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Airlines that offer this either send travellers an email inviting them to upgrade or travellers can go direct to the airline’s website.Once you’re on their site, rather than them saying, ‘you can pay £400 to upgrade’, you can now say, ‘I’ll pay £300’,” explains Ken Harris chief executive of Plusgrade, the technology company behind the platform. “There may be a minimum upgrade price and there will be an indicator which shows the strength of your offer.” The airline will then email you at least 72 hours before your flight to tell you if your bid has been successful; if not, you retain your original reservation.
Taking things to another comfort level:
Along with upgrades, you can also pay a nominal fee to ensure the seat next to you is not occupied.
To extract surplus and reduce information rents from high types, “low” types must be punished with inefficient allocations. Expect to be seated en masse if you do not purchase an upgrade even if the plane is half empty.
“Thibs is a guru,” Gibson said. “He understands the game plan.
“He had me guarding Ray Allen. That’s how much confidence he has in everybody’s ability to guard on defense. He really drew up and knew what the team was gonna do.
Every time they ran down and ran offense, it was exactly what Thibs showed us on paper.”
I enjoy my Mother’s cooking all too rarely. This is good for my waist line but bad for my taste buds. I have resorted to consumption of frozen Indian food as a poor substitute. I was surprised to find that Whole Foods carries a reasonable brand, Tandoor Chef, that has some decent options. Of course, these products come with a Whole Foods price tag.
On a recent trip to Devon Av., I happened to notice that the Fresh Farms supermarket carried these same products. Unfortunately, the prices are benchmarked against Whole Foods – no good deal there. But the supermarket also carries much cheaper products by Healthy Tiffin and they bear a remarkable resemblance to the Tandoor Chef products, e.g. both have Paneer Tikka Masala cooked in a relatively healthy way (if that is possible!). On closer inspection, Healthy Tiffin and Tandoor Chef are both made by Deep Products. I have been enjoying the arbitrage opportunity for a few months now. I worry that Deep Foods will reduce the quality of the Healthy Tiffin products to prevent arbitrage!
I was watching Fox News and they were discussing whether the law needed to be changed so US citizens could be interrogated at length without being told their Miranda rights. The rationale is that the suspect is willing to give information if he knows it will not be used against him in a court. Also, he will be more pliable with no lawyer present. And if the information is very valuable, this is a price worth paying. (At least I think this was the gist of the Five on Fox crowd. I was a bit inebriated after a boozy conference meal at the Princeton Conference on Political Economy.)
The Five on Fox usually rail against rampant Leviathan – an uncontrolled government usurping the rights of honest, gun toting, red meat eating citizenry. That same Leviathan, if given the power to use domestic enemy combatant status, would apply it more and more broadly. A domestic enemy combatant is actually harder to define objectively than an assault weapon. A slippery slope would undoubtedly ensue and regular citizens would face being interrogated as enemy combatants. This is the risk of adopting the view of the illustrious Five.
But what about the benefits of greater Leviathan power, the power to interrogate true enemy combatants? We know Leviathan breaks the law at the risk of being held to account in court. There is no point running this risk in run of the mill cases. But there is a benefit in true enemy combatant cases. No jury will convict Leviathan in the latter case – the court of public opinion will replace the court of law. But egregious violations in run of the mill cases will surely lead to convictions by triggering the feeling “that could have been me” in jury members. So, roughly speaking, the law will be broken if and only if the case merits it.
Hence, there is no need for “domestic enemy combatant” status w.r.t. Miranda rights.
HT: I believe Becker and/or Posner made a similar argument years ago. If someone can tell me the reference I would be grateful.
Credit cards carry hidden fees, cell phone plans have two year contracts, hotels rip you off if you get a Kit Kat from the minibar etc etc.
It is possible to explain these features in the “rational firm, dumb consumer” paradigm if there is one rational firm, i.e. a monopolist. Things get trickier if there is competition. If one firm is offering a deliberately confusing pricing scheme to extract surplus from boundedly rational consumers, why doesn’t another offer something transparent and steal customers? Then the usual logic of Bertrand competition should eliminate intransparent pricing and lead to a zero profit equilibrium. There are two theories (I know of) for why this might not happen.
The first is the adverse selection story of Ausubel. If one credit card company cuts prices, instead of attracting confused, profitable consumers, it attracts unprofitable, risky customers who might default. The deviation is not worthwhile and this undercuts the usual Bertrand logic.
