine. An important cultural institution may be coming to an end.
However, all is not lost. I smell a business opportunity. Anyone VCs
out there want to fund a company that prints government issue bearer
bonds in large denominations onto something that might fit onto an
engagement ring? Gimme a call.
Speed of institutional Change
So the last lecture in education talked about decentralization of
education, and how it has basically failed everywhere it's been tried.
Talking to xin hua, she talked about education reform in the
universities, and how the main key to reform is to take things slowly.
This is true for China's economy overall. And its failure when change
happens too fast is particualrly evident in russia today, in the
French Revolution, in decentralization of education alll over the
world. Though come to think about it i'm sure there are cases where
the opposite is true. perhaps maybe?
anyway, this ties in nicely with Greif's dynamics of institutional
change. somehing worth studying. right now, 4 other greif topics:
1. Marx and economic instiutitions
2. Vocational Education
3. Theroetical formulatoins of institutions (aka Greif and Measure theory)
4. Open Source Software
5. Media (william)
6. Globalization (NGO's and civil society)
7. Characterize ALL the equilibrium in Calvert (1995)
9. Black box computer, purpose of social science.
10. Economics of September 11
11. grants. market among government bureaucracy. (see Romaine)
12. comparative statics of games. Athey: games as mechanisms, optimal game. All the equilibria.
13. (ala William) Bring in Satisficing into Rational Choice
14. nationalism. carlos, threats bring it ou
15. indonesia, photojournalists protectors of democracy
16. Bias. From .03 seconds in '72 olympics, to supreme court ruling.
what does this tell us about preferences, are they 3 dimensional? are
views of objective reality different. Subjective reality. heterogenous
17. Altruism. US is more altruistic because government does less.
see it in charity, and also in norms of tipping.
Three thoughts while queuing in airport
Richard's associative preferences === learning. Very important idea.
Using queing theory, (see 11.17 entry) to lines in airports. Security
lines are long, but same people... what does little's law tell us?
utilization goes up but there's no reason for the lines aside from
Bush's competitive unilaterialism, an interesting game theory problem.
Economics of Lines
(or Auctions in the Provision of free goods)
Headed to the lobby for a bagel this morning, I realized I got there
much too late, as they were already well snatched up. This happens a
lot, like getting to class to get a seat (when the classroom is
oversubscribed), or in particular, getting tickets to a
concert/sporting event. For various reasons that have been amply
analyzed, concerts, sporting events, and the like are chronically
undervalued. Hence scalpers and camping out overnight. (Though the
Producer phenmonenon is changing this, as they purportedly are now
charging $400 for some seats to eliminate the scalpers business).
This was especially apparent with Shakespeare in the Park. Typically,
you line up at around 9am to get a ticket which is distributed at 1pm.
(which is in itself inefficient.) However, this summer, they went
nuts, As demand got worse and worse for the star studded show, which
included Kevin Klein, Meryll Streep and most importantly Natalie
Portman (the hahh-vahd queen herself), you eventually had to get in
line at 9pm the night before just to get any seat. (many articles,
nytimes and otherwise make mention of this phenomenon). But this is
silly. If everyone could agree to just get there the next day, the
same people would get the ticket. (this is what the tried, by offering
tickets at 1pm instead of just open admissions at the door when the
show starts at 8pm). This goes along with the previous entry. Some
things just don't get a price, and a real market is impossible (like
blood). Some times, society values perseverence, and whatever insanity
makes people camp out (an orthogonal preference function). Applying
auction theory et al to this might be interesting.
Economics of Philanthropy
After a big debate with my mom last nigth regarding the Red Cross
choice of spending for the New York victims, coupled with the View
from the Top talk today about philanthropy, coupled with the Bill
Gates foundation, coupled with someone's assertion that paying for
blood could potentially yield less blood than the current system for
voluntary donations (this goes along with the NEA discussion)
Someting that bears further study.
I wonder if anyone has tried appling complex analsis to economics.
Along the lines of my multi dimensional, orthoganal utility, ala Jon,
and his Truman's anonymity...
