The winners of the IPL will earn $1.5MM. Works out to $75K for each player if there are 20 in the squad.
Sure, $75k is nothing to sneeze at. Unless you’ve been paid $500K to just show up and take part. The incentives aren’t sloped steeply enough. It is creditable that the stars are playing hard despite the relatively small prize.
For the true geeks reading this post…the formula that describes optimal effort in a tournament is (w1 – w2) = g(0)*c’(e). (w1 – w2) represents the increase in wealth due to winning. g(0) is a measure of how much randomness effects winning. c'(e) is a measure of effort. This formula is lifted from a seminal 1981 paper by Sherwin Rosen and Edward Lazear. If you really want to get under the skin of the formula, you can download the paper from jstor for $14.
The intuitive part of the result is that people work harder to win if the rewards of winning are greater. The fascinating part of this result is that the rewards for winning need to be greater in games with more randomness to extract the same effort. If you can win through pure luck, you’re less likely to work hard to win. So the reward needs to be bigger to get the same hard work.
This Sherwin Rosen paper - and the vast body of secondary research that his paper spawned - is often used to understand why CEOs get paid so much. Everybody in an organization works hard to become the CEO because the reward is so big. That hard work is what creates value for the organization, or for society, which is good. The reward goes to one CEO, one individual who basically got lucky, which feels unfair. Horrible dilemma. The only way to square this circle seems to be to design games with less randomness.
Saturday, 24 May 2008
Friday, 23 May 2008
Micro Nations
Some Scots want to secede from the UK to create an independent nation of 5 MM people. Some Walloons want to secede from Belgium to create an independent nation of 3MM people. In this news item about Belgium's possible break up, Czechoslovakia’s split in 1993 into the Czech Republic and Slovakia is admiringly described as a “velvet” partition.
Yet ever more countries want to join the European Union. Big nations like Poland and Hungary are in. Giants like Turkey and Ukraine seem likely to become European within my lifetime (the next 50 years?).
So is Europe splintering or coalescing? What’s going on? The dynamic that feels under-observed, that Scotland beautifully illustrates, is that the two processes reinforce each other.
Chest-thumping micro-nationalism is great fun. It derives from the same emotions that cause people to support the home team at football games; these are powerful emotions. What limits the political potency of micro-nationalism is that micro-nations simply don’t have the scale to build the institutions that, ultimately, make people better off.
As European institutions become stronger micro-nationalism gradually becomes costless. People will gradually figure out that the institutions that make people better off are located in Europe. Might as well thump the micro-national chest and have a bit of fun.
The Scottish parliament voluntarily dissolved itself and threw its lot in with Westminster in 1707, at the cusp of the British Empire. Their reasoning was coldly economic (or so says the Lonely Planet guide). Scotland wanted to be on the winning side of the greatest opportunity-to-plunder/ economic engine that history had ever seen. Three hundred years later, the pro-union rhetoric coming out of Scotland is still economic.
Over time, the Euro-zone market will get bigger and deeper, European courts and parliaments and regulators will figure themselves out, the Trans European Motorway will get built. Maybe a European lingua franca will emerge (will it be English?). Union with England will just matter less to a Scotland that is part of a functioning Europe.
What are the odds that Scotland will be an independent European nation 50 years from now? I’ll offer you 50-50. Much longer odds though, on the European lingua franca becoming English.
Yet ever more countries want to join the European Union. Big nations like Poland and Hungary are in. Giants like Turkey and Ukraine seem likely to become European within my lifetime (the next 50 years?).
So is Europe splintering or coalescing? What’s going on? The dynamic that feels under-observed, that Scotland beautifully illustrates, is that the two processes reinforce each other.
Chest-thumping micro-nationalism is great fun. It derives from the same emotions that cause people to support the home team at football games; these are powerful emotions. What limits the political potency of micro-nationalism is that micro-nations simply don’t have the scale to build the institutions that, ultimately, make people better off.
As European institutions become stronger micro-nationalism gradually becomes costless. People will gradually figure out that the institutions that make people better off are located in Europe. Might as well thump the micro-national chest and have a bit of fun.
The Scottish parliament voluntarily dissolved itself and threw its lot in with Westminster in 1707, at the cusp of the British Empire. Their reasoning was coldly economic (or so says the Lonely Planet guide). Scotland wanted to be on the winning side of the greatest opportunity-to-plunder/ economic engine that history had ever seen. Three hundred years later, the pro-union rhetoric coming out of Scotland is still economic.
