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A firm has a basic goal:  maximize profits.  And then it has day-to-day decisions. It is far too complicated to every day try to trace through the consequences of those basic decisions on the fundamental objective of maximizing profits. A manager who tried to do that would spend so much time thinking that by the time he figured it out the day would be over and he’d have to start thinking again about tomorrow’s decision.

So firms don’t hire managers like that. Managers cling to intermediate goals, like say maximize market share. The best intermediate goals are the ones that are easy to monitor and which do a pretty good job of proxying for the underlying goal. These intermediate goals eventually become part of the culture of the firm and knowledge of their connection to the underlying goal can get lost. The manager can’t distinguish between intermediate goals and fundamental goals.

Now a consultant comes in to advise the manager. A consultant’s job is to show the manager how best to pursue his goals. So the very first thing a consultant should do is find out what the manager’s goals are. And here’s where the dilemma arises. The consultant might actually be smart enough to figure out that the manager’s goals are just intermediate goals. Does he say “De Gustibus” and advise the manager on how to pursue his goals even if he can see that in this particular instance it works against what the manager should really be maximizing?

Or does he have enough ambition in his job as advisor to try to convince the manager that his goals are all wrong, that he should really be maximizing something else? I honestly wonder what the smart consultant does in these situations.

More generally, in everyday life we have arguments about what’s the right thing to do. A lot of the time these arguments are confounded by the inability to distinguish whether we are arguing about the right course of action given our common goals (an argument that can be settled) or whether we have really just chosen different intermediate goals (loggerheads.)

Presh Talwalker tells us about this study of parking strategies:

They observed two distinct strategies: “cycling” and “pick a row, closest space.” They compared the results. “What was interesting,” [Professor Andrew Velkey found], “was although the individual cycling were spending more time driving looking for a parking space, on average they were no closer to the door, time-wise or distance-wise, than people using ‘pick a row, closest space.’”

And commenters are inferring that hunting for the best spot is a sub-optimal strategy.  But those that are searching for the best parking spot are not interested in reducing their expected parking time, rather they care about the second moment.  When we have an appointment there is a deadline effect:  our payoff drops precipitously if we arrive past the deadline.  Faced with such a payoff function we are typically wiling to increase our expected parking time if in return we can at least increase the probability of getting lucky with a really good spot.  “Pick a row, closest space” guarantees we will be a bit late.  “Cycling” may increase the average searching time but at least gives us a chance of being on time.

