Individuals process small and large numbers differently.

Small numbers are processed on a linear scale, while large numbers are processed on a logarithmic scale. In this paper, we show that financial analysts process small prices and large prices differently. When they are optimistic (pessimistic), analysts issue more optimistic (pessimistic) target prices for small price stocks than for large price stocks. Our results are robust when controlling for the usual risk factors such as size, book-to-market, momentum, profitability and investments. They are also robust when we control for firm and analyst characteristics, or for other biases such as the 52-week high bias, the preference for lottery-type stocks and positive skewness, and the analyst tendency to round numbers. Finally, we show that analysts become more optimistic after stock splits. Overall, our results suggest that a deeply-rooted behavioral bias in number processing drives analysts’ return expectations.

That is from Tristan Roger, Patrick Roger, and Alain Schatt, via the excellent Kevin Lewis.

Thursday assorted links

1. Should Ethiopia be more democratic?

2. The John Cochrane critique of cryptocurrencies.  And below the radar crypto innovation in China.

3. Low agricultural productivity in poorer countries is not in general due to inferior natural endowments.

4. Muddle we must.

5. Theology majors marry each other a lot.

6. Rap is capitalist.

7. “Haynes thinks it likely that investigators used DNA markers posted on genealogy websites to identify a possible ancestor of the killer and then followed the ancestor’s family tree down to the present, looking for male descendants who fit the profile.” Link here.

The Public Choice Outreach Conference–Limited Time Offer!

Hurry while there is still time to apply to the 2018 Public Choice Outreach Conference, a crash course in public choice for students planning careers in academia, journalism, law, or public policy will held June 9-10 in Arlington VA. Graduate students and advanced undergraduates are eligible to apply. Students majoring in economics, history, international studies, law, philosophy political science, psychology, public administration, religious studies, and sociology have attended past conferences. Speakers include Tyler Cowen, Robin Hanson, Bryan Caplan, Shruti Rajagopolan and many others.

You can find an application and more information here. If you are a professor please invite your students to apply.

My Conversation with Balaji Srinivasan

Here is the transcript and audio, and this is the intro:

Marc Andreessen has described Balaji as the man who has more good ideas per minute than anyone else in the Bay Area. He is the CEO of, where we’re sitting right now, a board partner at Andreessen Horowitz, formerly a general partner. He has cofounded the company Counsyl in addition to many other achievements.

Here is one excerpt:

COWEN: Why is the venture capital model so geographically clustered? So much of it is out here in the Bay Area. It’s spreading to other parts of the country. Around the world, you see Israel, in some ways, as being number two, per capita number one. But that’s a very small country. Why is it so hard to get venture capital off the ground in so many areas?

SRINIVASAN: That’s actually now changed with the advent of ICOs and Ethereum and crypto. Historically, the reason for it was companies would come to Sand Hill Road. One maybe slightly less appreciated aspect is, if you come to Sand Hill Road and you get VC financing, the VC who invests in your company typically takes a board seat. A VC does not want to fly 6,000 miles for every board seat if they’ve got 10 board seats and four board meetings a year per company.

What a VC would like in general, all else being equal, is for you to be within driving distance. Not only does that VC like it, so does the next VC in the B round and the next VC in the C round. That factor is actually one of the big things that constrains people to the Bay Area, is VC driving distance, [laughs] because VCs don’t want to do investments that are an entire world away.

With the advent of Ethereum and ICOs, we have finally begun to decentralize the last piece, which was funding. Now, that regulatory environment needs to be worked out. It’s going to be worked out in different ways in different countries.

But the old era where you had to come to Sand Hill to get your company funded and then go to Wall Street to exit is over. That’s something where it’s going to increasingly decentralize. It already has decentralized worldwide, and that’s going to continue.

COWEN: With or without a board seat, doesn’t funding require a face-to-face relationship? It’s common for VC companies to even want the people they’re funding to move their endeavor to the Bay Area in some way, not only for the board meeting. They want to spend time with those people.