Over time, the Euro-zone market will get bigger and deeper, European courts and parliaments and regulators will figure themselves out, the Trans European Motorway will get built. Maybe a European lingua franca will emerge (will it be English?). Union with England will just matter less to a Scotland that is part of a functioning Europe.
What are the odds that Scotland will be an independent European nation 50 years from now? I’ll offer you 50-50. Much longer odds though, on the European lingua franca becoming English.
Thursday, 22 May 2008
Sandlot Wars
I’m really stretched at work nowadays (hence the relatively low frequency of blog posts). Too much work. Not quite enough people to get through the work. I’m not alone. Most of my peers are in the same situation.
One unexpectedly good consequence is that my peers and I are playing as a team more than we used to. We clearly need help from each other, and are generally quite happy to punt the ball over to each other.
This is in stark contrast to another time, within this same company, when we were overstaffed. We had too many ambitious and talented people, with plenty of time on their hands, looking to carve out bigger roles to match their ambitions and talents. This lead to the Sandlot wars. Almost all conversations were political rather than truth-seeking, and came with an undercurrent of “this is my sandlot and you’re not going to play here.”
Based on that contrast, my top management tip: keep your team slightly short-staffed. Your people will be under pressure. That’s OK. They will learn to take the pressure. An environment where people have a lot of room to play and grow, and have a credible prospect of advancement, creates a much healthier culture.
My inner sceptic just asked a question. Organizations riven by turf wars are clearly less pleasant work-places than those where people co-operate. But are they less successful? Great research topic for a Ph.D. student. But, for sure, you will have more fun working for a light, stretched organization.
One unexpectedly good consequence is that my peers and I are playing as a team more than we used to. We clearly need help from each other, and are generally quite happy to punt the ball over to each other.
This is in stark contrast to another time, within this same company, when we were overstaffed. We had too many ambitious and talented people, with plenty of time on their hands, looking to carve out bigger roles to match their ambitions and talents. This lead to the Sandlot wars. Almost all conversations were political rather than truth-seeking, and came with an undercurrent of “this is my sandlot and you’re not going to play here.”
Based on that contrast, my top management tip: keep your team slightly short-staffed. Your people will be under pressure. That’s OK. They will learn to take the pressure. An environment where people have a lot of room to play and grow, and have a credible prospect of advancement, creates a much healthier culture.
My inner sceptic just asked a question. Organizations riven by turf wars are clearly less pleasant work-places than those where people co-operate. But are they less successful? Great research topic for a Ph.D. student. But, for sure, you will have more fun working for a light, stretched organization.
Wednesday, 14 May 2008
The hardest people to manage
It's people who are on their way out of your organization.
My top management tip: don't prolong the agony. If one of your people wants to leave, tell her to just go right now. You may not know exactly how you will cope with the loss, but you will cope.
Just go right now sometimes feels hard. Having a familiar face who knows the ropes running her show for a few more months often feels safer. That is false security. Having an player who is not fully checked-in on your team for a few months is toxic. Best case, safe players start making amateurish errors. Worst case, open-minded, constructive scepticism degenerates into corrosive, contagious cynicism. I've seen it happen too many times. It's not worth it.
The shadow of the future is everybody's best friend.
My top management tip: don't prolong the agony. If one of your people wants to leave, tell her to just go right now. You may not know exactly how you will cope with the loss, but you will cope.
Just go right now sometimes feels hard. Having a familiar face who knows the ropes running her show for a few more months often feels safer. That is false security. Having an player who is not fully checked-in on your team for a few months is toxic. Best case, safe players start making amateurish errors. Worst case, open-minded, constructive scepticism degenerates into corrosive, contagious cynicism. I've seen it happen too many times. It's not worth it.
The shadow of the future is everybody's best friend.
Sunday, 11 May 2008
Do better driving tests save lives?
Earlier this morning, I was talking a friend through the painful process of getting a UK driving license. My friend is a Chartered Accountant and a banker. He is bringing up a family. He has been driving for about 20 years in India, the USA and various holiday destinations. It's hard to find a lower risk-profile than him. But getting a UK license remains a painful process, low-risk-profile or otherwise.
Part of the pain is, of course, the sheer bureaucracy. But a part of the pain is that there is a real risk of cautious and experienced drivers failing the test. The UK test is a heck of a lot more rigorous than equivalents in either India or, slightly more surprisingly, the USA.