Institutional barriers to terrorism
On the one month anniversary, I was reminded by an insight I have a
l'egard to the 9-11 incident. The only good way to stop this from
happening again is to create the institutions that make it impossible.
This is where ayn rand falls apart. Sure, the intelligence community
can create a small protection around it, but short of building missile
batteries into it, there really is no good way of stopping suicide
bombers and the like, short of setting up th e instiutionss, the
invisible walls, that make it impossible for them. It's like
hypnotism, you are controlled, because he makes you believe that is
what you want to do anyway. That is the only solution to terrorism.
Real paper idea. piracy, and educaiton, arghh.
Along with my other test of software piracy. A Great comparison of
the cost of software piracy is to compare Macintosh with PC with unix,
and try to back out the effects of the fact that its easiest to
pirarte pc sfotware.
another paper idea: my goal: use i/c e to understand the variables
important in schooling, to find a model for the inputs and outputs,
and see how the institutions vary from country to country
Theory of Everything
My epistemology (hmm, not sure what that word means) typically says
that there is an absolute truths and absolutes in right and wrong
(like the objectivist), but we're not smart enough to know them so I
often act similar to the post-modernists/structuralists whatever the
The reason for this is my faith in science. This grat book, open the
social sciences (or something like that) the intro talks of the
bifurcation of knowledge into the natural sciences and the others
(arts, culture, philophies, social sciences), and I fall firmly on the
natural sciences side of things.
The universe is deterministic. Quantum theory tells us that we cannot
know the current state, so we can't with certainty predict the future,
nevertheless, a current determinstic state does exist.
Thus, there are natural immutable laws. Yes, we cannot know them for
sure, but they exist. Posit: Assuming these immutable physical laws
exist ==%gt; immutable human laws exist as well... human behavior,
definitely, the brain is a collection of atoms. morality is tougher.
And tougher still is the Why?
As per my discussion with Esther on evil, two easy definitions of evil
can be drawn from either the objectivists (evil is interfering with
the rights of others of life, liberty, property [a small problem with
where postivie and negative rights interfere with each other, but
resolveable]) a good complete morality, but perhaps simplistic. Or the
utiltarians (evil is inefficiency) which generates the economists'
morality, though this presupposes that a utility function is
derivable. Assuming perfect knowledge, we can derive what makes people
happiest chemically, but who knows if this is the ultimate aspiration.
We still have to answer Why?
environment and whatnot
So I haven't written in a while, (i have been busy quitting my job,
going to Europe, going to Cape May, packing up my life, and getting
ready to move across country) and I will not have time to write again
here any time soon (will be driving to california), but in the
meantime, I just had this thought to squeeze in before I go.
FoxNews today (which is my favorite news channel because it seems to
reflect my views. It's funny, it claims to be fair and balanced, but
seems a bit skewed, but perhaps that's only because everything else is
skewed, and they are the only one not skewed), anyway, they reported
that a study by a non-partsan think tank found that 50% of the
material taught to k-12 kids about the environment was unfounded,
based on shoddy or unscientific data, or just plain wrong. This I
believe. The environmental lobby is out of hand. I yapped about this
before with politicans lying. Perhaps they have to lie to get dumb
people to pat attention. But educated people show know better and they
don't. It is rather frustrating.
A recent scandianvian statisican who used to belong to greenpeace and
such tried to disprove claims from the right that the environemntal
lobby is full of it, but in the end, only proved that the
environmental lobby really is full of it. And so wrote a book. I
discuss this in a recent article in epinions:
White Flight + Gentrification = Black Flight?
So I find myself in a still nearly completely black neighborhood, but
which is rapidly being gentrified. This was highlighted at the recent
Panama Day parade, which was all dark skinned people, except for 3
clearly very yuppy people. Now, this is called gentrification, and the
process is, rent's go up, minorities cannot afford, white's move in,
eventaully, it's all white.