Dr. Doom did not get approval for the tub from the Department of Buildings, which resulted in the violation. He’s been ordered to remove not only the tub, but also the deck and party room (replete with a bar and bathroom) which he had constructed on the roof of his $5.5 million East First Street pad. The ruling apparently came about after a complaint levied in February. If you’re still grappling to get a sense of what will be lost now that these parties—at least, in the form they previously inhabited—will cease to exist, here’s a wonderful quote Roubini gave toNew York which paints quite the picture of both his allure and the nature of the shindigs. “[The models who attend my parties] love my beautiful mind. I am ugly, but they’re attracted to the brains. I’m a rock star among geeks, wonks and nerds,” he said. “[What makes the parties so great are] fun people and beautiful girls. I look for 10 girls to one guy.” 1. Exercise: find a name such that when you sing The Name Game (“banana fana fo …”) all three words you get are insults. 2. The Northwestern Women’s Lacrosse team has won the NCAA championship like every year but two in the past decade. The two losses make the overall dynasty more impressive. Discuss. 3. Why do fat people slide farther when they reach the bottom of a water slide? 4. When hiking in a group, if an accurate measure of (changes in) elevation is unavailable but you have a watch and a GPS it’s better to share the work of carrying the backpack by dividing the time rather than the distance. You are walking back to your office in the rain and your path is lined by a row of trees. You could walk under the trees or you could walk in the open. Which will keep you drier? If it just started raining you can stay dry by walking under the trees. On the other hand, when the rain stops you will be drier walking in the open. Because water will be falling off the leaves of the tree even though it has stopped raining. Indeed when the rain is tapering off you are better off out in the open. And when the rain is increasing you are better off under the tree. What about in steady state? Suppose it has been raining steadily for some time, neither increasing nor tapering off. The rain that falls onto the top of the tree gets trapped by leaves. But the leaves can hold only so much water. When they reach capacity water begins to fall off the leaves onto you below. In equilibrium the rate at which water falls onto the top of the tree, which is the same rate it would fall on you if you were out in the open, equals the rate at which water falls off the leaves onto you. Still you are not indifferent: you will stay drier out in the open. Under the tree the water that falls onto you, while constituting an equal total volume as the water that would hit you out in the open, is concentrated in larger drops. (The water pools as it sits on the leaves waiting to be pushed off onto you.) Your clothes will be dotted with fewer but larger water deposits and an equal volume of water spread over a smaller surface area will dry slower. It is important in all this that you are walking along a line of trees and not just standing in one place. Because although the rain lands uniformly across the top of the tree, it is probably channeled outward away from the trunk as it falls from leaf to leaf and eventually below. (I have heard that this is true of Louisiana Oaks.) So the rainfall is uniform out in the open but not uniform under the tree. This means that no matter where you stand out in the open you will be equally wet, but there will be spots under the tree in which the rainfall will be greater than and less than that average. You can stand at the local minimum and be drier than you would out in the open. Why are conditional probabilities so rarely used in court, and sometimes even prohibited? Here’s one more good reason: prosecution bias. Suppose that a piece of evidence X is correlated with guilt. The prosecutor might say, “Conditional on evidence X, the likelihood ratio for guilt versus innoncence is Y, update your priors accordingly.” Even if the prosecutor is correct in his statistics his claim is dubious. Because the prosecutor sees the evidence for all suspects before deciding which ones to bring to trial. And the jurors know this. So the fact that evidence like X exists against this defendant is already partially reflected in the fact that it was this guy they brought charges against and not someone else. If jurors were truly Bayesian (a necessary presumption if we are to consider using probabiilties in court at all) then they would already have accounted for this and updated their priors accordingly before even learning that evidence X exists. When they are actually told it would necessarily move their priors less than what the statistics imply, perhaps hardly at all, maybe even in the opposite direction. A balanced take in the New Yorker. Here is an excerpt. A core objection is that neuroscientific “explanations” of behavior often simply re-state what’s already obvious. Neuro-enthusiasts are always declaring that an MRI of the brain in action demonstrates that some mental state is not just happening but is really, truly, is-so happening. We’ll be informed, say, that when a teen-age boy leafs through the Sports Illustrated swimsuit issue areas in his brain associated with sexual desire light up. Yet asserting that an emotion is really real because you can somehow see it happening in the brain adds nothing to our understanding. Any thought, from Kiss the baby! to Kill the Jews!, must havesome route around the brain. If you couldn’t locate the emotion, or watch it light up in your brain, you’d still be feeling it. Just because you can’t see it doesn’t mean you don’t have it. Satel and Lilienfeld like the term “neuroredundancy” to “denote things we already knew without brain scanning,” mockingly citing a researcher who insists that “brain imaging tells us that post-traumatic stress disorder (PTSD) is a ‘real disorder.’ ” And It’s perfectly possible, in other words, to have an explanation that is at once trivial and profound, depending on what kind of question you’re asking. The strength of neuroscience, Churchland suggests, lies not so much in what it explains as in the older explanations it dissolves. She gives a lovely example of the panic that we feel in dreams when our legs refuse to move as we flee the monster. This turns out to be a straightforward neurological phenomenon: when we’re asleep, we turn off our motor controls, but when we dream we still send out signals to them. We really are trying to run, and can’t. He died earlier this week. If you grew up in Southern California, and you watched TV, you may have forgotten Cal Worthington but his dog Spot, the acres and acres of cars, the “Go See Cal”, the giant selection of cars and trucks on sale, the “open every day til midnight” and the music in the way “nineteen” springboarded the cars vintage out of your set and into your ears are all still stored away in some synapses somewhere in there and they’re all gonna come flowing out when you watch this video and probably bring with them a whole bunch of other stuff lost in there that you are gonna be pretty tickled to find again. RIP Cal Worthington. Should restaurants put salt shakers on the table? A variety of food writers weigh in on the