Cheap Talk

Trump excites the “base” but not independents or traditional Republicans who believe in free markets etc. The temptation for Congressional Republicans up for election is to use “strategic ambiguity” and have their cake and eat it. That is, say you support the Republican Presidential nominee but not embrace his positions, e.g like Ayotte and McCain. This way, you hope ticket-splitters vote for you to check and balance Hillary.

Unfortunately, Obama moves second. He will say Trump is unfit to be President, is not a Republican and will tar supporters with the same brush. This way he will seek to slice off the base vote from the non-base. A vote for a supporter is a vote for Trump. How will they check and balance a demagogue when they are not splitting with him now? Also – and somewhat unexpectedly – Trump is helping Obama out here by refusing to endorse Congressional Republicans employing strategic ambiguity. He refuses to endorse Ayotte and McCain because of criticisms etc. Hence,he is signaling to his base not to support them (not sure if his strategy makes sense but I will take him at face value).

So, on the one hand, Obama will attack anyone on the fence by saying they support Trump (hoping to peel off independents, “real” Republicans and ticket-splitters) and Trump will attack anyone on the fence by saying they do not support him (hoping his base will not support them?!!).

So, strategic ambiguity is going to backfire so you have to pick a side. Which side? Can you win if you support him and he loses your state? If the answer is a likely Yes, you support Trump (e.g. Rubio) and if it is a No, you Dump Trump. The more likely your state is to go for Hillary, the more plausible your “I will check and balance Hillary” argument and the less costly it is to Dump Trump. Hence, Toomey and Ayotte are likely in this category. If the state is 50-50 like AZ, your choice is difficult, eg McCain, but you have to pick a side otherwise both may not vote for you.

1. Suppose one forecaster says the probability Trump wins is q and the other says the probability is p>q.  If Trump in fact wins, who was “right?”
2. Suppose one forecaster says the probability is q and the other says the probability is 100%.  If Trump in fact wins, who was right?
3. Suppose one forecaster said q in July and then revised to p in October.  The other said q’ < q in July but then also revised to p in October.  Who was right?
4. Suppose one forecaster continually revised their probabilistic forecast then ultimately settled on p<1.  The other forecaster steadfastly insisted the probability was 1 from beginning to end.  Trump wins.  Who was right?
5. Suppose one forecaster’s probability estimates follow a martingale (as the laws of probability say that a true probability must do) and settles on a forecast of q.  The other forecaster‘s “probability estimates” have a predictable trend and eventually settles on a forecast of q’>q.  Trump wins.  Who was right?
6. Suppose there are infinitely many forecasters so that for every possible sequence of events there is at least one forecaster who predicted it with certainty.  Is that forecaster right?

What I wrote yesterday:

When Fox broadcasts the Super Bowl they advertise for their shows, like American Idol. But those years in which, say, ABC has the Super Bowl you will never see an ad for American Idol during the Super Bowl broadcast.

This is that sort of puzzle whose degree of puzzliness is non-monotonic in how good your economic intuition is.

If you don’t think of it in economic terms at all it doesn’t seem at all like a puzzle. Try it: ask your grandpa if he thinks that its odd that you never see networks advertising their shows on other networks.  Of course they don’t do that.

When you apply a little economics to it that’s when it starts to look like a puzzle. There is a price for advertising. The value of the ad is either higher or lower than the price. If its higher you advertise.  If its another network that price is the cost of advertising. If its your own network that price is still a cost: the opportunity cost is the price you would earn if instead you sold the ad to a third-party.  If it was worth it to advertise American Idol when your own network has the Super Bowl then it should be worth it when some other network has it too.

But a little more economics removes the puzzle.  Networks have market power.  The way to use that market power for profit is to artificially restrict quantity and set price above marginal cost. (The marginal cost of running another 30 second ad is the cost in terms of viewership that would come from shortening, say, the halftime show by 30 seconds.)

When a network chooses whether to run an ad for its own show on its own Super Bowl broadcast it compares the value of the ad to that marginal cost.  When a network chooses whether to run an ad on another network’s Super Bowl broadcast it compares the value to the price.

Indeed even if the total time for ads is given and not under control of the network (i.e. total quantity is fixed) the profit maximizing price for ads will typically only sell a fraction of that ad time.  Then the marginal (opportunity) cost of the additional ads to pad that time is zero and even very low value ads like for American Idol will be shown when Fox has the Super Bowl and not when any other network does.

In fact that last observation and the fact that you never ever see any network advertise its shows on another network tells us that the value of advertising television shows is very low.  Perhaps that in fact tells us that the networks themselves understand (but their paying advertisers don’t) that the value of advertising in general is very low.