But, from the outside, this looks exactly like White Flight, but in
reverse. So perhaps White Flight is not the standard story, one black
person moves in, the whites aren't happy, they move out, (property
values decline incidentally), you get all blacks. But it could be the
same as gentrification, purely economic. The society gets richer, the
rents in a neighborhood get relatively cheaper, families move out to
more expensive houses in the suburbs, blacks who are now richer (but
not rich enough to afford the suburbs) can now move in to the vacated
properties. Hence, reverse gentrification. But without the implication
of racism. This is something that can certainly be tested, and perhaps
Economics of Bundling/Economics of HBO
What with the Microsoft court case, there seems to be a feeling in the
judicial system that bundling is bad. But I think most economists
would agree with me in agreeing that this blanker distrust for
bundling is wrong.
A good example. HBO is all over the news these days. Sex in he City
and Sopranos are breakaway hits. HBO is given credit for being more
daring han the neworks, willing to take on edgy niche markets. There
is a very good reason for this, as highlighed in an inerview. The
simple reason is bundling (as researched by tha Slaon guy, Eric
Bryn!@$!@#$ I almost worked for).
Whereas a Network has to sell you each show seperately (you pay for a
show by watching the attached commercials), each show must be dumbed
down to the lowest common denominator. However, HBO sells you a
bundle. Therefore, each part of the bundle can target a particular
niche, and thus increase overall utility.
Neat huhn? Economics can be cool, yeah!
Politics of Anecdotes
I hate how politics have become a war of anecdotes. Last year was the
worst, as every policy issue was decided by both sides dragging out
families/lexuses etc from tax relief to hmo reform to gun control.
Policy by anecdote, I hate them. Which reminds me of my advisor's
Sendhil Mullainathan's thesis. I will have to look into that. That was
Economics of Diversity
Two thoughts on this right now. One, the benefits of diversity using this to justify affirmative action. Try to measure the effects of affirmative action. The prestige of a school is measured by the quality of students. Quality of students is measure of quality of student coming in, plus qulaity of education. Quality of education is a funciton of diversity. Here, we find optimal amount of affirmative action.
Second, what about global diversity. We talk about americal cultural imperialism and cultural homogenization, but is this a bad thing. Can we quantify how bad this is? And why is homogenization being resisted. Dialects of english, basque separatists, catalonia flags, Scottish parliaments, localized McDonalds (mutton, wine, sushi rice balls), etc.. forces of homogenization, forces of diversification. intersect.
End of Recession
I am calling it here, before everyone else jumps on the bandwagon.
In the fall of 1999, during interviews for my consulting/banking jobs,
I took the position that the end was near, the bubble would be burst,
things were changing. I came to this conclusion mostly from anecdotal
evidence, but perhaps some magical intuition. News of layoffs,
spectacular dot-com failures in the early days, companies not doing so
well, I had the feeling that things were ending.
So, this year, I called this a few months ago in Spring, we've hit
bottom already, the recession (Defined as negative growth for 2
quarters, at least, never materialized), and though we won't
necessarily hit ridiculous growth rates again any time soon, my call
is normal growth by the end of the year.
Yes, there is still massive overinvestment, and greenspan is hurting
things, but the tax cut, consumer confidence is up, napm is up today,
and so it personal income today, I am recording that I called the end
today, (in fact I called it months ago).
(standard disclaimer applies of course, I take no responsibility for
money lost based on this info, though for any money gained, a small
percent would be nice.) :)
Economic of Policitical correctness
The economist economic focus this week was about Stephen Morris of
Yale's paper on the economics of Politicla Correctness. Neat stuff.
Economics of Editing.
From a comment I wrote to someone on epinions:
"Editorial character. I read Ldiablo's review. Interesting concept. I
actually heard about epinions after hearing about it on NPR (on the
Connection [i think], my favorite show until Christopher Lighten
apparently disappeared) where they were talking about the editorial
nature of news sources, and how this new site (patterned off epinions)
plastic.com would be an "open-source" version where users and user
ratings would suggest news stories, and you would see news articles
based on member ratings and soem wot type thing. I gave up on it
though, because I found I still trusted the editors at the NYTimes
online, much better than most of the people there. so even highly
rated stuff was never that great.
But the economics of editing. Now there's something to do some
research on. It couples nicely with previous work i've done with
open-source software, my classes at the media lab, and my fascination toward
journalism ever since visiting the Newseum in washington, and walked out of
their intro multimedia clip, tearing up. something to think about."
