Monday, December 28, 2009

Should haves...

For more related comics, see here.

H/T to a friend of mine.

Thursday, December 24, 2009

Milgrom on Market Design

Northwestern University has awarded the 2009 Erwin Plein Nemmers Prize in Economics to Prof. Paul Milgrom of Stanford University for his contributions in many fields of modern economic theory, including auction and market design, information economics and economics of organizations. The prize lecture given by Prof. Milgrom was titled "The Promise and Problems of Market Design", in which "he reviewed the goals of market design and the unavoidable trade-offs that are sometimes required, and explored how economists should seek to resolve these trade-offs." The presentation slides can be accessed here as well as the entire video recording of this lecture.

A follow-up Conference in Honor of Paul Milgrom was also held, the speakers and their presentations are listed below:

Vijay Krishna (Pennsylvania State University): Auctions and Information[Presentation and Bibliography - PDF]
Larry Ausubel (University of Maryland): Auctions with Multiple Objects[Presentation - PDF] [Bibliography - PDF]

Panel Discussion: Market Design
Susan Athey (Harvard University) [Slides]
Preston McAfee (Yahoo! Inc.) [Slides]
Paul Milgrom (Stanford University) [Slides]
Alvin Roth (Harvard University) [Slides]

Stephen Morris (Princeton University): Trade and Information[Presentation - PDF] [Bibliography - PDF]
Bengt Holmstrom (Massachusetts Institute of Technology): Agency Models[Presentation - PDF] [Bibliography - PDF]
John Roberts (Stanford University): Organizational Economics[Presentation - PDF]

Thursday, December 17, 2009

In Memoriam of PAS

The first piece is from Robert Solow, James Porteba, Stanley Fisher, Alan Meltzer and Jagdish Bhagwati, the second piece from his nephew, Larry Summers, and the final piece is an appreciation from Avinash Dixit.

Monday, December 14, 2009

The Enormous Black Box: Why Such a Long Silence after Coase's Nobel?

Far back in 1990, the organizers of one Nobel Symposium had noticed, as appeared later in the conference proceedings, that "...we even found that the phenomenon called 'the firm' seemed to be nothing more than a structure of particular contracts. An enormous black box thus revealed itself at the very center of economic theory, waiting to be opened." Sure enough, this symposium produced a Nobel Prize the next year – to Ronald Coase, "for his discovery and clarification of the significance of transaction costs and property rights for the institutional structure and functioning of the economy."

However, that was the last time anyone heard of contract theory or organizations or institutional economics from the Swedes until last October, when they cited Oliver Williamson and Elinor Ostrom for “major contributions to our understanding of economic governance” (if you don’t count Douglass North for his work in history to explain institutional and economic change, that is). Why such a long silence?

Here are some thoughts from the Economic Principles. At the end, it pointed out, and I totally agree that "It’s worth remembering, therefore, that economics is a very young science, and that it still has got a long way to go. If the Swedes have been cautious, it is because the larger framework of the economics of organizations remains, for the most part, an enormous black box."

Sunday, December 13, 2009

Paul A. Samuelson, RIP

Paul A. Samuelson, the first American Nobel laureate in economics and the foremost academic economist of the 20th century, died Sunday at his home in Belmont, Mass. He was 94.

See the full story here. May him Rest in Peace.

Here are some remembrances from Samuelson's students.

Friday, December 11, 2009

Peer Review

A typical reaction to the peer review results 65 years ago...Hilarious! (via Lasse Lien)

Monday, December 7, 2009

An interview with Josh Lerner

The U.S. government has spent billions of dollars bailing out troubled companies. Is it time for Uncle Sam to invest in new entrepreneurial firms as well? Professor Josh Lerner makes the case for limited government involvement in his book "Boulevard of Broken Dreams: Why Public Efforts to Boost Entrepreneurship and Venture Capital Have Failed—and What to Do about It".

Key concepts include:

  • Government support for entrepreneurial ventures could spur economic growth and support the struggling venture capital industry.
  • For every successful public intervention there are many failed efforts, wasting billions in taxpayer dollars.
  • Government can help in two ways: ensure that the economic environment is conducive to entrepreneurial activity, and provide direct investments.
  • The Obama administration's track record on these matters is mixed.
  • Academic literature in this area is comparatively sparse.

See the interview here.

The Economics of Contracts Lectures

The Institute for Advanced Studies at the Hebrew University of Jerusalem held its 20th summer school in economic theory this year, featuring "The Economics of Contracts". The lecturers include Philippe Aghion, Omri Ben-Shahar, Mathias Dewatripont, Oliver Hart, Bengt Holmstrom, Eric Maskin and Jean Tirole, who are, needless to say, among the most pioneering contract theory economists in the profession nowadays. They have covered basic theories in the economics of contracts and some advanced topics in more recent literature.

Lecture notes are accessible as well as some of the recorded videos.

Books of the Year: The Economist Version

In the "Economics and business" section, the following entries are found:

Too Big to Fail: The Inside Story of How Wall Street and Washington Fought to Save the Financial Systems—and Themselves. By Andrew Ross Sorkin. (A riveting fly-on-the-wall account of the collapse of Lehman Brothers and what came afterwards).

