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!!

Challenge for China

See here.

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.

Benefits and costs of intelligence

According to NewScientist, intelligent soldiers most likely to die in battle (see here and here).

How to do mathematical proofs?

Pay for performance - kids' version

Harvard economist, Roland Fryer, a coauthor of the well known freakonomist, Steven Levitt, talked with Stephen Colbert about how to improve the black childrens' school performance. It's simple, just pay them!

The Colbert ReportMon - Thurs 11:30pm / 10:30c

Roland Fryer

Colbert at Christmas
Colbert Christmas DVD

Green Screen
Bill O'Reilly Interview

What's Going On?

Contracts as reference points: evidence

In a previous post, I mentioned Oliver Hart and John Moore's recent paper, "Contracts As Reference Points", in which the authors found a new building block for incomplete contracts by incorporating behavioral elements, such as reference points, shade and retaliation. Although their earlier and more influential work - Grossman and Hart (1986), Hart and Moore (1990) and Hart (1995) - has laid down the foundation of incomplete contract theory, some critical assumptions of their model were challenged, like events that are observable but not verifiable and ex post efficiency. Hart finds that "the early debate a bit sterile". In this new paper, they bring back ex post inefficiency, which is caused by behavioral problems. Relational specific investment, a crucial element that leads to ex post renegotiation in their earlier model is assumed away. The theory becomes somewhat more "rigorous and testable".

In the latest NBER working paper series, Ernst Fehr, Oliver Hart and Christian Zehnder provide their first empirical test of the new incomplete contract theory (see here or here). Here is the abstract:

In a recent paper, Hart and Moore (2008) introduce new behavioral assumptions that can explain long-term contracts and important aspects of the employment relation. However, so far there exists no direct evidence that supports these assumptions and, in particular, Hart and Moore's notion that contracts provide reference points. In this paper, we examine experimentally the behavioral forces stipulated in their theory. The evidence confirms the model's prediction that there is a tradeoff between rigidity and flexibility in a trading environment with incomplete contracts and ex ante uncertainty about the state of nature. Flexible contracts - which would dominate rigid contracts under standard assumptions - cause a significant amount of shading on ex post performance, while under rigid contracts, much less shading occurs. Thus, although rigid contracts rule out trading in some states of the world, parties frequently implement them. While our results are broadly consistent with established behavioral concepts, they cannot easily be explained by existing theories. The experiment appears to reveal a new behavioral force: ex ante competition legitimizes the terms of a contract, and aggrievement and shading occur mainly about outcomes within the contract.

Cupid's Arrow...

In voting theory, one of the most important results is the so called "Arrow's Impossibility Theorem". For the uninitiated, here is the trick to memorize what the theorem is all about.

The theorem states that if a voting system satisfies:
Complete and transitive social preferences;
Universal domain, i.e., any individual preference ordering is allowed;
Pareto efficiency (or unanimity); and
Independence of irrelevant alternatives (IIA);

then there must exist a

Dictator. Well, don't forget that the theorem gots its own name, that is, ARROW's impossibility theorem.

So, just remember: Cupid's Arrow!!

HT to Uncle Marcus.

Who Am I? Arrogant? Impatient? Insensitive?

This is a site that analyzes blogs and also tells you what the bloggers' psychological profiles may look like.

Here is what it says about me:

INTP - The Thinkers

The logical and analytical type. They are especialy attuned to difficult creative and intellectual challenges and always look for something more complex to dig into. They are great at finding subtle connections between things and imagine far-reaching implications. They enjoy working with complex things using a lot of concepts and imaginative models of reality. Since they are not very good at seeing and understanding the needs of other people, they might come across as arrogant, impatient and insensitive to people that need some time to understand what they are talking about.

And this shows what parts of the brain that were dominant during writing:

HT to Mankiw.

US Auto Industry

GM, Ford and Chrysler, the Big Three US Automobile companies have lost tens of billions of dollars during the past few years, and they will shortly run out of cash. Recently, they asked the government for a bailout. Many Congressmen want to grant them at least $25 billion from the $700 billion Troubled Asset Relief Program on top of $25 billion in low-interest loans approved earlier this year. But the question is, should the government give them such a "free lunch"?

Here is the debate between two well known economists -- Jeffrey Sachs argues that a rescue of the Auto industry is essential, but Gary Becker, says this is not a good idea at all.

HT to Mankiw.

£arry $ummers's New Job

Not president of any Ivy-league university, not Treasury secretary, but the head of National Economic Council to the next President.

Here is a post in which Mankiw points out that in the future, NEC is likely to become a substitute rather than complement to the Council of Economic Advisors.

Dangerous Words: "Fair" and "Fairness"

...from Carpe Diem.

Richard Epstein on Happiness, Inequality and Envy

In last week's Econtalk, Richard Epstein of the University of Chicago talked about the relationship between happiness and wealth, inequality and happiness, and the economics of envy and altruism. He also applied the theory of evolution to explain some of the findings of the happiness literature.

Secrets of Success

In his new book, Outliers, Malcolm Gladwell tells us that in order to be successful, not only talent matters, but also timing, opportunity and not surprisingly, good old-fashioned hard work and discipline. However, what do surprise him most are the ordinary methods successful people use to achieve all they achieve.

In his words, "success is not a function of individual talent. It's the steady accumulation of advantages." Here are his five steps toward success:

1. Find meaning and inspiration in your work.
2. Work hard.
3. Discover the relationship between effort and reward.
4. Seek out complex work to avoid boredom and repetition.
5. Be autonomous and control your own destiny as much as possible.