question here. The naive argument is that salt shakers give diners more control. They know their own tastes and can fine tune the salt to their liking. The problem with this argument is that salt shaken over prepared food is not the same as salt added to food as it is cooked. A chef adds salt numerous times through the cooking process to different items on the plate because some need more salt than others. So the benefit of control comes at the cost of excess uniformity in the flavor. But beyond that, there is an interesting strategic issue. When there is no salt shaker on the table the chef chooses the level of saltiness to meet some median or average diner’s taste for salt. All diners get equally salty food independent of their taste. Diners to the left of the median find their dish too salty and diners to the right wish they had a salt shaker. A reduction in the level of saltiness benefits those just to the left of the median at the expense of those far to the right and at an optimum those costs outweigh the benefits. But when there is a salt shaker, the chef can reduce the level of saltiness at a lower cost because those to the right can compensate (albeit imperfectly) by adding back the salt. So in fact the optimal level of salt added by a chef whose restaurant puts salt shakers on the table is lower. So the interesting observation is that salt shakers on the table benefit diners who like less salt (and also those that like a lot of salt) at the expense of the average diner (who would otherwise be getting his salt bliss point but is now getting too little). Imagine that the President convenes his top economic advisors to get a recommendation on a pressing policy issue. They say unequivocally “do X.” The President asks why and they say “its complicated. Do X.” The President, not happy with that, decides he is going to read the economic literature on the pros and cons of doing X. After a thorough study he comes back to his advisors and says “You economists don’t understand your own science. I read the literature and I should do Y.” I think we would agree that’s a bad outcome. For probably exactly the same reason that Doctors don’t seem to be happy with economist Emily Oster’s apparent advice to pregnant women to drink alcohol “like a European adult.” But let’s assume that Emily truly can interpret the published statistical literature better than her Obstetrician. There is another reason to question her recommendations. An advisor’s job is to advise on the risks of an activity. Because the advisor is the expert on that. The decision-maker is the expert on her own preferences. The correct decision is based on weighing both of these. A recommendation to have up to a glass of wine per day while pregnant confounds the two sides. What it really means is “I like wine a lot. I also read about the risks and decided that my taste for wine was strong enough that I am willing to live with the risks.” Thus her recommendation amounts to “If you like wine as much as I do you should drink up to a glass per day when you are pregnant.” When I asked my doctor about drinking wine, she said that one or two glasses a week was “probably fine.” But “probably fine” isn’t a number. The problem is that there is no way to quantify how much she likes wine and so no way for her readers to know whether they like wine as much as she does. Likewise it is too much for Emily to demand her doctors to say much more than “probably fine.” The doctors’ advice is based on some assumption about the patient’s taste for wine weighed against the risks. Emily’s advice is based on a different assumption. As for the risks, when Emily reads the literature and concludes that the evidence is weak of the danger of drinking alcohol she then jumps to the conclusion that it is weaker than what the doctors thought. She makes the identifying assumption that their recommendation was conservative because they overestimated the risks and not because they underestimated her taste for wine. But there does not seem to be any basis for that assumption because her doctors never told her what they believed the risks to be and they never asked her how much she likes wine. One of my favorite subjects is woven through the highly entertaining This American Life segment about Emir Kamenica. I highly recommend listening. Unrelated to the main story, at the very beginning Michael Lewis details a very nice defense of plagiarism: The concept was alien to me, I mean I just thought it was an odd concept because you repeat what other people say all the time, I was just repeating what someone else said, it was a very intelligent thing to repeat. And I thought I was saving us a lot of trouble… save him the trouble of having to read something really awful and I wouldn’t have to write a boring book report or even read the boring book and so I was doing both of us a favor. And it seemed sortof counterintuitive to have to generate a thing that had already been done. Roy is coming to plant flowers in Zoe’s garden. Zoe loves flowers, her utility for a garden with $x$ flowers is $z(x) = x.$ Roy plants a unit mass of seeds and the fraction of these that will bloom into flowers depends on how attentive Roy is as a gardener. Roy’s attentiveness is his type $\theta$. In particular when Roy’s type is $\theta$, absent any sabotage by Zoe, there will be $\theta$ flowers in Zoe’s garden in Spring. Roy’s attentiveness is unknown to everyone and it is believed by all to be uniformly distributed on the unit interval. Jane, Zoe’s neighbor, is looking for a gardener for the following Spring. Jane has high standards, she will hire Roy if and only if he is sufficiently attentive. In particular, Jane’s utility for hiring Roy when his true type is $\theta$ is given by $j(\theta) = \theta - 2/3.$ (Her utility is zero if she does not hire Roy.) Roy tends to one and only one garden per year. Therefore Roy will continue to plant flowers in Zoe’s garden for a second year if and only if Jane does not hire him away from her. Consequently, Zoe is contemplating sabotaging Roy’s flowers this year. If Zoe destroys a fraction $1 - \alpha$ of Roy’s seeds then the total number of flowers in Zoe’s garden when Spring arrives will be $x = \alpha\theta$. Of course sabotage is costly for Zoe because she loves flowers. There will be no sabotage in the second year because after two years of gardening Roy goes into retirement. Therefore, if Zoe destroys $1-\alpha$ in the first year and Roy continues to work for Zoe in the second year, Zoe’s total payoff will be $z(\alpha\theta) + z(\theta)$ whereas if Roy is hired away by Jane, then Zoe’s total payoff is just $z(\alpha\theta)$. This is a two-player (Zoe and Jane) extensive-form game with incomplete information. The timing is as follows. First, Roy’s type is realized. Nobody observes Roy’s type. Zoe moves first and chooses $\alpha \in [0,1]$. Then Spring arrives and the flowers bloom. Jane does not observe $\alpha$ but does observe the number of flowers in Zoe’s garden. Then Jane chooses whether or not to hire Roy away from Zoe. Then the game ends. Describe the set of all Perfect Bayesian Equilibria. I haven’t decided yet and I can’t figure out which side this is evidence for: Me: Oh I have to remember to set up your desk today because I promised that I would and that if I didn’t I would give you$2.