Lords of Finance: The Bankers Who Broke the World. By Liaquat Ahamed. (A history of the generation that invented the modern central banker. Winner of this year’s Financial Times/Goldman Sachs business book of the year award).

How Markets Fail: The Logic of Economic Calamities. By John Cassidy. (A sharp look at the roots of the financial crisis that turns into an excellent history of economic thought).

Poorly Made in China: An Insider’s Account of the Tactics Behind China’s Production Game. By Paul Midler. (A useful analysis by a consultant who advises Western companies on what to do about China’s manufacturing problems. Many laboratories protect their reputation by hiding, rather than revealing, what they test and whistle-blowing is punished rather than rewarded).

For the entire list, see here.

Tuesday, December 1, 2009

Top Words in 2009

From the Global Language Monitor. For lists in previous years, also see here.

TOP WORDS:
1. Twitter — The ability to encapsulate human thought in 140 characters
2. Obama — The word stem transforms into scores of new words like ObamaCare
3. H1N1 — The formal (and politically correct) name for Swine Flu
4. Stimulus — The $800 billion aid package meant to help mend the US economy


TOP PHRASES:
1. King of Pop –Elvis was ‘The King;’ MJ had to settle for ‘King of Pop’
2. Obama-mania — One of the scores of words from the Obama-word stem
3. Climate Change — Considered politically neutral compared to global warming
4. Swine Flu — Popular name for the illness caused by the H1N1 virus
5. Too Large to Fail — Institutions that are deemed necessary for financial stability


TOP NAMES:
1. Barack Obama — It was Obama’s year, though MJ nearly eclipsed in the end
2. Michael Jackson — Eclipses Obama on internet though lags in traditional media
3. Mobama — Mrs. Obama, sometimes as a fashion Icon
4. Large Hadron Collider — The Trillion dollar ‘aton smasher’ buried outside Geneva
5. Neda Agha Sultan — Iranian woman killed in the post-election demonstrations


H/T to CARPE DIEM.

Monday, November 30, 2009

Asia's rise -- how and when

Again, this piece is brought forward by Hans Rosling, a charming Swedish statistician and presenter.



I have an old post where I was first amazed by Dr. Rosling's impressive presentation skills and techniques.

A Fresh Look...

...of my long time favorite blog. Bravo!

Below is the old look:

Sunday, November 29, 2009

Saturday, November 28, 2009

What if shopping worked like health care?

Watch the video here.

H/T to CARPE DIEM.

The State of Corporate Governance Research

By Lucian Bebchuk and Michael Weisbach. This paper is an introduction to a special issue on corporate governance co-sponsored by the Review of Financial Studies and the National Bureau of Economic Research.

The special issue features seven papers on corporate governance that were presented in a meeting of the NBER’s corporate governance project. Each of the papers represents state-of-the-art research in an important area of corporate governance research. For each of these areas, we discuss the importance of the area and the questions it focuses on, how the paper in the special issue makes a significant contribution to this area, and what we do and do not know about the area. We discuss in turn work on shareholders and shareholder activism, directors, executives and their compensation, controlling shareholders, comparative corporate governance, cross-border investments in global capital markets, and the political economy of corporate governance.

H/T to Peter Klein.

Wednesday, November 25, 2009

Home

From "free documentaries online".

"Home is a documentary about Earth, humanity, nature, where we're going and what we've been. Shot in 54 countries with aerial footage it's a combination of all the navel-gazing movies we've seen lately like Planet Earth and Baraka. Like a guilty abusive adult, we're now taking a closer look at ourselves, what we've done to the planet and what we've to ourselves."

Friday, November 20, 2009

Quotes for today

Years ago, an old scholar recommended me a book by economist E. F. Schumacher called, Small is Beautiful: Economics as If People Mattered, from which he particularly mentioned the following quote:

"Everywhere people ask: 'What can I actually do?' The answer is as simple as it is disconcerting: we can, each of us, work to put our own inner house in order. The guidance we need for this work cannot be found in science or technology, the value of which utterly depends on the ends they serve; but it can still be found in the traditional wisdom of mankind. "

H/T to the E. F. Schumacher Society Blog. See more insightful quotes from this book here.

Douglass North on Ostrom and Williamson

Douglass North, Professor of Economics at Washington University, also the 1993 recipient of the Nobel Prize in Economics discusses Ostrom and Williamson's work on economic governance and the central agenda of the New Institutional Economics.

Thursday, November 19, 2009

A survey of behavioral finance

By Barberis and Thaler.

H/T to Simoleon Sense.

Scroogenomics: Why shouldn't we buy gifts for Christmas?

