You must watch Balasz Szentes’ talk at the Becker Friedman Institute. At the very least, watch up until about 7:00. You will not regret it. (Note that Gary Becker was sitting in the front row.)
In his speech to the Clinton Global Initiative:
When I was in business, I traveled to many other countries. I was often struck by the vast difference in wealth among nations. True, some of that was due to geography. Rich countries often had natural resources like mineral deposits or ample waterways. But in some cases, all that separated a rich country from a poor one was a faint line on a map. Countries that were physically right next to each other were economically worlds apart. Just think of North and South Korea.
I became convinced that the crucial difference between these countries wasn’t geography. I noticed the most successful countries shared something in common. They were the freest. They protected the rights of the individual. They enforced the rule of law. And they encouraged free enterprise. They understood that economic freedom is the only force in history that has consistently lifted people out of poverty – and kept people out of poverty.
I guess someone on his staff read a synopsis of Acemoglu and Robinson.
David Axelrod, a senior campaign adviser for President Barack Obama’s reelection campaign, trash-talked Mitt Romney on Sunday, calling last week’s Republican National Convention “a terrible failure” and claiming Romney did not receive a polling bounce.
Presidential campaign staff are always saying stuff like that. How badly the other side is doing. Promoting polls that show their own candidate doing well and dissing polls that don’t. While that seems like natural fighting spirit, from the strategic point of view this is sometimes questionable strategy.
If you had the power to implant arbitrary expectations into the minds of your supporters and those of your rival, what would they be?
- You wouldn’t want your supporters to think that your candidate was very likely to lose.
- But neither would you want your supporters to think that your candidate was very likely to win.
- Instead you want your supporters to believe that the race is very close.
- But you want to plant the opposite beliefs in the mind of the opposition. You want them to think that the race is already decided. It probably doesn’t matter which way.
All of this because you want to motivate your supporters and lure the opposition into complacency. If you are David Axelrod and your candidate has a lead in the polls and you can’t just conjure up arbitrary expectations but you can nudge your supporter’s mood one way or the other you want to play up the opposition not denigrate them.
Unless its only the opposition that is paying attention. Indeed suppose that campaign staffers know that the audience that is paying closest attention to their public statements is the opposition. Then right now we would expect to be hearing Democrats saying they are winning and Republicans saying their own campaign is in disarray.
David Levine’s essay is all grown up and now a full-blown book. His goal is to “set the record straight” and document the true successes and failures of economic theory. Here is a choice passage:
One of the most frustrating experiences for a working economist is to be confronted by a psychologist, political scientist – or even in some cases Nobel Prize winning economist – to be told in no uncertain terms “Your theory does not explain X – but X happens in the real world, so your theory is wrong.” The frustration revolves around the fact that the theory does predict X and you personally published a paper in a major journal showing exactly that. One cannot intelligently criticize – no matter what one’s credentials – what one does not understand. We have just seen that standard mainstream economic theory explains a lot of things quite well. Before examining criticisms of the theory more closely it would be wise to invest a little time in understanding what the theory does and does not say.
The point is that the theory of “rational play” does not say what you probably think it says. At first glance, it is common to call the behavior of suicide bombers crazy or irrational – as for example in the Sharkansky quotation at the beginning of the chapter. But according to economics it is probably not. From an economic perspective suicide need not be irrational: indeed a famous unpublished 2004 paper by Nobel Prize winning economist Gary Becker and U.S. Appeals Court Judge Richard Posner called “Suicide: An Economic Approach” studies exactly when it would be rational to commit suicide.
The evidence about the rationality of suicide is persuasive. For example, in the State of Oregon, suicide is legal. It cannot, however, be legally done in an impulsive fashion: it requires two oral requests separated by at least 15 days plus a written request signed in the presence of two witnesses, at least one of whom is not related to the applicant. While the exact number of people committing suicide under these terms is not known, it is substantial. Hence – from an economic perspective – this behavior is rational because it represents a clearly expressed preference.
What does this have to do with suicide bombers? If it is rational to commit suicide, then it is surely rational to achieve a worthwhile goal in the process. Eliminating ones enemies is – from the perspective of economics – a rational goal. Moreover, modern research into suicide bombers (see Kix [2010]) shows that they exhibit exactly the same characteristics of isolation and depression that leads in many cases to suicide without bombing. That is: leaning to committing suicide they rationally choose to take their enemies with them.