The second is the add-on story of Ellison and Gabaix and Laibson. Let’s say hotels are pricing hotel rooms below cost and making profits on the add-ons (minibars, pay per view, phones etc.). One hotel deviates and prices the room just above costs and gets rid of the rip off pricing on the add-ons. Confused consumers learn they have been confused and go to the hotel which prices rooms below cost and remember to take their cell phone and laptop (to watch streaming movies) and pack a few energy bars. The hotel that prices just above costs does not get new customers and the deviation was not worthwhile.
You can’t purchase the subsidized cell phone from ATT without signing on to the rip off two year plan – so the add-on story is hard to apply. There might be some adverse selection towards TMobile because you can pay for the cellphone in installments so you can default. But this effect does not seem large and could go the other way – stay with ATT, get an even more subsidized cell phone and default on the two year plan.
So, does that mean the upstart maverick player TMobile has triggered competition and cheap plans await us?
Harvard grad student (?), Seth Stephens-Davidowitz, studies Google searches for racial epithets 2004-2007 to control for reverse causation. He used this to define an area’s racism. He finds:
Racially charged search rate is a signiﬁcant, negative predictor of Obama’s 2008 and
2012 vote shares, controlling for Kerry’s 2004 vote share. The result is robust to controls
for changes in unemployment rates; home-state candidate preference; Census division ﬁxed
eﬀects; demographic controls; and long-term trends in Democratic voting….
The preferred point estimates imply that, relative to the most racially tolerant areas in
the United States, prejudice cost Obama 4.2 percentage points of the national popular vote
in 2008 and 4.0 percentage points in 2012. These numbers imply that, among white voters
who would have supported a white Democratic presidential candidate in 2008 (2012), 9.1
(9.5) percent did not support a black Democratic presidential candidate.
Congress is wading through NSF funded research to weed out projects they consider unworthy. One study they hit upon studies duck penises. The lead author, Patricia Brennan of UMass- Amherst, describes the act of duck procreation:
Male ducks force copulations on females, and males and females are engaged in a genital arms race with surprising consequences. Male ducks have elaborate corkscrew-shaped penises, the length of which correlates with the degree of forced copulation males impose on female ducks. Females are often unable to escape male coercion, but they have evolved vaginal morphology that makes it difficult for males to inseminate females close to the sites of fertilization and sperm storage. Males have counterclockwise spiraling penises, while females have clockwise spiraling vaginas and blind pockets that prevent full eversion of the male penis.
Evolutionary arms races between predator and prey are not unusual. Arms races between males are not unusual – peacock tail effects. But an arms race between males and females of the same species does seem unusual. Males seek to inseminate as many females as possible and have evolved elaborate penises. Females want to choose their mates so they have evolved an elaborate defense mechanism. The mechanism minimizes the chance of egg fertilization if sex is forced. But if the female is a willing partner, insemination is easier.
This research seems quite interesting. It is basic science. No pharmaceutical company is going to fund it. Seems better than funding weapons that the Pentagon does not want.
Still not the complete account of the batlle – middle segment is missing
(HT: Chris Blattman’s twitter feed.)
In a few years, this blog will focus on the concerns of “fifty-something” professors. Retirement communities in Florida and California will be the main topic of discussion. Before that comes the fiftieth birthday party. Should it be “celebrated” with a public gathering of some sort, ignored completely, or with some significant event involving just the nuclear family? In investigating the final option a few years in advance, expecting to be really decrepid by then and hence need a lot of help to move around, I looked at the National Geographic tours. They have a sophisticated pricing scheme:
Our trip costs are determined by group size. (As you can imagine, we’re able to secure lower per-person rates with
larger groups.) When you sign up for a trip, its highest cost will be noted on your initial invoice and then adjusted 30
days prior to your departure. If for any reason the group falls below the minimum number of guests, a small group
surcharge may be applied. (We have found that our guests prefer to pay a bit more rather than have their trip canceled.)
Please note that trip physicians, lecturers, and GeoEx staff are not included in the guest count to determine per-person
For an exotic trip to Turkey, this boiled down to: $9350 (6–7 guests), $7950 (8–9 guests), $7450 (10–11 guests), $6350 (12 guests).
The higher the volume, the lower the price. No penalty for booking early. But at these prices, I’m leaning towards ignoring the 50th landmark completely and putting the money down for a foreclosed home in Florida.
