Conflict and Cooperation: Competitive Fartlek in Spinning

November 30, 2010 in Uncategorized | by | 1 comment

I’m trying to lose the extra Robiola-weight I acquired last year by all too frequent visits to Formaggio Kitchen.  Jogging is boring and it is too cold for cycling so I have started to attend spinning classes.  (Spinning is basically cycling on a stationary bike which has a weighted flywheel.)  Today, the instructor split the nine of us in class into three teams of three and had us play a game.

At first, she said at least one team had to be standing and at least one sitting at any point in time.  If this condition was not met, the instructor would choose one team and single them out for punishment. The punishment involved putting huge weight on the flywheel and pedaling hard.  I believe this sort of varying speed and endurance regimen in known as Fartlek exercise – that was how it was described to us.

Standing is harder work – our team has one member who was particularly reluctant to stand.  There is a free-rider problem and if it cannot be resolved, there is punishment.  There is a Chicken-like flavor to the game: if two teams can somehow “commit” to sit, the third’s best response is to stand to escape a 1/3 chance of a big punishment.  There are multiple pure strategy equilibria and an inefficient mixed strategy one.

But the Coase Theorem applied:  Each team appointed a leader who would shout “stand” or “sit” and we rotated turns standing using thirty second intervals timed using the clock on the wall of the exercise room.  No inefficient punishments and intertemporal transfers.

But there were errors, largely by miscommunication within a team as people got more tired and as the instructor kept on changing the rules and confusing everyone deliberately.  The punishment is meant to be directed at team that mis-coordinated but this can be hard to determine.  This makes the punishment  a little random.  One team blames the other for the punishment and can vindictively trick the other into a false move that can get them punished.  Also, coming out of the punishment and coordinating again with the other teams is hard and can lead to another punishment cycle.

So, there were inefficiencies caused by bounded rationality/miscommunication and occasional bouts of vindictiveness.  But at least in our little exercise room, things worked out and the Coase Theorem applied 99% of the time.  It was remarked that perhaps similar exercises might be performed before the next round of global warming negotiations to give everyone the skills to get along.

Old Dogs, New Tricks

November 29, 2010 in Uncategorized | Tags: , | by | 35 comments

Why do we get more conservative (little ‘c’) as we get older?  Trying out new things pays off less when there’s less time left to benefit from the upside. That’s a simple story based on declining patience.

But there’s another reason which could kick in at middle age when there is still plenty of life left to live.  Think of life as a sequence of gambles presented to you.  They come with labels:  gamble A, gamble B, …, etc.  Every time you get the chance to try gamble A its a draw from the same distribution and you get more information about gamble A.

Suppose your memory is limited.  What you can remember is some list of gambles that you currently believe are worth taking.  When you have the opportunity to take a gamble that is on the list, you take it.  When you are presented with a gamble that is not on the list you have a decision to make. You could try it, and if it looks good you can put it on your list but then you have to drop something else from your list.  Or you can pass.

As time goes on, even though you don’t remember everything you once tried and then removed from your list, you know that there must have been a lot of those.  And so when you are presented with an option that is truly new, you have no way of knowing that and your best guess is that you have actually tried it before and discarded it.  So you pass.

(drawing: Stuck In Your Head from f1me.)

WikiLinks

November 29, 2010 in Uncategorized | by | 3 comments

1.  Wrigley Field restaurant owner to possible Afghan druglord.

2. Prince Andrew is following in his father footsteps according to this cable.  Parts 13c and 14c are particularly good.  The American Ambassador displays a dry sarcastic writing style which is quite engaging.

3. The New Machiavelli thinks the U.S. looks good.

4. The Guardian is quite Machiavellian.

Harry Potter and The Quasi-Experiment

November 29, 2010 in Uncategorized | Tags: , | by | 8 comments

What makes an actor a big box office draw?  Is it fame alone or is talent required? Usually that question is confounded:  it’s hard to rule out that an actor became famous because he is talented.

The actors playing Harry, Ron, and Hermione in Harry Potter and The Deathly Hallows are most certainly famous, but almost certainly not because they are talented.  They were cast in that movie nearly 10 years ago when their average age was 11.  No doubt talent played a role in that selection but acting talent at the age of 11 is no predictor of talent at age 20.  The fact that they are in Deathly Hallows is statistically independent of how talented they are.

That is, from the point of view of today it is as if they were randomly selected to be famous film stars out of the vast pool of actors who have been training just as hard as they from ages 11 to 20.  So they are our natural experiment.  If they go on to be successful film stars after the Harry Potter franchise comes to an end then this is statistical evidence that fame itself makes a Hollywood star.

Here’s Daniel Radcliffe on fame.