Does the UK get anything valuable out of these rigourous tests (apart from the perverse pleasure oily government employees get from randomly saying no)?
A quick Google search seems to show that the testing works. The per capita death rate through road accidents in the UK is about half US levels. That is massive, a lot more than I was expecting.
An interesting twist in the data is that almost 65% of the difference in death rates seems to be explained the fact that the US has more cars per capita. A first glance the more money -> more cars -> more road deaths pattern seemed natural. But no. One might have expected a society that is more dependent on cars to invest more in road safety. And at some human level, the risk of death per individual just feels like a much more important metric than the risk of death per vehicle.
Another interesting slant in the data is the ratio of injuries to deaths. The UK and the US are around the same level here, suggesting that there are no material differences in the quality of medical care delivered to accident victims. If anything the much-reviled NHS seems to be delivering a slightly better ratio than the USA.
Part of the pain is, of course, the sheer bureaucracy. But a part of the pain is that there is a real risk of cautious and experienced drivers failing the test. The UK test is a heck of a lot more rigorous than equivalents in either India or, slightly more surprisingly, the USA.
Does the UK get anything valuable out of these rigourous tests (apart from the perverse pleasure oily government employees get from randomly saying no)?
A quick Google search seems to show that the testing works. The per capita death rate through road accidents in the UK is about half US levels. That is massive, a lot more than I was expecting.
An interesting twist in the data is that almost 65% of the difference in death rates seems to be explained the fact that the US has more cars per capita. A first glance the more money -> more cars -> more road deaths pattern seemed natural. But no. One might have expected a society that is more dependent on cars to invest more in road safety. And at some human level, the risk of death per individual just feels like a much more important metric than the risk of death per vehicle.
Another interesting slant in the data is the ratio of injuries to deaths. The UK and the US are around the same level here, suggesting that there are no material differences in the quality of medical care delivered to accident victims. If anything the much-reviled NHS seems to be delivering a slightly better ratio than the USA.
Tuesday, 29 April 2008
There is a specter haunting Eurpoe
Here is another surprisingly simple reason why property prices in the UK are unreasonably high.
A price fixing building cartel with more than a 100 members. I'm surprised that the cartel manaegd to hold.
A price fixing building cartel with more than a 100 members. I'm surprised that the cartel manaegd to hold.
Monday, 28 April 2008
Fundas on the IPL
In the cacophony of media hype about the IPL and Twenty20 cricket, one crucial point almost everybody seems to have forgotten: this is not a new idea.
The only interesting media piece so far which sets Twenty20 in historical perspective is here.
Admittedly, the fact that test cricket was invented by an upper-class MCC establishment trying to defend its power base when challenged by a professional league playing an exciting, abbreviated version of the game is news even to a die-hard and relatively well read cricket fan like me. Hope the facts are right.
Another bit of historical perspective is from CLR James in Beyond the Boundary. He watches Learie Constantine playing limited overs cricket in Lancashire in the 1950s, notes that the game is both pure and innovative, and calls it the future.
The other bit of nonsense that keeps cropping up is that Twenty20 is a batsman's game. Cricket has always been a batsman's game. Arthur Mailey, the Australian leggie from the 1920s, noted that "the last bowler to be knighted was Sir Francis Drake".
There is a clear role reversal for bowlers in tests and limited overs. In tests, the bowlers are the attack. In limited overs they play defence. But in that, Twenty20 isn't really different from 50 over cricket. There are silly features like shorter boundaries that can be scrapped, but that doesn't really change the big picture.
My initial worry with the IPL was that the stars would take their money and play in cruise control mode. That worry was unfounded. Now that the top players are showing up to work, we have a great tournament on our hands.
The only interesting media piece so far which sets Twenty20 in historical perspective is here.
Admittedly, the fact that test cricket was invented by an upper-class MCC establishment trying to defend its power base when challenged by a professional league playing an exciting, abbreviated version of the game is news even to a die-hard and relatively well read cricket fan like me. Hope the facts are right.
Another bit of historical perspective is from CLR James in Beyond the Boundary. He watches Learie Constantine playing limited overs cricket in Lancashire in the 1950s, notes that the game is both pure and innovative, and calls it the future.