7 year old:  I was hoping you would forget.

Me:  Are you saying you would rather have $2 than your desk? 7yo: No, I am saying I would rather have$2 today and my desk tomorrow.

Me:  Hold on, what would you rather have:  $2 today and your desk tomorrow or$2 today, another $2 tomorrow and then your desk the next day? 7yo:$2 today, another $2 tomorrow and then my desk the next day. Me:$2 today, $2 tomorrow,$2 the next day, and then your desk the day after that?

7yo:  Yep.

Me:  And what is the number of days you would like to have \$2 before you finally get your desk?

7yo:  Infinity.

Here’s the preview:

Students all over are starting college this month, and some of them still have a nagging question: what, exactly, got me in? An admissions officer tells us the most wrongheaded things applicants try. And Michael Lewis has the incredible story of how a stolen library book got one man — Emir Kamenica — into his dream school. (Photo: Emir as a Harvard undergrad. Credit Terri Wang.)

From The New Yorker

Now, imagine an animal that emerges every twelve years, like a cicada. According to the paleontologist Stephen J. Gould, in his essay “Of Bamboo, Cicadas, and the Economy of Adam Smith,” these kind of boom-and-bust population cycles can be devastating to creatures with a long development phase. Since most predators have a two-to-ten-year population cycle, the twelve-year cicadas would be a feast for any predator with a two-, three-, four-, or six-year cycle. By this reasoning, any cicada with a development span that is easily divisible by the smaller numbers of a predator’s population cycle is vulnerable.

Prime numbers, however, can only be divided by themselves and one; they cannot be evenly divided into smaller integers. Cicadas that emerge at prime-numbered year intervals, like the seventeen-year Brood II set to swarm the East Coast, would find themselves relatively immune to predator population cycles, since it is mathematically unlikely for a short-cycled predator to exist on the same cycle. In Gould’s example, a cicada that emerges every seventeen years and has a predator with a five-year life cycle will only face a peak predator population once every eighty-five (5 x 17) years, giving it an enormous advantage over less well-adapted cicadas.

We were interviewed by the excellent Jessica Love for Kellogg Insight.  Its about 12 minutes long.  Here’s one bit I liked:

We go around in our lives and we collect information about what we should do, what we should believe and really all that matters after we collect that information is the beliefs that we derive from them and its hard to keep track of all the things we learn in our lives and most of them are irrelevant once we have accounted for them in our beliefs, the particular pieces of information we can forget as long as we remember what beliefs we should have.  And so a lot of times what we are left with after this is done are beliefs that we feel very strongly about and someone comes and interrogates us about what’s the basis of our beliefs and we can’t really explain it and we probably can’t convince them and they say, well you have these irrational beliefs.  But its really just an optimization that we’re doing, collecting information, forming our beliefs and then saving our precious memory by discarding all of the details.