Ever since the publication of his 1993 AER paper "The Deadweight Loss of Christmas", Wharton School economist Joel Waldfogel has built something of a reputation as a Christmas killjoy (see comments on this piece here, here and here). In that short essay, Prof. Waldfogel argues that holiday spending is "a massive institution for value destruction" because of the fact that so many gifts -- billions of dollars' worth -- match up so poorly with what recipients would have bought for themselves. Instead of the Friedmanian argument that "nobody spends somebody else's money as wisely as he spends his own", Prof. Waldfogel seems to argue for the contrary (although a little bit twisted), that "nobody spends his own money (on somebody else) as wisely as somebody else spends his money (for her own)". Moreover, there might be another possiblity here -- what if the welfare gains for the gift-buyers outweigh the possible welfare losses for gift-recievers because of this resource misallocation? Is the measure of welfare gains valid in the first place? Finally, economists always tend to argue that the reason why some instituition or mechanism exists is exactly because under some circumstance, this institution or mechanism is more efficient than some alternative ones. So it seems to me that the more interesting question to ask is not whether gift-giving is efficient or not, but to ask under what conditions, gift-giving is more efficient than its alternatives, say, giving money or giving gift cards?

In his new book, Scroogenomics: Why You Shouldn't Buy Presents for the Holidays (see his interview here), lively and informed, Prof. Waldfogel illustrates how our consumer spending generates vast amounts of economic waste --to the shocking tune of eighty-five billion dollars each winter. He also seems to provide solid explanations to show us why it's time to stop the madness and think twice before buying gifts for the holidays.

While giving presents may lead to a huge amount of efficiency loss, and giving cash is considered inappropriate or cold, gift cards may probably become the best alternative -- which now represents up to a third of holiday spending. However, 10% of the value of gift cards goes unredeemed each year -- retailers could be more than happy because of this.

Anyway, it is up to you whether to buy this book or not, but when you decide to buy it, DO NOT give it as a holiday present to someone else, because that is all this book about.

Wednesday, November 18, 2009

The Beauty of Symmetry

What is symmetry? How to mathematically characterize the beauty of symmetry? Watch the following lecture.

History of Finance: A Collection of Interviews with Finance Gurus

American Finance Association recently conducted a series of video interviews with important contributors to financial economic knowledge. Links to streaming videos of edited versions of interviews can be found here. The gurus interviewed include Harry Markowitz, William Sharpe, Paul Samuelson, Robert Merton, Myron Scholes, Jack Treynor, Kenneth Arrow, Eugene Fama and Fred Weston.

Friday, November 13, 2009

Interview with Non-Freakonomists

Aaron Steelman interviews with Allan Meltzer on the history of Federal Reserve, the fact of “Too Big to Fail”, and on the optimal size of government and the role of World Bank.
Douglas Clement sits down with Kevin M. Murphy on inequality, technological change, economic growth and health.
Barron’s presents an interview with Burton Malkiel on overinvestment in certain stocks during a bubble and on Behavioral Finance.

H/T to Timothy Taylor, Editor of Journal of Economic Perspectives.

Tuesday, November 10, 2009

100 Useful References for B-School Students

See here, which includes News feeds, Search Engines, Twitter pages, iphone apps, Open Edu links and many others.

Monday, November 9, 2009

Quote of the day

"To love at all is to be vulnerable. Love anything, and your heart will certainly be wrung and possibly broken. If you want to make sure of keeping it intact, you must give your heart to no one, not even to an animal. Wrap it carefully round with hobbies and little luxuries; avoid all entanglements; lock it up safe in the casket or coffin of your selfishness. But in that casket - safe, dark, motionless, airless–it will change. It will not be broken; it will become unbreakable, impenetrable, irredeemable."

This quote orginally from CS Lewis was stolen from my colleague Peter Boumgarden's Blog, The Captured Perspective. In that article, Peter mainly focuses on the relationship between language (what we speak) and reality (what we perceive), using love and religion as two concrete examples. Worth a read!

Monday, November 2, 2009

Tuesday, October 27, 2009

A Theory of Fate

Following the failure of their experiment in searching for "the God particle", some distinguished physicists seemed to have found their reason of bad luck -- the troubled collider is being sabotaged by its own future! Put this more accurately, "the hypothesized Higgs boson, which physicists hope to produce with the collider, might be so abhorrent to nature that its creation would ripple backward through time and stop the collider before it could make one, like a time traveler who goes back in time to kill his grandfather."

What a great theory of bad luck! More surprisingly, these geniuses also came up with some ideas to test this theory (also see here)!

Thanks to Nick for the pointer.

Sunday, October 25, 2009

Is neuroeconomics doomed?

Neuroeconomics proposes radical changes in the methods of economics. In this essay by Faruk Gul and Wolfgang Pesendorfer, the authors discussed the proposed changes in methodology, together with the the neuroeconomic critique of standard economics. "We do not assess the contributions or promise of neuroeconomic research. Rather, we offer a response to the neuroeconomic critique of standard economics."

Why can't we predict earthquakes?

The disastrous earthquake last May changed the lives of thousands and thousands of people in my hometown province of Sichuan in Western China. The aftereffect is still tremoring in my saddest memories. But why is earthquake so difficult to predict? Why hasn’t science worked out how to predict when and where the next big quake is going to happen? BBC horizon takes us to a journey to Sichuan and California, telling us the story of the men and women who chase earthquakes and try to understand this mysterious force of nature.

Watch the program here.