The other bit of nonsense that keeps cropping up is that Twenty20 is a batsman's game. Cricket has always been a batsman's game. Arthur Mailey, the Australian leggie from the 1920s, noted that "the last bowler to be knighted was Sir Francis Drake".
There is a clear role reversal for bowlers in tests and limited overs. In tests, the bowlers are the attack. In limited overs they play defence. But in that, Twenty20 isn't really different from 50 over cricket. There are silly features like shorter boundaries that can be scrapped, but that doesn't really change the big picture.
My initial worry with the IPL was that the stars would take their money and play in cruise control mode. That worry was unfounded. Now that the top players are showing up to work, we have a great tournament on our hands.
Friday, 25 April 2008
CMJ on IPL
Christopher Martin Jenkins writing in Cricinfo magazine on the opening game of the IPL in Bangalore:
local interest was spurious, because they were watching a game between sides made up of mercenaries and little-known youths.
When Bangalore cheers for Mark Boucher, the sportsman becomes a mercenary and the interest spurious. Manchester United supporters cheering for Christiano Ronaldo if fine. Did CMJ ever describe Mushtaq Ahmed as a mercenary, or Sussex supporter's interest as spurious, when Mushy bowled Sussex to the county championship?
The English cricket establishment's sniffy insecurity when confronted with the success of Indian cricket is downright embarrassing. It starts getting nasty when the sniffiness results in ECB bureaucrats elbowing professional cricketers away from a decent chance to make good money.
local interest was spurious, because they were watching a game between sides made up of mercenaries and little-known youths.
When Bangalore cheers for Mark Boucher, the sportsman becomes a mercenary and the interest spurious. Manchester United supporters cheering for Christiano Ronaldo if fine. Did CMJ ever describe Mushtaq Ahmed as a mercenary, or Sussex supporter's interest as spurious, when Mushy bowled Sussex to the county championship?
The English cricket establishment's sniffy insecurity when confronted with the success of Indian cricket is downright embarrassing. It starts getting nasty when the sniffiness results in ECB bureaucrats elbowing professional cricketers away from a decent chance to make good money.
Thursday, 24 April 2008
Zorro. By Isabel Allende
Completely satisfying. Just the right mix of emotions, just the right balance of historical context and personal drama, just the right length, just the right complexity (for someone who typically reads after a hard day in the office and putting the kids to bed). Couldn't recommend it more strongly.
Don't read on if you like to read in suspense. But if you've read the book, or don't plan to read the book, or trust that I've given away nothing essentially suspenseful, or don't really care about suspense, here are some of my favourite nuggets/ reflections:
- "from the literary point of view, (childhood) has no suspense, children tend to be a little dull. Furthermore, they have no power, adults decide for them." Interesting point. Children are great as subjects, as authentic voices through which to observe the adult world. Think back to To Kill a Mocking Bird. Or the precocious Oskar Schnell in Extremely Loud and Incredibly Close. Or even Richmal Compton's William. Maybe children, or even completely powerless adults, don't really work as the objects of fiction
- I loved the historical context. Spain had been annexed by Napoleon's France. Mexico was a Spanish colony. California was a Mexican territory. New Orleans had been sold by Napoleon to the Americans in the Louisiana land purchase. Britain fought America for Louisiana, and was defeated. Pirates ruled. The stench of the slave trade permeated the Caribbean. The Gypsies are a hunted, haunted European tribe, tenaciously holding onto their Indian roots. The Indians are a hunted, haunted American tribe, tenaciously holding on to their pre-European roots. None of this is hammered home. One picks up all of this casually wandering through the plot
- "Diego was a Gemini". Makes sense. The cultured, dandified, effeminate, patrician: Don Diego de la Vega. The fearless, swashbuckling, dashing, darling of the masses: Zorro. Are all super-heroes Geminis? Clark Kent and Superman. Parker and Spiderman. Bruce Wayne and Batman. Could they be Libras? No. The two sides of the balance are yoked together. Super-hero identities are completely separate. Could they be Pisces? No. Piscean fish swim in opposite directions. Super-hero identities swim together. Had to be Gemini
- Diego does not get his girl: Juliana de Romeu. That had to be. Diego's love was real. Juliana was worthy of his love. It was not their destiny. If Diego had got his girl that would have been the end of the story, he would have become a happy and wealthy ranchero in Alta California. The lost love was essential to Diego remaining forever hungry, forever young, to Diego remaining Zorro
