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.
Thursday, February 12, 2009
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).
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).
Friday, January 30, 2009
Which CEO Characteristics and Abilities Matter?
A recent paper (also see here) by Steven Kaplan, Mark Klebanov, and Morten Sorensen. Below is the abstract.
We study the characteristics and abilities of CEO candidates for companies involved in buyout (LBO) and venture capital (VC) transactions and relate them to hiring decisions, investment decisions, and company performance. Candidates are assessed on more than thirty individual abilities. The abilities are highly correlated; a factor analysis suggests there are two primary factors with intuitive characterizations -- one for general ability and one that contrasts team-related, interpersonal skills with execution skills. Both LBO and VC firms are more likely to hire and invest in CEOs with greater general abilities, both execution- and team-related. Success, however, is more strongly related to execution skills than to team-related skills. Success is, at best, only marginally related to incumbency, holding observable talent and ability constant.
We study the characteristics and abilities of CEO candidates for companies involved in buyout (LBO) and venture capital (VC) transactions and relate them to hiring decisions, investment decisions, and company performance. Candidates are assessed on more than thirty individual abilities. The abilities are highly correlated; a factor analysis suggests there are two primary factors with intuitive characterizations -- one for general ability and one that contrasts team-related, interpersonal skills with execution skills. Both LBO and VC firms are more likely to hire and invest in CEOs with greater general abilities, both execution- and team-related. Success, however, is more strongly related to execution skills than to team-related skills. Success is, at best, only marginally related to incumbency, holding observable talent and ability constant.
Opinions
From recent episodes of Bloomberg on the Economy:
Sowell Says U.S. May `Go Down the Tube' Under Obama;
Paul Krugman Sees Need to Get Stimulus Plan Out `Fast';
Luigi Zingales Opposes U.S. Bank Nationalization;
Porter Grades Obama Stimulus Plan `C-Minus'.
Sowell Says U.S. May `Go Down the Tube' Under Obama;
Paul Krugman Sees Need to Get Stimulus Plan Out `Fast';
Luigi Zingales Opposes U.S. Bank Nationalization;
Porter Grades Obama Stimulus Plan `C-Minus'.
Become a trillionaire is not a dream
...just move to a hyperinflating nation, like Zimbabwe, since it has introduced a Z$100 trillion note, currently worth about US$30.
Monday, January 26, 2009
Friday, January 23, 2009
A theory of firm scope
Oliver Hart and Bengt Holmstrom have a new paper (also see here) recently which extends the standard property rights model by incorporating coordination activities inside the firm so that a theory of firm scope can be further explored. A large drawback of the standard GHM model and the property rights approach to the theory of the firm, as pointed out by Holmstrom (1999) among others, is that there is no real "firm" per se in the model, only "representative entrepreneurs". Hence it can only explain why individuals own assets, not why firms own assets. Although this approach provides a clear explanation of the costs and benefits of integration, it seems to describe owner-managed firms better than large scale companies.
In order to understand key organizational issues (particularly in large scale organizations), e.g., firm scope, authority, hierarchy and power delegation, we have to examine more closely to "what it (the organization) does and what is done within it". Therefore, questions like how activities are coordinated within the organization and which factors lead to the way of organization and coordination become extremely important.
The purpose of this paper is to modify the property rights approach so that it can be applied to better serve the need. We develop a model in which: (a) decision rights can be transferred ex ante through ownership, (b) managers (and possibly workers) enjoy private benefits that are non-transferable, and (c) owners can divert a firm’s profit. In our basic model decisions are ex post non-contractible; in an extension we use the idea that contracts are reference points to relax this assumption. Under these conditions, firm boundaries matter. Nonintegrated firms fail to account for the external effects that their decisions have on other firms. An integrated firm can internalize such externalities, but it does not put enough weight on the private benefits of managers and workers. We explore this tradeoff in a model that focuses on the difficulties companies face in cooperating through the market if the benefits from cooperation are unevenly divided; therefore, they may sometimes end up merging. We show that the assumption that contracts are reference points introduces a friction that permits an analysis of delegation.