I am staying in Brooklyn over spring break. There is a certain Brooklyn look. I can’t put my finger on it but it seems to have some common elements: Only browns, dark blue and, of course, black clothing allowed. Jeans have to be skinny and cannot be stonewashed or comfortable. Shirts have to a little too tight and hair has to look greasy. A five day beard is ubiquitous for men. I fit in except I like my clothes loose fitting to accomodate my girth. Also, I lack the final piece of the Brooklyn outfit – a dog. Owners are allowed to release their suppressed color choices on their dogs which often sport an orange or red sweater.
Apart from the dogs, there is much to like here. We could not get into Chuko so we ended up in Zaytoons. The bread is spectacular and the food is quite good though a tad below the high standard set by Semiramis back home. But opposite Zaytoons is Mecca: the Ample Hills Creamery. One child insisted on dessert so we went in even though the rest us were exhausted. What a find – well, it was a find to us even if it’s well known in NYC. We had scoops of maple bacon, pistachio-squared, honey graham and honey snickerdoodle ice cream. Sometimes food brings you closer to God. This was such a case. We want to be closer to Her every day. We are planning a daily visit. We’ll be zealots by Friday when we leave.
I just flew to La Guardia from O’Hare. It is spring break so the plane was full. The United agent tried to persuade two people to take a later flight. Initially, she offered $300. No-one took the bait. She upped the ante to $400. Still no volunteers. Then, she raised the stakes to $400 plus a first class seat.
Maybe no-one was willing to delay their trip. Or perhaps now the blandishment was ever increasing, people were waiting for the better deal.
Obvious solution is to give insurance: if the deal gets better, the people who bit first get the better deal too.
Do you favor or oppose taxes on bank depositors?
I am totally against it. First, deposits under 100,000 are insured. What happened to that insurance? How could the euro group agree to taxing deposits as small as one euro? What is the meaning of deposit insurance in the euro zone? Second, deposits include the savings of honest people who have paid their taxes and saved for retirement, to buy a home, educate their children or whatever. Why pay a hefty additional tax? And how would these people feel when they woke up on Saturday morning to be told, “Sorry guys, we are not letting you withdraw your money anymore, until we sort out how to take a big chunk away from you.” And why? Because two banks out of the tens operating in Cyprus made bad investment decisions three years ago to help Greece out of its crisis, and got hit by the troika. What’s the incentive that banks now have in the European Union to treat risky investments with caution? If one of them takes bad risks the others will pay for it; if it works well for it, it will keep the profits. A classic scenario for market breakdown.
David Pogue’ followers have been worried about e-book resales and their impact on authors. I also offered my speculations on the same topic. Pogue went to the trouble of looking at the patents and finds:
[The] patents also give the publisher or bookstore the right to impose a minimum price for reselling an e-book. That limit could drop over time, as Apple’s patent makes clear: “As another example, all digital movies must be sold for a minimum of $10 until six months after their respective original purchase date. After the six month period, all digital movies must be sold for a minimum of $5.”
Both proposals suggest that publishers could also limit the number of times a digital item can be resold: “A threshold may limit how many times a used digital object may be permissibly moved to another personalized data store, how many downloads (if any) may occur before transfer is restricted, etc.,” says Amazon’s patent. “These thresholds help to maintain scarcity of digital objects in the marketplace.”
It would be fun research project to work out the optimal scheme: how many new e-books should be produced each period, how should they be priced, how should the “second-hand” e-books be priced etc. Might be easy in the full commitment case. The limited commitment case might be more fun….
We have a visitor this weekend so we did the obligatory trip to Millenium Park, took pictures under the Bean etc. It was freezing cold so we only lasted half an hour before heading to Nellcôte for brunch – I hung tough under pressure to go to Big Bowl. But by the end of the meal, my initially reluctant companions agreed Nellcôte was a big success.
You are greeted with the highbrow (Sunday NYT) and the lowbrow (US Weekly). At least when we went, the room was not super full so you could easily have a conversation. The restaurant is named after the French villa where the Stones partied while they recorded Exile on Main Street. Somehow the decor manages to pull off that kind of ambience despite (because of ?) having Anthropologie style sofas and armchairs arrayed in the lounge area. Most of the food was good – the lobster hash, sunnyside up egg pizza, and whole wheat pancakes received rave reviews. Only the french toast got any criticism whatsoever – it was considered to be if anything too sweet and desserty. But, for me, the thing that tipped the whole experience over the top was the plate of cheese, salami, home made jams, brioche, fresh madeleines etc that they bring to the table while you read decide whether Charlize Theron or Kim Kardashian looked better in the yellow dress they both happened to wear (Charlize in my opinion).