The book is published as an e-Book by the Open Book Publishers. You can download a PDF for a nominal fee or even read it for free on the website. Here’s more from David, writing about Kahnemann’s Thinking Fast and Slow.
For the casual fan such as myself, the final second of the Packers-Seahawks game had the thrill of the Roman circus – an arbitrary, conflicted decision was handed down by emperor referees. For the real fans and the teams, it must be torture. But is it painful for the owners? After all, they will influence the decision in the labor dispute with referees. Steve Young thinks not:
The NFL is “inelastic for demand,” Young said, meaning that nothing — including poor officiating — can deter a significant percentage of fans and corporate sponsors away from the most popular game in the country. It’s the primary reason the NFL has held steady in its labor impasse with regular officials: There is no sign that enough of the sporting public cares to make it a priority.
“There is nothing they can do to hurt the demand of the game,” Young said in the video. “So the bottom line is they don’t care. Player safety doesn’t matter in this case. Bring Division III officials? Doesn’t matter. Because in the end you’re still going to watch the game.”
But the NFL/referee dispute is partly about “pay for performance” – the NFL wants to bench referees who botch calls (the money issues are trifling as a fraction of NFL revenue). This suggests the NFL does actually care about good officiating. This makes them weak in the face of the current officiating. They should cave sooner rather than later.
The two political parties hold conventions to nominate their Presidential candidate. These are huge affairs requiring large blocks of hotel space and a venue, usually something the size of a Basketball stadium. That all requires a lot of advance planning and therefore a commitment to a date.
Presumably there is an advantage to either going first or second. It may be that first impressions matter the most and so going first is desirable. Or it may be that people remember the most recent convention more vividly so that going second is better. Whichever it is, the incumbent party has an advantage in the convention timing game.
The incumbent party already has a nominee. The convention doesn’t accomplish anything formal and is really just an opportunity to advertise its candidate and platform. The challenger, by contrast, has to hold the convention in order to formally nominate its candidate. This is not just to make formal what has usually been decided much earlier in the primaries. Federal law releases the candidate from using some campaign money only after he is formally nominated.
So the incumbent has the freedom to wait as long as necessary for the challenger to commit to a date and then immediately respond by scheduling its own convention either directly before or directly after the challenger’s, depending on which is more desirable. The fact that this year the Democractic National Convention followed immediately on the heel’s of the Republican’s suggests that going last is better.
I haven’t seen the data but this theory makes the following prediction. In every election with an incumbent candidate the incumbent party’s convention is either always before or always after the challenger’s. And in elections with no incumbent, the sequencing is unpredictable just on the basis of party.
From a design point of view with lots of beautiful pictures, like this one:
This part was news to me:
The man to finally surpass the two-bar brewing barrier was Milanese café owner Achille Gaggia. Gaggia transformed the Jules Verne hood ornament into a chromed-out counter-top spaceship with the invention of the lever-driven machine. In Gaggia’s machine, invented after World War II, steam pressure in the boiler forces the water into a cylinder where it is further pressurized by a spring-piston lever operated by the barista. Not only did this obviate the need for massive boilers, but it also drastically increased the water pressure from 1.5-2 bars to 8-10 bars. The lever machines also standardized the size of the espresso. The cylinder on lever groups could only hold an ounce of water, limiting the volume that could be used to prepare an espresso. With the lever machines also came some some new jargon: baristas operating Gaggia’s spring-loaded levers coined the term “pulling a shot” of espresso. But perhaps most importantly, with the invention of the high-pressure lever machine came the discovery ofcrema – the foam floating over the coffee liquid that is the defining characteristic of a quality espresso. A historical anecdote claims that early consumers were dubious of this “scum” floating over their coffee until Gaggia began referring to it as “caffe creme“, suggesting that the coffee was of such quality that it produced its own creme. With high pressure and golden crema, Gaggia’s lever machine marks the birth of the contemporary espresso.
By the way this is the 2000th Cheap Talk post.
Micropayments haven’t materialized. My guess is that’s because of a combination of two reasons. First, there are the technological/network externality barriers. Nobody as of yet has put forth a system for micropayments that is easy and compelling enough to spur widespread adoption.
The second reason is that micropayments may not actually be the most efficient way to achieve their purpose. A monetary payment is a one-to-one transfer of value from payor to payee. Right now many of the online transactions that micropayments would facilitate are actually financed with a more efficient means of payment. Advertisements are the best example. You want to watch a video on YouTube, you have to watch a little bit of an ad first.