The Pope on Padded Pipes

November 26, 2010 in Uncategorized | Tags: , , , | by | 2 comments

Responding to the flap about the Pope’s new stance on condom use by male protsitutes, Rev. Joseph Fessio, editor in chief of Ignatius Press which published the book in which the Pope is quoted provides this clarification:

But let me give you a pretty simple example. Let’s suppose we’ve got a bunch of muggers who like to use steel pipes when they mug people. But some muggers say, gosh, you know, we don’t need to hurt them that badly to rob them. Let’s put foam pads on our pipes. Then we’ll just stun them for a while, rob them and go away. So if the pope then said, well, yes, I think that using padded pipes is actually a little step in a moral direction there, that doesn’t mean he’s justifying using padded pipes to mug people. He’s just saying, well, they did something terrible, but while they were doing that, they had a little flicker of conscience there that led them in the right direction. That may grow further, so they stop mugging people completely.

Side topic:  is the Catholic Church revealing that sin is a problem of moral hazard or adverse selection?

Why It Skips A Generation

November 24, 2010 in Uncategorized | Tags: | by | 1 comment

If your parents are not intellectuals then they don’t spend as much time trying to get you interested in ideas when you are a kid.  So you are first exposed to them as an adult when you can appreciate the feeling of discovering ideas on your own. You are probably in college so you associate discovery with independence and counterculture.

If your parents are intellectuals they bore you to death as a kid with their lame ideas.  By the time you are an adult and you can potentially appreciate them you are deprived of the chance to discover them for yourself.  And anyway it all just reminds you of your parents.

Verifying this is our Thanksgiving Social Science project while surrounded by grandparents and their children and grandchildren.  (Of course you can probably substitute “discovery of ideas” with just about anything and the logic is undisturbed.  But on top of “Gardening is for losers because my loser Dad was always talking about his lame garden” there’s something extra having to do with the complementarity between the act of discovering the ideas and the ideas themselves.)

Not Part Of Optimal Auction Theory

November 24, 2010 in Uncategorized | Tags: | by | 1 comment

But it certainly awaits a behavioral treatment.  Why do auctioneers talk like they are calling a thoroughbred race?

They talk like that to hypnotize the bidders. Auctioneers don’t just talk fast—they chant in a rhythmic monotone so as to lull onlookers into a conditioned pattern of call and response, as if they were playing a game of “Simon says.” The speed is also intended to give the buyers a sense of urgency: Bid now or lose out. And it doesn’t hurt the bottom line, either. Auctioneers typically take home from 10 to 20 percent of the sale price. Selling more items in less time means they make more money.

Who Invented Instrumental Variables?

November 23, 2010 in Uncategorized | by | 2 comments

Readers of Q.J.E. will say Josh Angrist.
Readers to Freakonomics will say Steven Levitt.
Followers of the Nobel Prize will say (or try to say!), Trygve Haavelmo.

But it turns out, they should say Philip Wright.  The identification (ha ha) was done by Jim Stock and Francesco Trebbi who report:

The earliest known solution to the identification problem in econometrics – the
problem of identifying and estimating one or more coefficients of a system of
simultaneous equations – appears in Appendix B of a book written by Philip G. Wright,
The Tariff on Animal and Vegetable Oils, published in 1928. Its first 285 pages are a
painfully detailed treatise on animal and vegetable oils – their production, uses, markets,
and tariffs. Then, out of the blue, comes Appendix B: a succinct and insightful
explanation of why data on price and quantity alone are in general inadequate for
estimating either supply or demand; two separate and correct derivations of the
instrumental variables estimators of the supply and demand elasticities; and an empirical
application to butter and flaxseed.

Stock and Trebbi have to do a lot of detective work because Sewall Wright, the great geneticist, was the son of Philip and people thought the son might have written Appendix B.  But Stock and Trebbi do a fun econometric analysis of the text of Appendix B and compare it to Philip and Sewall’s other work (this is called stylometrics).  They find that Philip must have written Appendix B.

(HT: Enrico Spolaore and Francesco Trebbi at NBER last week)

The Chickles of Stephanie Yee

November 23, 2010 in Uncategorized | Tags: , | by | 3 comments

You may have noticed the line drawings I have been putting at the top of some posts recently.  These are the work of Stephanie Yee and I found them on her blog f1me. I started noticing them in my Google Woody Buzz and something about them just clicked with me. When I started seeing connections with my blogging topics I had to ask her if I could use them on Cheap Talk and she graciously agreed. I think they are a great addition to the blog so let’s all cheer for Stephanie Yee’s playful artwork.

(Chickles:  my word, don’t blame her. It rhymes with tickles, they are way more than doodles, and because she is not a dood.)

Slopes That Are Only A Little Bit Slippery

November 22, 2010 in Uncategorized | Tags: , | by | 6 comments

Every year my employer schedules two weeks for Open Enrollment in the benefits plan. This is the time period where you can freely change health plans, life insurance, etc. In the weeks before Open Enrollment we receive numerous emails reminding us that it is coming up. During the Open Enrollment period we receive numerous emails reminding us of the deadline. The day of the deadline we receive a final email saying that today is the deadline.