I resigned as Editor of BEJTE last month, along with the other Editors. The journal was sold by Aaron Edlin to DeGruyter Publishing. Speaking for myself, there were two issues:
1. Commitment to open access: Initially, DeGruyter were going to charge for articles and access. We thought we convinced them that this would be a terrible idea, especially as BePress was a pioneer in open access publishing. And we joined as Editors in the old model. I showed the DeGruyter people the Theoretical Economics webpage. Editors at other BePress journals resigned when initially DeGruyter stuck to its guns with a policy of charging for articles. This seemed to move them towards our position. However, the journal webpage still confusingly quotes prices for individual purchase while having a link to Free “Trial” Access. Why is there a link for purchase if the journal is open access? Why the world “Trial” if the journal is committed to open access? So, the message to us was confused.
2. Execution: Along with the transfer of ownership came a transfer of software. BePress actually had quite good software. DeGruyter switched to software sold by Thomson Reuters (perhaps the same software as used by AER, but I am not sure?). They hired just two guys to manage the transition. They were totally overwhelmed. Emails went unanswered. Authors were confused. The software screwed up submission and resubmission of articles so there were constant emails from exasperated authors. There was no intellectual work and all the work was operational, helping DeGruyter fix its problems.
These two problems led to our resignations last month. Although we are still listed as Editors, we have in fact resigned.
In late January, Amazon received a patent to set up an exchange for all sorts of digital material. The retailer would presumably earn a commission on each transaction, and consumers would surely see lower prices.
But a shudder went through publishers and media companies. Those who produce content might see their work devalued, just as they did when Amazon began selling secondhand books 13 years ago. The price on the Internet for many used books these days is a penny.
On Thursday, the United States Patent and Trademark Office published Apple’s application for its own patent for a digital marketplace. Apple’s application outlines a system for allowing users to sell or give e-books, music, movies and software to each other by transferring files rather than reproducing them. Such a system would permit only one user to have a copy at any one time.
Meanwhile, a New York court is poised to rule on whether a start-up that created a way for people to buy and sell iTunes songs is breaking copyright law. A victory for the company would mean that consumers would not need either Apple’s or Amazon’s exchange to resell their digital items. Electronic bazaars would spring up instantly.
In principle, a resale market is good for the orignal seller. A buyer is willing to pay more to buy the product in the first place if he can recoup some of the cost by reselling the product later on. If the original seller can design the resale market, setting the terms of trade and the quantity traded, the resale market has to increase profits. The main difficulty is that the current owners of e-books say will compete with the original seller for new business. But if the price of resale and perhaps even the quantity is set by the original seller, the competition can be controlled while increasing revenue.
The main problems come with the inability to control the resale market. Today’s ebook buyers compete with the original seller. Ebooks do not depreciate so there is no vertical product differentiation. Price competition will be intense. This reduces the profits the original buyers can make from resale and thus also the higher price the original seller can charge. The original seller also faces competition from the books she sold in the past and this reduces her profits. But then how are authors or publishers going to make any money?
One other solution relies on commitment – the commitment to sell very few books. In the first period, very few Grishams are produced and a commitment is made that no more will ever be produced. Anyone who wants to read it will have to buy one from the lucky people who currently own one. The resale market will sustain high prices and the author will be able to charge a high price for the first editions. Grisham ebooks will be proudly displayed like Picassos. The Koch brothers mansions will each have a Kindle room with readers nailed to the wall. Paul Ryan will be able to walk up, switch it on and see a Grisham flicker up on the screen. Authors and publishers will boast of the price they got at auction not the millions sold in the first few months.
Or, of course, it will be impossible to commit, particularly when the cost of production is zero. Grisham will be forced to tour as relentlessly as Miley Cyrus, reading out unreleased short stories to rapt audiences of deeply unfulfilled practising lawyers.
“It’s disturbing because I don’t know what it means about whether they could look at my own e-mail,” said Oliver Hart, an economics professor. “We need to have a discussion and a better understanding of the policy.”
He and other professors said the searches would prompt him to conduct more business through private e-mail accounts outside of Harvard’s reach.