When Fox broadcasts the Super Bowl they advertise for their shows, like American Idol. But those years in which, say, ABC has the Super Bowl you will never see an ad for American Idol during the Super Bowl broadcast.

More generally, networks advertise their own shows on their own network but never pay to advertise their shows on other networks.  I never understood this.  But I think I finally figured it out, there’s some very simple economics behind this.

Right now at Primary.guide, you can read the current betting market odds for a “contested convention” and a “brokered convention.”  The definitions are as follows.  A contested convention means that no candidate has 1237 delegates by the end of the last primary.  A brokered convention means that no candidate wins on the first ballot at the convention.

Right now the odds of a brokered convention are 50%.  Note also that the odds of a Trump nomination are 50% as well.  And Trump is the only candidate with any chance of winning a majority on the first ballot (even if he doesn’t get 1237 bound delegates he will be close and no other candidate could combine their bound delegates with unbound delegates to get to a majority.)

Thus, if there is no brokered convention Trump is the nominee.  The probability of no brokered convention is 50%.  Thus the entire 50% probability of a Trump nomination is accounted for by the event that he wins on the first ballot.

In other words there is zero probability, according to betting markets, that Trump wins a brokered convention.

The odds of a contested convention are 80%. That means that betting markets think there is a 30% chance Trump fails to get 1237 bound delegates but still wins on the first round.  I.e. according to betting markets we have the following three mutually exclusive events:

1. Trump gets to 1237 by June 7.  20% odds
2. Trump fails to get 1237 bound delegates but wins on the first ballot.  30%
3. Nobody wins on the first ballot and Trump is not the nominee.  50%

Donald Trump:

You are a lifelong Republican and think Trump is not a conservative. You would never vote for him. You go into the voting both and see Clinton’s name and Trump’s name. What do you do? Either you bite the bullet and vote for Clinton or you abstain. Either way you have increased the probability that Hillary wins – OK not by much but since you are in the voting booth in the first place, you’re not a fully rational voter and so you care about the infinitesimal impact you have. So, you decide to make sure she’s hamstrung by a Republican Congress. You vote for the Republican Congressional candidates.

You would vote for Cruz but suspect he is a bit nuts. You vote for the Democratic Congressional candidates to make sure Cruz is ineffective.

(Kasich would actually be best all round but has no chance of making it.)

Suppose politician C goes negative on politician M. Politician’s M’s support declines..where do his supporters go? If there are just two candidates, they either go to politician C or stay at home. But if there are three or more candidates, they might go to politician A, B, or K etc etc. So, to a first order, it is less profitable to go negative the greater the number of candidates.

This resembles the Holmstrom teams model but with unproductive effort.

From Buzzfeed:

HENNIKER, New Hampshire — In town halls, pizzerias, and high school auditoriums, hundreds of voters are carefully evaluating the three governors who have pinned their presidential hopes on Tuesday’s primary in the Granite State — Jeb Bush, Chris Christie, and John Kasich.

Some have made their choice of the three; others are still undecided. But they all agree on one big thing: The Republican Party needs a strong contender coming out of New Hampshire to take down Donald Trump.

With the stakes so high, these “non-angry voters,” as described by some, are wrestling with whether to ultimately vote for their personal favorite — one of the three governors, or go by the polls in favor of a more practical favorite, Sen. Marco Rubio.

Perhaps the GOP should adopt approval voting as suggested by my colleague Bob Weber where each voter can “approve” as many candidates as he likes.

Of course, Ted Cruz and Donald Trump would disapprove or approval voting.

My colleagues are multi-talented:

Robert McDonald, Associate Dean for Faculty, and Jeff Cohen performing “Here comes the weekend” by Dave Edmunds and Nick Lowe and “What’s so funny about peace, love and understanding?” by Nick Lowe.

HT: Bob McDonald for telling me first song is also by Dave Edmunds.

A GrAgreement has been semi-signed. Originally, the Eurozone/Germany has offered two debt relief plans for Greece.

Under Plan A, Greece votes on a number of structural reforms and puts E50blln of assets in a privatization fund in return for more bailout money and possible debt relief. Assets are sold off to recapitalize the banks.

Under Plan B, they get a time-out from the Euro and debt relief. Plan B is unpopular with the majority of voters in Greece as they want to stay in the Euro but may actually be better economically depending on the terms. (Will the EC, ECB and IMF actively help to create the new currency and give humanitarian aid? What are the terms of the debt relief?)

But both plans have significant risk: Plan A involves more austerity, declining GDP, Greek Groundhog Day and probably eventual Grexit; Plan B causes the banks to collapse unless the Troika comes up with some active help.