Then, every year after the deadline passes the deadline is extended an additional week, and the many people who procrastinated and missed the first deadline are given a reprieve. This happens so consistently that many people know it is coming and understand that the “real” deadline is the second one. So many that it is reasonable to assume that a sizeable number of these people procrastinate up to the second deadline and miss that one too. But there is never a third deadline.

You notice this kind of thing happening a lot. Artificial deadlines that you can be forgiven for missing but only once. It’s a puzzle because whatever causes the first deadline to be extended should eventually cause the second deadline to be extended once everyone figures out that the second deadline is the real one. For example if the reason for the first deadline extension is that year after year many people miss the first deadline and flood the Benefits office with requests, then you would expect that this will eventually happen with the second deadline.

The deadline-setters must feel on firmer ground denying a second request by saying “We warned you about the first deadline, then we were so nice and gave you an extension and you still missed that one.” But if a huge number of people missed the second deadline, no doubt they could still mount enough pressure for a second extension. Indeed the original speech of “We sent you emails every day warning you about the deadline and you still missed it” didn’t stem that tide.

Is it just that every nth deadline is a new coordination game among all the employees and the equilibrium number of deadline extensions is simply the first one in which the “no extension request” equilibrium is selected? I think there is more structure than that because you rarely see more than just one, and you almost never see zero.

I think there is scope for some original theory here and it could be very interesting. What’s your theory?

The Clippers Just Need A Hug

November 22, 2010 in Uncategorized | Tags: , , | by | 2 comments

We focused our analysis on twelve distinct types of touch that occurred when two or more players were in the midst of celebrating a positive play that helped their team (e.g., making a shot). These celebratory touches included fist bumps, high fives, chest bumps, leaping shoulder bumps, chest punches, head slaps, head grabs, low fives, high tens, full hugs, half hugs, and team huddles. On average, a player touched other teammates (M = 1.80, SD = 2.05) for a little less than two seconds during the game, or about one tenth of a second for every minute played.

That is the highlight from the paper “Tactile Communication, Cooperation, and Performance” which documents the connection between touching and success in the NBA. Controlling (I can’t vouch for how well) for variables like salary, preseason expectations, and early season success, the conclusion is:  the more hugs in the first half of the season the more success in the second half.

Earmarks And Spending

November 21, 2010 in Uncategorized | Tags: , | by | Leave a comment

It has been argued that earmarks can’t have any effect on the level of goverment spending because earmarks only specify how already-budgeted spending will be allocated.  Earmarks don’t represent additional funding, they simply dictate how an agency spends its funds.

But this assumes that the ability to earmark spending doesn’t change the incentives to spend in the first place. Here are two arguments why they must.

  1. Earmarks raise spending. Suppose you are deciding on your grocery budget but your wife is going to do the shopping.  Whatever you budget, she is going to spend it to maximize her own utility function which is not the same as yours.  Your marginal return for every dollar spent is smaller than if you were doing the spending.  Your grocery budget is determined by the condition that the marginal return on groceries is equal to the marginal return on Ahmad Jamal concerts at the Regatta Bar in Cambridge (last week:  awesome.)  This happens at a lower level of spending when your wife has discretion than when you do.  If you could “earmark” the grocery spending you would get exactly what you would buy if it were you doing the shopping.  So the earmarks raise spending.
  2. Earmarks Reduce Spending. Legislation is not decided by a single agent who is maximizing a single utility function.  Legislators have to be bribed to get their support.  Suppose that a crucial supporter wants a road built in his state.  With an earmark this can be achieved directly.  Without an earmark, you have to appropriate general infrastructure spending and hope that he gets treated well by the agency. For the same reason as above, the marginal value to your colleague of a dollar allocated to general infrastructure is lower than if the spending were earmarked.  So you have to increase the budget in order to achieve the bribe he requires.

Frank Rich Doesn’t Know that Bloomberg Understands Backward Induction

November 21, 2010 in Uncategorized | by | 2 comments

Frank Rich thinks he might wake up to the nightmare of President Palin in 2012/3:

When Palin told Barbara Walters last week that she believed she could beat Barack Obama in 2012, it wasn’t an idle boast. Should Michael Bloomberg decide to spend billions on a quixotic run as a third-party spoiler, all bets on Obama are off.

Does Bloomberg want to make this happen?  It seems not as I noted last week:

Bloomberg, who isn’t affiliated with Republicans or Democrats, said a candidate running outside the two-party system couldn’t get a majority of the 538 votes in the Electoral College, which would trigger a provision in the U.S. Constitution giving the House of Representatives power to decide the election.

“Unless you get a majority, it goes to the House,” he said today during a conference sponsored by the Wall Street Journal in Washington. “It’s going to go to the Republicans because the Republicans have just taken over the House.”

If Bloomberg wants to be President he will have to run as a Republican.

Should You Cop To Cheating?