Belief of global warming cools down in US

Although a lot of people firmly believe that global warming is inevitable if no drastic actions and policies were implemened in a global scale, leading to huge disastrous impacts on many aspects of human life, a recent poll on Americans’ attitudes about climate change contains sobering findings for those that favor aggressive action to curb U.S. emissions of greenhouse gases.

H/T: Short Sharp Science.

Becker and Posner on Competition, Efficiency and Organizational Economics

See here and here.

Monday, October 12, 2009

Avinash Dixit discusses Ostrom and Williamson

From Bloomberg on the Economy.

Finally, Williamson won the title!

Heavily influenced by his transaction costs and governance mechanism approach, I am so thrilled that this year's Nobel Prize in Economics is finally awarded to Oliver Williamson (shared with Elinor Ostrom)! Two professors in my group -- Jackson Nickerson and Nicholas Argyres -- are Williamson's doctoral students and are also highly influenced by Williamson's TCE framework. Here is a recent book on how Williamson's approach reshaped the landscape of the research in business and corporate strategy. Todd Zenger, another professor in my group, and I have contributed to this volume, which is foreworded by Williamson.

It's been a while since I made my first prediction. Now a warm and hearty congratulation to Prof. Williamson!

update: here is the phone interview with Prof. Williamson by Nobelprize.org when he got the prize.

Friday, October 9, 2009

Nobel Prize Prediction from Kellogg School Faculty

See here.

Oh...it's Obama

...who won the Nobel Peace prize! The Nobel Committee made the decision because Obama is making huge efforts in strengthening international diplomacy and cooperation between peoples? What if his efforts couldn't pay off? It seems to me that the Obama Effects hasn't competely faded away, at least on the other side of the Atlantic.

Here is another way of looking at this: Since Obama can win the peace prize, so can a first year econ graduate student win the prize in economics! The following is from two Gregs, Katz and Mankiw (HT to Mankiw):

Obama's Nobel Peace Prize triumph hailed by many
By GREGORY KATZ (AP)
LONDON — The surprise choice of President Barack Obama for the Nobel Peace Prize drew praise from much of the world Friday even as many pointed out the youthful leader has not yet accomplished much on the world stage.

The new president was hailed for his willingness to reach out to the Islamic world, his commitment to curtailing the spread of nuclear weapons and his goal of bringing the Israelis and Palestinians into serious, fruitful negotiations.

Archbishop Desmond Tutu of South Africa, who won the prize 1984, said Obama's award shows great things are expected from him in the coming years.

"In a way, it's an award coming near the beginning of the first term of office of a relatively young president that anticipates an even greater contribution towards making our world a safer place for all," he said. "It is an award that speaks to the promise of President Obama's message of hope."

He said the prize is a "wonderful recognition of Obama's effort to reach out to the Arab world after years of hostility.

Pfuffnick's Nobel Economics Prize Triumph Hailed by Many
By GREGORY MANKIW
CAMBRIDGE — The surprise choice of first-year grad student Quintus Pfuffnick for the Nobel Prize in Economics drew praise from much of the world Friday even as many pointed out the youthful economist has not yet published anything in scholarly journals.

The new PhD candidate was hailed for his willingness to tackle difficult problems, his commitment to improving the economic system, and his goal of bringing efficiency and equality into harmony.

Professor Paul Krugman of Princeton, who won the prize in 2008, said Pfuffnick's award shows great things are expected from him in the coming years.

"In a way, it's an award coming near the beginning of the first year in grad school of a relatively young economist that anticipates an even greater contribution towards making our economy a better place for all," he said. "It is an award that speaks to the promise of Mr Pfuffnick's message of hope."

He said the prize is a "wonderful recognition of Pfuffnick's essay in his grad school application."

Wednesday, October 7, 2009

Nobel Odds...

Someone favors Fama; Someone likes Alchian and Demsetz; Someone thinks that Fehr and Rabin have better chances.

Monday, October 5, 2009

Ig Nobel 2009

From Improbable Research. Here is the complete list of winners:

VETERINARY MEDICINE PRIZE: Catherine Douglas and Peter Rowlinson of Newcastle University, Newcastle-Upon-Tyne, UK, for showing that cows who have names give more milk than cows that are nameless.

PEACE PRIZE: Stephan Bolliger, Steffen Ross, Lars Oesterhelweg, Michael Thali and Beat Kneubuehl of the University of Bern, Switzerland, for determining — by experiment — whether it is better to be smashed over the head with a full bottle of beer or with an empty bottle.

ECONOMICS PRIZE: The directors, executives, and auditors of four Icelandic banks — Kaupthing Bank, Landsbanki, Glitnir Bank, and Central Bank of Iceland — for demonstrating that tiny banks can be rapidly transformed into huge banks, and vice versa — and for demonstrating that similar things can be done to an entire national economy.

CHEMISTRY PRIZE: Javier Morales, Miguel Apátiga, and Victor M. Castaño of Universidad Nacional Autónoma de México, for creating diamonds from liquid — specifically from tequila.