- Juliana de Romeu would have been the perfect girl for Zorro. She is the wrong girl for the Diego de la Vega + Zorro combine. Juliana is about pale skin, cascading curls, beauty, grace, care, perfect taste, dignity under duress. She is all yin. Her man would need to be all yang. Every couple needs a balance of animus and anima
- "We shall soon be saying goodbye, dear readers, since the story ends when the hero returns to where he began, transformed by adventures and by obstacles overcome. This is the norm in epic narratives from the Odyssey to fairy tales, and I shall not be the one to attempt innovation"
Don't read on if you like to read in suspense. But if you've read the book, or don't plan to read the book, or trust that I've given away nothing essentially suspenseful, or don't really care about suspense, here are some of my favourite nuggets/ reflections:
- "from the literary point of view, (childhood) has no suspense, children tend to be a little dull. Furthermore, they have no power, adults decide for them." Interesting point. Children are great as subjects, as authentic voices through which to observe the adult world. Think back to To Kill a Mocking Bird. Or the precocious Oskar Schnell in Extremely Loud and Incredibly Close. Or even Richmal Compton's William. Maybe children, or even completely powerless adults, don't really work as the objects of fiction
- I loved the historical context. Spain had been annexed by Napoleon's France. Mexico was a Spanish colony. California was a Mexican territory. New Orleans had been sold by Napoleon to the Americans in the Louisiana land purchase. Britain fought America for Louisiana, and was defeated. Pirates ruled. The stench of the slave trade permeated the Caribbean. The Gypsies are a hunted, haunted European tribe, tenaciously holding onto their Indian roots. The Indians are a hunted, haunted American tribe, tenaciously holding on to their pre-European roots. None of this is hammered home. One picks up all of this casually wandering through the plot
- "Diego was a Gemini". Makes sense. The cultured, dandified, effeminate, patrician: Don Diego de la Vega. The fearless, swashbuckling, dashing, darling of the masses: Zorro. Are all super-heroes Geminis? Clark Kent and Superman. Parker and Spiderman. Bruce Wayne and Batman. Could they be Libras? No. The two sides of the balance are yoked together. Super-hero identities are completely separate. Could they be Pisces? No. Piscean fish swim in opposite directions. Super-hero identities swim together. Had to be Gemini
- Diego does not get his girl: Juliana de Romeu. That had to be. Diego's love was real. Juliana was worthy of his love. It was not their destiny. If Diego had got his girl that would have been the end of the story, he would have become a happy and wealthy ranchero in Alta California. The lost love was essential to Diego remaining forever hungry, forever young, to Diego remaining Zorro
- Juliana de Romeu would have been the perfect girl for Zorro. She is the wrong girl for the Diego de la Vega + Zorro combine. Juliana is about pale skin, cascading curls, beauty, grace, care, perfect taste, dignity under duress. She is all yin. Her man would need to be all yang. Every couple needs a balance of animus and anima
- "We shall soon be saying goodbye, dear readers, since the story ends when the hero returns to where he began, transformed by adventures and by obstacles overcome. This is the norm in epic narratives from the Odyssey to fairy tales, and I shall not be the one to attempt innovation"
Saturday, 19 April 2008
London Marathon
Just ran my first marathon. The Flora London Marathon. On April 13, 2008. Had a totally fantastic time. Also had some reflections on marathon running while running the marathon. Hallucinatory reflections of this sort may be a symptom of extreme glycogen deprivation.
Yin and yang
A Jungian framework I happened upon years ago maps all social motivation onto a single axis. The psyche has an innate desire to feel connected, to belong, to feel at one with, to be a part of a larger whole. Yin. The psyche also has an innate desire to stand out, to be unique, to win, to conquer. Yang. The greatest fun happens when the psyche reaches both the yin and yang ends of the axis.
That happens at a big marathon. The sheer fact of running 26.2 miles delivers the yang. There is something special about the physical achievement...even in these days of mass participation marathons. Yet, that's only a part of the story. The training runs on foggy grey mornings stretching out over 20+ miles feel meaningful (and get done) only in the context of a framing event.
And what a great event it is. The company I work for had done a great job, putting up posters across town wishing our runners good luck. My daughter was delighted to see my picture on an advert while riding on the tram. Travel in London is free for runners. You start the run at the Greenwich observatory. The streets in front packed with other runners, with whom you feel a reflexive kinship. The route is packed with hundreds of thousands of cheering spectators. This is clearly the only time in my life >100000 people have cheered me on. My family and friends were along to cheer. It was fantastic.
