Danielle Douglas-Gabriel at the WashPost writes that Purdue is going to run an experiment with income contingent loans.

This week, Purdue University [partnered]…with Vemo Education, a Reston-based financial services firm, to explore the use of income-share agreements, or ISAs, to help students pay for college.

Through its research foundation, the school plans to create ISA funds that its students can tap to pay for tuition, room and board. In return, students would pay a percentage of their earnings after graduation for a set number of years, replenishing the fund for future investments.

The Federal government already offers an income based repayment program for student loans but private plans would likely be more flexible and generate more useful information.

Douglas-Gabriel makes a useful point:

Say a student agrees to pay five percent of her income for five years on a $10,000 agreement. If that student lands a $60,000 job after graduation, she could pay $15,000 by the time the contract is up, more if she gets raises along the way. Yet if that same graduate loses her job during that time, she wouldn’t be forced to find the money to pay.

But then concludes with an odd criticism:

Either way students would have to be pretty informed about the earning potential in their field before signing up.

What the example illustrates, however, is that being unlucky or uninformed is less damaging with an income share agreement than with a traditional loan. Loans have the greatest burden when a student overestimates their potential earnings and is poorer than expected. Thus, the loan offers no relief when relief is most needed. In contrast, payments under an income share agreement fall when income falls. An ISA does cost more than a loan when a student underestimates their potential earnings but in this case the student is richer than expected and can easily bear the extra burden. Thus, ISAs offer income insurance.

Douglas-Gabriel also writes:

Some observers worry that students pursuing profitable degrees in engineering or business would get better repayment terms than those studying to become nurses or teachers.

Actually, that is part of the point. An ISA is about improving idiosyncratic risk sharing. To the extent that engineers are reliably expected to earn more than nurses, they should pay a smaller share of their income so the total payment for an education is about the same for both engineers and nurses (fyi, business is not a profitable degree).

Indeed, one of the prospective benefits of ISAs is that differences in prices will better reveal which are the degrees, programs and schools that most generate value-added.

Hat tip: Kevin James.

That is the paper’s subtitle, the title is “An Offer You Can’t Refuse,” and that is the job market paper (pdf) of Sandro Ambuehl of Stanford University.  I found this to be the most interesting job market paper of the year, noting that “most interesting” and “best” are not synonymous, that said I found the quality to be very high too.  The main point is that having commercial economic incentives in place causes us to perceive new information in more positive-sum terms than otherwise would be the case, or at least that is how I interpret his results.

Here is the abstract:

Around the world there are laws that severely restrict incentives for many transactions, such as living kidney donation, even though altruistic participation is applauded. Proponents of such legislation fear that undue inducements would be coercive; opponents maintain that it merely prevents mutually beneficial transactions. Despite the substantial economic consequences of such laws, empirical evidence on the proponents’ argument is scarce. I present a simple model of costly information acquisition in which incentives skew information demand and thus expectations about the consequences of participation. In a laboratory experiment, I test whether monetary incentives can alter subjects’ expectations about a highly visceral aversive experience (eating whole insects). Indeed, higher incentives make subjects more willing to participate in this experience at any price. A second experiment explicitly shows in a more stylized setting that incentives cause subjects to perceive the same information differently. They make subjects systematically more optimistic about the consequences of the transaction in a way that is inconsistent with Bayesian rationality. Broadly, I show that important concerns by proponents of the current legislation can be understood using the toolkit of economics, and thus can be included in cost-benefit analysis. My work helps bridge a gap between economists on the one hand, and policy makers and ethicists on the other.

Of course it also can be said that incentives make individuals less Bayesian in their orientation.  I say who needs Bayesians anyway?  Society is built on a certain faith we all have in the benefits from cooperating with others.  When you know you might be paid to eat an insect, you sample more “yum-pro-insect” propaganda, and you interpret it more favorably.  Furthermore subjects do not in advance predict these self-persuasion effects.  So “bait and switch” marketing techniques may succeed in warming individuals up to ideas, even if the promised prize is eventually yanked.

In any case, how can you not love a paper which has, on p.4, the following sentence: “In the first experiment I use cash to induce subjects to eat whole insects, including silkworm pupae, mealworms, and various species of crickets.”

With or without chili sauce?  The future of commercial society may depend on it.

I enjoyed this sentence too, from p.18:

Participants cannot be forced to ingest insects.

Here is Sandro writing with Muriel Niederle and Al Roth in the AER on the moral plausibility of strong incentives.