We’re doing this podcast face to face. We could have done it over Skype. There’s something significant about actually having an emotionally vivid connection with someone right there in the room. How much can we get around that as a basic constraint?

And here is another:

COWEN: Right now, I pay financial fees to my mutual funds, to Merrill Lynch, all over. Anytime I save money, I’m paying a fee to someone. Which of those fees will go away?

SRINIVASAN: Good question. Maybe all of them.


COWEN: Drones?

SRINIVASAN: Underrated.

COWEN: Why? What will they do that we haven’t thought of?

SRINIVASAN: Construction. There’s different kinds of drones. They’re not just flying drones. There’s swimming drones and there’s walking drones and so on.

Like the example I mentioned where you can teleport into a robot and then control that, Skype into a robot and control that on other side of the world. That’s going to be something where maybe you’re going to have it in drone mode so it walks to the destination. You’ll be asleep and then you wake up and it’s at the destination.

Drones are going to be a very big deal. There’s this interesting movie called Surrogates, which actually talks about what a really big drone/telepresence future would look like. People never leave their homes because, instead, they just Skype into a really good-looking drone/telepresent version of themselves, and they walk around in that.

If they’re hit by a car, it doesn’t matter because they can just rejuvenate and create a new one. I think drones are very, very underrated in terms of what they’re going to do. 

Do read or listen to the whole thing.

Those new service sector jobs, China tech edition

Ms. Shen is a “programmer motivator,” as they are known in China. Part psychologist, part cheerleader, the women are hired to chat up and calm stressed-out coders. The jobs are proliferating in a society that largely adheres to gender stereotypes and believes that male programmers are “zhai,” or nerds who have no social lives.

…He said he was open to the idea of male programmer motivators but somewhat skeptical. “A man chatting with another man, it’s like going out on a date with a guy,” Mr. Feng said. “A little awkward, isn’t it?”

Ms. Zhang, the human resources executive who was part of the panel that hired Ms. Shen, stressed that it is important for a programmer motivator to look good. She said the applicants needed to have “five facial features that must definitely be in their proper order” and speak in a gentle way.

They should also have a contagious laugh, be able to apply simple makeup and be taller than 5 feet 2 inches.

…Ms. Shen said that she does not consider her job to be sexist.

Here is the full story from Sui-Lee Wee at the NYT.

Allende, Pinochet, and the stock market

We document the impact of Allende’s election and subsequent coup on share prices.

A rare natural experiment to identify impacts of institutions on economic outcomes.

The unexpected socialist victory in 1970 reduced share prices by one half.

The 1973 coup launching a business-friendly dictatorship raised share prices by 80%.

These effects reflect Allende’s systemic challenge to private property rights.

That is from Daniele Girardi and Samuel Bowles, here is an ungated version.

What are the problems with the intellectual left?

That is the topic of my latest Bloomberg column, here is my opener:

Paul Krugman recently made a splash in a New York Times column by suggesting there are no “serious, honest, conservative intellectuals with real influence,” referring to the “unicorns of the intellectual right.” I largely agree with his criticisms, but I would like to offer a very different perspective. This column is my corresponding warning to the left, like when somebody tells you your shirt is not properly tucked in.

Here is one passage, but there is much more:

Religion has been a major force in world history, and today is no exception. The popular intellectual who probably has made the biggest splash this year, Jordan Peterson, describes himself as a Christian. Right-wing intellectuals, overall, aren’t nearly as religious as is the broader right-wing electorate. Still, I find they are much better suited to understand the role of religion in life than are left-wing intellectuals. For intellectuals on the left, the primary emotional reaction to religion is to see it as a force standing in the way of social liberalism, feel awkward about how many Americans are still religious, and then prefer to change the topic.