This is a transfer of value: you lose some time, the advertiser gains your attention. But this transfer is not one-for-one because your opportunity cost of time is not identically equal to the value to the advertiser of your attention. And given the widespread use of advertisements in markets where monetary payments are possible, we can infer that this transfer is actually positive-sum. That is, the cost of your time is lower than the value of capturing your attention.
Microbarter is more efficient than micropayment. So we should expect to see even more of it. And we should expect that even more efficient forms of microbarter will appear. And indeed we soon will. Google has apparently figured out that information can be an even more efficient currency than attention:
Eighteen months ago — under non disclosure — Google showed publishers a new transaction system for inexpensive products such as newspaper articles. It worked like this: to gain access to a web site, the user is asked to participate to a short consumer research session. A single question, a set of images leading to a quick choice.
Once you think in terms of microbarter and positive-sum transactions there are probably many more ideas you could come up with. But a few questions too. Why is there not already a market which enables you to sell your valuable asset (attention, information etc) for money? After all, if it could be monetized and the market is competitive then the usual arguments will imply that at the margin the exchange will be zero-sum and the rationale for barter disappears.
(Ghutrah grip: Mallesh Pai)
In a meeting a guy’s phone goes off because he just received a text and he forgot to silence it. What kind of guy is he?
- He’s the type who is a slave to his smartphone, constantly texting and receiving texts. Statistically this must be true because conditional on someone receiving a text it is most likely the guy whose arrival rate of texts is the highest.
- He’s the type who rarely uses his phone for texting and this is the first text he has received in weeks. Statistically this must be true because conditional on someone forgetting to silence his phone it is most likely the guy whose arrival rate of texts is the lowest.
People are taught to us association as a mnemonic device to help them remember things. Well it appears you can do something similar to help you forget:
The experiments started with MacLeod and Noreen showing their subjects a series of different words — “barbecue,” “theater,” “occasion,” “rapid,” for example — and then telling them to generate one specific personal memory in response to each word.
There were 24 words in all, and after the subjects had described their memories, they were all sent home and told to come back a week later.
The following week, when they returned, they were given a transcript of each of the memories they’d shared, along with the specific word that had generated it. They reviewed the words and memories until they knew exactly which word went with which memory, and then were put in front of a computer and told that they would see each of those words flash on the computer screen in front of them.
If the word appeared in green, they were to repeat the memory associated with that word out loud, but if the word appeared in red, it was very important for them not to think about the memory associated with that word.
MacLeod and Noreen showed the subjects 16 of the 24 words over and over and over. Each time a subject either repeated the memory or blocked it. Some people apparently pictured a blank; others distracted themselves with other thoughts.
‘A Significant Forgetting Effect’
At the end of this process, the subjects were tested to see if there was a change in what they recalled. And there was — in the memories that had been repeatedly blocked.
“There was a significant forgetting effect, about a 12 percent drop in the level of details recalled,” MacLeod says. “That’s a large effect.”
If you got out a pencil and graphed my kids’ time outside, with the date on the horizontal axis and the number of hours spent outside (and not fraying their parents nerves alternately bickering with one another and submitting requests to play on the iPad or watch TV) on the vertical, you would find a dramatic and sustained upward spike beginning right after Labor Day.
What is the underlying structural change that explains this? School has begun. Indeed, just as the school year begins and forces them to stay inside half the day (thankfully under the care of somebody else), suddenly going outside and playing with their friends becomes their favorite way to pass the time.
It’s not because time outside has suddenly become more precious. On any August day when they have already wasted half of it sitting around inside, the time has become equally scarce. And it’s not because time outside is a way to escape homework because that doesn’t really start until the second or third week of school.
I think the reason is coordination failure. Playing outside by yourself is not very much fun, you only want to go outside when everyone else is outside. But when you have the luxury of the entire day, it becomes difficult to predict the precise time of day when all the neighborhood kids are going to be outside. And since they all have the same problem there in fact is no time of the day when all the neighborhood kids are outside and therefore no time of day when any of the neighborhood kids are outside.
Uniformly robbing all children in the neighborhood of 6 hours of prime playtime leaves them with only a few hours left in the day in which to coordinate. And releasing them all from captivity at exactly the same time synchronizes them and creates an ideal focal point. You find your friends outside immediately after school is out.
Unfortunately, in September in Chicago the sun is going to set not long after that, the weather is getting cool, and we really have only a month or so before playing outside is not going to be feasible anymore. And that’s why “Summer Vacation” is a badly misguided convention. School should be in session through the entire summer so that kids can make the most out of its coordination benefits. There would be no more “summer time blues.”
