Poems from econometrician

Guy Judge has two poems for his students in his econometrics class:

Carry on Regressing

Econometricians are not a total sum of squares
They can be dynamic and follow the trend.
If things are non-stationary they can make a difference.
And they can get their Dickey-Fuller augmented at the end.

They test, test and test again
Adopting Hendry’s main refrain
From general to specific, t, F and chi-squared too
They must look for significance in everything they do.

They can transform things
With a bit of Box and Cox
They can take random walks
And they sometimes work with an Ox.

They use dummies for sex
And like a bit of variance and deviation (from the mean)
They prefer to have their parameters stable
But sometimes have a break-point in between.

Although they sometimes have an identification problem
They know the conditions they must inspect
And with the proper instruments find
What they want in two stages or indirect.

Sometimes they can be found in Monte Carlo
Where they play God in their own domain
Creating many thousand replications
Power with small samples hoping to obtain.

We are the disturbances

We are the disturbances
You can't see us but you know we are there
Stochastic, homoskedastic, independent and normal
We must be specified with great care.

We must be added to your expectation
To make the model complete
And although we are mostly small
We are spread about with two tails but no feet.

The Credit Crisis Visualized

Here are two visualizations of Credit Crisis that can help explain the current economic downturn.

Chronology of Game Theory

See here.

Mahoney and Pitelis (2009): The most frequently cited strategy study recently

Why did the chicken cross the road?

“We must first study the chickens in aggregate; once we understand the chicken industry, then we can explain the individual chicken’s conduct.” — Joe Bain
“We must study the potential mobility barriers of a meaningful strategic group of chickens to understand the individual chicken’s conduct.” — Richard Caves
“The reason for the chicken’s behavior is causally ambiguous.” — Richard Rumelt
“The behavior of the chicken is socially embedded.” — Mark Granovetter
“The chicken is merely following its standard operating procedures.” — Richard Cyert and James March
“Walking across the street is a core competence of the chicken.” — Gary Hamel
“Walking across the street is the chicken’s strategic intent.” — C. K. Prahalad
“It is the chicken’s dominant logic.” — Richard Bettis
“It is simply a routine of the chicken.” — Sidney Winter
“In a complex environment such behavior is the chicken’s dynamic capability.” — David Teece
“”We will need to triangulate to understand the ESSENCE OF DECISION of the chicken.” — Graham Allison
“The chicken is attempting to economize on bounded rationality and attenuate opportunism.” — Oliver Williamson
“The chicken is choosing purposefully based on its perception of its subjective opportunity set.” — Edith Tilton Penrose
“The chicken will likely be hit by a car.” – Population ecology theorists
“The chicken is driven to seek power and resources from the other side of the road.” — Jeffrey Pfeffer
“The chicken’s walking is part of its activity system.” – Michael Porter
“The chicken’s walking is a discovery procedure; a kind of chicken’s spontaneous order.” — Friedrich Hayek
“The fact that the chicken continues to walk across the road, indicates that the chickens walking has been transformed from a core capability to a core rigidity.” — Dorothy Leonard Barton
“To position itself.” — Porter
“Because the path is more interesting than the equilibrium position.” — Penrose
“Learning by doing.” — Arrow
“Because of procedural (ir)rationality.” — Simon
“To effect intra-chicken conflict resolution.” — Cyert and March
“To experience unit cost economies.” — Chandler
“To claim the residual corn.” – Alchian and Demsetz
“Spontaneous dis-order.” – Mises
“For creative distraction.” — Schumpeter, before he learned English
“To avoid chicken capture.” — Stigler
“Because of market failure.” — Coase
“It has nothing to lose except the oven.” — Marx
“Because of its animal spirit.” — Keynes
“To collect dispersed knowledge.” — Hayek
“Just to be on the safe side.” — Knight
“A road unexamined is not worth crossing.” — Socrates
“To return to God.” — St. Augustine
“It is due to the chicken’s monads.” — Leibniz
“To advance the evolution of the world.” – John Dewey
“The chicken is absurd.” — Sartre
“It does not make a difference.” – Albert Camus
“All I know is that I don’t know.” — Plato
“It just keeps walking.” — Johnny Walker

As Klein (2009) claims, Mahoney and Pitelis (2009) is their "...most original, and possibly most enduring, piece of scholarly work [in strategic management]".

Whom to blame?

John B. Taylor says it is the government intervention, not the Lehman collapse, caused the financial crisis.

Quote of the day

"To be original you must listen to the voice of your heart rather than the clamor of the world—and have the courage to teach publicly what you have learned.The source of all genius is sincerity; men would be wiser if they were more moral."

-- by Ludwig Börne, German Political Writer and Satirist

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.

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.

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?

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.

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).