November 19, 2010 in Uncategorized | Tags: , | by | 1 comment

Professor Richard Quinn informs his Business Strategy class at the University of Central Florida that “forensic analysis” of the data gives him a good sense of who cheated on the midterm exam.  (The link has video of the scolding.)  Such a good sense that he can provide the administration with a list that he is “95% certain includes everyone who cheated on the exam.”  (Quick:  can you come up with such a list, even without seeing the data?) Unfortunately he can’t be as sure of the converse: that everyone on that list was a cheater.

So he is offering a deal to his students.  They can individually confess to cheating, attend a 4 hour ethics course and receive amnesty, or they can take the risk that they will not be caught.  What would you do?

  1. Professor Quinn’s speech reveals that the only evidence for cheating is an anonymous tip plus a suspicious grade distribution.  Based only on this the only signal that you cheated was that your score was high. But it’s not credible to punish people just for having a high score.
  2. If Professor Quinn expects his gambit to work and for cheaters to turn themselves in, then he should believe that everyone who doesn’t turn himself in is innocent.  So you should not turn yourself in.
  3. The biggest fear is that someone who you collaborated with turns himself in and he is induced to rat you out.  Then as long as you are not sure who knows you were in on the scam you should turn yourself in.
  4. It’s surprising that this possibility was never mentioned in Professor Quinn’s rant because without it, his threat loses much of its force.
  5. The fact that he didn’t raise this possibility reveals that he is not so interested in rounding up every last cheater but simply to get a large enough number to confess.  That way he can say that a lesson was learned.  This suggests that you should confess only if you think that your confession will just push the total number of confessions over that threshold.  Unlikely (unless everyone is thinking like you.)

LaTeX Coffee Stains

November 18, 2010 in Uncategorized | Tags: , | by | 4 comments

Now you can add coffee stains to your LaTeX documents without wasting coffee:

Your readers will appreciate you saving them the effort. From the package documentation:

This package provides an essential feature to LATEX that has been missing for too long. It adds a coffee stain to your documents. A lot of time can be saved by printing stains directly on the page rather than adding it manually. You can choose from four different stain types:

1. 270◦ circle stain with two tiny splashes

2. 60◦ circle stain

3. two splashes with light colours

4. and a colourful twin splash.

Dunce Cap Doff: Jordi Soler.

Bloomberg Knows that If He Runs as an Independent, A Republican Is More Likely to be President

November 17, 2010 in art of office politics | Tags: , | by | 1 comment

From Bloomberg (the firm not the man):

New York Mayor Michael Bloomberg, who has been mentioned as a potential U.S. presidential candidate, said he doesn’t believe an independent can win.

Bloomberg, who isn’t affiliated with Republicans or Democrats, said a candidate running outside the two-party system couldn’t get a majority of the 538 votes in the Electoral College, which would trigger a provision in the U.S. Constitution giving the House of Representatives power to decide the election.

“Unless you get a majority, it goes to the House,” he said today during a conference sponsored by the Wall Street Journal in Washington. “It’s going to go to the Republicans because the Republicans have just taken over the House.”

I guess billionaires can do backward induction.  If only people who can do backward induction were billionaires….

Prediction Paradox

November 17, 2010 in Uncategorized | Tags: | by | 12 comments

Suppose you find out that someone named Rory L. Newbie predicted the financial crisis.  Should you conclude that he has some unique expertise in predicting financial crises?  Seems obvious right: someone who has no expertise would need tremendous luck to make a correct prediction, so Rory must be an expert.

But you know that millions of people are making predictions all the time, and even if not a single one of them has any expertise,  the numbers guarantee that at least one of them is going to get it right, just by sheer luck. So for sure someone like Rory is going to get it right, that doesn’t make it any more likely that he is a true expert.

But this sounds unfair to Rory.  Rory made his prediction all on his own and he got it right.  All those other people had nothing to do with it.  If Rory were the only person on the planet then when he gets it right he is an expert.  It seems that just because there are lots of other people on the planet making predictions, Rory is no longer an expert.  How could it be that his being an expert is dependent on how many other people there are in the world?

The way to resolve this is to remember that we only came to know about Rory because he made a correct prediction.  If Rory hadn’t made a correct prediction but instead Rube did, then we would have been talking about Rube instead of Rory.  No matter who it was that made the correct prediction, and for sure there’s somebody out there who did, we would be talking about that person. The name Rory is a trick because in this scenario it is really naming “the person who made a correct prediction.”

But when there’s only Rory, the name refers to that fixed individual.  He was very unlikely to make a correct prediction by dumb luck and so we are correct to conclude his prediction was born of expertise.

Fine, but I leave you with one more paradox for you to resolve on your own. Suppose Rory told his prediction to his wife in advance.  For Rory’s wife Rory is a fixed person.  While there are still many other predictors on the planet, none of them are Rory.  They are irrelevant for Rory’s wife deciding whether Rory is an expert. Now Rory’s prediction comes true. Impossible by dumb luck alone so Rory’s wife concludes that he is an expert.  But, following our logic from above, nobody else does.