What the economics of editing means. I'll have to work on that.
Pirated for Profit
I was going to do a quantitate analysis of the following paper.
This paper explains why a software manufacturer may permit limited piracy of its software. Piracy can be viewed as a form of price discrimination in which the manufacturer sells some of the software at a price of zero. In the presence of significant network externalities for the software, it may be profit maximizing for the software manufacturer to tolerate piracy by home consumers, most of whom have a low willingness
America's success, (and Taiwan)
So perhaps one of the first topics of study, I wanted to conduct, was impact of "entrepreneurialism" in America's success, buy looking at who immigrated to the United States, as being a special subset of their home peoples.
Stacy brought up last thursday on her birthday, that perhaps this is reason enough for considering Taiwan's success over the last half century as well. Definitely a good secondary dataset.
Electric Car Emissions
So we heavily subsidize electric car makers, though industry didn't
respond, they built hybrids instead, which frankly make a lot more
sense. Becuase arenn't electric cars heavily wasteful? Energy must be
conserved, so to run an electric car using batteries, takes as much
energy to run the same car using an engine, yet to charge the
batteries, that energy has to be generate elsewhere, transmitted
massively wastefuly across power lines, transformed several times, and
then stored massivley wastefully in batteries (batteries wastefulness
is why we have power problems in this country). Another exmaple of
government waste it seems. someone should calculate the impact.
First Starcraft become more popular in Korea than anywhere else in the
world. To the point where that one guy, ranked 6th got his wish to
meet and be in the video of that top k-pop group (who's name escapes
but, but who's video is on my computer), just on the basis of his
starcraft skills and no lineage! equal effect.
Geographical Economics reearch: Aspen Effect.
Bush talks about energy independence all the time. (American Scientist
this month talks about using Gas Hydrates for energy independence.
Europe, the US, and Japan spend more than the GDP of Africa each year
to try to maintain food independence, at the expense of the world's
impoverished farmers. How much of this makese sense?
Corruption from culture. African tribalism, Chinese favors.
A little knowledge is a dangerous thing.
Open source = Standards
See more on standards below. The 4/12/01 issue of economist this week
writes a good article on open source software, basically almost
identical to my thesis. Also, though, it raises the possibility that
open source is just one more means of standard establishment (like
monopooly, gov't, consortium), and therin lies the value.
This could be a big idea!
Thorstein Veblen Conspicuous Consumption
This is th key to why economics doesn't work. Though, it is more a
symptom than the cause.
What is finance for? Can't a computer do it? Basically it is the
transfer and reallocation of risk. FX risk, credit risk, price risk
(like of energy). And also for theintertemporal movement of money
(the traditional purpose of a bank). This second part should be easy
to do in some applet or something.
Help! What is savings rate?
You would think I should know this by now. Sure, the definition is
percent of disposable income (income after taxes) not spent on
consumption. But, assuming a stable population, and assuming people
behave rationally (Modigliani lifecycle theory of money), shouldn't it
always be zero? Every dollar you save when young (positive savings
rate), should be offset by every dollar you spend when retired and
have no income (negative savings rate). So heck, isn't savings rate
just some function primarily of retirement rate, population growth,
and inheritnace levels? (is an inheritance part of disposable income,
should be i guess, but maybe due to tax laws...)
Side note- doesn't it make sense that savings rate is so low, now that
government saving is so high (relative to 10 years ago). Finite
investment right? Especially with strong dollar, encouraging fdi
(foreign investment). Heck, I thought the problem that led to the
recession is that money was too easy and cheap for investment. Doesn't
that make high saving a bad thing?
Sports Economics. Optimal sports set up. Transfer fees, baseball legal
trust, profit sharing, mls perfect sharing. What is optimal? For
fans, for owners?
Classical point of view. Information. Information is always a good.
Inviobility of knowledge. New information should never decrease
utility. Define self with knowledge, not money.
