Why are European Business Schools More “International” Than American Business Schools?

July 27, 2011 in Uncategorized | by | 1 comment

Our former Dean, Dipak Jain, now Dean of Insead, suggests:

 American schools are often “super-proud” of student bodies in which one-third are international, says Dr. Jain, who was dean at the Kellogg School of Management at Northwestern University until 2009. In classes at Insead, he says merrily, “it looks like the United Nations.”…..Where M.B.A. students at Insead study businesses and business practices from around the world, American curriculums tend to be “very U.S.-centric,” he says, with case studies focused on domestic corporations. A more global outlook might in fact run counter to the fundamental appeal of American schools, he suggests. “The attraction for the U.S. is, people go there to work with the Americans,” he says. “So for U.S. schools, if they become completely international they would lose their competitive advantage.”

There is a difference between teaching international cases and having an international student body.  While international students might want to learn about American business at an American business school, that does not mean they do not want to come here to get a degree (I hope!).  Going global means staying local.

Consider The Equilibrium

July 26, 2011 in Uncategorized | by | 8 comments

“You know an Asian restaurant is good if all Asians go there.”

Prisoner’s Dilemma Everywhere: The Free-Rider Problem And Towel Use At The Gym

July 25, 2011 in economics, Uncategorized | Tags: | by | 4 comments

The gym which I hardly go to sends me frequent emails which may finally push me to cancel my membership.  Here is one of the more interesting emails I got:

“We replace about 3,000 towels per month, and while roughly 10% of these are taken out of circulation by us because they are no longer suitable for use, the remaining 90% leave the building and don’t come back. 3,000 new towels a month, especially with the rapidly rising cost of cotton, adds up quickly to an amount of money that we should be spending on things like equipment upgrades and the provision of scholarships to our youth. Here are the steps we plan to take:

  1. Starting August 8th, two towels per visit will be available to any member who wants them at the Front Desk. This will be the only place where towels are available. The Y will reduce its buying to 1,500 towels a month. Our card scans at the Front Desk tell us this is enough to give everyone working out here two towels per visit.
  2. Buying will be capped at that 1,500 per month figure, so if towels are not returned we could run out and members working out later in the month would not be able to get towels. Returning your towels before leaving the Y will ensure that this does not happen.”

At first blush, it seems elementary economic theory predicts this plan will fail.  The gym is using collective punishment to give incentives.  If I take the towel home by mistake (they are too grotty to steal!), the chance of being pivotal in the towel service cancellation decision is small. So, while I’ll take a little bit more care to leave the towel, it’s not going to affect my incentives significantly.  Everyone will think the same way and later on the month we will all be bringing our own towels to the gym.

Once we all stop going at the end of the month, as taking your own towel adds yet another impediment to gym attendance, the gym will get the dream member who does not turn up but pays the dues.  Is this their dastardly plan after all?

Here is a possible solution:  Everyone gets two towels when they turn in their gym ID at the front desk.  They get the ID back if they return two towels when they leave.  Otherwise they pay a fine. This does unfortunately create an incentive to steal a towel from someone else if you happen to lose your towel.  But I think it’s still worth trying.

Serving The Key Players In The Network

July 21, 2011 in Uncategorized | Tags: , | by | Leave a comment

This was Mallesh Pai last month:

Everyone here has heard about price discrimination. I know something about your willingness to pay (from other data about you or people like you), and use that to charge you a ‘better’ price. This has mostly been restricted by some combination of ethics, vague legal standards and technology to use ‘coarse’ information, e.g. your age (student/ senior discounts), your address (mailed coupons), and so on. As we pointed out a few months back there are cleverer methods on the way. But today, I think I’ve seen the best yet. A company calledKlout (indubitably with the cooler K-based variant of the spelling) looks into your social network and offers a ‘score’  estimating the influence you have. Some geniuses have decided that one’s ‘Klout score’ might be a good way to discriminate on what website you see (and indeed, what free swag you get offered): http://mashable.com/2011/06/22/klout-gate/ .

And this is Spotify this week proving him right.

The Spotify invites are part of the Klout Perks program, which rewards top influencers with special deals based on their interests and comprehensive Klout score rating. People who are rated as influential on Klout get access to the free trial version of the music service. They can also get a free month of Spotify’s premium service if enough people within their community sign up for the music service.

“The Spotify guys actually reached out to us about launching in the U.S. They had been using Klout and thought it was really cool,” said Klout CEO Joe Fernandez. “We talked a lot about how to hit the people in middle America that are also early adopters but don’t read the tech blogs and stuff.”

Breakdown Of Omerta at NewsCorp?