Normally a difference of opinion between two people is logically consistent provided they were led to their opinions by different information.  But Rory’s wife and the rest of the world have exactly the same information. This particular guy Rory made a prediction and got it right.  There is nothing that Rory’s wife knows that the rest of the world doesn’t know.  And Rory’s wife is just as aware as the rest of the world that there is a world full of people making predictions. For Rory’s wife that doesn’t matter. Why should it for the rest of the world?

What Does it Take to Get a Great Parking Spot at Northwestern?

November 16, 2010 in Uncategorized | by | 6 comments

Good for Dale!  We have to set up a mechanism so Dale can lend his parking permit to us when he is not around.

Zen Memory

November 15, 2010 in Uncategorized | Tags: , | by | 3 comments

As I was walking toward my locker at the gym I checked my pocket for the little card with the locker combination written on it.  It wasn’t there.  In a panic I tried to recall the combination.  It was just 30 minutes ago that I had that combination in my head.  But I couldn’t remember it.  So I searched all of my pockets and finally felt the card in my back pocket.  Panic over, I left the card in my pocket and kept walking, my mind quickly wandering to some random topic.

When I reached the locker, without thinking I opened it from memory without looking at the card.

I often have that sense that trying too hard makes it hard to remember something.  There is even a physical feeling that comes with it.  It’s like the brain seizes up and gets locked into a certain part of memory storage with no way of retracing steps back to neutral and starting the search over.  After enough experience with this I sometimes notice the potential for panic before starting to search intensively for a memory that feels like its going to be hard to find.  You have to pretend like you don’t really have something to remember.  And most of all you have to make sure not to think of the thing that you are trying to remember because you know that if you do, the search will start by itself and get stuck.  If you can do a little Zen breathing for a minute and let that feeling pass over, then you can safely start to think about it and recover the memory with ease.

At least that’s how I imagine it would work.

How to Tell If People Really Like You

November 14, 2010 in Uncategorized | Tags: , , | by | 13 comments

Throw a party.  And use a system like evite.com to handle the invitations. There is a typical pattern to the responses over time.  You will have an initial flurry of yeses and regrets followed by a long period of silence punctuated by sporadic responses which continues to the days before the party.  Then there is a final flurry and that is when you learn if your friends are real friends.

Because people come to your party for one of two reasons.  Either they like you or they just feel obligated for reasons like you are an important co-worker or they don’t want to hurt your feelings, etc.  Think of how these two types of people will handle your invitation.

An invitation is an option that can be exercised at any time before the date of the party.  The people who did not respond immediately are waiting to decide whether to exercise the option.  If she’s a true friend then this is because she has a potential conflict that would prevent her attending.  She is waiting and hoping to avoid that conflict.  When she is sure there is no conflict she will say yes.

The other people are hoping for an excuse not to come.  Once they get a better offer, manage to schedule a conflicting business trip, or otherwise commit themselves, they will send their regrets.

In both cases, when the party is imminent, the option value of waiting is gone. Those who want to come but haven’t gotten out of their conflict give up and send their regrets. Those who hoped to get out of it but failed to come up with a believable excuse give up and accept.

So, a simple measure of how much your friends like you is the proportion of acceptances that arrive in the final days.  Lots of acceptances means you better set aside a few extra drinks for yourself.

Sordid Links

November 12, 2010 in Uncategorized | by | 1 comment

  1. Scrap value of foreskins.
  2. “regards, Wink”
  3. This shows a deep understanding of psychology/sociology.
  4. Haikus condemning cilantro.
  5. The aftermath of NaNoWriMo.
  6. We are rodent-like animals who are happy to live in holes in the ground.

Feel Free To Profit From This Idea

November 12, 2010 in Uncategorized | Tags: | by | 20 comments

I want to make a prediction.  But I want to do it like this:

  1. Keep the prediction secret, indeed even keeping secret what the prediction is about.
  2. Have the prediction revealed at some pre-specified future date.
  3. Have it certified that the prediction was recorded on a certain date and not changed after that.

Is there a web service that facilitates predictions like this?  It would be a useful service.  There are probably lots of reasons someone would want to keep their predictions secret prior to the resolution:  you don’t want your prediction to be self-fulfilling (or self-defeating), you don’t want others to know what you are predicting about (maybe it arises out of some proprietary research), or you want to trade anonymously on your prediction.

If anyone has any ideas, please let me know in the comments below.

Addendum: Mallesh correctly points out in the comments that the system would have to publicize that you made a prediction.  This I want to do.

Why do M.I.T. PhDs have an Edge on the Job Market?

November 11, 2010 in art of office politics, economics | Tags: , , | by | Leave a comment

As junior recruiting approaches, we cannot help but speculate on the optimal way to compare apples to oranges – candidates across different fields (e.g. micro vs macro) and across universities.  I speculated a while ago that a “best athlete” recruiting system across fields is prone to gaming.  Each field might simply claim its candidate is great.  To stop that happening, you might have to live with having slots allocated to fields and/or rotating slots over time.