MEDICINE PRIZE: Donald L. Unger, of Thousand Oaks, California, USA, for investigating a possible cause of arthritis of the fingers, by diligently cracking the knuckles of his left hand — but never cracking the knuckles of his right hand — every day for more than sixty (60) years.

PHYSICS PRIZE: Katherine K. Whitcome of the University of Cincinnati, USA, Daniel E. Lieberman of Harvard University, USA, and Liza J. Shapiro of the University of Texas, USA, for analytically determining why pregnant women don't tip over.

LITERATURE PRIZE: Ireland's police service (An Garda Siochana), for writing and presenting more than fifty traffic tickets to the most frequent driving offender in the country — Prawo Jazdy — whose name in Polish means "Driving License".

PUBLIC HEALTH PRIZE: Elena N. Bodnar, Raphael C. Lee, and Sandra Marijan of Chicago, Illinois, USA, for inventing a brassiere that, in an emergency, can be quickly converted into a pair of protective face masks, one for the brassiere wearer and one to be given to some needy bystander.

MATHEMATICS PRIZE: Gideon Gono, governor of Zimbabwe’s Reserve Bank, for giving people a simple, everyday way to cope with a wide range of numbers — from very small to very big — by having his bank print bank notes with denominations ranging from one cent ($.01) to one hundred trillion dollars ($100,000,000,000,000).

BIOLOGY PRIZE: Fumiaki Taguchi, Song Guofu, and Zhang Guanglei of Kitasato University Graduate School of Medical Sciences in Sagamihara, Japan, for demonstrating that kitchen refuse can be reduced more than 90% in mass by using bacteria extracted from the feces of giant pandas.

Thursday, October 1, 2009

Saturday, September 26, 2009

N vs NP: A First Lecture

I haven't realized that I could possibly encounter topics like this in the entire field of business strategy. However, several notable scholars in organization science, like Dan Levinthal, Jan Rivkin and Nicolaj Siggelkow, among others, have already incorporated some great ideas and modeling techniques from evolutionary biology into the analysis of organizational complexities, routines, imitation, and of course, sustainability of competitive advantage. One technique is the so-called NK modeling, which is first developed by Stuart Kauffman, an American biologist and complex system researcher (here is an excellent survey on NK models in strategy research).

In the original NK model (Kauffman, 1993), the parameter N stands for the number of alleles in the genome that can be either turned on or off, and K stands for epistatic connections – the linkages between the individual alleles. In organization research, the notion of alleles is replaced by individual decisions and epistasis by interdependence between those decisions. N then represents the number of decisions that have to be made and K controls how connected they are. Not surprisingly, as number of decisions and interconnections get larger and larger, we would nevertheless have to deal with more and more complex computational problems.

The "P vs NP" problem is argubly the most important problem dealing with computational complexities. It is also a central outstanding problem of computer science and mathematics (one of the seven Millennium problems). But in many cases, this problem is more or less described in an abstract and obscure manner and is often very difficult to understand. For students and young scholars who want to get a quick but deep impression on what the "P vs NP" problem is, and how it relates to internet security and limits of human knowledge, I would like to recommend you a wonderful talk on this topic - very little abstraction, highly approachable and amusing!

In this talk, Professor Avi Wigderson of Institute for Advanced Study, Princeton, attempts to describe the problem's technical, scientific, and philosophical content, its status, and the implications of its two possible resolutions.

Watch it here.

Wednesday, September 16, 2009

Tribute to MBAs

Mystery of IV regression, resolved!

via Freakonomics (also see here and here).

MacDonald on Climate Change

Glenn MacDonald, a professor in Business Economics and Strategy here at Olin, became a guest blogger at Orgnizations and Markets. He shared his views on Climate Change and how to reduce carbon emissions from an economic perspective. Excerpts from his post:

"... there are two fundamental economic forces at work. One is that emissions are a classical prisoners’ dilemma...Second, tastes for amenities such as clean air appear to be normal goods, maybe even luxuries...thus, efforts to reduce emissions will grow as more and more countries prosper sufficiently that their inhabitants are willing to forgo consumption for cleaner air, etc. So, from an economic perspective, the most realistic way to fewer carbon emissions and (per my assumption) less climate effects is through the aggressive promotion of activities that promote growth: free trade, democracy, economic freedom, reduced taxes, regulations and tariffs, protection of property rights. . . . Interestingly, freeing individuals to pursue their interests is likely the best practical/realistic approach to what, at first blush, seems like a classical case for collective action. "

Friday, September 4, 2009

Intellectual Whodunit: The Myth of the Rational Market

Listed by Financial Times as one of the 15 business books of the year, Justin Fox’s The Myth of the Rational Market tells the story of how we came to believe that financial markets knew best, and how that belief steered us wrong.

"Chronicling the rise and fall of efficient market theory and its century-long role in the making of the modern financial industry, the book is both history and intellectual whodunit. It brings to life the people and ideas that forged modern finance and investing, from the Great Depression and into the financial calamity of today. It’s a tale largely about professors, but professors who made and lost fortunes, battled fiercely over ideas, beat the house in blackjack, wrote bestselling books, and played major roles on the world stage. It’s also a tale of Wall Street’s evolution, the power of the market to generate wealth and wreak havoc, and free-market capitalism’s recurrent war with itself. "

Economists got it all wrong?