July 21, 2011 in art of office politics | by | Leave a comment

Crisis management by firms advises that the firm take blame and apologize for any wrongdoing, create empathy from the consumer, solve any fundamental problem and rebuild reputation and perhaps even achieve competitive advantage.  Johnson and Johnson’s strategy when it dealt with arsenic in Tylenol bottles is the “gold standard” of this approach.     ( I used to teach this material.)  NewsCorp advised by Edelman went some way down this path.  Rupert had the most humble day ever and James frequently apologized for the hacking of Milly Dowler’s phone.  They shut down the News of the World and “cut out the cancer”.  But then tensions emerged between the incentives of the Murdochs and even NewsCorp and the classic crisis management strategy.

First, there were denials that the Murdochs knew anything about the hacking – admitting knowledge would imply there were still cancerous cells left in the NewsCorp organism and these should have also be chopped out.  The Murdochs do not want to be chopped out and hence cannot admit to any wrongdoing.  Also, if Rupert Murdoch leaves, will NewsCorp survive without the mastermind who created the mega-company?  So, blame cannot be taken by Rupert and by blood-relation James.  But someone did something wrong even if the Murdochs did not.

This leads to the second problem. The Murdochs have to blame someone for the problems that arose.  So far, they have blamed a law firm with which they deposited potentially incriminating emails.  A NewsCorp lawyer Tom Crone left and with the closing of NoTW there are may disgruntled staff.  The latter have been promised re-employment but it is not clear if this has materialized.  Finally, during testimony it emerged that NewsCorp was still paying legal fees for the private investigator at the center of the scandal and they have been forced to withdraw that support – it’s hard to get empathy from consumers if you paying the legals costs of the guy who hacked into Milly Dowler’s phone!

These two forces together mean if there is any collusion between these various players it is close to breaking down.  I guess the story will get a second wind despite the beginning of the Parliamentary summer hols.  I am not even bringing in the Coulson-Cameron angle which acts as a force multiplier for the story.

Calorie Counts

July 20, 2011 in Uncategorized | Tags: , , | by | 6 comments

Experiments concerning the effect of publishing calorie counts on restaurant menus tend to show little effect on choices.  In the experiments that I know of, choices before and after publishing calorie counts are compared.  But this form of test cannot be considered conclusive.  Some people were overestimating the calories and they might cut back, some were underestimating and they might eat more.  There is no reason to expect that the aggregate change should be positive or negative.

A better experiment would be to use a restaurant where calorie counts are already published and manipulate them.  Will people change their choices when you add 5% to the reported calories?  10%?  What is the elasticity?  It’s a safe guess that there would be little response for small changes and a large response for very large changes.   Any response at all would prove that their is value is publishing calorie counts because it would prove that this information is useful for choices.

The only question that would remain is how those welfare gains measure up against the cost of collecting and publicizing the information.

Sandeep Is Going To Love This

July 20, 2011 in Uncategorized | Tags: , | by | Leave a comment

Courtney Conklin Knapp, the bloggers’ muse, offers up this link on The Eternal Shame of Your First Online Handle.  It reminds me of my personal favorite storage space for unwanted reputations:  USENET.  USENET was the earliest internet social network consisting of mostly-unmoderated discussion groups on just about any topic you can think of.

Did you know that Google has archived all of USENET and provided a search interface through its own Google Groups?  Talk about eternal shame.  Look around your department for your geekiest 40-something colleague and chances are he has a USENET trail and it may not be pretty.

I’ll leave it up to you to find the dirty laundry, but while we are here, a few notable (and perfectly respectable) USENET trails for your amusement.  You can probably guess who posted this to the group rec.sport.soccer in 1997:

I am a professor of economics doing a study of penalty kicks in soccer.  Does anyone know where I might find data on whether a kicker goes to the right or the left on a penalty kick, or whether the goalie dives right  or left?

Any information would be greatly appreciated.

But can you guess who posted this to rec.music.collecting.vinyl in 1996?

Dear Readers:

I am looking for an LP copy of Night by Night, an obscure
issue by Harry Nilsson, or the soundrack to The World’s
Greatest Lover, which he also did, or other Nilsson rarities
(I do have Flash Harry, however).

CD copies are fine as well, although I do not think they exist.

Hint:  he apparently frequented the groups soc.culture.haiti, rec.music.classical.recordings, and rec.sport.basketball.pro and he also posted this to rec.arts.movies.current-films in 1998.

Of all 1998 American movies, which are some prominent examples of movies with foreign non-American directors?  An example of a French director would be especially useful. Any assistance would be most appreciated…I am aware of Peter Weir (an Australian) directing The Truman Show, any other examples?

His full USENET trail is here, but guess before you look!