Since kids spend their vacation indoors anyway, the vacation should be in the Winter when going outside isn’t an option. Then we can really put Winter Vacation to good use: they can catch up on all of the homework they avoided during the Summer School year when they were instead outside playing.
What Brown can’t do for you – if you are a Democrat – is give you control of the Senate. From the last Public Policy Polling analysis of MA:
Things have been going Elizabeth Warren’s way in the Massachusetts Senate race over the last month. She’s gained 7 points and now leads Scott Brown 48-46
after trailing him by a 49-44 margin on our last poll. Warren’s gaining because Democratic voters are coming back into the fold. Last month
she led only 73-20 with Democrats. Now she’s up 81-13. That explains basically the entire difference between the two polls. There are plenty of Democrats who like Scott Brown- 29% approve of him- but fewer are now willing to vote for him. That’s probably because of another finding on our poll- 53% of voters want Democrats to have control of the Senate compared to only 36% who want Republicans in charge. More and more Democrats who may like Brown are shifting to Warren because they don’t like the prospect of a GOP controlled Senate.
Mitt Romney and Paul Ryan have proposed a plan to allow private firms to compete with Medicare to provide healthcare to retirees. Beginning in 2023, all retirees would get a payment from the federal government to choose either Medicare or a private plan. The contribution would be set at the second lowest bid made by any approved plan.
Competition has brought us cheap high definition TVs, personal computers and other electronic goods but it won’t give us cheap healthcare. The healthcare market is complex because some individuals are more likely to require healthcare than others. The first point is that as firms target their plans to the healthy, competition is more likely to increase costs than lower them. David Cutler and Peter Orzag have made this argument. But there is a second point: the same factors that lead to higher healthcare costs also work against competition between Medicare and private plans. Unlike producers of HDTVs, private plans will not cut prices to attract more consumers so competition will not reduce the price of Medicare. A simple example exposes the logic of these two arguments.
Suppose there are two couples, Harry and Louise and Larry and Harriet. Harry and Louise have a healthy lifestyle and won’t need much healthcare but Larry and Harriet are unhealthy and are likely to require costly treatments in the future. Let’s say the Medicare price is $25,000/head as this gives Medicare “zero profits”. Harry and Louise incur much lower costs than this and Larry and Harriet much higher. Therefore, at the federal contribution, private plans make a profit if they insure Harry and Louise and a loss if they insure Larry and Harriet. So, private providers will insure the former and reject the latter. Or their plans deliberately exclude medical treatments that Larry and Harriet might need to discourage them from joining. The overall effect will be to increase healthcare costs. This is because Harry and Louise get premium support of $50,00 total that is greater than the healthcare costs they incur now so they impose higher costs on the federal government than they do currently. Larry and Harriet will be excluded by the private plans and will get coverage from Medicare. This will cost more than $50,000 total so there will be no cost savings from them either. Total costs will be higher than $100,00 as surplus is being handed over to Harry and Louise and their insurance companies.
To deal with this cream-skimming, we might regulate the marketplace. It might seem to make sense to require open enrollment to all private plans and stipulate that all plans at a minimum have the same benefits as the traditional Medicare plan. Indeed, the Romney/Ryan plan includes these two regulations. But this just creates a new problem.
Suppose the Medicare plan and all the private plans are being sold at the same price. The private plans target marketing at healthy individuals like Harry and Louise and include benefits such as “free” gym membership that are more likely to appeal to them. Hence, they still cream-skim to some extent and achieve a better selection of participants than the traditional public option. (This is actually the kind of thing that happens in the current Medicare Advantage system. Sarah Kliff has an article about it and Mark Duggan et al have an academic working paper studying Medicare Advantage in some detail.) So total healthcare costs will again be higher than in the traditional Medicare system.
But there is an additional effect. Traditional competitive analysis would predict that one private plan or another will undercut the other plans to get more sales and make more profits. This is the process that gives us cheap HDTVs. The hope is that similar price competition should reduce the costs of healthcare. Unfortunately, competition will not work in this way in the healthcare market because of adverse selection.