I wish I could formalize that.

When you over-inflate a kid’s self-esteem you achieve a short-run gain (boost in confidence) at the expense of a long-run cost (jaded kids who learn that praise is just noise.) For that reason, emphasis on managing self-esteem gets a lot of scorn.

But what is the cost of jaded kids? They learn to see through your lies. All that means is that their credence is a scarce resource that parents must manage. In a first-best world you are honest with your kids right up until the stage in their lives when a false boost of self-confidence has maximal payoff. Probably when they are taking the SAT.

Unfortunately it’s not a first-best world: even if you don’t lie to them, other people will and eventually they will learn to be appropriately skeptical. Which means that a child’s trust is an exogenously depreciating resource. It’s just a matter of time before they are relieved of it.

Given the inevitability of that process you have two alternatives. Deplete their credence yourself and choose what lies they get told in the process, or be always truthful and allow their trust to be violated by outside forces.

Doing it yourself at least gives them the admittedly transient benefit that comes from an artificial boost of self-confidence.  And the sooner the better.

Why does it seem like the other queue is more often moving faster than yours?  Here’s MindHacks:

So here we have a mechanism which might explain my queuing woes. The other lanes or queues moving faster is one salient event, and my intuition wrongly associates it with the most salient thing in my environment – me. What, after all, is more important to my world than me. Which brings me back to the universe-victim theory. When my lane is moving along I’m focusing on where I’m going, ignoring the traffic I’m overtaking. When my lane is stuck I’m thinking about me and my hard luck, looking at the other lane. No wonder the association between me and being overtaken sticks in memory more.

Which is one theory.  But how about this theory:  because it is in fact more often moving faster than yours.  It’s true by definition because out of the total time in your life you spent in queues, the time spent in the slow queues is necessarily longer than the time spent in the fast queues.

Buy tickets starting at 10AM at NUSports.com for the games against Ohio State on Oct 5 and Michigan on Nov 16.  We have added bidding this season:  you may submit a bid below the current auction price and you will receive tickets if and when the price falls to your bid level.  Here is an older post about Purple Pricing with some more information.

Its called Chhota Pegs and so far has been mostly a chronicle of a visit to Calcutta (his hometown?) where food seems to be the star attraction:

Now this is the hard part. The damn thing must cook above and below but it is thick, and hard to turn over.   On the other hand if you don’t turn it over the potatoes will burn. So what you do is cook it for a while (covered if needed) until you can move the pan and have the entire omelette wobble in it. The top will still be uncooked (if it is cooked, I’m guessing the bottom is burnt).

Then (and here you must take a large swig of what’s left of the Bloody Mary / Laphroaig and if you are married and male, remove spouse from kitchen) cover the pan with the snug plate, put on the oven mitts, and turn the whole contraption over until the omelette is on the plate.  Or at least, try turning it.

Do not forget the oven mitts as you will have to grab the bottom of the pan. Exhortations such as Allah ho AkbarJoy Ma Kali or milder (Hare Krishna!) or even secular variants, such asBande Mataram, are useful here. Indeed, I encourage them.

With a sprinkling of Peter Hammond:

Thanks to Diego Garcia (uninhabited except temporarily by various U.K. and U.S. military personnel) and to Pitcairn (population now about 50), the British Empire appears safe from sunsets for the time being. (Both these territories have websites, by the way, though that for Diego Garcia is maintained by the U.S. Navy at www.nctsdg.navy.mil.) But the sun will be getting very low over the British Empire at around 01:40 GMT in late June each year….

Also, it seems that the sun could finally set over the British Empire if the sea level were to rise high enough because of global warming. It turns out that Diego Garcia has a mean elevation of only 4 feet above sea level, and a maximum elevation of only 22 feet. Perhaps the U.S. Navy will erect dikes around their strategically located communication facilities…

And Paul Dirac:

“[W]e have an economic system which tries to maintain an equality of value between two things, which it would be better to recognize from the beginning as of unequal value. These two things are the receipt of a single payment (say 100 crowns) and the receipt of a regular income (say 3 crowns a year) all through eternity…May I ask you to trace out for yourselves how all the obscurities become clear, if one assumes from the beginning that a regular income is worth incomparably more, in fact infinitely more, in the mathematical sense, than any single payment?” (From Dirac’s biography, The Strangest Man, by Graham Farmelo. Highly recommended btw.)
Coming from a physics genius, this is quite stunning in its stupidity. The most charitable thing I can say about the bloke is that he certainly wasn’t a hyperbolic discounter. (Never mind.) I find particularly telling the following observations: (a) how winning the Nobel prize appears to confer intellectual “rights” over other disciplines that one just don’t have the ability to exercise, but more importantly (b) how fundamentally “intuition” differs from field to field, so that a genius in one area can be a blithering idiot in another.
This promises to be a good one.  I have already put it in my Safari Top Sites.