I implore you not to look at mine, and instead browse the trails of people that really matter like Hal Varian (he was writing a lot about pricing the Internet!), Sergey Brin (he seemed to be having trouble getting DOOM to run on his 486DX), Mark Zuckerberg (not much on his mind apparently)  and Austan Goolsbee.

Extraordinary Sex Ratios

July 20, 2011 in Uncategorized | Tags: | by | 6 comments

Normally we understand the (near) 50-50 male/female population sex ratio with this simple model: if there were more males than females then individuals who are genetically disposed to have female children will have more grandchildren because their female children will find more mates. Thus females will increase in proportion, restoring the balance.

But here’s the interesting thing. That model doesn’t work for humans (and many other species) and in fact 50-50 is highly unstable, with potentially catastrophic consequences.

Suppose that a male has a mutation on his Y chromosome which causes him to produce Y-chormosome sperm that swim faster than his X-chromosome sperm. Then he will have only boys. And his boys will have the same gene and the same super Y-chromosome sperm.

Now suppose that his male children have an equal chance of mating as all other males in the population. Then our original mutant will have more male grandchildren than other males of his generation. Thus, the proportion of this super-Y gene increases in the population, and this trend continues generation after generation.

The balance is not being restored anymore. In fact eventually the super-Y’s dominate the male population. And that means that all offspring in all matings are boys. That means very little reproduction can happen because there are so few females. And the species goes exctinct.

I learned this from a paper by W. D. Hamilton called Extraordinary Sex Ratios.

How Much Did It Cost Al Qaeda In Iraq To Stage An Attack?

July 19, 2011 in economics | by | 1 comment

Researchers at RAND got hold of data on Al Qaeda in Iraq’s expenditures by sector.  They also have data on attacks by sector.  They claim:

[W]e find that for every $2,732 transmitted by the Anbar administrative emir to a particular sector, an additional attack occurred in that sector….We compute the $2,732 figure as follows. Each spending coefficient
shows how much a $1,000 change in spending in a given week would change the number of attacks. Using the coefficients in Table 5.3, increasing expenditures by $1,000 in a week would increase the number of attacks by 0.1 in the same week, by 0.08 one week later, by 0.08 two weeks later, by 0.04 three weeks later, and by 0.06 four weeks later, for a total of almost 0.4 additional attacks. To convert this to the additional expenditure needed for one complete attack, we divide $1,000 by 0.366 (the exact fractional increase in attacks) to get $2,732.

They add:

The amount $2,700 is equivalent to almost three times Anbari per capita 2007 household income (in 2006 dollars) and 40 percent of total average household income, a relatively large sum.

I assume the data cannot be shared.  Otherwise, if the empirical analysis is sufficiently rigorous, the research is publishable in a peer-reviewed journal. These typically require data to be made publicly available so the analysis can be verified.

 

Dancing About Architecture

July 19, 2011 in Uncategorized | Tags: | by | 5 comments

Have you heard that saying “Writing about music is like dancing about architecture” ?  It always stuck in my mind because for one thing I like the poetry of it, but mainly because it confused me.  I think I got the point it was trying to make but I wasn’t sure that it really made that point.  Then I figured out my confusion.  The best way to explain my confusion is with the following reply.

Dancing about architecture is like fencing around landscaping.

Another Good Thing About Seasons

July 18, 2011 in Uncategorized | Tags: , , , | by | 1 comment

The weather in Chicago sucks but at least there are real seasons (there’s only one in SoCal where I am from.)  Here’s a thought about seasons.

Everything gets old after a while. No matter how much you love it at first, after a while you are bored. So you stop doing it.  But then after time passes and you haven’t done it for a while it gets some novelty back and you are willing to do it again.  So you tend to go through on-off phases with your hobbies and activities.

But some activities can only be fun if enough other people are doing it too. Say going to the park for a pickup soccer game.  There’s not going to be a game if nobody is there.

We could start with everyone doing it and that’s fun, but like everything else it starts to get old for some people and they cut back and before long its not much of a pickup game.

Now, unlike your solo hobbies, when the novelty comes back you go out to the field but nobody is there. This happens at random times for each person until we reach a state where everybody is keen for a regular pickup game again but there’s no game.  What’s needed is a coordination device to get everyone out on the field again.

Seasons are a coordination device.  At the beginning of summer everyone gets out and does that thing that they have been waiting since last year to do. Sure, by the end of the season it gets old but that’s ok summer is over.  The beginning of next summer is the coordination device that gets us all out doing it again.