In this well-crafted but controversial essay, Paul Krugman reviewed the field of macroeconomics and financial economics in retrospect: from the neoclassical view of the market economy to the Great Depression and heydays of Keynesianism; from the rise of monetarists and the rebirth of the free-market economics to the debate between the freshwater and the saltwater school; from the heydays of EMH, rational expectation and RBC to the upsurging movement of behavioral finance and "frictions" macro.

On the policy side, he also pointed out, that conceited economists and policy makers often got the problems so wrong that the current state of the dominant views has to change. Perhaps we need to re-embrace Keynes as the pendulum continues to swing.

via Mankiw. Here is some alternative view.

Wednesday, September 2, 2009

What to know to get control of your own decisions?

Dan Ariely, author of Predictably Irrational, spoke at one TED conference.

FT Business Books of the Year

15 books are on the long list competing for the prize:

This Time is Different, by Carmen Reinhart & Ken Rogoff
The Match King, Frank Partnoy
Lords of Finance, by Liaquat Ahamed
The Myth of the Rational Market, by Justin Fox
House of Cards, by William Cohan
In Fed We Trust, by David Wessel
Animal Spirits, by George Akerlof and Robert Shiller
Free, by Chris Anderson
Waste, by Tristram Stuart
Supercorp, by Rosabeth Moss Kanter
How the Mighty Fall, by Jim Collins
Why Your World is About to Get a a Whole Lot Smaller, by Jeff Rubin
Clever, by Gareth Jones
Imagining India, by Nandan Nilekani
Good Value, Stephen Green

Saturday, August 29, 2009

Thursday, August 20, 2009

The "myths" on instrumental variables?

Although the IV approach has been extremely influential in dealing with the endogeneity problems arised in many empirical studies nowadays (a notable example being that, to examine the effect of education on wage rate, Joshua Angrist of MIT and Alan Krueger of Princeton used America’s education laws to create an instrumental variable, say, quarter-of-birth, based on years of schooling), it is far from uncontroversial.

From the latest issue of the Economist, "Two recent papers—one by James Heckman of Chicago University and Sergio Urzua of Northwestern University, and another by Angus Deaton of Princeton—are sharply critical of this approach. The authors argue that the causal effects that instrumental strategies identify are uninteresting because such techniques often give answers to narrow questions. The results from the quarter-of-birth study, for example, do not say much about the returns from education for college graduates, whose choices were unlikely to have been affected by when they were legally eligible to drop out of school. According to Mr Deaton, using such instruments to estimate causal parameters is like choosing to let light 'fall where it may, and then proclaim[ing] that whatever it illuminates is what we were looking for all along.' "

However, "proponents of instrumental variables also argue that accurate answers to narrower questions are more useful than unreliable answers to wider questions." This sounds true, however, just as Prof. Deaton argues, and it also seems to me, that instrumental variables may encourage economists to avoid “thinking about how and why things work”. More deeply, "striking a balance between accuracy of result and importance of issue is tricky".

Tuesday, August 18, 2009

John Roberts: In Praise of Weak Incentives

In a previous lecture at LSE, John Roberts, the John H. and Irene S. Scully Professor in Economics, Strategic Management and International Business in the Graduate School of Business at Stanford University, argued that the current financial crisis was largely caused by strong, misaligned incentives for bankers, resulting in calls for redesign of these pay schemes. He also showed that economic research over the last several years has suggested a number of contexts where weak incentives are desirable.

You can watch this lecture online.

Rose Friedman Passed Away

May her rest in peace, see here.

via Carpe Diem.

Daily Show: Bruce Kogut and Business Ethics

The Daily Show With Jon StewartMon - Thurs 11p / 10c
MBA Ethics Oath
http://www.thedailyshow.com/
Daily Show
Full Episodes
Political HumorHealthcare Protests

via orgtheory.net.

Wednesday, August 5, 2009

Problems with Chinese Characteristics

Contrary to popular thinking, Yasheng Huang, a professor at MIT Sloan School of Management, argues that China owes its astonishing economic growth not to far-sighted government policy but to hundreds of millions of entrepreneurial peasants. In the following lecture, Prof. Huang reveals not only how small-scale rural businesses created China’s miracle but how that nation’s recovery from the global recession and righting the massive East-West trade imbalance depend on this same under-acknowledged sector.



Many of his ideas in this lecture are coming from his earlier published book, Capitalism with Chinese Characteristics, which was selected by the Economist magazine as one of the best books published in 2008.

Measuring Economic Growth from Outer Space

A new idea of measuring economic growth is proposed in a recent paper: satellite data on lights at night. This new measurement can be readily applied to countries as well as to cities. What's more, the framework can be applied to countries with the lowest quality income data, resulting in estimates of growth that differ substantially from established estimates. A longstanding debate is also considered: do increases in local agricultural productivity increase city incomes? For African cities, we find that exogenous agricultural productivity shocks (high rainfall years) have substantial effects on local urban economic activity.