Homemade ravioli with truffles, Rovinj, Istria, Croatia.

Martin Osborne, the first Managing Editor of Theoretical Economics has just completed his term and handed the reins to George Mailath.  Martin is the last of the original co-editors to complete his final term and on the (private) TE Editorial Message Board he offers this reflection on the making of the journal.

TE has been—and continues to be—very much a collaborative project. With a few days to go before my term as editor ends, I want to acknowledge the contributors and outline their role in the development of the journal for those of you who may not be aware of the journal’s history.

TE emerged from a project initiated by Manfredi La Manna. In the late 1990s (or maybe the early 2000s—I have been unable to find a record), Manfredi proposed starting low-cost economics journals to compete one-on-one with a long list of high-priced Elsevier offerings. His plans were extremely (even absurdly) ambitious, and although many economists signaled their support, none was willing to commit to work on the project. None, that is, until Manfredi found David Levine and George Mailath. Manfredi had been looking for someone to act as an editor of a journal he hoped would compete with JET. As I understand it, David and George suggested instead that they form an Executive Board with the aim of searching for an editor. David and George soon recruited Drew Fudenberg, Patrick Bolton, and Ariel Rubinstein (with whom Manfredi had been in touch previously) to join the Board.

In October 2002, after no doubt getting turned down by their top picks, they asked me if I would become the editor. We quickly recruited Bart Lipman, Narayana Kocherlakota, and Georg Nöldeke to serve as coeditors, and for two years worked with Manfredi on the “Review of Economic Theory”. For a variety of reasons, we parted ways with Manfredi in mid-2004 and started designing and setting up an Open Access journal. The team initially consisted of Patrick Bolton, Drew Fudenberg, David Levine, George Mailath, Bart Lipman, Georg Nöldeke, and myself, and was soon augmented by Ted Bergstrom, Jeff Ely, Preston McAfee, and Ariel Rubinstein (who re-joined the group, having left the La Manna project before the rest of us). A huge amount of work was involved; everyone played an important role.

One of the major tasks in starting TE was setting up a nonprofit corporation to run it. This task was handled by Bart and David. David had previously set up such a corporation to run his “Not A Journal”, but even with the benefit of that experience, a huge amount of work was involved. In Bart’s role as Treasurer, he also conducted the tricky negotiations necessary to get a credit card authorizer to deal with us. Eventually he found a company that specialized in small operations. Although that company appeared a bit disorganized—at some point it has us down as “Theological Economics”—it served us flawlessly during our pre-ES days.

Another major task was soliciting papers. That involved finding papers, reading them, discussing them, and selecting the ones that were potentially publishable. And then, usually, finding out that the authors had submitted them to Econometrica. Bart, Jeff, and Drew were particularly active in evaluating papers. Collectively, we read over 250 papers; Bart alone posted comments on more than 200 of them.

A final task that proved to be especially difficult was the choice of a name. The list we considered was long; it was very hard to find a reasonable name that was not close to the name of another journal or book series and also had an acronym not close to the acronym of another journal. Dozens of creative titles were proposed. Three of the more colorful were Theoretical Economics Arsenal (acronym TEA, proposed by Jeff Ely), Ecotheoretica, and Ekonomiko (both proposed by Preston McAfee; Ekonomiko is Esperanto for economics). One thousand three hundred and thirty messages after I opened a thread to decide on a name, we voted for “Theoretical Economics” (which, incidentally, was one of the two options I suggested in my original message).

We were extraordinarily fortunate that just as the journal was starting, a new version of the Open Journal Systems software became (freely) available. This superb system allowed us to automate almost all the the “administrative” tasks of running a journal (tasks that, I might add, are still performed manually at many other journals). You may think that software quality is an incidental issue that has little bearing on the activities of a journal. I disagree. In fact, because it obviates the need for an editorial assistant, superb software like the OJS system allows Open Access journals to be financially viable—even ones without a rich aunt like the Econometric Society.