The Sunk Cost Fallacy And Mortgage Write-Downs

July 17, 2011 in Uncategorized | by | 1 comment

An excellent article by Felix Salmon on why banks might be reluctant to do mortgage write-downs on mortgages they initiated themselves but not on those they bought cheap from other banks:

The behavioral psychology here is very easy to understand. No bank wants to admit that it wrote idiotic loans, and write down its own assets from par. Meanwhile, it’s much easier to write up an acquired asset, if the amount you reduce the loan is less than the discount you bought the loan for in the first place.

Economically speaking, however, what the banks are doing here does not make sense. Either writing down option-ARM loans makes sense, from a P&L perspective, or it doesn’t. If it does, then the banks should do so on all their toxic loans, not just the ones they bought at a discount. And if it doesn’t, then they shouldn’t be doing so at all.

In fact, accounting rules make bank behavior “rational”:

If a bank has a loan on its books valued at par, and it offers a principal reduction, it must write down the value of the loan. It takes a hit against its capital position, and experiences an event of nonperformance that even the most sympathetic regulators will have no choice but to tabulate. If a bank has purchased a loan at a discount, however, the loan is on the books at historical cost. The bank can offer a principal reduction down to the discounted value without experiencing any loss of book equity.

Of course this is a matter of mere accounting. Whether or not a bank takes a capital hit has no bearing on whether a principal reduction will increase the realizable cash-flow value of the loan.

This moves the problem one layer further back: What is the rationale for these accounting rules?  Either a principal reduction should be discouraged via accounting convention whether the loan was purchased or bought or it should be allowed in the right circumstances…

(Hat tip: Mallesh Pai)

Sordid Links

July 15, 2011 in Uncategorized | by | Leave a comment

  1. Canada’s English language test for immigrants.
  2. Upon reflection, Twisted Sister might be persuaded to take it.
  3. Mustards inspired by Russian nemesises.
  4. Food Carts inspired by literature.
  5. Recreating Dock Ellis’ LSD-fueled Major League no-hitter.
  6. Sarah Palin’s movie debuts to an empty house in Orange County, California, home of John Wayne Airport.

Why Sex?

July 14, 2011 in Uncategorized | Tags: | by | 1 comment

It is a challenge for evolutionary theory to explain the prevalence of sexually reproducing species.  That’s because of the twofold cost of sex:  a sexually reproducing species produces half as many offspring per generation as an asexually reproducing population of the same size.  So not only must there be some other advantage to sexual reproduction, it has to be large enough to outweigh that substantial cost.

One theory is that the genetic mixing that comes from sex allows a species to shed disadvantageous mutations.  An asexual species can only accumulate them.  This advantage can be large enough to overcome the twofold cost of sex.  But the problem with this theoretical explanation is that in these models the advantage of sex is too large, so large that the kind of sex we see universally among all sexually reproducing species, sex between two parents, is dominated by tri-parental sex.  This was shown by Perry, Reny, and Robson who consider a particular kind of menage a trois in which each mating requires two males and one female, and each offspring receives half of its genetic material from the mother and one quarter from each of the fathers.

This avoids a tri-fold cost of sex:

Because the cost of males is determined not by the ratio of males to females in each mating instance but, rather, by the population ratio of males to females, de-termining the population ratio is central. We therefore turn to Fisher’s celebrated equilibrium argument (Fisher, 1930). Applying the same logic to 1/2 – 1/4 – 1/4 sex, we note first that the total reproductive value of all of the males in any generation is precisely equal to that of all of the females in that generation. This is because, un-der 1/2-1/4-1/4 sex, all of the females supply half of the genes of all future generations. But then the remaining half must be supplied by all of the males. Consequently, as Fisher argued, equilibrium requires the offspring sex ratio to equate parental expenditure on male and female offspring. Maintaining the usual assumption that offspring of either sex are equally costly to raise to maturity, we conclude that the equilibrium sex ratio must be one–each male therefore mates with two females and vice versa. But this means that the cost of males is twofold–there is no additional cost of males over biparental sex.

I bring this up because (in an older working paper version) they also considered the leading competing theory for the advantage of sexual reproduction, The Red Queen hypothesis.  Here the argument is that species are constantly trying to out-evolve parasites.  Genetic mixing makes them a moving target.  Perry, Reny, and Robson showed that, unlike the deleterious mutations theory, the Red Queen story rationalizes biparental sex over other forms of sex.  Thus, from the point of view of sex as an evolved mechanism for solving some problem, only the Red Queen can explain the kind of sex we see.

And I bring that up because just last week I heard this story about a new experiment that validates the Red Queen hypothesis.

Being Nice To Your Enemies and Not Trusting Your Friends

July 13, 2011 in Uncategorized | by | 1 comment


You have friends and enemies.  Friends are nice to you and enemies are mean to you.  There is always a chance that a friend turns into an enemy and an enemy turns into a friend.  An enemy is more likely to turn into a friend the nicer you are to him.  A friend is more likely to turn into an enemy the meaner you are to him.