Going back to our story, if one plan is cheaper than the others priced at say $20,000, it will attract huge interest, both from healthy Harry and Louise but also from unhealthy Larry and Harriet. After all, by law, it must offer the same minimum basket of benefits as all the other plans. So everyone will want to choose the cheaper plan because they get same minimum benefits anyway. Also by law, the plan must accept everyone who applies including Larry and Harriet. So, while the cheapest plan will get lots of demand, it will attract unhealthy individuals whom the insurer would prefer to exclude – this is adverse selection. Insurers get a better shot at excluding Larry and Harriet if they keep their price high and dump them on Medicare. This means profits of private plans might actually be higher if the price is kept high and equal to the other plans and the business strategy focused on ensuring good selection rather than low prices. An HDTV producer doesn’t face any strange incentives like this– for them a sale is a sale and there is no threat of future costs from bad selection.
So, adverse selection prevents the kind of competition that lowers prices. The invisible hand of the market cannot reduce costs of provision by replacing the visible hand of the government.
“In Egypt and Libya and Yemen, again demonstrations — the respect for America has gone down, there’s not a sense of American resolve and we can’t even protect sovereign American property.”
The implicit logic is that the protests are caused by weakness on the part of America. The protestors are taking advantage of us because they think we will not strike back. If we are strong, the protestors would be deterred by the threat of American reprisals. So, as President Romney would be strong, foreign policy would be easier as there would be no events like this.
But there is an equally (more?) compelling reverse logic. The protestors are weak. They are extremists who have little support in the population. But if America is aggressive even the moderates in the population will favor fighting fire with fire. Of course the extremists attacking the embassies would be happy if we withdrew. But their strategy would also succeed if we respond with aggression. So, the right move is not to over-react. Use proxies to fight this battle. Perhaps the moderates in the local populations themselves would be willing to work with us as they have a lot to lose if tensions escalate and conditions worsen.
The situation calls for smart lateral thinking not a one-size-fits-all bellicosity.
Netanyahu is aggressively trying to persuade President Obama to draw a “red line” on Iran – if Iran crosses the line, presumably drawn on the level of uranium enrichment, they would face a US attack. Such an attack would set back the Iranian nuclear program but it would likely unify the Iranian population behind the regime and make them redouble their efforts to go nuclear. So, we should also evaluate what might happen if Iran does go nuclear before we commit to a strategy of a preemptive strike. It turns out that Jim Fearon thought this through a while ago and did a little empirical work to flesh out the historical record. He finds:
China, France, India, Israel, Pakistan, and the UK all saw declines in their total militarized dispute involvement in the years after they got nuclear weapons. A number of these are big declines. USSR/Russia and South Africa have higher rates in their nuclear versus non-nuclear periods, though it should be kept in mind that for the USSR we only have four years in the sample with no nukes, just as the Cold War is starting.
The whole article is an interesting read.
Romney and Ryan’s weekend performances on TV generated much right wing angst. They looked shady trying to dodge questions asking them to spell out which tax loopholes they would close. There are similar issues with their healthcare plan: they would “repeal and replace” Obamacare, but replace it with what exactly?
There is an obvious advantage to policy ambiguity: if you are clear, the other side knows what to attack but if you are opaque, it is harder. The disadvantage is that you opponent can then make something up as being our policy and hang you with that. Your counter-argument is to claim that your policy is not what your opponent says it is etc etc.
The balance is weighed towards disadvantage when there is an obvious policy to use to fill in the blanks. This is the issue Romney faced as soon as he picked Ryan. Ryan has lots of plans for the budget, Medicare, privatizing Social Security etc. These are obvious and credible policy options for a Romney-Ryan White House. The fact that the VP candidate has embraced these policies undercuts your counter-argument to your opponent’s argument. Policy ambiguity loses its strategic advantage. If Romney had picked Pawlenty, it might have worked. But with Ryan on board, Romney has to spell out his policies in greater detail and Ryan has to own them. He has done this already with abortion and he has to start doing the same with his economic policies.
The difficulty is that Romney has not embraced ambiguity enough to make it easy to embrace clarity. He has promised various tax cuts (e.g. estate tax), and these tie him down. Can he identify loopholes to raise revenue that covers the tax cuts he has promised without raising taxes on the middle class? If he can’t, he’s stuck using an outsider’s strategy but with an insider as his partner.
Some economists toiled away in Stockholm on U.S. Labor Day. They were attending the Nobel Symposium on Growth and Development. This implies that the 2012 Prize cannot be in Growth and Development. The fallout from the symposium has to settle before a Prize is awarded. Next year is probably still too early so my guess is that a growth and development prize will be awarded in 2014 or later.