Once we started publishing, the generosity of another group of people came into play—authors. We owe the success of the journal in no small part to the generosity of the authors who submitted to TE papers that could have been published in Econometrica. Submitting a paper to TE now is, I hope, a natural step for the author of a outstanding paper. But despite the commitment of the coeditors that the project would succeed, submitting a paper to TE in 2005 entailed some risk, and we are certainly grateful to the authors who took that risk in order to support Open Access. Submitting a paper to TE in 2004, when we were not yet certain we would go ahead, entailed a much greater risk; we were certainly encouraged that Bill Zame was willing to take that step.

A key determinant of the reputation that the journal has earned is the quality of its editorial work. The decision letters written by the first group of coeditors—Jeff Ely, Ed Green, and Bart Lipman, joined by Debraj Ray in 2008—were better than any others I have seen. Even rejected papers received very close attention. The efforts of this initial group of brilliant coeditors were critical in establishing a reputation for the journal.

One measure of the extent to which the initial group worked together is the number of postings on this Message Board. Between 2004 and July 2009 (when the journal was taken over by the Econometric Society), the coeditors (Jeff Ely, Ed Green, Bart Lipman, Debraj Ray, and myself) and the other members of the Executive Board (Ted Bergstrom, Drew Fudenberg, David Levine, George Mailath, Preston McAfee, Ariel Rubinstein, and Joel Sobel) posted over over 5,000 messages here.

Finally, the coeditors who have served since TE’s takeover by the Econometric Society—Gadi Barlevy, Faruk Gul, Johannes Hörner, and Nicola Persico—have upheld TE’s standards of editorial excellence with enviable energy, and our outstanding Associate Editors have provided us with high-quality evaluations within timeframes matched by few other journals.

It has been a great pleasure to coordinate this very hard-working group, which has transformed TE from an idea to the success it is today. I am delighted to hand over my role to George Mailath, who will surely lead the journal to new heights!

Martin Osborne was a truly outstanding Editor.  He vastly understates his own role in building the editorial software that makes the journal run so smoothly.  In my opinion the open source software that we use for free and that Martin painstakingly customized is far superior to the commercial systems used by all of the major journals in economics.  Do not believe it when it is said that open access journals can only survive on large fees by authors.  TE is a top-class journal and it is incredibly cheap to run.  Do not believe it when it is said that a new open access journal faces a chicken and egg problem.  The people behind TE believed in it and made it happen.  People wishing to start open access journals would do well to copy what TE did.

(photograph taken by Ariel Rubinstein.  More photos here.)

I just had one of my worst travel experiences. On United.

I was flying with my two kids and we got to O’Hare at 9 am in plenty of time for our 10.30 am flight to Seattle. The plane was delayed for one hour initially but then, after the airplane arrived, it turned out there was some malfunction so we had to wait for another plane. That one was due to leave at 2 pm.

My kids are pretty good but they were getting a bit restless so I decided to let them pick a treat for every delay. They opted to have lunch at Wolfgang Puck’s in the other of the two United terminals. They got to veto Frontera Fresca. So far so good.

The next bit of news – easy to forecast – further delay till 2.25. Peanut M&Ms. But then things got interesting. The pilots on the incoming flight had timed out given the additional 25 minute delay and we had to wait for new pilots to turn up. Ice cream for the kids. But no-one was insuring me so I was getting more and more pissed off. This pilot time out was news to me but surely eminently foreseeable for United? We left at 4.30 pm. Kids were on a sugar high and I was on a United low.

As far as I know.  Anyway I always assumed that the Ely Lecture at the AEA meetings was named after me.

But changing the subject, Adriana Lleras-Muney writes to me:

From Henry Miller

“To be intelligent may be a boon, but to be completely trusting, gullible to the point of idiocy, to surrender without reservation is of of the supreme joys of life”

Agree?

I think Henry Miller is confusing correlation with causation.  Its probably true that in our happiest moments (among those moments we are with other people–I might even dispute that those moments are the happiest unconditionally) we are trusting, gullible and idiotically surrendering.  But that’s likely because we are with a certain person and in a certain blissful state that we respond by surrendering.  Its the person and the state that brings us the supreme joy and our surrender is just a symptom of that joy.  I might go far as to say that the surrender is a complementary good but its enough to think about surrendering to the very next person who knocks on your office door to convince you that the surrender is not itself the source of joy.