If one activity is being monitored by the Principal, then the Agent switches to another one. The only problem is that Google looks at the other one.
The new standard, which was agreed to at a meeting of the International Air Transport Association in October, will allow airlines to ask customers searching for airfares through travel agents or Web sites to first provide their names, frequent flier numbers, contact details and other information before presenting them with prices. A few airlines are expected to test this approach this year, and it could be widely adopted in a few years, according to the trade group. A majority of the group’s 240 members, which include most American airlines though not Southwest, voted for the standard.
Industry officials say the standard, which they call “new distribution capability,” is simply a way for airlines to better tailor their services to the needs of their customers. For instance, an airline might offer a package that includes free checked baggage, an aisle seat and a 10 percent discount to frequent fliers. And customers would be able to compare competing bundles from different airlines. They also say customers will still have the option of shopping anonymously for basic fares if they choose not to provide any information about themselves.
Thank God for Southwest.
Mutually Assured Destruction did not succeed in bringing the Democrats and the Republicans back to bargaining table to renegotiate the sequester. So, a reporter facetiously suggests locking up everyone in a room till an agreement is reached.
This is not so facetious as it seems – the sequester was meant to create agreement because the spending cuts were a hostage that no-one wanted to lose. Schelling thought about this sort of thing but the obvious reference is Oliver Williamson’s “Using Hostages to Support Exchange”. So, let’s go the whole way and think about who we would have to hold hostage to give good incentives for Congress to renegotiate the sequester. We would have to have one Democrat and one Republican to give both sides a hostage to release.
First off, John Boehner is not a good candidate for the Republican hostage. The real sequester leaves the Republicans divided – the defense hawks hate it but the deficit hawks want it. Similarly, a significant fraction of the Republican House caucus would just love to leave Boehner hostage. They are not going to negotiate a grand bargain to get him out. Extrapolating this logic to the Democrats, it is pretty clear Hillary Clinton would be a great hostage – all the Democrats would want to release her. This intuition further suggests Hillary will be great candidate in 2016, should she want to run. She would unify Democrats behind her and is a centrist so she would be a good candidate in the general election. My intuition is that Biden does not generate the same enthusiasm for hostage release.
So who is a good Republican hostage? Reagan, if he were still around, would be great. Who is today’s Reagan? Let’s face it, Jeb Bush does not inspire – Republicans would leave him hostage to get a good deal to free Hillary. Ditto Chris Christie. Rubio? Ryan? If Rubio were left hostage, the Republican Party would not lose a “thought leader” as we say in b school. They could pretty much survive without him intellectually. McCain is a leader on immigration reform, Rubio’s key issue. Sure, they lose diversity but not leadership. Ryan on the other hand is a leader when it comes to fiscal matters. No-one is the House can take his place and the Senate budget experts may have expert opinions but lack charisma (e.g. Portman).
So, Ryan should be the Republican hostage and he should be locked up with Hillary Clinton until a “grand bargain” is reached.
One at a time, 30 men and 30 women entered the simulator and strapped on a set of goggles that transported them into a digital cityscape. A woman’s voice then explained their mission: A diabetic child is stranded somewhere in the city, and you must find him and deliver an insulin injection.
With a whoosh of air, the subjects left the ground – either controlling their flight by a series of arm motions, like Superman, or as a passenger in a helicopter. As they scoured the city, wall-mounted speakers gave the impression of wind whistling by; powerful speakers in the floor produced vibrations to simulate riding in a helicopter. The experiment was set so that two minutes into the simulation, no matter what mode of transport, the subject found the sick child.
After removing the virtual reality goggles, each person then sat with an experimenter to answer a few questions about the experience. This questionnaire, however, was a ruse: During the interview, the experimenter would “accidentally” knock over a cup filled with 15 pens. She would wait five seconds to see if the subject would help her pick them up, and then begin collecting the pens, one pen per second, to give the person another opportunity to come to her aid.
The people who had just flown as Superman were quick to lend a hand, beginning to pick up the pens within three seconds. The helicopter group, however, picked up the first pen, on average, after six seconds (one second after the experimenter began picking them up herself).
The superhero group not only pitched in first, they also picked up about 15 percent more pens on average. While everyone who flew like Superman picked up some pens, six participants who rode in the helicopter failed to offer any help at all.
So, video games where you play the superhero help you behave like a superhero. I’m off to play Zelda for the next couple of hours. Then, I’ll go to work and see if I am (even) nicer to everyone than I am normally.