Looking at the program, a few people can be excluded as they are too young to get it now. The pivotal voter will be Robert Lucas who has enormous scientific credibility on this topic and is also attending the symposium.
According to AP, the Romney campaign is using data mining firm to identify donors:
The head of Buxton Co. of Fort Worth, Texas, chief executive Tom Buxton, confirmed to the AP his company’s efforts, which help Romney identify potentially wealthy and previously untapped Republican donors across the country…..
An early test analyzed details of more than 2 million households near San Francisco and elsewhere on the West Coast and identified thousands of people who would be comfortably able and inclined to give Romney at least $2,500 or more.
An AP analysis this week determined that Romney’s campaign has made impressive inroads into even traditionally Democratic neighborhoods, collecting more than $350,000 this summer around San Francisco in contributions that averaged $400 each.
NEW Republication donors are likely to be lower willingness to pay than donors who have consistently given in the past. So, Romney would have to get high volume to make this matter.
I haven’t seen anyone reporting of a similar effort to identify new donors by the Obama campaign. They are facing declining demand relative to 2008. They should be giving discounts to their old donors to generate $$s. As yet, I couldn’t find a sale on their store website.
Mitt Romney made a “birther” joke on the stump. A journalist got the following fundraising email:
Benjamin —
Mitt Romney, the Republican nominee for president of the United States, just said this:
“No one has ever asked to see my birth certificate. They know that this is the place that we were born and raised.”
Take a moment or two to think about that, what he’s actually saying, and what it says about Mitt Romney.
Then make a donation of $68 or more to re-elect Barack Obama today:
https://donate.barackobama.com/74-Days
Thanks,
Messina
Jim Messina
Campaign Manager
Obama for America
I got the same email, but with “$150” not “$68” as my suggested donation. I also get Romney emails but haven’t noticed any similar sophistry there yet so far.
How do we “bend the cost curve” of healthcare? Atul Gawande has some ideas after visiting the Cheesecake Factory with his daughters:
“We have forecasting models based on historical data—the trend of the past six weeks and also the trend of the previous year,” Gordon told me. “The predictability of the business has become astounding.” The company has even learned how to make adjustments for the weather or for scheduled events like playoff games that keep people at home.
A computer program known as Net Chef showed Luz that for this one restaurant food costs accounted for 28.73 per cent of expenses the previous week. It also showed exactly how many chicken breasts were ordered that week ($1,614 worth), the volume sold, the volume on hand, and how much of last week’s order had been wasted (three dollars’ worth). Chain production requires control, and they’d figured out how to achieve it on a mass scale.
The difference between cycling and badminton:
“I just crashed, I did it on purpose to get a restart, just to have the fastest ride. I did it. So it was all planned, really,” Hindes reportedly said immediately after the race. He modified his comments at the official news conference to say he lost control of his bike.”
The opposition took it in stride:
French officials did not formally complain about the British tactic.
“You have to make the most of the rules. You have to play with them in a competition and no one should complain about that,” the France team’s technical director, Isabelle Gautheron, told The Associated Press.
But,
“He (Hindes) should not have told the truth,” Daniel Morelon, a Frenchman who coaches the China team, told the AP. “It’s part of the game, but you should not tell others.”
Eight female badminton players were disqualified from the Olympics on Wednesday for trying to lose matches the day before, the Badminton World Federation announced after a disciplinary hearing.
The players from China, South Korea and Indonesia were accused of playing to lose in order to face easier opponents in future matches, drawing boos from spectators and warnings from match officials Tuesday night.
All four pairs of players were charged with not doing their best to win a match and abusing or demeaning the sport.
Apparently the Badminton competition has the typical structure of a preliminary round followed by an elimination tournament. Performance in the preliminary round determines seeding in the elimination tournament. The Chinese and South Korean teams had already qualified for the elimination tournament but wanted to lose their final qualifying match in order to get a worse seeding in the elimination tournament. They must have expected to face easier competition with the worse seeding.
This widely-used system is not incentive-compatible. This is a problem with every sport that uses a seeded elimination tournament. Economist/Market Designers have fixed Public School Matching and Kidney Exchange, let’s fix tournament seeding. Here are two examples to illustrate the issue:
1. Suppose there are only three teams in the competition. Then the elimination tournament will have two teams play in a first elimination round and the remaining team will have a “bye” and face the winner in the final. This system is incentive compatible. Having the bye is unambiguously desirable so all teams will play their best in the qualifying to try and win the bye.