A better plan is variation on Plan B, if you will a Plan G: Germany should leave the Euro. Deutschit will not cause a bank run in Germany as the mark will be strong and no depositors are at risk from a haircut. The Euro will devalue helping not only Greece but Portugal, Spain, Italy, Ireland and Finland. The New Eurozone can bail out Greece and give debt relief. Germany will not have to participate in any of this and this avoids one of the main political problems domestically. There is an economic downside for Germany: the mark will appreciate so exports will be more expensive. But imports will be cheaper so there is less inflationary pressure. Plus Grexit would cause some appreciation of the Euro anyway so even Plan B has that implication.

The main problem with Plan G is it appears to signal the end of the Eurozone. This is a blow to Merkel’s record as Chancellor. But Deutschit makes the rest of the Eurozone stronger as they can deal with the the overvaluation of their common currency. Plan A, Plan B and European economic performance post-2008 already demonstrate that monetary union without political and fiscal union does not work. In fact, Deutschit signals that Germany will take a somewhat costly action to help fellow EC members. It is more likely to stabilize the Eurozone than the other options. It is success for Europe if Deutschit occurs not a failure. Once the New Eurozone has stabilized, Germany can rejoin. Of course, it will have to meet fiscal targets to be accepted by the New Eurozone including Greece. If Germany can’t return because they carry too much debt, that would both be eironikos and cause for epichairekakia (schadenfreude).

From NYT:

You recently did a tour with $20 tickets and $4 beers. Is it your goal going forward to keep it affordable? Yeah. Even if you’re not a big fan, you’re like: “Let’s find something to do tonight. It’s $20 to see Kid Rock. I like one of his songs, whatever!” The scary part is, you’re going to find out who your audience is, very fast. If nobody comes for $20, it’s about time to hang the hat up.

Another reason why companies do not cut prices when demand tanks? They are worried about what they will find out about themselves. If you keep the price high and no-one buys, you can console yourself that sales would have been high if you had cut the price. If your price is low and no-one shows up, it is harder to rationalize that your product is popular.

According to the NYT, the Saudi’s (the principal) are thinking of using the oil price to incentivize Russia (the agent) to stop supporting Iran:

Saudi Arabia has been trying to pressure PresidentVladimir V. Putin of Russia to abandon his support for President Bashar al-Assad of Syria, using its dominance of the global oil markets at a time when the Russian government is reeling from the effects of plummeting oil prices…Saudi officials say — and they have told the United States — that they think they have some leverage over Mr. Putin because of their ability to reduce the supply of oil and possibly drive up prices.

There is one countervailing effect that has been foreseen and dismisssed:

American and Arab officials said that even if Russia were to abandon Mr. Assad, the Syrian president would still have his most generous benefactor, Iran. Iranian aid to the Syrian government has been one of the principal reasons that Mr. Assad has been able to hold power as other autocrats in the Middle East have been deposed.

And as a major oil producer, Iran would benefit if Saudi Arabia helped push up oil prices as part of a bargain with Russia…..

But the military aid that Russia provides to Syria is different enough from what Damascus receives from Iran, its other major supplier, that if “Russia withdrew all military support, I don’t think the Syrian Army could function,” a senior Obama administration official said.

But there is a bigger one: Iran has a nuclear program that the US (and Saudi Arabia?) would like to undermine. Low oil prices and sanctions are the stick that the US has been using to get Iran to the negotiating table. An increase in the price of oil price takes away the stick etc etc. Hope the absence of any mention of this in article does not imply someone is not thinking it through.

Here are the prices you see if you access the Kiwi Rail website from Chrome in the US:

Note the blank space between the trip name and the prices. What could be there? Google “Kiwi Rail discounts” and find information that suggests accessing the Kiwi Rail website via a browser with a New Zealand IP address. When you do that, you find:

Why are people physically in New Zealand getting better deals? You can tell a demand elasticity story: New Zealanders have cars and access the website from browsers with NZ IP addresses. Their demand is more elastic than that of foreign tourists. So, price lower to people buying from NZ. You can tell the reverse story: Many tourists in NZ buy when there. Their outside option is flying and buying flights late is expensive. Tourists make up the vast majority of train travellers in NZ. People buying from abroad are also tourists but they are buying early and can find cheaper domestic flights. So their demand is elastic.So price high for people buying from NZ IP addresses but low for people buying from foreign IP addresses.

Whatever the truth of the matter, it is quite interesting to see this kind of price discrimination by Kiwi Rail. God knows what Amazon is doing in comparison!