It turns out that Yeon-Koo Che, Wouter Dessein and Navin Kartik have thought about something much more subtle along these lines in their paper “Pandering to Persuade“.  They consider both comparisons across fields and across candidates from different universities.    I’m going to give  a rough synopsis of the paper.

Suppose the recruiting committee in an economics department is deciding whether to hire a theorist or a labor economist.  There is only one labor economist candidate and her quality is known.  There are two theorists, one from University A and one from University B.  The recruiting committee would like to hire a theorist if and only if his quality is higher than the labor economist’s.     Also, the recruiting committee and everyone else believes that, on average, candidates from University A are better than those from University B.   But of course this is only true on average.  Luckily some theorists can read the paper and help fine tune the committee’s assessment of the theory candidates.  They share the committee’s interest in hiring the best theorist but they are quite shallow and hence uninterested in research outside their own field.  In particular, theorists do not care for labor economics and always prefer a theorist at the end of the day.

So, the recruiting committee must listen to the theorists’ recommendation with care.  First, the theorists have huge incentives to exaggerate the quality of their favored candidate if this carries influence with the committee.  Hence, quality evaluations cannot be trusted. All the theorists can credibly do is say which candidate is better but not by how much.  But there is a further problem: if the theorists say candidate B is better, given the committee’s prior, they might think better of candidate B and yet prefer to hire the labor economist!  Being theorists, the sender(s) can do backward induction and they know the difficulty with their strategy if it is too honest.  The solution is obvious to the theorists:  extol the virtues of candidate A even when candidate B is a little better.  Hence, in equilibrium, the candidate from the ex ante better university gets favored. But candidate B still has a shot:  if they are sufficiently good, the theorists still recommend them.  The committee may with some probability still go with the labor economist so it is risky to make this recommendation.   But if candidate B is sufficiently good, the theorists may want to run this risk rather than push the favored candidate A.  I refer you to the paper for the full equilibrium(a) but, as you can see, the paper is fun and interesting.

There are some extensions considered.   In one, the authors study delegation to the theorists.  Sometimes the department will lose out on a good labor economist but at least there is no incentive for the theorists to select the worst candidate.  This is the giving slots to fields solution I wondered about and it is derived in this elegant model.

Don’t Blame Me

November 11, 2010 in Uncategorized | Tags: , | by | 1 comment

A dozen Cook County judges deemed unqualified by legal organizations won reelection on Nov. 2, a result that left their opponents searching for better ways to educate city voters and strengthen Chicago’s judiciary.
Two judges rated “not recommended” in a Judicial Performance Commission pilot project only barely topped the 60 percent of votes necessary to keep their jobs. Their support was stronger in the city than in the Chicago suburbs.
Read the article.  Background is here.

 

There Is No Such Thing As Cheap Talk

November 11, 2010 in Uncategorized | Tags: , , , , | by | 11 comments

Because communication requires both a talker and a listener and it takes time and energy for the listener to process information.  So it may be cheap to talk but it is costly to listen.

But then the cost of listening implies that there is an opportunity cost to everything you say.  Because you can only say so much and still be listened to. They won’t drink from a firehose.

When you want to be listened to you have an incentive to ration what you say, and therefore the mere fact that you chose to say something conveys information about how valuable it was to you to have it heard.  There is no babbling because babbling isn’t worth it.

I also believe that this is a key friction determining the architecture of social networks.  Who talks and who listens to whom?  The efficient structure economizes on the cost of listening.  It is efficient to have a small number of people who specialize in listening to many sources then selectively “curating” and rebroadcasting specialized content. End-listeners are spared the cost of filtering.  The economic question is whether the private and social incentives are aligned for someone who must ration his output in order to attract listeners.

Michelin Bib Gourmand Awards, Chicago

November 10, 2010 in Uncategorized | by | 3 comments

I haven’t spent enough time in Paris to sample Michelin recommended restaurants. When I lived in London, I didn’t have the income to go to Marco Pierre White’s Michelin-starred temple to gastronomy. Finally, my hard-earned graft has left me with a little bit of disposable income over mortgage and other expenses. And I am living near a city which was been noticed by the rotund Michelin Man. Living vicariously through the Dining section of the NYT, I always wondered whether the gripes I read about the Michelin Guide were justified.  Now I can finally weigh in as they have released their list of  Bib Gourmand restaurants for Chicago.

Bib Gourmand appears to mean restaurants where you can have two courses and a glass of wine or dessert for $40 or less.  What is not clear whether such restaurants can also qualify for the higher ranking of one to three stars.  I assume they cannot because that’s the only way I can rationalize what’s on the list: Frontera Grill, Lula Cafe on the same list as the pancake place, Anne Sather?!! La Creperie, gimme a break, is just crap.  My wife and I almost walked out of Veerasway it was so bad.