WSJ blogs also commented.

via Marginal Revolution.

Sunday, August 2, 2009

Paul Romer: A Theory of History, with an Application

"One miracle of cities is that they sometimes renew themselves brilliantly. This could be a whole new form of that."Stewart Brand



In the talk, Romer suggests that we rethink sovereignty (respect borders, but maybe create new systems of administrative control); rethink citizenship (allowing perhaps for voice without residency as well as residency without voice); and rethink scale (instead of focusing on nations, focus on new cities). If nations are willing to experiment along these lines, they can create new places, places that can give more people access to the kind of rules that they would like to live and work under, and places that can sustain the historical process of entry and innovation in national systems of rules.

Romer has already launched a website, Charter Cities, for further exploration and eventual application of this idea.

Shiller on Charlie Rose

Watch the program here.

Introducing Strategy Research Initiative

The Strategy Research Initiative began as an informal gathering of mid-career strategy scholars in the hinterlands of Nova Scotia in 2007. The goal of the gathering was to create an organization of like-minded colleagues dedicated to the creation of institutions designed to advance research in strategy.

This site also features two completed and useful initiatives: the Strategy Reader and the Empirical Primer.

Stats the gap of the world...

...via Gapminder.

Tips for Applying to and Succeeding In Grad School

...from Mike Moffatt.

Saturday, August 1, 2009

Top ten books about international economic history

From the Foreign Policy.

1. Gregory Clark, A Farewell to Alms: A Brief Economic History of the World (2007).
2. Nathan Rosenberg and L.E. Birdzell, Jr., How the West Grew Rich (1986).
3. Jared Diamond, Guns, Germs, and Steel (1997).
4. John Nye, War, Wine and Taxes (2007).
5. Douglas Irwin, Against the Tide: An Intellectual History of Free Trade (1996).
6. Kevin O’Rourke and Jeffrey Williamson, Globalization and History (1999).
7. Jeffry Frieden, Global Capitalism: Its Fall and Rise in the Twentieth Century (2006).
8. Barry Eichengreen, Globalizing Capital: A History of the International Monetary System, second edition (2008).
9. Daniel Yergin and Joseph Stanislaw, The Commanding Heights (1997).
10. Paul Blustein, The Chastening (2001).

The economy will be back on track when..

...when "Timothy Geithner sells his house", says Robert Shiller during an interview by the Daily Show. Below is the hilarious video, well worth watching!

The Daily Show With Jon StewartMon - Thurs 11p / 10c
Home Crisis Investigation
http://www.thedailyshow.com/
Daily Show
Full Episodes
Political HumorJoke of the Day

Tuesday, June 23, 2009

Monday, June 15, 2009

Why chickens go across street?

The Prelim version:

1. "Because the price of going across goes down, and the behavior obeys the Law of Demand."
2. "Because the Pareto optimal allocation is on the tangency of the other side of the street."
3. "It is the result of a unique SPE of the alternating bargaining game, the second chicken agrees the offer immediately in the first period and passes across."
4. "Although it is off the equilibrium path, going across is a best response to its own belief."

Good luck to those Macro prelimers!

Tuesday, May 19, 2009

What's in the journals?

From the Economist, on how to boycott a company, the value of brands, the economics of prostitution, company reputations, the strength of the glass ceiling, and so on.

Against Intellectual Monopoly

Two professors from the Econ dept here have a new book, Against Intellectual Monopoly, in which they challenged the conventional wisdom that patents and copy rights are crucial in providing necessary incentives to the inventors. Instead, they argue that copyrights and patents are used by the politically powerful to maintain monopoly profits and that the incentive effects that have been used to justify copyright and patents are exaggerated -- there were few examples from history suggesting that the temporary and not-so-temporary monopoly power from copyright and patents were necessary to induce innovation.

Here is a podcast from Econtalk.

Monday, May 18, 2009

Empathy...


Capitalism vs Socialism

According to Rasmussen Reports:

53% of American adults believe capitalism is better than socialism.

The latest Rasmussen Reports national telephone survey found that 20% disagree and say socialism is better. Twenty-seven percent (27%) are not sure which is better.

Adults under 30 are essentially evenly divided: 37% prefer capitalism, 33% socialism, and 30% are undecided. Thirty-somethings are a bit more supportive of the free-enterprise approach with 49% for capitalism and 26% for socialism. Adults over 40 strongly favor capitalism, and just 13% of those older Americans believe socialism is better.

Investors by a 5-to-1 margin choose capitalism. As for those who do not invest, 40% say capitalism is better while 25% prefer socialism.

There is a partisan gap as well. Republicans - by an 11-to-1 margin - favor capitalism. Democrats are much more closely divided: Just 39% say capitalism is better while 30% prefer socialism. As for those not affiliated with either major political party, 48% say capitalism is best, and 21% opt for socialism.

Source: Mankiw.

Sunday, May 17, 2009

Wolfram Alpha

Having computational difficulties? Try WolframAlpha.

Here is a sneak preview from Youtube.