Would it be possible to make a statistical model of a jazz solo and use it to create new ones?  Take a standard, and let’s focus on the saxaphone, say.  Go to the solo and estimate a Markov transition kernel which tells you the probability distribution over the next tone conditional on the previous tone.  In particular you want the joint probability distribution over the following note (or just the interval) and the note’s value (eighth, quarter, etc.)  Feed it tons and tons of recordings of sax solos for the same tune (that’s why you want a standard.)

Once you have estimated your kernel, simulate it.  Will it be music?  How much of an improvement do you get if the state variable is the last two notes instead of just one?  If your state variable is the last n notes, at what n are improvements no longer noticeable?

In my kids’ tennis class they are getting good enough to have actual rallies.  The coach feeds them a ball and has them play out points.  Each rally is worth 1 point and they play to 10.  To stop them from trying to hit winners on the first shot and in attempt to get them to play longer rallies, the coaches tried out an interesting rule.  “The ball must cross the net four times before the point begins.  If your shot goes out before that, its 2 points for the other side.”

One form of mental accounting is where you give yourself separate budgets for things like food, entertainment, gas, etc.  It’s suboptimal because these separate budgets make you less flexible in your consumption plans.  For example in a month where there are many attractive entertainment offerings, you are unable to reallocate spending away from other goods in favor of entertainment.

But it could be understood as a second-best solution when you have memory limitations.  Suppose that when you decide how much to spend on groceries, you often forget or even fail to think of how much you have been spending on gas this month.  If so, then its not really possible to be as flexible as you would be in the first-best because there’s no way to reduce your grocery expenditures in tandem with the increased spending on gas.

That means that you should not increase your spending on gas.  In other words you should stick to a fixed gas budget.

Now memory is associative, i.e. current experiences stimulate memories of related experiences.  This can give some structure to the theory.  It makes sense to have a budget for entertainment overall rather than separate budgets for movies and concerts because when you are thinking of one you are likely to recall your spending on the other.  So the boundaries of budget categories should be determined by an optimal grouping of expenditures based on how closely associated they are in memory.

(Discussion with Asher Wolinsky and Simone Galperti)

The NRA successfully lobbied to stop gun control legislation.  Several Democrats sided with Republicans to defeat it.  But the NRA seems to have spent more than necessary to defeat the measures because they failed by more than a one-vote margin.  It would have been enough to buy exactly the number of Senators necessary to prevent the bill from progressing through the Senate, no more than that.

But in fact the cost of defeating legislation is decreasing in the number of excess votes purchased.  If the NRA has already secured enough votes to win, the next vote cannot be pivotal and so the Senator casting that vote takes less blame for the defeat.  Indeed if enough Senators are bought so that the bill goes down by at least two votes, no Senator is pivotal.

Here’s a simple model.  Suppose that the political cost of failing to pass gun control is c.  If the NRA buys the minimum number of votes needed to halt the legislation it must pay c to each Senator it buys.  That’s because each of those Senators could refuse to vote for the NRA and avoid the cost c.  But if the NRA buys one extra vote, each Senator incurs the cost c whether or not he goes along with the NRA and his vote has just become cheaper by the amount c.

For the Vapor Mill:  What is the voting rule that maximizes the cost of defeating popular legislation?

Amnesty –forgiving all of the current and previous violators but renewing a threat to punish future violators– always seems like a reputation fail.  If we are granting amnesty today then doesn’t that signal that we will eventually be granting amnesty again in the future?

But there is at least one environment in which a once-only amnesty is incentive compatible and effective:  when crime has bandwagon effects.  For example, suppose there’s a stash of candy in the pantry and my kids have taken to raiding it.  I catch one red-handed but I can’t punish her because she rightly points out that since everybody’s doing it she assumed we were looking the other way.  A culture of candy crime had taken hold.

An amnesty (bring me your private stash and you will be forgiven) moves us from the everyone’s a criminal because everyone’s a criminal equilibrium to the one in which nobody’s a criminal.  The latter is potentially stable if its easier to single out and punish a lone offender than one of many.

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