Chinese billionaire Liu Yiqian, who doesn’t exactly struggle to afford a plane ticket, can now likely fly free, in first class, with his whole family, anywhere in the world, for the rest of his life.

All because he bought a painting.

Liu was the winning bidder for Amedeo Modigliani’s Reclining Nude at a Christie’s auction earlier this month, offering $170.4 million — and when the sale closes, he’ll be putting it on his American Express card.

Liu, a high-profile collector of Chinese antiquities and art, has used his AmEx in the past when he’s won art auctions. He put a $36-million tea cup from the Ming Dynasty on his AmEx last year, according to reports, and put other artifacts on his card earlier this year. He and his wife said they plan on using their American Express card to pay for the Modigliani, according to news reports after the sale.

And this:

China allows its citizens to transfer no more than $50,000 out of the country in any year, and using his [Liu’s] card could help him get around this limit because he’s just paying back American Express or the bank in China who issues his card.

Hmm…the full story is here, via Ted Gioia.

Saturday assorted links

by on November 28, 2015 at 7:46 am in Uncategorized | Permalink

1.”$50bn Nicaragua canal postponed as Chinese tycoon’s fortunes falter“; I say “postponed” is a very polite word to use there.

2. Dialogue of Brian Eno with Varoufakis, it ends with:

YV No, I must get on. I have to meet Slavoj Žižek.

BE I’ll see you out. See you soon.

3. New numbers on prostitution in Greece.

4. The ten most boring places to live in Connecticut.

Rosanna Smart, a job market candidate from UCLA, has a very interesting job market paper (pdf) on this question.  Here is the abstract:

Almost half of the US states have adopted \medical marijuana” laws (MMLs),and 58% of Americans now favor marijuana legalization. Despite public support, federal law continues to prohibit the use and sale of marijuana due to public health concerns of increased abuse, drugged driving, and youth access. Using evidence from MMLs, this is the first paper to study whether growth in the size of legal marijuana markets affects illegal use and its associated health consequences. By collecting new data on per capita registered medical marijuana patient rates, I investigate how state supply regulations and changes in federal enforcement affect the size of this legal market. I then study how illegal marijuana use and other health outcomes respond to changes in legal availability. I find that growth in the legal medical marijuana market significantly increases recreational use among all age groups. Increased consumption among older adults has positive consequences in the form of an 11% reduction in alcohol- and opioid-poisoning deaths. However, increased consumption among youths leads to negative externalities. Raising the share of adults registered as medical marijuana patients by one percentage point increases the prevalence of recent marijuana use among adolescents and young adults by 5-6% and generates negative externalities in the form of increased traffic fatalities (7%) and alcohol poisoning deaths (4%).

Those results are consistent with my intuitions.  When it comes to “those who already are screwed up,” namely the older generation, it is best to shunt them off into pot, compared to the relevant alternatives.  But when it comes to the younger generation, the new norm that “pot is OK” may in fact not be best in the longer run.  So in sum,while I (TC, not the author necessarily) favor marijuana decriminalization, we should hold mixed moods towards its practical effects.

Best movies of 2015

by on November 27, 2015 at 11:40 am in Film | Permalink

I thought this was the worst year for movies since I have been watching them.  In fact I think you could multiply this year’s good films by two and still have the worst year for movies in a long, long time.  Maybe by three.  But here are the ones I liked, in many cases with my reviews behind the links:

American Sniper

Gett: The Trial of Viviane Ansalem

Ex Machina, visually nice and fun to watch, but conceptually not that sharp or original.

Inside Out, seemed splendid at the time, but hasn’t stuck with me.

Red Army, a documentary about the hockey team of the Soviet Red Army, its rise and fall.  Chock full of social science and public choice, I loved this movie, philosophical too, even though I am not especially interested in hockey.  One of my favorite documentaries.

Meru, documentary about climbing very high mountains and human motivation.  Should win a Cass Sunstein award.

A Brilliant Young Mind [X + Y is the title of the original UK release], one of the better autism movies, nice scenes of Taipei too.

Grandma, starring Lily Tomlin, give it the Girardian/Straussian take on what can really bring a dysfunctional, squabbling family together.

The Martian, and Alex’s contrasting review is here.

About Elly, first released in 2009, not available to most American viewers until this year.  From the Iranian director of A Separation.  You don’t realize how good it is until about forty-five minutes have passed.

Of those, Red Army is my clear first choice, and it is only 70 minutes long.

What would you add to this list?