Agoraphilia
I love the word. Will never have a better opportunity to use it.
After training outdoors through crisp winter sunshine, persistent rain, the occasional snow or hail, and - worst of all from a running perspective - gusty winds, I am more aware of the weather and it's moods than I've ever been. Less obviously but more powerfully, I love the sense of physical space, of eating up the distance, that I get running outdoors. I've had the same feeling when I'm out hiking.
Yin and yang
A Jungian framework I happened upon years ago maps all social motivation onto a single axis. The psyche has an innate desire to feel connected, to belong, to feel at one with, to be a part of a larger whole. Yin. The psyche also has an innate desire to stand out, to be unique, to win, to conquer. Yang. The greatest fun happens when the psyche reaches both the yin and yang ends of the axis.
That happens at a big marathon. The sheer fact of running 26.2 miles delivers the yang. There is something special about the physical achievement...even in these days of mass participation marathons. Yet, that's only a part of the story. The training runs on foggy grey mornings stretching out over 20+ miles feel meaningful (and get done) only in the context of a framing event.
And what a great event it is. The company I work for had done a great job, putting up posters across town wishing our runners good luck. My daughter was delighted to see my picture on an advert while riding on the tram. Travel in London is free for runners. You start the run at the Greenwich observatory. The streets in front packed with other runners, with whom you feel a reflexive kinship. The route is packed with hundreds of thousands of cheering spectators. This is clearly the only time in my life >100000 people have cheered me on. My family and friends were along to cheer. It was fantastic.
Agoraphilia
I love the word. Will never have a better opportunity to use it.
After training outdoors through crisp winter sunshine, persistent rain, the occasional snow or hail, and - worst of all from a running perspective - gusty winds, I am more aware of the weather and it's moods than I've ever been. Less obviously but more powerfully, I love the sense of physical space, of eating up the distance, that I get running outdoors. I've had the same feeling when I'm out hiking.
Sunday, 6 April 2008
There is a specter haunting Europe (2)
Britain is one of the world's more over-priced property markets. Prices can go into free-fall.
So what should be done about that? Cut interest rates to prop up prices? Or use the inevitable carnage as an opportunity to massively expand housing supply...to deliver a step-change improvement in the real lives of real people?
My (contrarian) vote is for the supply side expansion.
The elephant in the very-tiny-room during any conversation about housing in Britain is that the quality of housing really sucks. A country as rich as Britain need not live in homes that are so small that a standard "bedroom" is about the size of an American walk-in closet. Where double bedrooms don't fit double beds. Or where faucets that mix hot and cold water are an exotic luxury.
The simple and obvious solution is to develop large tracts of high quality housing, either on greenfield sites or by bulldozing some of the existing housing stock. But this simply has not happened. Is there a subtle but powerful political pressure from property owners defending high prices?
A counter-argument that is sometimes reflexively trotted out is: Britain is a small island and land is scarce. This is pure hokum. Britain can easily import tomatoes or milk. Britain can't import land. A very similar argument was used in the 80s to justify Japan's over-priced "rabbit hutches" and its heavily subsidized rice farms.
More realistically, a supply side expansion that might happen during this downturn is that sellers might be forced to spend more on the house to sell it at the same price. This will not get picked up as deflation in the published house price indices. But that investment will be a welcome improvement in the real lives in real people.
So what should be done about that? Cut interest rates to prop up prices? Or use the inevitable carnage as an opportunity to massively expand housing supply...to deliver a step-change improvement in the real lives of real people?
My (contrarian) vote is for the supply side expansion.
The elephant in the very-tiny-room during any conversation about housing in Britain is that the quality of housing really sucks. A country as rich as Britain need not live in homes that are so small that a standard "bedroom" is about the size of an American walk-in closet. Where double bedrooms don't fit double beds. Or where faucets that mix hot and cold water are an exotic luxury.
The simple and obvious solution is to develop large tracts of high quality housing, either on greenfield sites or by bulldozing some of the existing housing stock. But this simply has not happened. Is there a subtle but powerful political pressure from property owners defending high prices?
A counter-argument that is sometimes reflexively trotted out is: Britain is a small island and land is scarce. This is pure hokum. Britain can easily import tomatoes or milk. Britain can't import land. A very similar argument was used in the 80s to justify Japan's over-priced "rabbit hutches" and its heavily subsidized rice farms.