Saez: A U-Turn

Emmanuel Saez, 36, a public economics expert teaching at the University of California at Berkeley, was awarded the 2009 John Bates Clark Medal last week. Nobody has done more to describe the broad changes in income distribution in the United States that have taken place during the last ninety years.

"[Saez's] work attacks policy questions from both theoretical and empirical perspectives, on the one hand refining the theory in ways that link the characteristics of optimal policy to measurable aspects of the economy and of behavior, while on the other hand undertaking careful and creative empirical studies designed to fill the gaps in measurement identified by the theory. Through a collection of interrelated papers, he has brought the theory of taxation closer to practical policy making, and has helped to lead a resurgence of academic interest in taxation."

Also see here.

Sunday, April 19, 2009

The Power of Television

Economists have shown that the introduction of cable television can be a simple yet influential way of improving a woman’s standing in rural India. Here is the abstract:

"Cable and satellite television have grown rapidly throughout the developing world. The availability of cable and satellite television exposes viewers to new information about the outside world, which may affect individual attitudes and behaviors. This paper explores the effect of the introduction of cable television on gender attitudes in rural India. Using a three-year individual-level panel dataset, we find that the introduction of cable television is associated with improvements in women's status. We find significant increases in reported autonomy, decreases in the reported acceptability of beating and decreases in reported son preference. We also find increases in female school enrollment and decreases in fertility (primarily via increased birth spacing). The effects are large, equivalent in some cases to about five years of education in the cross section, and move gender attitudes of individuals in rural areas much closer to those in urban areas. We argue that the results are not driven by pre-existing differential trends. These results have important policy implications, as India and other countries attempt to decrease bias against women. "

Source: "The Power of TV: Cable Television and Women’s Status in India." Robert Jensen and Emily Oster. Forthcoming in the Quarterly Journal of Economics.

Monday, April 6, 2009

"Ontological" Constraint -- IV

This is the so-called "Choice blindness" constraint. Here is an illustration.

"Ontological" Constraint -- III

...more formally known as "Inattentional blindness". Below is a demo.

"Ontological" Constraint -- II

...called by psychologists "change blindness".

"Ontological" Constraint -- I

Michael Jensen, the co-pioneer of the well known agency theory in organizational economics and the founder of SSRN visited Wash U. and presented his latest research project on "An Ontological Perspective of Being a Leader and the Effective Exercise of Leadership". The talk certainly contains many insightful points that are neither fully explored by economists nor by psychologists, sociologists or management scholars.

Several "ontological constraints" he pointed out during the talk are quite illuminating. Here is one example, namely the "feeling of knowing", which is original put forward in a well-crafted book "On Being Certain: Believing You Are Right Even When You're Not" by Robert Burton.

Read the following excerpt at normal speed. Don't skim, give halfway through, or skip to the explanation. After reading, ask yourself how you feel about the paragraph. Does it make any sense? Then proceed to read the clarifying word, reread the paragraph. You will probably notice some shifts in your mental mind.

A newspaper is better than a magazine. A seashore is better than the street. At first it is better to run than to walk. You may have to try several times. It takes some skill, but it is easy to learn. Even young children can enjoy it. Once successful, complications are minimal. Birds seldom get too close. Rain, however, soaks in very fast. Too many people doing the same thing can also cause problems. One needs lots of room. If there are no complications, it can be very peaceful. A rock will serve as an anchor. If things break loose from it, however, you will not get a second chance.

Is this paragraph comprehensible or meaningless? Feel your mind sort through potential explanations. Now watch what happens with the presentation of a single word: kite. As you reread the paragraph, feel the prior discomfort of something amiss shifting to a pleasing sense of rightness.

Wednesday, April 1, 2009

Economic Sociology: A Reading List

...from economic sociology_the european website.

The list is divided into 18 sections, each of which covers a substantial field of research. Books dominate the reading list, but shorter articles summarizing the main arguments of these books can usually be found. Articles are included in cases where books covering the same issues are not available. In the readers some of the texts mentioned here are reproduced. The readers provide a very good overview of this field, and it is also in these one can find reprints of many of the most important, classical as well as contemporary, contributions in economic sociology.

Sunday, March 29, 2009

Are we strangers to ourselves?

The answer would be yes according to a recent research by a Harvard behavioral economist, Daniel Gilbert. People often fall prey to a bunch of psychological biases and fallacies, even if they know about them. They show through several experiments that, a stranger's reaction to a social situation is a more accurate guide to one's own reaction than a written description of the situation.

Here is the interview.

Timothy Geithner on Charlie Rose

The latest interview of Charlie Rose with the Secretary of Treasury, Timothy Geithner.

Another Big Event for China

Expo 2010 Shanghai.

Thursday, March 19, 2009

Money can mess with your mind

Money does not only serve as a medium of exchange, it also leads to various psychological consequences. Like, money-related terms can make people more "market oriented" and self sufficient than nonmoney-related terms; money also acts on our minds rather like an addictive drug, giving it the power to drive some of us to compulsive gambling, overwork or obsessive spending; human brain processes ideas about money using the same pathways evolved to think about food, so that in our minds these two are synonymous.