Friday assorted links

by on November 27, 2015 at 10:24 am in Uncategorized | Permalink

1. Claims about pho.

2. Mitch Albom in Haiti.

3. How CRISPR actually will prove useful.  And “We’re going to see a stream of edited animals coming through because it’s so easy…

4. A list tracking student demands from around the country.

5. “The study was conducted in the RAND StoreLab (RSL), a life sized replica of a convenience store…

6. John Wallis on Doug North.  And Kevin Bryan.  And Martin Sandbu on North.

Is it clever or stupid of us to be avoiding the problem of “overeducation” in our Army officer corps?

As shown previously, the higher an officer’s cognitive ability, the lower that officer’s chance at early promotion and battalion command selection. As a curious anecdote, the promotion rate to colonel for officers with PhDs was lower than the Army average from 2011 to 2013. Surprisingly, the Army does not actively invest in advanced civilian education for its personnel managers or OES instructors. In the 1980’s, the Army sent as many of 7,000 officers per year to graduate school. The Army reduced that to 415 in the 1990s. Currently, the Army sends 600- 700. A not-so-long ago discussion at the joint flag officer orientation course, typically referred to as “Capstone,” revolved around how much education “was too much” for senior officers. The quorum of newly selected flag officers from all services concluded that a public school or distance learning masters was fine, but certainly not a PhD or Ivy League masters.

That is from Spain, Mohundro, and Banks (pdf), via Paul Musgrave.

Following up on my earlier post on Syria, Alexander Burns sends me this very interesting email:

Dear Professor Cowen,

Thanks for your reply tweet regarding your Marginal Revolution post on modelling Syria / Islamic State. I enjoy your books and blog.

I’m writing a thesis at Australia’s Monash University that synthesises Jack Snyder’s work on strategic culture / strategic subcultures with Martha Crenshaw and Jacob Shapiro’s work on terrorist organisations. Two recent presentations:

1.       Mid-Candidature Review Panel slides: http://www.alexburns.net/Files/MCR.pptx

2.       Monash SPS Symposium Presentation on Islamic State: https://t.co/Ju11zvFBSP

Several weeks ago I discussed Islamic State with my Mid-Candidature Review panel whilst also reading Gary Antonacci’s Dual Momentum Investing and the Dan Zanger interview in Mark Minervini’s Momentum Masters interviews book. It struck me that Islamic State were like momentum traders for several reasons:

(1) Islamic State have grown rapidly in foreign mujahideen; control of parts of northern Iraq and Syria; and have grown in power projection capabilities. This dynamic is very much like successful momentum traders have worked in a financial markets context using Jesse Livermore’s trend-following approach, William O’Neil’s CANSLIM system, or Paul Tudor Jones II’s speculative activity in Eurodollar and foreign exchange markets.

(2) Islamic State have to-date survived aerial bombardments and have exploited a range of weaknesses in their enemies (e.g. jihadist beheading videos as psychological warfare against the Iraqi Army; Turkey’s borders with Iraq and Syria; and alliance manoeuvers around the Assad regime and the Syrian civil war).

(3) Events like the capture of Mosul, Iraq; combat experience in the Syrian civil war; involvement in oil black markets; and the proclamation on 29th June 2014 of a worldwide caliphate have momentum-like qualities, particularly in terms of creating the psychological climate for nation-building.

(4) Islamic State has outperformed their peer jihadist groups in their growth and ideological impact.

(5) Islamic State’s use of social media to amplify ideological propaganda is more hypermodern and sophisticated than other terrorist groups.

(6) Their rapid growth has led to spillover effects such as the refugee crisis in Europe.

(7) The Western media’s concerns about Islamic State — and their cultural impact — feel like the 1998-2000 part of the 1995-2000 dotcom speculative bubble, albeit in a counterterrorism context.

(8) Your perspective on Islamic State as hypermodern may also be relevant to the proto-Marxist work on accelerationism and postcapitalism (Nick Srnicek and Alex Williams’ Inventing the Future; Steven Shaviro’s No Speed Limit; and Benjamin Noys’ Malign Velocities): contemporary terrorist groups operate in a different political / technological / ‘average is over’ context.

With his permission I reproduced the email as is, though added in a few extra paragraph breaks for ease of reading.

Golden State fact of the day

by on November 26, 2015 at 11:53 am in Sports | Permalink

So far this season, [Stephen] Curry has made 74 threes — the most in the NBA. Damian Lillard ranks second, with 45. To say that Curry is an outlier would be an insult to the word outlier. So far this season, 84 percent of NBA threes have come off assists. But for Curry, that number is just 62 percent, and his ability to get his own deadly looks beyond the arc is arguably his signature weapon as a scorer. For context, only one of Klay Thompson’s 33 threes has been unassisted this season.