In order to understand key organizational issues (particularly in large scale organizations), e.g., firm scope, authority, hierarchy and power delegation, we have to examine more closely to "what it (the organization) does and what is done within it". Therefore, questions like how activities are coordinated within the organization and which factors lead to the way of organization and coordination become extremely important.
The purpose of this paper is to modify the property rights approach so that it can be applied to better serve the need. We develop a model in which: (a) decision rights can be transferred ex ante through ownership, (b) managers (and possibly workers) enjoy private benefits that are non-transferable, and (c) owners can divert a firm’s profit. In our basic model decisions are ex post non-contractible; in an extension we use the idea that contracts are reference points to relax this assumption. Under these conditions, firm boundaries matter. Nonintegrated firms fail to account for the external effects that their decisions have on other firms. An integrated firm can internalize such externalities, but it does not put enough weight on the private benefits of managers and workers. We explore this tradeoff in a model that focuses on the difficulties companies face in cooperating through the market if the benefits from cooperation are unevenly divided; therefore, they may sometimes end up merging. We show that the assumption that contracts are reference points introduces a friction that permits an analysis of delegation.
Friday, January 9, 2009
What's Booming in the Recession?
Based on FT's columnist Lucy Kellaway's personal experience and investigation, the hottest recessionary activity in town nowadays is looking for relationships on adultery websites, particualrly for those males in the financial sector. "It seems the colder the market for jobs, the hotter the market for adultery."
But why is it that so many senior business people are responding to recession with adultery? John Quelch, professor of marketing at Harvard Business School suggests that "bankers are suffering from a risk deficit: their working lives have been derisked compulsorily and this could be a way of compensating by adding risk to their private lives." However, if this is true, then there would be a mass shift from taking risks in the financial market to taking risks in the domestic market, will this lead to domestic instability and a surging divorce rate?
On the other hand, the founders of adultery websites would like to argue that, by providing a well-behaved marketplace for adultery, they are actually creating domestic stability. Adultery is claimed as an alternative to divorce, not as a precursor to it.
In my opinion, the divorce rate tends to go up. The website founders' argument could not stand in the sense that if people tend to choose the alternative if it is available (Say's Law, supply creates its own demand), then it would eventually become a precursor. By providing a market for adultery, the cost of divorce is actually decreasing since people can easily find someone to "hug" in this adultery market, which implies that the "demand for divorce" would increase. However, if this is true, why would there be an organized market for adultery? Maybe the reason lies in the fact that people can never say whether their marriages are successful or not. This market, per se, just provide a way to find a more suitable lover.
But why is it that so many senior business people are responding to recession with adultery? John Quelch, professor of marketing at Harvard Business School suggests that "bankers are suffering from a risk deficit: their working lives have been derisked compulsorily and this could be a way of compensating by adding risk to their private lives." However, if this is true, then there would be a mass shift from taking risks in the financial market to taking risks in the domestic market, will this lead to domestic instability and a surging divorce rate?
On the other hand, the founders of adultery websites would like to argue that, by providing a well-behaved marketplace for adultery, they are actually creating domestic stability. Adultery is claimed as an alternative to divorce, not as a precursor to it.
In my opinion, the divorce rate tends to go up. The website founders' argument could not stand in the sense that if people tend to choose the alternative if it is available (Say's Law, supply creates its own demand), then it would eventually become a precursor. By providing a market for adultery, the cost of divorce is actually decreasing since people can easily find someone to "hug" in this adultery market, which implies that the "demand for divorce" would increase. However, if this is true, why would there be an organized market for adultery? Maybe the reason lies in the fact that people can never say whether their marriages are successful or not. This market, per se, just provide a way to find a more suitable lover.
Wednesday, December 31, 2008
Happy Niu Year...
This greeting is quite popular in China nowadays. Since according to the Chinese Zodiac, 2009 is the "niu" year, where "niu" is the ox, or bull, an animal which is strong, dependable, steady and ambitious!!
Thursday, December 25, 2008
Friday, December 19, 2008
The Pursuit of Happiness
Dan Gilbert, a Harvard Psychologist, presents research and data from his exploration of happiness -- sharing some surprising tests and experiments that you can also try on yourself.
Monday, December 8, 2008
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