I see the main victims of the political correctness movement as standing in the center or center-left. In fact, some intellectual superstars, such as Peterson or Steven Pinker, have thrived and received enormous attention by attacking political correctness. But if you don’t have a big public audience, you work in a university, and you wish to make a point about race or gender that isn’t entirely along “proper” lines, you will probably keep your mouth shut or suffer the consequences. Those intellectual victims are not mainly on the right, and it means the left has ended up somewhat blind on these issues. This underlying dysfunction is a big reason the left was so surprised by the election of President Donald Trump.

Do read the whole thing.

Let the boy Brexit!

Pope Francis has been praying for the British toddler Alfie Evans — and the Italian government has granted the child Italian citizenship and lined up a transportation plan that could swiftly bring the sick little boy to a Vatican hospital.

But Alfie’s doctors say he cannot be healed, and shouldn’t make the trip at all.

On Tuesday, according to lawyers representing Alfie’s family, a British judge sided with the doctors, saying that the family cannot accept the offer to take Alfie to the Vatican for treatment.

Here is the full story.  The boy’s situation is dire, but he has not even received a definitive diagnosis from the British doctors.

The Great Leland Yeager has Passed

Leland Yeager has passed at the age of 93. Yeager was the last of that remarkable group of scholars–including Buchanan, Tullock, Coase, Nutter–that made Virginia political economy. Yeager was a polymath perhaps best illustrated by The Yeager Mystique an appreciation by William Breit, Kenneth G. Elzinga and Thomas D. Willett written some twenty years ago (quoted below). His work on monetary theory and international monetary relations remain of great value today.

His facility with languages was legendary:

Another doctoral student, the president of the Graduate Economics Club, was working with Yeager (in Yeager’s capacity as Director of Graduate Studies) to bring Maurice Allais to the University of Virginia for a colloquium. Yeager passed any correspondence from Aliáis on to the club’s president for a response. The correspondence was in French.

Nonplussed by what he mistakenly considered Yeager’s challenge to him, the club’s president decided to retaliate. With the aid of a graduate student in another department, he responded to Yeager with a letter written in Sanskrit. Yeager was oblivious to the ruse. Innocently, he replied in Sanskrit, saying how pleased he was that the club’s president knew this language.

In a faculty of great teachers he was regarded as primus inter pares:

Sometimes he would invite students for a weekend at his Charlottesville residence, where he provided excellent cuisine and wine and conversations which could sometimes lead to a publishable manuscript. A fascinating instance is provided by this lucky house guest: “I happened to ask him some questions on a topic in monetary theory. Well, Leland immediately brought out his tape recorder, and for the next several hours I proceeded to ask him questions, which we then discussed fully. Every few minutes he would summarize the discussion on his tape recorder. Very early the next morning I could hear Leland typing away at his typewriter. When I got up, he presented me with 23 pages of transcript – he had typed up all that we had recorded the night before. We eventually converted that transcript into an article which was published by a major journal. I don’t think I will ever be able to duplicate the excitement I felt during that discussion with Leland into the wee hours of the night.

See Tyler’s personal remembrance below.

Leland B. Yeager has passed away at age 93

Leland was a great monetary economist, a wonderful economist outright, an important early member of the Virginia School, one of the best read people I’ve met, and he could speak and read eight languages, including Swedish.  He was also a wonderful expositor, and a fine gentleman altogether.  He was either an early or a late proponent of market monetarism, depending on how you wish to mark the calendar.  Most memorably to me, he would entertain my pesky questions about economics, without tiring, even when I was at a young age.  I am sorry to see him go.  Here is Leland on Wikipedia and other entries.

How much do schools mediate the international transmission of income?