For decades, [the Justice Department] argue, Anheuser-Busch has been employing what game theorists call a “trigger strategy,” something like the beer equivalent of the Mutually Assured Destruction Doctrine. Anheuser-Busch signals to its competitors that if they lower their prices, it will start a vicious retail war. In 1988, Miller and Coors lowered prices on their flagship beers, which led Anheuser-Busch to slash the price of Bud and its other brands in key markets. At the time, August Busch III told Fortune, “We don’t want to start a blood bath, but whatever the competition wants to do, we’ll do.” Miller and Coors promptly abandoned their price cutting.
Budweiser’s trigger strategy has been thwarted, though, by what game theorists call a “rogue player.” When Bud and Coors raise their prices, Grupo Modelo’s Corona does not. (As an imported beer, Corona is also considered to have a higher value.) And so, according to the Justice Department, AB InBev wants to buy Grupo Modelo not because it thinks the company makes great beer, or because it covets Corona’s 7 percent U.S. market share, but because owning Corona would allow AB InBev to raise prices across all of its brands. And if the company could raise prices by, say, 3 percent, it would earn around $1 billion more in profit every year. Imagine the possibilities. The Justice Department already has.
Here is the Justice Department’s complaint. Davidson says they use game theory models to forecast the impact of the merger. But I do not see that in the complaint. Is there a publicly available document outlining their analysis?
Trade of shares is going to be taxed by some countries inside the EU. The usual counter argument is that this will simply cause trading to move outside the tax zone to, in this case, the U.K. and the U.S. To try to get around this, the countries involved require that the tax be paid wherever the trade takes place:
The tax would be owed no matter where the trade took place, as long as a European security or European institution was involved. The law has been written so broadly that if a French bank bought shares in an American company on the New York Stock Exchange, the tax would be owed.
But who is going to report the trade? The EU authorities are relying on a prisoner’s dilemma to do the monitoring for them:
There is every chance that markets from other countries will not be very cooperative, meaning that to learn if a German bank traded in New York the authorities might have to rely on the bank to report it to them. But then there would be the risk that the tax authorities would learn of it otherwise, perhaps through an audit or from a report by an Italian bank that happened to be on the other side of that trade.
Mr. Bergmann, himself an economist, compared that to “the prisoners’ dilemma,” a classic concept in economics in which two people arrested for a crime would do best if neither confessed, but either would do very badly if he did not confess while the other did. If the authorities did find out, it would be tax fraud under the proposed law.
If the Italian bank reports the trade but the German bank does not, does the Italian bank get a reward? Is the tax forgiven? This is not clear from the article. (I also had a hard time finding the actual law but perhaps I did not look hard enough.) If the Italian bank is liable for tax if it unilaterally reveals the trade, then the game is a coordination game:
If the German bank does not reveal the trade, the Italian bank avoids the tax if it does not reveal but pays the tax if it does. Hence, not revealing is a strict best response to not revealing by the opponent. On the other hand, if the German bank is expected to reveal the trade, if the Italian bank does not reveal the trade, it pays a big fine. If it also reveals the trade, it just pays the tax. Hence, reveal is a strict best response to reveal. Then, the blog post should be called Coordination Games Everywhere.
Would love to know what the facts are. Or are they ambiguous? This would introduce uncertainty and then papers can be written about this possibly…
I just got back from a short trip. I flew United. I used my app to check our flight status. Surely enough, the incoming plane was delayed by thirty minutes. Decided to spend the extra time in Nature wallowing in the beauty she has created – a dolphin frolicking in the distance in the warm sea – rather than in the Southwest Florida International Airport in Fort Myers suffering in the sterile concrete lump Man has created. After all, I’d already printed off boarding passes and even checked in baggage before arrival.
Arrive at the counter and attempt to actually check in aforementioned bags. No such option was offered on the electronic check-in terminal. Find a wandering United clerk who repeats the procedure and encounters the same problem. She finds a higher-up United clerk who tries a third time. Then, the higher-up tells us that bags can only be checked in up to thirty minutes before the SCHEDULED departure not the ACTUAL departure. Luckily, sense is seen and baggage is checked in after some complaining.