Here is more from Kirk Goldsberry at 538.  Here is a Curry highlights reel.  Here is the educational philosophy of Kevin Garnett.  And ESPN has lost seven million subscribers in the last two years, that is quite a bleed rate.  Meanwhile, last night Kobe Bryant was one for seventeen.

Happy Thanksgiving!

Thanksgiving assorted links

by on November 26, 2015 at 10:17 am in Uncategorized | Permalink

1.  Robust monetary rules.  And American Airlines stops accepting Argentine pesos.

2. Can France integrate its Muslims?

3. Dr. Seuss and comparative advantage.

4. “If Pleistocene megafauna — mastodons, mammoths, giant sloths and others — had not become extinct, humans might not be eating pumpkin pie and squash for the holidays, according to an international team of anthropologists.”

5. John Cochrane on health insurance churn.

6. Why Turkey shot down the plane and who will be the biggest losers (good, analytical piece, NYT).

7. Chris Mooney on the global warming “pause.”

It costs $300 to move a 40-foot container from Rotterdam to Shanghai…Here’s some more context. Let’s say that you want to travel for a year; it’s cheaper to put your personal belongings in a shipping container as it sails around the world than to keep it at a local mini-storage facility.

That is from Ryan Petersen, via Dan Wang.

What I’ve been reading

by on November 26, 2015 at 1:02 am in Books | Permalink

1.Shahab Ahmed, What is Islam?: The Importance of Being Islamic.  Too much hermeneutics for my taste, but intelligent and interesting throughout.  The authors downplays the prescriptive side of Islam and plays up the experiential and polyvalent aspects of the religion.  If you are reading books in this area, this one should be part of your program.

2. Adam Sisman, John Le Carré: The Biography.  Entertaining, and puts him in the proper context, deserves its strong reviews.

3. Simon Critchley, Memory Theater. Very short book, hard to explain, often brilliant, here is one bit: “Hegel’s philosophy is a mnemotechnic system in the ancient and Renaissance tradition.  The difference is that what Hegel adds to his memory theater is time, that is, the experience of becoming.”  Not for everyone.

Arrived in my pile are:

David E. Bernstein, Lawless: The Obama Administration’s Unprecedented Assault on the Constitution and the Rule of Law.

Edward Lucas, Cyberphobia: Identity, Trust, Security and the Internet.

Frank Trentmann, Empire of Things: How We Became a World of Consumers, from the 15th Century to the 21st.

Elaine C. Kamarck, Primary Politics: Everything You Need to Know About How America Nominates its Presidential Candidates.  From a quick glance, appears to be very useful.

I can’t say I understand this FT article so well, but I suppose that is the point.  Which are two groups/persons implicated in buying oil from ISIS, or otherwise enabling such trades to take place?

First, Syria.  Or is that “Syria.”

Second, the head of the world chess federation, namely Kirsan Ilyumzhinov: “he is best known for his belief in aliens — he has repeatedly recounted an instance when he was abducted in 1997 by “people in yellow spacesuits”.”  And this:

Mr Ilyumzhinov has a diverse business empire, stretching from sugar to banking, and a network of contacts to match. He regularly meets the Dalai Lama, and he played chess with Libyan president Muammer Gaddafi shortly before his overthrow.

He also has been working with the Syrian central bank.  Here is NYT coverage, here are other sources.  As the old Haitian proverb states, if you’re not confused, you don’t know what’s going on…

Wednesday assorted links

by on November 25, 2015 at 12:53 pm in Uncategorized | Permalink

1. Book hotel in Japan.  That is book used as a noun, not a verb.  And good photos of Porto, Portugal.  Zach Lowe: how small can the NBA go?

2. The world’s largest cloning factory, guess where?  Yesterday my paper copy of the FT printed on its front page the pun “Factory to turn out 1m cows a year as China raises steaks in cloning research,” though I cannot find it on-line.  And “Biologists induce flatworms to grow heads and brains of other species.

3. “Why, then, is 29-year-old Laurence the only full-time forensic pollen analyst in the United States?

4. Schmalensee and Stavins survey the history of cap and trade programs (NBER).

5. What do we know about ultra high net worth individuals?  And Republicans prefer politicians with deep voices.

6. Henry Aaron argues that ACA is still doing OK.