More realistically, a supply side expansion that might happen during this downturn is that sellers might be forced to spend more on the house to sell it at the same price. This will not get picked up as deflation in the published house price indices. But that investment will be a welcome improvement in the real lives in real people.
Sunday, 23 March 2008
Science or religious war?
Are neo-classical and behavioural economics truly irreconcilable? Are the foundations of one of our great sciences crumbling before our eyes? Or, is behavioural economics a useful elaboration on the neo-classical tradition, that enriches rather than wrecks the great neo-classical insights?
My chips are on the enriching rather than wrecking side of the argument. Right here, right now, I clearly am in the minority. The sloppy-thinking chat tends to pit one tradition against the other.
Here is Elizabeth Kolbert, writing in the New Yorker.
"Rational calculators are supposed to consider their options, then pick the one that maximizes the benefit to them. Yet actual economic life, as opposed to the theoretical version, is full of miscalculations, from the gallon jar of mayonnaise purchased at spectacular savings to the billions of dollars Americans will spend this year to service their credit-card debt. The real mystery, it could be argued, isn’t why we make so many poor economic choices but why we persist in accepting economic theory."
Notice the condescension. "The real mystery...why we persist in accepting economic theory." She illustrates this self evident truth - that the assumption of rational economic behaviour is so broken that it is pitiful - with a personal anecdote.
Ms Kolbert was buying a book on Amazon for her work when a message popped up on her screen "add $7.00 to your order to qualify for FREE Shipping". She hesitated. Her nine-year-old twins wanted a Tintin book. She clicked it into the shopping cart and checked out, saving The New Yorker $3.99 and spending $12.91 of her own money.
Then comes the sucker-punch. "From the perspective of neoclassical economics, self-punishing decisions (such as this purchase of a Tintin comic) are difficult to explain." Really?
Neo-classical economics is very comfortable thinking about the Tintin comic as a bundle of information (about prices), services (delivery) and physical product (the comic book itself). Remember complements and substitutes from Econ 101? Amazon reduced the price of that bundle by flashing a free shipping advert on Ms Kolbert's screen, which reduced her tacit search costs, and by waiving the delivery charges. This prompted a purchase which otherwise wouldn't have happened. Lower price, more sales. This is the demand curve from Econ 101. There is no more unsurprising result in neo-classical economics.
My chips are on the enriching rather than wrecking side of the argument. Right here, right now, I clearly am in the minority. The sloppy-thinking chat tends to pit one tradition against the other.
Here is Elizabeth Kolbert, writing in the New Yorker.
"Rational calculators are supposed to consider their options, then pick the one that maximizes the benefit to them. Yet actual economic life, as opposed to the theoretical version, is full of miscalculations, from the gallon jar of mayonnaise purchased at spectacular savings to the billions of dollars Americans will spend this year to service their credit-card debt. The real mystery, it could be argued, isn’t why we make so many poor economic choices but why we persist in accepting economic theory."
Notice the condescension. "The real mystery...why we persist in accepting economic theory." She illustrates this self evident truth - that the assumption of rational economic behaviour is so broken that it is pitiful - with a personal anecdote.
Ms Kolbert was buying a book on Amazon for her work when a message popped up on her screen "add $7.00 to your order to qualify for FREE Shipping". She hesitated. Her nine-year-old twins wanted a Tintin book. She clicked it into the shopping cart and checked out, saving The New Yorker $3.99 and spending $12.91 of her own money.
Then comes the sucker-punch. "From the perspective of neoclassical economics, self-punishing decisions (such as this purchase of a Tintin comic) are difficult to explain." Really?
Neo-classical economics is very comfortable thinking about the Tintin comic as a bundle of information (about prices), services (delivery) and physical product (the comic book itself). Remember complements and substitutes from Econ 101? Amazon reduced the price of that bundle by flashing a free shipping advert on Ms Kolbert's screen, which reduced her tacit search costs, and by waiving the delivery charges. This prompted a purchase which otherwise wouldn't have happened. Lower price, more sales. This is the demand curve from Econ 101. There is no more unsurprising result in neo-classical economics.
Notice that the neo-classical theory makes no claims about the mechanism by which people maximize utility. In the neo-classical view people maximize utility the way a dog catches a frisbee. The calculations a dog needs to make to catch a frisbee are way beyond the scope of what a dog, or human, can consciously perform. Yet, dogs and humans successfully catch millions of frisbees every day.