So, United expects you to make decisions as if the flight is leaving on time even though it is common knowledge that it is not. Then, why tell you flight status? If they do not tell you, you are more likely to make the decisions they want you to make. If they give you up to date information, you are certainly going to make decisions based on the information. Yes, you can find out the information via other websites. But then if you are late, can’t check in bags etc., it’s your own problem. If United has told you flight status and you’re late, then it’s their problem too. Surely, there is some footnote somewhere on some website that says you should be on time even if the flight is late but who’s going to read that?
Frustrated by the reality that much of our advice went unheeded (so many free-market solutions still waiting to be taken up!), we turned our analytical toolkit on the behavior of politicians and bureaucrats themselves. We began to examine political behavior using the same conceptual framework that we use for consumer and producer decisions in a market economy. Politicians became income-maximizing suppliers of policy favors; citizens became rent-seeking lobbies and special interests; and political systems became marketplaces in which votes and political influence are traded for economic benefits.
In order to change the world, we need to understand it. And this mode of analysis seemed to transport us to a higher level of understanding of economic and political outcomes.
But there was a deep paradox in all of this. The more we claimed to be explaining, the less room was left for improving matters. If politicians’ behavior is determined by the vested interests to which they are beholden, economists’ advocacy of policy reforms is bound to fall on deaf ears. The more complete our social science, the more irrelevant our policy analysis.
But then he becomes more positive and extols the impact of ”ideas” on politics:
Ideas determine the strategies that political actors believe they can pursue. For example, one way for elites to remain in power is to suppress all economic activity. But another is to encourage economic development while diversifying their own economic base, establishing coalitions, fostering state-directed industrialization, or pursuing a variety of other strategies limited only by the elites’ imagination. Expand the range of feasible strategies (which is what good policy design and leadership do), and you radically change behavior and outcomes.
Indeed, this is what explains some of the most astounding turnarounds in economic performance in recent decades, such as South Korea’s and China’s breakout growth (in the 1960’s and the late 1970’s, respectively). In both cases, the biggest winners were “vested interests” (Korea’s business establishment and the Chinese Communist Party). What enabled reform was not a reconfiguration of political power, but the emergence of new strategies. Economic change often happens not when vested interests are defeated, but when different strategies are used to pursue those interests.
I agree ideas matter but they too can be used to in political discourse to maximize the benefits to powerful vested interests. Deliberate misapplication of ideas is the age old strategy
First, take the “markets work” idea. Yes, free markets are great is some circumstances, when competition is perfect. But some kind of regulation is ideally warranted when they are imperfect. But the firms in imperfectly competitive markets would love to be deregulated. They can argue that their market is actually perfect. They can hire lobbyists to persuade politicians and perhaps succeed. In this case, ideas lead to deregulation when it is not warranted.
Second, take the “markets fail” idea. Yes, markets fail is some circumstances, when there are externalities. But there should be no regulation if they are perfect. But the firms in perfectly competitive markets would love price supports, tariffs against foreign competition, entry barriers etc. They can argue that their market is actually imperfect. They can hire lobbyists to persuade politicians and perhaps succeed. In this case, ideas lead to regulation when it is not warranted. We economists are enamoured on the “invisible hand” and have many examples of this scenario. We have fewer examples of the first partly because we do not look for them. But such examples are a favorite of liberals.
So, Rodrik has an interesting perspective of the pernicious effects of positive political economy and the nihilism is generates towards policy. But he is too optimistic about the power of ideas. Ideas can be misused deliberately by vested interests
Interesting article about the Cameron government’s use of Thaler tricks to improve government servies and save money:
Take the job centre in Loughton, where he describes – step by step – the minutiae of how his team has encouraged advisers to be forward-looking, specific and to give their clients a sense of progress; all of which, studies have shown, have a big impact on people reaching their goals, he says.
“So instead of jobseekers having to show they’ve looked for at least three jobs in the last two weeks, advisers will now say, ‘OK, let’s talk about what you are going to do in the next two weeks’. They will ask what their client needs to work on. ‘So, you said you needed to work on your CV. So when will you do that. OK, Wednesday morning after breakfast.’ The client is then encouraged to write it down in a little booklet they get. And all the things you need to do before you get your job have been compressed on to one side of paper and designed in such a way that when you go through it with the adviser, you’ve done a third of it straight away. That in itself gives you a strong, immediate sense of progress.”
The results speak for themselves. On the top floor of the job centre where it was trialled for three months, about a fifth more jobseekers were off their books in 13 weeks compared with the floor below where processes remained unchanged.