If your enemy is your sworn enemy, hating you whatever you do, there is no point being nice for strategic reasons.  But the fact that you want to persuade an enemy to become your friend means you have a greater incentive to be nice. So, Gordon Brown should have gone to Rebekah Brook’s wedding and Sarah Brown should have invited Rebekah over for a pyjama party.

The same logic applies to your friends: be nice to them to persuade them to stay your friends.  But don’t be too nice because that may backfire when they become your enemy.  This is particularly important in terms of giving them incriminating information they can use against you once they turn on you.  If you are prone to disappointment, it applies more broadly.  Woodrow Wyatt who helped his friend Rupert Murdoch evade regulation when he bought The Times found this out when Murdoch chose to endorse Blair:

Source: This excellent life of Murdoch in Britain by the BBC’s Alan Curtis

Consider The Equilibrium: Very Short Baseball Players

July 13, 2011 in Uncategorized | Tags: | by | 3 comments

On Tuesday, in the sixth round of the MLB Draft, the San Diego Padres selectedoutfielder Kyle Gaedele (who the Tampa Bay Rays had previously drafted in the 32nd round of the 2008 draft). Gaedele plays center field and shows good signs of hitting for power, but what most writers, sports fans, and guys named Bradley talk about is Gaedele’s great uncle.

Casual fans probably do not know about Kyle’s great uncle, Eddie Gaedel (who removed the e off his last name for show-business purposes). We nerds can forgive the casual fan for forgetting a player who outdid, in his career, only the great Otto Neu. Gaedel took a single at-bat, walked to first, and then left for a pinch runner.

What makes Eddie Gaedel a unique and important part of baseball history, however, is not his statistics, per se, but his stature. Gaedel stood 3’7″ tall, almost half the height of his great nephew. Gaedel was the first and last little person to play in Major League Baseball, and the time has come for that to change.

In baseball, the strike zone (effectively the target that a pitcher must aim for) is defined relative to the size of the hitter.  A very small player has a very small strike zone, so small that many pitchers will have a hard time throwing strikes.  Insert such a batter at a key moment, he walks to first base and then you replace him with a fast runner.  Why doesn’t every team have such a player on their roster?

Cap Clutch:  Vinnie Bergl.

Parental Incentive Problem #9B

July 13, 2011 in Uncategorized | Tags: , | by | 3 comments

I went out for a run and left some instructions for my daughter.

By the way, running is the suckiest form of exercise there is.  The only thing worse than my jog up and down the street is running on a treadmill, if only for the change of scenery.  Very slow change of scenery.  But I will admit that the boredom involved adds a dimension that you don’t get from actual, useful exercise like playing sports.  I can run around on a tennis court for hours but I am embarrassed to tell you that after about a year of regular running I can’t comfortably run more than a mile.  There being no assistance whatsoever from competitive spirit or just plain old enjoyment, running is a pure exercise of the will to prolong immediate suffering and boredom in return for some abstract, delayed benefit.

And that mile takes me more than 10 minutes.  I think.  I am too ashamed to time myself.

But nevertheless not so long as to make me feel uncomfortable leaving my 10 year old at home for the duration (I actually don’t know what the law is, I hope I am not incriminating myself.)  And she had an assignment that she needed to finish so I suggested that she work on it while I was out.

Now there were also some other things that needed to be done.   And you never know what’s going to happen when she sits down to do her assignement.  Does she have all the stuff she needs, is she going to need some help? etc.  So ideally I would give her a contingency plan.  If for whatever reason you can’t do the assignment, do the other thing in the meantime.

But this is not always a good idea.  Just mentioning the contingency turns a clearly defined instruction into one which invites subjective interpretation, and wiggle room at the margin of acceptable contingincies.  “You said I should do the other thing so I did.”

Of course there is a tradeoff.  First of all, there’s the basic second-best trade-off. Without a plan B, when it turns out to be truly impossible to do plan A, you come home to find her on plan Wii.

But more importantly, she’s gotta learn how to judge the contingencies on her own, eventually.  The thing is, rightly or wrongly I think parents instinctively believe that in the early stages of that process kids read a lot, indeed too much, into the items put into the menu of options.  There is an excessive distinction between an unmentioned, and hence implicitly disallowed option and one which is mentioned but discouraged.

Unlearning that kind of inference, clearly a necessary step in the long run, can be tricky in the short run.

Heh, short run.

Sentence of the Day, An Unknown Number of Days Ago

July 12, 2011 in Uncategorized | Tags: , , | by | Leave a comment

Hume has been locked out of the room and he is not allowed to re-enter in the form of Parfit having a dialogue with Cho and Kreps.