2. Now suppose there are four teams. The typical way to seed the elimination tournament is to put the top performing team against the worst-performing team in one match and the middle two teams in the other match. But what if the best team in the tournament has bad luck in the qualifying and will be seeded fourth. Then no team wants to win the top seed and there will be sandbagging.
As I see it the basic problem is that the seeding is too rigid. One way to try and improve the system is to give the teams some control over their seeding after the qualifying round is over. For example, we order the teams by their performance then we allow the top team to choose its seed, then the second team chooses, etc. The challenge in designing such a system is to make this seed-selection stage incentive-compatible. The risk is that the top team chooses a seed and then after all others have chosen theirs the top team regrets its choice and wants to switch. If the top team foresees this possibility it may not have a clear choice and this instability is not only problematic in itself but could ruin qualifying-round incentives again.
So that is the question. As far as I know there is no literature on this. Let’s us, the Cheap Talk community, solve this problem. Give your analysis in the comments and if we come up with a good answer we will all be co-authors.
UPDATE: It seems we have a mechanism which solves some problems but not all and a strong conjecture that no mechanism can do much better than ours. GM was the first to suggest that teams select their opponents with higher qualifiers selecting earlier and Will proposed the recursive version. (alex, AG, and Hanzhe Zhang had similar proposals) The mechanism, lets call it GMW, works like this:
The qualifiers are ranked in descending order of qualifying results. (In case the qualifying stage produces only a partial ranking, as is the case with the group stages in the FIFA World Cup, we complete the ranking by randomly ordering within classes.) In the first round of the elimination stage the top qualifier chooses his opponent. The second qualifier (if we was not chosen!) then chooses his opponent from the teams that remain. This continues until the teams are paired up. In the second round of elimination we pair teams via the same procedure again ordering the surviving teams according to their performance in the qualifying stage. This process repeats until the final.
It was pointed out by David Miller (also JWH with a concrete example, and afinetheorem) that GMW is not going to satisfy the strongest version of our incentive compatibility condition and indeed no mechanism can.
Let me try to formalize the positive and negative result. Let’s consider two versions of No Envy. They are strong and weak versions of a requirement that no team should want to have a lower ranking after qualifying.
Weak No Envy: Let P_k(r,h) be the pairing that results in stage k of the elimination procedure when the ordering of teams after the qualifying stage was r and the history of eliminations prior to stage k is given by h. Let r’ be the ordering obtained by altering r by moving team x to some lower position without altering the relative ordering of all other teams. We insist that for every r, k, h, and x, the pairing P_k(r,h) is preferred by team x to the pairing P_k(r’,h).
Strong No Envy: Let r’ be an ordering that obtains by moving team x to some lower position and possibly also altering the relative positions of other teams. We insist that for every r,k,h, and x, the pairing P_k(r,h) is preferred by team x to P_k(r’,h).
GMW satisfies Weak No Envy but no mechanism satisfies Strong No Envy. (The latter is not quite a formal statement because it could be that the teams pairing choices, which come from the exogenous relative strengths of teams, make Strong No Envy hold “by accident.” We really want No Envy to hold for every possible pattern of relative strengths.)
One could also weaken Strong No Envy and still get impossibility. The interesting impossibility result would find exactly the kind of reorderings r->r’ that cause problems.
Finally, we considered a second desideratum like strategy-proofness. We want the mechanism that determines the seedings to be solvable in dominant strategies. Note that this is not really an issue when the teams are strictly ordered in objective strength and this ordering is common knowledge. It becomes an issue when there is some incomplete information (an issue raised by AG, and maybe also when there are heterogeneous strengths and weaknesses, also mentioned by AG.)
Formalizing this may bring up some new issues but it appears that GMW is strategyproof even with incomplete information about teams strengths and weaknesses.
Finally, there are some interesting miscellaneous ideas brought up by Scott (you can unambiguously improve any existing system by allowing a team who wins a qualifying match to choose to be recorded as the loser of the match) and DRDR (you minimize sandbagging, although you don’t eliminate it, by having a group format for qualifiers and randomly pairing groups ex post to determine the elimination matchups, this was also suggested by Erik, ASt and SX.)