Part of the problem is that the gradation of categories is too coarse.  Just like the top B and the bottom B in an undergrad economics class, a lot of successes and sins are hidden in one lump. If this Chicago list is anything to go by, the Robert Parker 0-100 numerical approach to wine and the Zagat approach to restaurants may be better.

The Pariah Meal

November 9, 2010 in Uncategorized | Tags: , , | by | 2 comments

Last Tuesday, everyone’s favorite mad-scientist-laboratory of Democracy, the San Francisco City Council enacted a law banning the Happy Meal. Officially what is banned is the bundling of toys with fast food. The theory seems to be that toys are a cheap substitute for quality food and that a prohibition on bundling will force McDonald’s to compete instead on the quality of its food.

But it’s not easy to lay out a coherent theory of the Happy Meal. You could try a bargaining story. Kids like toys, parents want healthy food but are willing to compromise if the kids put up enough of a fuss. McDonald’s offers that compromise in the form of cheap toys and crappy food, raking in their deadweight loss (!).

You could try a story based on 2nd degree price discrimination. There are parents who care more about healthy food (Chicken Nuggets??) and parents who care less. A standard form of price discrimination has a higher end item for the first group and a low-end item for the second. The low-end item fetches a low price because it is purposefully inferior. But if toys are a perfect substitute for healthy food in the eyes of the health-indifferent parents, then a Happy Meal raises their willingness to pay without attracting the health-conscious (and toy-indifferent) parents.

You could even spin a story that suggests that the SF City Council’s plan may backfire. That’s what Josh Gans came up with in his post at the Harvard Business Review Blog.

For a parent, this market state of affairs spells opportunity. With McDonald’s offering a toy instead of additional bad stuff, the parent can ‘sell’ this option to their children and get them to eat less bad stuff than they would at another chain. The toy is a boon if the parents are more concerned about the bad stuff than having another junky toy in the house … They allow a parent to increase the value of healthier products in the eyes of children and negotiate a better price (perhaps in the form of better food at home) for allowing their children to have them. Happy Meals do have carrots after all.

But all of these stories have the same flaw:  McDonald’s can still achieve exactly the same outcome by unbundling the Happy Meal, selling toys a’la carte alongside the Now-Only-Somewhat-Bemused Meals they used to share a cardboard box with.  Just as before families will settle their bargains by re-assembling the bundle, health sub-conscious families will buy the low-end burger and pair it with toys, and parents who have to bribe their kids will buy McDonald’s exclusive movie-tie-in toys to get them to eat their carrots.

(Yes I am aware of the Adams-Yellen result that bundling can raise profits, but this has nothing to do with toys and healthy food specifically.  Indeed McAfee, McMillan and Whinston show that generically the Adams-Yellen logic implies that some form of bunding is optimal.  So this cannot be the relevant story for McDonalds which is otherwise a’la carte.)

So I don’t think that economic theory by itself has a lot to say about the consequences of the Exiled Meal.  The one thing we can say is that McDonald’s doesn’t want to be forced to unbundle.  Putting constraints like that on a monopolist can sometimes improve consumer welfare and sometimes reduce it.  It all depends on whether you think McDonald’s increases its share of the surplus by lowering the total or raising it.  The SF City Council, like most of us one way or the other, probably had formed an opinion on that question already.

The Economics of Ant Slavery

November 9, 2010 in Uncategorized | Tags: , , | by | Leave a comment

You manage a colony of slave-maker ants.  It’s a small colony (not a knock on you, all slave-maker ant colonies are small) so you have only a handful of scouts to send out on an enslavement mission. Do you target a similarly weak colony (better odds) or the biggest and strongest around (better slaves)? According to this account of a study published in Animal Behavior, you risk it and go for the big prize.

It’s fun to theorize why:

Now, like most animal fables, this one can be spun in any number of ways. (Ants are particularly suitable for, or susceptible to, this.) Are the populous, well-defended colonies doing anything wrong? Do these attacks work because whoever’s running the big, powerful colony doesn’t mind losing a few small members? Is the answer more defenses, or subtler ones? Do you change how you live because of a small band of violent actors? Should the hostages fight back when they’re older? (They sometimes do.)

Homburg Howdyado: The Browser.

How to be a Good Economist AFTER Tenure

November 8, 2010 in art of office politics, economics | by | 1 comment

Advice before tenure is some variation around a cliché: Publish or Perish!  Some universities may assess impact or make their own subjective evaluation of your work, believing that they have the taste and scientific expertise to do so.  Others may have a more quantitative approach, counting papers, ranking journals and adding up citations.  But if you haven’t published, basically you are going to perish.

Suppose you get tenure.  You overcome your feeling of ennui and the “Is this all there is?” existential crisis.  You accept the fact that you are probably going to be stuck with the same people for another 30-35 years. You publish the stuff that was in the pipeline when you came up for tenure.  What do you do next?