Not that much.  From Jesse Rothstein:

Chetty et al. (2014b) show that children from low-income families achieve higher adult incomes, relative to those from higher income families, in some commuting zones (CZs) than in others. I investigate whether children’s educational outcomes help to explain the between-CZ differences. I find little evidence that the quality of schools is a key mechanism driving variation in intergenerational mobility. While CZs with stronger intergenerational income transmission have somewhat stronger transmission of parental income to children’s educational attainment and achievement, on average, neither can explain a large share of the between-CZ variation. Marriage patterns explain two-fifths of the variation in income transmission, human capital accumulation and returns to human capital each explain only one-ninth, and the remainder of the variation (about one-third) reflects differences in earnings between children from high- and low-income families that are not mediated by human capital. This points to job networks and the structure of local labor and marriage markets, rather than the education system, as likely factors influencing intergenerational economic mobility.

Here is the NBER working paper.

The role of ideological change in India’s economic liberalization

In an interesting paper, Nimish Adhia argues that in the 1980s Bollywood films began to shift from emphasizing collectivist duty towards individual happiness.

The injunction of performing one’s duty without regard to outcomes has been the basis of much of the Indian philosophical and religious discourse.

The dilemma is recurrent in Indian films…. From the 1950s to the 1980s, the dilemmas invariably resolve in favor of duty. The mother in Mother India (1956) shoots and kills her wayward son as he attempts to kidnap a woman—an action that would have been shameful for the village. “I am the mother of the entire village,” she says as she picks up the gun. As the son collapses to the ground, she wails and rushes to his side, and is shown to lament his death for the rest of her life, but the film valorizes her as “Mother India.”

But then starting with Ram Teri Ganga Maili (1986) there is a spate of films that celebrate the assertion of one’s desire. The assertion commonly takes the form of falling in love—an audacious act in a society where the sexual mores are conservative and a majority of marriages are arranged on basis of familial and community criteria. The young lovers in the big hit Qayamat se Qayamat tak (Doomsday to Doomsday, 1988) elope and endure enormous hardships on account of their families’ opposition. The families had a falling out in the past when they were neighboring landlords in the country. The demands of familial loyalty, shown to arise in this way from a feudal setup and concluding in the death of the young lovers, are condemned by the film as savage and outdated. “We are not the property of our parents,” the young man once counsels his beloved. “We need not be carriers of their legacy of hate.”

At the same time, the treatment of businessmen becomes more positive, wealth is shown as being earned rather than simply given, and the pursuit and achievement of wealth is shown to lead to happiness and pride rather than misery and spiritual death. Adhia argues that these changes helped to cause the liberalization reform beginning in the 1990s.

the ideological change is visible in the films of the 1980s, preceding the wave of liberalization starting in 1991. It lends support to the notion that the ideological change, reflected in the films as early as 1980, was a cause rather than a consequence of liberalization.

Guru, which I have called the most important free market film ever made, comes after liberalization but can be understood as in many ways the apex of these trends.

Hat tip: Prateek Raj.

In case you have not been watching (the D.C. public school system)

It’s so bad that three agencies — the Federal Bureau of Investigation, the U.S. Education Department and the D.C. Office of the Inspector General — are now investigating the D.C. Public School system.

This is after the revelation earlier this year that more than 900 students — a third of the capital’s entire graduating class — were not eligible for the diplomas they were given.

Add to that the bombshell last week that the school system is full of residency fraud — a good chunk of the kids who come to D.C. schools don’t even live in the city. This is happening at the highest levels, investigations showed. The executive assistant to former schools chancellor Kaya Henderson, Angela Williams-Skelton, hauled her grandkids from their Frederick, Md., home to a D.C. public school every day, right under the chancellor’s nose.

And then we have the resignation of one of Bowser’s most influential and prestigious appointments, the schools chancellor picked to follow Henderson, Antwan Wilson. He resigned because of the way his daughter got to leapfrog hundreds of D.C. students on a waitlist to get into the school she wanted.

Here is more from Petula Dvorak at The Washington Post.  As far as I can tell this has not been a major news story, and the main point of this particular article is to suggest that D.C. voters do not seem to care very much either.  Here are two related Scott Alexander posts.