Liberal vs Conservative
Idea. A government's goal is to get some unknown objective function
f(x_t) = 0, by picking a policy x_t at time t. Then we define their
response function as g(x), and so we can find the behavior of the
system as f(x_t), where x_t = g(f(x_(t-1))), and calculate some nice
differential equation. We can then show something like, a
conservative is some kind of dampened exponential with each change
smaller than the last. It gets to ideal slowly, or possibly so slow
that it equilibrates away from optimal. A liberal would have a change
based on the magnitude of how wrong you currently are. Ideally
getting some kind of damped oscillation that converges faster, or more
worriesomely, you get a balanced or even exponentially growing
oscillation that leads to disaster as in revolutionary places around
Research Interests (in no particular order)
Economics History (ala Grief)
Innovation (Technological Change)
Microsoft justifies its existence partly by being the standard. a
standard platform leads to network externatlities, leads to common
development platform leads to good things. Bill Gates visiting morgan
stanley today, made me evaluate this.
(Microsoft creates standard through monopoly power)
industry group Committee, commissions, non-profit
(W3C: industry groups come together to generate standards
perhaps inefficient, perhaps not, see xml, ieee ###.##)
(screw everyone else, we will create standard by giving it
away for free. ie linux, apache, perl?, internet explorer,
I should note that there is a note about my economic interpretation of
Clinton's political legacy in the memes section.
Economics of survivor2?
A great paper will be the rational voting behavior of survivor 2.
What has been majorly interesting, is that compared to Survivor 1,
the contestatnas seems to demonstrating rational voting behavior.
Liek the 2.15 episode where colby swayed keitch and tina to vote
out mitchell, therefore ending the jeri (over amber/mitchell)
powerblock. Colby was smart, he msaintians power. Andup until
now, all votes were unamnimous. Something predicted, given
rational voting behavior.
Before December 2000
multiple access utility curve, multi-dimensional, without perhaps
utility not just happyness but nobility? explain catholic self-sacrafice
and self deparavation.
conversation about giving anonymously, harry truman and operation
multidimensional like cartesian plane, where otehr dimension is perhaps
the descartes concept of grace.
But unlike a cartesian plane where the metric for the space is well
defined, the metric here is defined elsewhere, perhaps endogenous.
(see Bowles endogeneity of preferences), where this metric is what
china - effect of accidental embassy bombing of us economy, by
non entrance into the WTO. useful o get the word out of the impact
so that americans can understand, dead weight loss is bad
reasons for non sold out seats. efficiency?
Debt-free economics -- monetary policy
why is discount rate 7%, or at the least, oh, duh,
risk free interest is currently 5% - 2% (int rate - inflation)
= 3% growth. ah that makes sense.
diode == wages growth vs inflation == option graph
economics of journalism
what if marginal product of labor = 0, mpc = all,
then income inequality fixed
information traditionally assumed to take over
so this won't happen, but what aobut AI.
iinformation and hohnesty is most important to me. worst movies (like
titanic) where premise is based on the lack of honesty, incomplete
information, deceptoin as plot
how witll tecnology change the way we relate to technology
relate , since marx talked aobout how industrial revolution
changed since in one day man could make mor eclothes than he could
wear in a lifetie.
now we just make services.
discontinuity - in 18.100B we talked about functions that may be
globally continusous but locally discontinuous, or vice versa. Things
that i can't picture, but somehow exist, this applies neatly to the
lottery dilemma. The fact that I am willing to spend $1 for the
chance of $1000000 makes sense to me, but not to a utility function.
or why if more money is preferred to less, why not the ultimate goal
of society is to maximize the amount of money?
institution of the presidency
Look at tech stock revaluations when earnings expectations not met.
does the corresponding drop (as much as 40-50%) make sense, given that
only missed earnings by a few percent?
(** 3.30.01 -- and for tech companies, daily increase is one less day
Music Piracy, napster economics.
culture (mao, ford) -movers and shakers of
open source, innovation economics
diode (options, wage discontinuity [keynesian anti-deflation])
water tap/spigot for wage equalization (sens equation)
oscilloscope, economy as black box, fed as interest rate pot
3d imaging of preference functions, is/lm (4d?)
ruler for politicla parties, mr wizard.
dead weight loss metrics
ln(city rank) * pop = 1
ai economics. what happens when we have perfect ai (very soon)
then human capital useless, labor useless, only capital. then
we require income redistribution.