That’s from Tyler’s review of a book called On What Matters Vol. I (a title, which in my opinion can be gainfully edited down to “SW Swell.”)

The Adult Safety Break

July 11, 2011 in Uncategorized | Tags: , | by | 3 comments

We never had them when I was a kid.  There was “Adult Swim” but that was like a 3 hour block of time on a week night, legitimately so that adults could swim without being terrorized by cannonballs, marco polos, jacknifes, watermelons, palm geysers and the dreaded depth charge.

(There’s another recent development in swimming pool administration. At my community pool whenever anything is even slightly amiss the lifeguard is supposed to give three sharp whistles which in turn alerts the entire crew of 20 or so lifeguards each stationed at her own corner of the pool [yes the pool does have 20 or so corners] to also emit three sharp whistles, repeatedly, while pointing in the direction of the other lifeguard whose whistle it was that alerted them.

That way, in the midst of the cacophony of whistles you can look at any random lifeguard, see where they are pointing, follow the trail of shrieking, pointing lifeguards until you find the root of the tree and then you know where all the trouble is.  At least that’s the theory. Meanwhile over the loudpseaker the lifeguard who appears to have been selected for this job on account of having the most panic-stricken-yet-somehow-deeply-caring voice is sooth-screaming “Attention swimmers.  Three whistles have been blown, please leave the pool.  7 year old Dennis is missing.  He is wearing a red swim suit, a blue mask and snorkel. He is not wearing his plastic pants.”

This is followed every 30 seconds or so by further announcements of additional information that might be useful to us in our search for Dennis, “Attention swimmers [she hasn’t seemed to have noticed that we stopped swimming 5 minutes ago and in fact we are now more appropriately addressed like “Attention patrons who were previously swimming and who are now digging through your beach bags for earplugs”] we are looking for Dennis. Dennis has a My Little Pony beach towel and he was last seen by his 5 year old sister when she was holding him down so his friends could give him a plastic pants wedgie.”  Then “Attention swimmers, we are looking for Dennis.  Dennis is going through a bed-wetting phase at home.”

Finally Dennis, who of course had just been undergoing repeated Whirlys in the bathroom emerges and the whistles fall silent but the cackling doesn’t.)

But the “Adult Safety Break” has very little to do with adults and nothing at all to do with their safety. Every 90 minutes all children under the age of 16 are required to leave the pool for 15 minutes.  In the meantime, adults can swim but since nobody goes to this pool to swim in the literal sense of prostrating and propelling yourself through water with a well-defined origin and destination, what happens instead is that all of the adults leave the pool too and the lifeguards are the ones that get a break.

And that is precisely the rationale.  Not the break for the lifeguards, but the temporary evacuation of the pool.  Now note that this is a community pool, run by the community association so we have a situation in which the community is voluntarily destroying 15 minutes of pool value.  So there must be a good reason.

And the good reason is that admission to the pool is by flat fee with no marginal time-use pricing.  This means that the admission fee can be adjusted only to meter the number of people entering the pool but it provides no means to stop them from staying all day long.  And indeed while their marginal value declines over time it appears to stay bounded away from zero until either nightfall or lightning strikes, whichever comes first.

The safety break makes us decide whether its worth it to sit through 15 idle minutes before climbing back onto the marginal utility slide.  A large number of families by now already on the very flat end of that slide, its no wonder that the safety break culls a significant segment of the pool’s patronage in one fell swoop. It helps that the safety break consolidates all the kids in one place making the exit that much easier.

Bad for them but good for the community at large.  Their tiny residual marginal utility is dwarfed by the externality of their presence multiplied by the number of other swimmers in the pool.  Absent any way to expose them to their externality through prices, a community-imposed waste of time is the second-best solution.

Unfortunately for Dennis though, giving Whirlys only gets better and better.

Daniel Diermeier is Blogging

July 11, 2011 in Uncategorized | Tags: | by | 1 comment

Daniel, Diermeier, our Kellogg colleague has a new blog called Reputation Rules.  Daniel is a noted researcher and a star teacher at Kellogg.  Should be an interesting blog.

“Marginal Revenue = Marginal Cost” Almost Makes It Into The New York Times

July 10, 2011 in economics, teaching | by | Leave a comment

Entrepreneur Jay Goltz opines:

“If there is an aspect of running a small business that doesn’t get enough attention, I think it’s pricing.”

But it is hard and your salespeople can lead you astray:

“From my experience, many business owners do not do an analysis to calculate the effect a price increase might have on their bottom lines — again, for good reason. It is very difficult if not impossible to do. It’s more like guessing, perhaps an educated guess. I cannot tell you how to do it, but I can tell you what not to do. Do not rely on just your salespeople! Most will tell you that the sky will fall if you raise prices. They will tell you that customers are already complaining.”

