Friday, February 20, 2009

What will make sure we are doing things right?

Rules, or incentives? Neither. According to Barry Schwartz (also here), we also need practical wisdom.

Earlier this month on TED,Barry Schwartz made a passionate call for "practical wisdom" as an antidote to a society gone mad with bureaucracy. He argued powerfully that rules often fail us, incentives often backfire, and practical, everyday wisdom will help rebuild our world!

Here are some excerpts:

"When things go wrong, as of course, they do, we reach for two tools to try to fix them. One tool we reach for is rules, better ones, more of them; the second tool we reach for is incentives, better ones, more of them. What else after all is there? ...But the truth is, neither rules nor incentives are enough to do the job."

"As we turn increasingly to rules, rules and incentives may make things better in the short run, but they create a downward spiral that makes them worse in the long run."

"Moral skill is chipped away by over reliance on rules that deprives us of the opportunity to improvise and learn from our improvisations, and moral will is undermined by incessant appeal to incentives that destroy our desire to do the right things."

One of the best public speeches made by an academic I have ever seen! Deserve a watch.

Larry Summers at Charlie Rose

Will America lose the leadership in technological innovation?

Clayton Christensen (also here), an innovation management guru at Harvard Business School, says he is quite worried about the future of techonological innovation in the United States, because of the following reasons:

1. The prosperity;
2. The inability of America's public school system to make science and engineering intrinsically motiviting for the next generation;
3. The immigration law;
4. The disruption of America by China and India.

Thursday, February 19, 2009

Inside the Meltdown

A documentary from Frontline, PBS.

Watch the full program here.

Neuroeconomics: An Introduction

Drazen Prelec, a professor at Sloan School of Management, gave a talk on what the new field of neuroeconomics is.

Using three case studies, Prelec illustrates how “neuroeconomics picks up some of these violations of rationality, trying to understand where in the brain we can get a deep understanding of what’s going on.” In a notable instance, subjects sipped different wines (through a straw) in the fMRI, and were asked to rate them. They were told they were drinking wine that ranged in price from $5 to $90. The “dirty trick was the $5 and $45 wines were the same, as were the $10 and $90 wines.” Not surprisingly, “ratings were massively influenced by price,” so the $90 wine was considered exceptional.

What was surprising, says Prelec, was that “the brain lies also.” An area behind the forehead, the medial prefrontal cortex, which is associated with the perception of value, burst into more activity when the subject experienced the “$90” wine than with the exact same “$10” wine. It seems as if the very idea of quality, or value -- often a marketing ploy -- makes a product like wine more enjoyable.

Sunday, February 15, 2009

Power of R

Open-source software, R, finds fans in data analysts.

Hat tip to a friend who is an R fan.

Why "queuing" exists?

This is an old but hard question. Why we still use "queuing" to allocate scarce resources almost everywhere in the world? Why don't we substitute this with many other possible mechanisms, such as auctioning, lots-drawing , seniority or even duel? More interestingly, under what circumstances can we supplant queuing by other possible means, under what other circumstances can we not?

Thursday, February 12, 2009

Game theory is about "game" or about "theory"??

I am a little bit disappointed with what I have encountered in the game theory quiz today and what I have learned in this course in general. If game theory is all about different types of games, with little or no explicit implication on how the world works or how people really interact, then I'd rather not to get trained in this direction. Otherwise, if game theory is about theory, then here comes another issue which I care about -- what is the ultimate role of the game theory as a whole? What should we expect to get from it? Based on my shallow knowledge so far, I would insist that game theory is not only an apparatus of thinking, but also a way of simplification of the complex social phenomena we observe everyday. In my opinion, a theory is fulfilling its mission if it can be sucessfully applied to explain real world phenomena. For me or maybe for many applied game theorists out there, game theory would be powerful in revealing some hidden patterns of collective human behavior, only if it is applied appropriately -- in the sense that the application should be accompanied by some insightful understandings of the real world, and that it should not be just for fun. Perhaps for the sake of the developement of game theory as a field, theorists need to be more abstract and need to push their wild imagination further and further away so that different and interesting patterns might be discovered. However, theorists are sometimes too obsessed with the ingenuity and delicacy of their own baby models, and forget what the next step they should take.

If I were asked to give some examples of game theory models that satisfy my own judgement criterion, I would certainly list a few. Spence's signaling game would be one, Kreps's reputation game would be another, and perhaps more models in complete and incomplete contracting literature would also prevail. As to some counterexamples, maybe I would vote for various versions of extensions of Rubinstein's bargaining game. Although ingenious as they are, these games have not generated intuitive insights that can be used to shed light on real bargaining situations.

Correct me if I were wrong.

Wednesday, February 4, 2009

Year of Lincoln

A month ago, some friends and I had a trip to Abraham Lincoln Presidential Museum in Springfield, IL. Since the year 2009 is Mr. Lincoln's Bicentennial, this unique experience became unforgettably amazing and meaningful.

Next week, a new documentary, Looking for Lincoln, presented and written by Harvard professor Henry Louis Gates, Jr., will be aired on PBS. This documentary addresses many of the controversies and myths surrounding Abraham Lincoln – race, equality, religion, politics, and depression – by carefully interpreting evidence from those who knew him and those who study him today.

Deserves a watch (also watch it here).