This is where behavioural economics comes in. It sheds more light on the heuristics that people actually use while maximizing utility. This might prompt governments or businesses to use those heuristic mechanisms. For example, tax collections in America increased when taxes were collected at source. Once the money is in my bank account I am much more reluctant to give it to the government. Brilliant behavioural insight. By Milton Friedman, the godfather of neo-classical economics.
None of this challenges the one thought central to all of neo-classical economics: people respond to incentives. The way in which different people respond to different incentives is infinitely varied, which is why economic life is fascinating to observe.
Tuesday, 18 March 2008
Debark?
Much better than disembark.
Found it in Isabel Allende's Zorro. Thought it was Allende's genius that had conjured up the elegant new word. But http://www.m-w.com/ assures me that the word has been in use since 1654.
Found it in Isabel Allende's Zorro. Thought it was Allende's genius that had conjured up the elegant new word. But http://www.m-w.com/ assures me that the word has been in use since 1654.
Sunday, 16 March 2008
Stealing Music?
Fans and musicians are enjoying each other's presence at the South by South West music festival, unencumbered by record companies. And they are talking about how they can do just fine, forever after, without record companies.
It's good to move beyond the toxic divisions of the digital rights/ copyright wars and start the conversation about how the music industry ought to work.
Record company jobs and copyright laws serve a useful purpose if they bring together artists and fans. Everything else is secondary.
It's good to move beyond the toxic divisions of the digital rights/ copyright wars and start the conversation about how the music industry ought to work.
Record company jobs and copyright laws serve a useful purpose if they bring together artists and fans. Everything else is secondary.
Saturday, 15 March 2008
Nemo's dad can become Nemo's mom
It's true. Sure, it is not appropriate material for Disney movies. But the scientific fact is that when Nemo's mom was ate by a shark, Nemo's dad could have just turned himself into a mom.
All clown fish start their lives off as males. The live in colonies inside an anemone, typically on coral reefs. The largest fist in each colony is the breeding female, the next largest the breeding male. A number of smaller, sexually inactive clown fish also live in the anemone. If one of the breeding couple dies, the biggest of the sexually inactive lads will step-up-to-the-plate and become a breeding male. The promotion always goes from sexually inactive lad to breeding male, because if the fish who died was female the breeding male will become a breeding female.
There is a rigid hierarchy from sexually inactive lad, to breeding male to breeding female. Promotion up the hierarchy is based on an objective criterion: size.
It is fairly common for reef-fish to be able to change gender. A quick Google search did not reveal the genetic basis for this gender identity. But clearly gender in reef fish is something more subtle than X and Y chromosomes.
Acknowledgements: this post was inspired by a visit to the Sea Life aquarium in Birmingham
All clown fish start their lives off as males. The live in colonies inside an anemone, typically on coral reefs. The largest fist in each colony is the breeding female, the next largest the breeding male. A number of smaller, sexually inactive clown fish also live in the anemone. If one of the breeding couple dies, the biggest of the sexually inactive lads will step-up-to-the-plate and become a breeding male. The promotion always goes from sexually inactive lad to breeding male, because if the fish who died was female the breeding male will become a breeding female.
There is a rigid hierarchy from sexually inactive lad, to breeding male to breeding female. Promotion up the hierarchy is based on an objective criterion: size.
It is fairly common for reef-fish to be able to change gender. A quick Google search did not reveal the genetic basis for this gender identity. But clearly gender in reef fish is something more subtle than X and Y chromosomes.
Acknowledgements: this post was inspired by a visit to the Sea Life aquarium in Birmingham
Monday, 10 March 2008
If you want to start a revolution...
...use radio. If you want to suppress a revolution use TV.
Radio forces people to focus, and listen to your words, and engage their imaginations. With TV, people are more focused on the colour of your tie than on what you're saying.
Just heard this on BBC Radio 4 ten minutes ago. I love the Marxist interpretation. TV is the ultimate capitalist plot to foil revolution by feeding the masses an opiate.
Radio forces people to focus, and listen to your words, and engage their imaginations. With TV, people are more focused on the colour of your tie than on what you're saying.
Just heard this on BBC Radio 4 ten minutes ago. I love the Marxist interpretation. TV is the ultimate capitalist plot to foil revolution by feeding the masses an opiate.
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