Is it worth raising prices?  The key variables are elasticty of demand and cost f production:

“Here’s the math: if you sell 100 widgets a week at $100 apiece and they cost you $65 apiece, you have a gross profit of $35 a widget or $3,500 a week. But because your fixed expenses have been rising and these are really good widgets, you decide you can charge $102 and still provide a good value to your customer. If you now sell only 95 widgets a week, you will have a gross profit of 95 x $37, or $3,515. But if you manage to sell 98, you will make $3,626. The point is that sales have to fall quite a bit for you not to come out ahead.”

He does not quite come out and say it but implicitly Goltz is comparing marginal revenue and marginal cost. In his examples, MR<MC so it makes sense to reduce output and increase prices.

What’s Going On With The News Of The World? A Video…

July 8, 2011 in Uncategorized | by | 1 comment

Haggling With A Cab Driver

July 7, 2011 in art of office politics, economics | by | 3 comments

Getting from the hotel to Heathrow, we faced the hold-up problem, a fitting end to a trip that began with the Grossman-Hart+25 conference in Brussels. Our cab driver was late picking us up and in compensation the cab company offered us a discount.  But when we got to the airport, the cab driver refused to give us the discount saying he knew nothing about it and anyway it was not his fault as he’d been called after the previous driver bailed out. He refused to call his company to confirm my deal and refused to take a credit card (the hotel had told us the cab company would take a credit card if we paid a surcharge of five pounds).

Steam coming out of my ears, I traipsed into the airport and got cash out to pay him.  This gave me time to think. The cab driver knew I was not a repeat customer but the cab company was contacted by my hotel and they were definitely hoping to keep the relationship with the hotel going into the future.  So I called the hotel which called the cab company which called driver and I got my discount.

Deconstructing this later on, it seemed both I and the cab driver reacted irrationally.  Conflict annoys me and the sum involved was trivial.  The cab driver would definitely have lost his tip even if I had caved in to his demand so he would not have come out ahead by digging in his heels.

Finally, the cab company may not have set up incentives well with its (subcontracted?) employees. Their incentives are short term and differ from the company’s incentives which are long term.  A salary or greater vertical integration rather than payment by commission might dominate.  But if people are irrational, the design of the incentive scheme may not help.  After all, as I said above, the tip should have provided incentives but it did not.

Pain Is A Kludge

July 6, 2011 in Uncategorized | Tags: , | by | 25 comments

Tyler Cowen quotes Richard Dawkins:

Isn’t it plausible that a clever species such as our own might need less pain, precisely because we are capable of intelligently working out what is good for us, and what damaging events we should avoid? Isn’t it plausible that an unintelligent species might need a massive wallop of pain, to drive home a lesson that we can learn with less powerful inducement?

There is an alternative to pain as an incentive mechanism:  dispensing with incentives altogether and just programming the organism with instructions to follow. And if the organism doesn’t already have “feelings” as a part of its infrastructure then the instructions are the only alternative.  The big question for theories of pain and pleasure as an incentive mechanism is why mother nature as Principal bothers with incentives at all.

Dopamine And Porn

July 6, 2011 in Uncategorized | Tags: | by | 3 comments

Vaughan Bell comes through with a steady-handed (Beavis!!) take-down of Naomi Wolf’s neuro-hyped story about porn and the brain.  Wolf wrote:

Since then, a great deal of data on the brain’s reward system has accumulated to explain this rewiring more concretely. We now know that porn delivers rewards to the male brain in the form of a short-term dopamine boost, which, for an hour or two afterwards, lifts men’s mood and makes them feel good in general. The neural circuitry is identical to that for other addictive triggers, such as gambling or cocaine.

And here’s Vaughan:

But the reward is not the dopamine. Dopamine is a neurochemical used for various types of signalling, none of which match the over-simplified version described in the article, that allow us to predict and detect rewards better in the future.

One of its most important functions is reward prediction where midbrain dopamine neurons fire when a big reward is expected even when it doesn’t occur – such as in a near-miss money-loss when gambling – a very unpleasant experience.

But what counts as a reward in Wolf’s dopamine system stereotype? Whatever makes the dopamine system fire. This is a hugely circular explanation and it doesn’t account for the huge variation in what we find rewarding and what turns us on.

This is especially important in sex because people are turned on by different things. Blondes, brunettes, men, women, transsexuals, feet, being spanked by women dressed as nuns (that list is just off the top of my head you understand).