Mitt said that Israeli and Palestinian and Mexican and US economic outcomes differ because of cultural differences. This immediately brought to mind the recent book by Daron and Jim, “Why Nations Fail” because they begin by comparing Nogales Arizona and Nogales Mexico. These have quite similar geography, quite similar culture and yet very different GDPs. Daron and Jim argue this is because of vastly different political and economic institutions. Now Daron and Jim have addressed the issue themselves on their blog. They offer a couple of more examples:
But as we show in Why Nations Fail, cultural differences cannot explain differing levels of prosperity. Deng Xaioping didn´t change Chinese culture after 1978 to make the economy grow, but he did change economic institutions a lot. Indeed, many cultural differences we see are the outcomes of different institutional choices. This is surely the case between North and South Korea, for example. After all, does Mitt and David think that there were huge cultural differences between the north and the south of the 38th parallel before the separation of Korea into two?
I guess we need a convincing example of a situation where two countries have the same geography, the same institutions, but different cultures and vastly different economic outcomes.
Crown should get a copy of Acemoglu and Robinson’s “Why Nations Fail” over to the Romney campaign a.s.a.p. Speaking about the difference in income between Israelis and Palestinians, Romney suggested:
that cultural differences between the Israelis and the Palestinians were the reason the Israelis were so much more economically successful than the Palestinians. He also vastly understated the income disparities between the two groups.
Hin inspiration for the theory? Two books:
In his speech, Mr. Romney mentioned two books that had influenced his thinking about nations — “Guns, Germs and Steel,” by Jared Diamond, and “The Wealth and Poverty of Nations,” by David S. Landes. Mr. Diamond’s book, Mr. Romney said, argues that the physical characteristics of the land account for the success of the people living there, while Mr. Landes’s book, he continued, argues that culture is the defining factor.
“Culture makes all the difference,” Mr. Romney said. “And as I come here and I look out over this city and consider the accomplishments of the people of this nation, I recognize the power of at least culture and a few other things.”
After this caused some backlash:
[H]is campaign said that the Associated Press had “grossly mischaracterized” the remarks by not providing the full context. For instance, the campaign said, after mentioning the per capita G.D.P. of Israel and Palestine, Mr. Romney also said: “And that is also between other countries that are near or next to each other. Chile and Ecuador, Mexico and the United States.”
The Acemoglu and Robinson book begins with Nogales AZ (USA) vs Nogales Mexico and puts institutions at the center of an explanation of income disparities not culture or geography.
Things are not going smoothly for Romney’s London trip. First, he criticizes secuirty and attendance at the London Olympics only to draw a rebuke from Prime Mister David Cameron. The Telegraph reports:
Mitt Romney is perhaps the only politician who could start a trip that was supposed to be a charm offensive by being utterly devoid of charm and mildly offensive.
And now it seems tickets are not selling for his fundraiser so he has been forced to cut prices. According to the Guardian:
The Mitt Romney Summer 2012 World Tour to Three Countries is apparently having trouble moving tickets.
The London blogger Guido Fawkes reports that organizers of a Romney fundraising reception in the city this evening have slashed the original $2,500 ticket price to $1,000 for “a few last minute guests,” in an effort to drum up participation.
Via Decanter:
By the end of this year, Champagne sales in the UK will have fallen by a third since the start of the recession, according to the latest figures.
At the same time, sales of sparkling wine – mainly Prosecco and Cava – will have risen by over 50%.
Your manager is a pain in the neck. He takes credit for your ideas, orders you around, second guesses himself and is horribly indecisive. His subordinates can’t stand him. But you are all too scared to complain to the Big Boss – who knows what the repercussions will be? But the Big Boss does get some sense that things are not going well. Some projects don’t work out because they are badly conceived and poorly executed. At one point, she just takes away some of the responsibilities of your manager. At the same time she heaps him with effusive praise. Why?
She and he know that her praise is insincere and that the manager has been demoted. What effect could her insincere praise have?
Even though you know the Big Boss’s statements are empty, does everyone else? You don’t know. Maybe some of them think she means every word she said. They will treat your former manager with respect. You could enlighten them. But that would ruin the workplace atmosphere and make you seem churlish. So you keep your mouth shut. So does everyone else. So you all act as if the Big Bos’s words were true. As you all live the big lie, so can your former manager. He does his work diligently and the Big Boss is happy.
For a scintillating spell as guest blogger. He once introduced a talk about evolution with a disclaimer explaining why his model was assuming asexual reproduction,”There will be no sex today. I have purposefully left sex out of the model because A) I am shy and I don’t talk about sex in polite company and B) once sex enters the discussion it becomes impossible to talk about anything else.”
It appears he was right on one count.
- A pescatarian?
- Its the Game Theory Society World Congress, I am presenting this new paper on Tuesday.
Cheap Talk 