When I have personal dilemmas of this sort, I try to find some wise women to help me out.  For the post-tenure dilemma, I turned to the Committee on the Status of Women in the Economics Profession (CSWEP).  Their Winter 2009 issue has lots of useful articles.  This is several years after my tenure but it turns out I was instinctively following much of the advice anyway.  For example, Bob Hall says in his article:

“Now that you have tenure, the number of papers you produce is amazingly irrelevant. One good paper a year
would put you at the very top of productivity. Consequently, you should generally spend your research time on the most
promising of the projects you are working on. A related principle is that you should try to maintain a lot of slack in
your time allocation, so that if a great research idea pops into your head or a great opportunity comes along in another
way—an offer of collaboration or access to a data set—you can exploit it quickly.”

He adds:

Research shows that good ideas are more likely to spring into your head when it is fuzzy and relaxed, not when you
are focused and concentrating, with caffeine at its maximum dose. Another principle is that if you get away from
a problem for a bit—say by taking a vacation or spending a weekend with your family—the answer may come to you
easily when you return to work on the problem.

Finally, Hall becomes quite practical:

To sum up, the big danger for an economist at your career stage is to get involved in so many seemingly meritorious
activities on campus, at journals, in Washington, at conferences, writing textbooks, serving clients, and the like, that
your life becomes crowded and you feel hassled. Worst of all, you find yourself starved of time for creative research. When
this happens, take out a piece of paper and write down all of the activities that fill your work day and decide which ones
to cross off. This sounds like trite self-help book advice, but it works.

His whole article is here and is definitely worth a  read.  One thing I would say he misses:  Hall is at Stanford, a top research university.  Perhaps, universities below that hallowed standard are still quantity oriented as they cannot judge quality – journalism or the endless re-labeling of the same idea again and again might be mistaken for fundamental research and lead to a pay rise or internal status.  You might still just ignore that and go with Hall’s advice.

The blog is definitely helping both Jeff and me stay fuzzy and relaxed, as you can tell from our posts.  But I have to sign off now, go make a list and cross some other things off….

Notes From Jury Duty

November 8, 2010 in Uncategorized | Tags: , | by | 3 comments

Last Friday I earned $17.20 for a day’s work as a standby juror.  Standby jurors wait in a big room until they are put in a panel of 14 and sent into a courtroom for selection.  In civil trials, 6 jurors will be selected and seated from the 14.  I was rejected from two panels and then sent home.

The jury selection process is a little obscure, but I found this.  Here’s the model I glean from it.  The panel is numbered 1-14.  Lawyers for Plaintiff and Defendant each have 3 “peremptory” challenges which enables them to strike a juror from the panel.  The Plaintiff moves first and makes any peremptory challenges. This creates a provisional jury consisting of the 6 highest jurors on the list that have not been eliminated yet.  The Defendant can either accept this jury or use a challenge to strike one or more from it sending a new proposed jury, again consisting of the 6 highest jurors not yet struck, back to the Plaintiff.  This continues until someone accepts or all challenges are exhausted.

The game can be solved by backward induction.  I think something like the following is an optimal strategy.  First, when given a proposal of 6 jurors, rank them from least favorable to most.  To decide whether to strike the least favorable, ask whether her replacement will be stricken by the opposition (and any further replacements) and if so whether the final replacement will be better or worse than the least favorable now.  Of course you could always just strike the 3 least favorable in one go, but you are better off moving sequentially in hopes that the other guy makes a mistake and does it for you.

It gets more complicated when you take into account the challenges for “cause.”  These are challenges that require justification on the grounds that the juror is biased.  The possibility of challenges for cause explains why the panel has 14 rather than just 12.  And challenges for cause are evidently used a lot because on my second panel all but 3 jurors were excused.

In practice the jury selection is at least as much signaling as screening.  As if we were playing jury-Jeopardy, the lawyers sent messages phrased in the form of a question.  The defendant asked us “Does everybody understand that anyone can file a lawsuit if they pay a fee?”  The Plaintiff said “Does everyone understand that an insurance company has all the same rights as an individual?”  This is a kind of pre-opening statement.

I wonder whether it was the Plaintiff or Defendant that challenged me.  What they knew about me is that I am a Professor of Economics, the father of three kids, and that I drove a car over a mailbox when I was 16.  (Both of the cases were insurance claims arising out of an auto accident so they wanted to know.)

When I entered the first courtroom the Judge informed us that this case involved an insurance company.  I sized up the lawyers for the two sides.  I immediately pegged the Plaintiff as a sleazy ambulance chaser and the Defendant as a slick insurance company henchman whose life’s calling is to deprive the injured their just deserts (and instead send them to the Mojave for ice cream sundaes.)  The next thing we were told was that this was in fact a case in which the insurance company was suing a client.  So much for reading people by their faces.

The judges struck me as smarter than the attorneys.  (This based on talking with them, not just the looks on their faces 🙂 )

30% of my fellow standby jurors were unemployed.  60% were divorced or separated.