I still need a nudge to buy the book though.
According to this video by Tim Hartford, this includes: Designing wargames for Kissinger et al., helping Kubrick with Dr Strangelove, suggesting the red telephone be installed between USA and Soviet Union and trying but failing to dissuade a bombing campaign in Vietnam. On the intellectual plane (as well as game theory), decades ahead of his time in thinking about behavioral economics (because he was trying to give up smoking), doing the first agent-based model (of discrimination) and thinking about climate change. Near-fatal flaw for Nobel Committee: Not enough math.
Great for teaching. Part on mutually assured destruction vs common interest games could easily be folded into discussion of Nash vs subgame perfect equilibrium and hence credibility.
[T]he Jets have invested an enormous amount of energy and money in Sanchez, and, assuming that no one will trade for him, they are contracted to pay him $8.25 million next year, whether he plays or not….
In a purely rational world, Sanchez’s guaranteed salary would be irrelevant to the decision of whether or not to start him (since the Jets have to pay it either way). But in the real world sunk costs are hard to ignore. Hal Arkes, a psychologist at Ohio State University who has spent much of his career studying the subject, explains, “Abandoning a project that you’ve invested a lot in feels like you’ve wasted everything, and waste is something we’re told to avoid.” This means that we often end up sticking with something when we’d be better off cutting our losses—sitting through a bad movie, say, just because we’ve paid for the ticket. In business and government, the effect pushes people to throw good money after bad.
Jeff and I have a paper, Mnemonomics: The Sunk Cost Fallacy As A Memory Kludge, that offers a primitive theory of this “Concorde effect” as a response to limited memory. Mark Sanchez was hired years ago. At that time there was a rationale for why he would be a great QB for the Jets and hence he was paid a high salary. This rationale for his hiring has been lost in the mists of time but his salary is recalled perfectly. His salary encodes the rationale for his hiring – the higher the salary the better must have been the rationale for his hiring. Even if we have forgotten the details, the rationale must have been good if Sanchez was paid a high salary. Therefore the higher the salary, the greater the chances of retention even when future events creates costs of retention. This is the Concorde effect. As far as Mark Sanchez goes, mnemonomics does not do too bad a job.
But an obvious alternate theory rests on reputation:
“Taking the original decision-maker out of the picture and letting a fresh pair of eyes look at the pros and cons can help,” Arkes says. He points to a…study of a bank that found that loan officers were reluctant to acknowledge that loans they’d made had gone bad, whereas new executives were far more likely to take the loss and move on. Whoever becomes the Jets’ new general manager will have no personal or reputational investment in Sanchez, which should make it easier for him to be more objective, though he’ll still have to persuade the head coach and the owner.
There’s surely a lot of truth to this theory. But there is a countervailing effect too. Managerial turnover generates limited memory – who knows why the previous CEO made the decisions he did? If he was smart, it would be good to accord his decisions some respect and see them through before trying out new ideas. Perhaps the best CEOs understand this. From our paper:
For example, when John Akers stepped down and Lou Gerstner became C.E.O. of IBM in 1993, he was determined to “carry out a set of policies put in place by none other than the much-maligned Akers.” He was not “rushing to make significant changes in vision” but was “still following through on Akers’ two-year-old restructuring.” He believed that “IBM has yet to test fully many if the changes Akers put in place” and said, “I want to make sure the current system is implemented before we try any alternatives.” We interpret Gerstner’s decision-making as follows: Akers’ old plans were initiated using information known to him at the time. By the time Gerstner arrived, the direct information was lost but was manifested indirectly in the strategic plan he inherited. Hence, this generated a bias to implement the old plan.
You dig your car out of the snow, run an errand or two and come back home to discover…someone else has parked in “your” spot! This free rider problem reduces your incentive to dig your car out in the first place. If only property rights could be enforced, your incentives would be good. It turns out that Bostonians have solved this problem:
Cold-weather cities like Boston, however, have gone so far as to enact laws on the subject. The Post reports that in Boston, “a city law says that if you dig out your car in a snow emergency, a lawn chair or trash can renders the spot yours for at least two days while you’re away at work.”
The Windy City is relying on social norms instead:
In Chicago, the article adds, citizens cannot legally block a parking spot but even city officials acknowledge an “informal rule of dibs” in favor of the person who has dug out the spot.
Hat Tip: Andrew Ellis, job candidate from B.U.