Winning The Last Point

July 5, 2011 in Uncategorized | Tags: | by | 4 comments

It doesn’t take much to win a tennis match no matter how strong your opponent is.  It’s enough to win just one point, the last one.

There is an analogous saying about economics research, I heard it originally attributed to Roger Myerson.  The paper is finished as soon as you have the right notation.  This is exactly right because economic theory is about crafting the model and assumptions to highlight just the point you are trying to convey, nothing more nothing less.  There is a continual back and forth between formulating assumptions, proving results, changing the setup, checking how the results are affected, etc. until you have it just exactly perfect (Don’t get cynical now.)  How the notation is chosen, i.e. which concepts in the model get their own basic symbol and which concepts are expressed as derivatives, is a key linchpin.  By grouping the right concepts with well-chosen notation you can turn an opaque argument into one that transparently lets the main idea through, i.e. just exactly perfect.

Tel Aviv Game Theory Workshop

July 5, 2011 in Uncategorized | Tags: | by | Leave a comment

Here is the report from Eran Shmaya, with a digression that begins with humus:

And speaking of food, the humus you get in the cafeteria near the law school is an offense to all taste and decency, though non-Israelis still enjoyed it (no surprise, it’s still better than of what you get in the states under `humus’). If you go to Jerusalem, Lina (just near the via dolorosa, where Jesus of Nazareth has walked twenty centuries ago) was pretty good. The best of the best is Ali Karawan in Jaffa, but I didn’t get to go there this time. And speaking of Jaffa, Rann Smorodinsky got our everlasting admiration for suggesting Haj Kahil for dinner. And btw, Rann didn’t invent Kalai-Smorodinsky bargaining solution when he was six, as somebody suggested to me. That Smorodinsky is the father.

Watching Sports On Your DVR

July 5, 2011 in Uncategorized | Tags: , | by | 5 comments

Via Marginal Revolution, an essay exploring the psychology of watching a sporting event after the fact on your DVR.  Is it less enjoyable than watching the same game live when it happens?  I love this question and I love the answers he gives.  Strangely though, he divides his reasons into the “rational” and the “irrational” and with only one exception I would give the opposite classification.  Here are his rational ones:

  1. Removing commercials reduces drama.  I suppose he calls this rational because he thinks that its true and perfectly sensible.  The unavoidable delay before action resumes builds suspense.  But even though I agree with that, I call this an irrational reason because of course I can always watch the commercials or just sit around for 2 minutes if I’d rather not see yet another Jacob’s Creek wine commercial.  If in fact I don’t do that, then that’s irrational.
  2. If you know it has already happened then it is less interesting.  Again, this may be true for many people, but to make it into the rational category it has to be squared with the fact that we watch movies, TV dramas, even reality TV shows whose outcomes we know are already determined.
  3. Recording gives me too much control.  Same as #1.
Now for the irrational ones:
  1. I don’t get to believe that my personal involvement will affect the game. This one I agree with.  Many people are under this illusion and it would be hard to call it rational for someone to think they are any less in control when the event is already over.
  2. If this were a really exciting game I would have found out about it independently by now no matter how hard I tried to avoid it.  I would call this the one truly rational reason and I think its a big problem for most major sports.  If something really exciting happened that information is going to find you one way or another.  So if you are sitting down to watch a taped event and the information didn’t find you, then you know it can only be so good.  Even worse, if the game reaches a state where it would take a dramatic comeback to change the outcome, you know that comeback isn’t going to happen.

I would add two of my own, one rational and one irrational.  First, you don’t watch a DVR’d sporting event with friends.  The whole point of recording it is to pick the optimal time to watch it and that’s not going to be your friend’s optimal time.  Plus he probably already saw it, plus who is going to control the fast-forward?  Watching with friends adds a dimension to just about anything, especially sports so DVR’d events are going to be less interesting just for the lack of social dimension having nothing to do with the tape delay.

Second, there is something very strange about hoping for something to happen when in fact it has either already happened or already not.  Now, this is irrelevant for people who easily suspend disbelief watching movies.  Those people can yell at the fictitious characters on the screen and feel elation and despair when their pre-destined fate is played out.  But people who can’t find the same suspense in fiction look to sports for the source of it.  For those people too many existential questions get in the way of enjoying a tape-delayed broadcast.

Unsordid Links

July 1, 2011 in Uncategorized | by | 4 comments

  1. If you call Heather Christle she will read you a poem from her new book.
  2. The secret life of air, starring air conditioners.
  3. Picasso, strolling, in briefs, with dog.
  4. How to bypass the NYT paywall?  (Not sure if it still works.)

Thanks To Lones Smith

July 1, 2011 in Uncategorized | Tags: | by | 1 comment

A great guest blogger.  We should do more of these.