Month: July 2009

The roots of workplace procrastination

by  Tyler Cowen in

To make their jobs bearable, people tend to talk themselves into believing they have more control over their time than they actually do. That sets them up for procrastination. They put off their biggest, most stressful tasks for later in the day, then get burned by fires that inevitably flare up.

That's me.  I see the illusory quest for control as one of the most significant cognitive biases for understanding the workplace environment.

What I’ve been reading

by  Tyler Cowen in

1. Genesis, by Bernard Beckett.  A dystopia by a Kiwi author who writes (broadly) in the style of Margaret Atwood.  My complaint that it was too short is one of the better complaints you can have about a book.

2. Calvin, by F. Bruce Gordon.  This excellent biography brings French Renaissance theology to life.  Recommended.

3. Bangkok Days, by Lawrence Osborne.  Books on this topic are tricky because they have a tendency to exploit cheap salaciousness but this one is quite good and also conceptual in nature.  It prompted me to order more books by the author.

4. The Age of Wonder: How the Romantic Generation Discovered the Beauty and Terror of Science, by Richard Holmes.  It's a well-written book with a great cover, a nice title, favorable reviews everywhere, and good information on each page.  Still, I don't quite see what it all adds up to.  But if you're inclined to read it, I don't see any reason not to.

5. The Generalissimo: Chiang-Kai-Shek and the Struggle for Modern China, by Jay Taylor.  A new and apparently exhaustive biography, based on many new sources.  The first fifty pages (all I've read so far) read very well.  I am told that Chiang was "incorruptible" — who would have known?  "Brutal, but underrated" seems to be the takeaway.  This could well be one of the more important non-fiction books of the year.

The Soda Machine Puzzle

by  Alex Tabarrok

Many excellent comments in this thread.  Nick Rowe was the first to post a correct solution.  Take one bottle from the first machine, two bottles from the second, three from the third and so forth.  If the weight on the scale is off from the expected total by say 6 oz then you know machine 6 is the culprit.  Note that this procedure will work whether the machine is putting in 1 oz too much or 1 oz too little – but not, of course, if it randomizes.  (I tried to make clear the machine was always doing one or the other but perhaps this could be worded even better.)  

In one of his books on lateral thinking, de Bono talks about the student who when asked how would you use a barometer to measure the height of a building said he would take it to the top of the building, drop it off, time it till it hit the bottom and then use Newton's laws to calculate the height.  The student's teacher was not amused but de Bono thought this was great.  In anycase, Alex J offers a similarly clever and lateral solution this puzzle which I believe also works. 

*In Fed We Trust*

by  Tyler Cowen in

The subtitle is Ben Bernanke's War on the Great Panic and the author is David Wessel.  Here is one good excerpt:

For Ben and Anna Bernanke, excitement was jointly doing the New York Times Crossword puzzle nearly every day — although they skipped the easier beginning-of-the-week puzzles.  "That's the one thing we do together," Bernanke joked.  "It's shows our sexy social life.  We're pretty good.  We can do the Sunday puzzle in about forty minutes."

This is so far the most entertaining and most readable book on the financial crisis.

Assorted links

by  Tyler Cowen in

1. Via Chris Masse, one account of life as a fashion model.

2. Countercyclical asset of the day: building sheds.

3. Me, on the future of libraries and related matters.

4. NeighborhoodEffects, a blog.

5. How much should blog writers disclose about their personal lives?

6. Old people are less interested in health care reform: the numbers.

7. Markets in everything: de-baptism, done with a hair dryer.

Do superstition and eclipses matter for the stock market?

by  Tyler Cowen in

Gabriele Lepori has a new paper.

Psychological research documents that individuals are more likely to resort to superstitious practices when operating in environments dominated by uncertainty, high stakes, and perceived lack of control over the outcomes. Based on these findings, we suggest that the stock market represents an ideal breeding ground for superstition and then test whether superstition-induced behavior affects investment decisions. Our empirical analysis focuses on some beliefs associated with eclipses, phenomena that are typically interpreted as bad omens by the superstitious both in Asian and Western societies, and we employ a dataset containing 362 such events over the period 1928-2008. Using four broad indices of the U.S. stock market, we uncover strong evidence in support of our superstition hypothesis in four distinct ways. First, the occurrence of negative superstitious events (i.e. eclipses) is associated with below-average stock returns, which is consistent with a diminished buying pressure coming from the superstitious. Second, the size of the superstition effect is estimated to increase in times of high market uncertainty and when eclipses draw wide media coverage and public attention. Third, the negative performance of the market during the superstitious event is followed by a reversal effect of similar magnitude (10 basis points per day) on the subsequent trading days. Fourth, eclipses are accompanied by a trading volume decline. When we extend our analysis to a sample of Asian countries, we find analogous results. The patterns we document are inconsistent with the Efficient Market Theory, as eclipses are perfectly predictable events.

In other words, eclipses are bad days for buying stocks.  Maybe others don't want to make a commitment during the time of a possibly bad omen or maybe they're outside watching.  Trading volume is low.  After the day of the eclipse, there is a one to three day window, during which the lower returns are reversed.  So ideally there are buying opportunities right after the eclipse with (minor) extra-normal profits available.  The final section of the paper looks at Asian stock market returns on days of eclipse and finds comparable results; I wonder if this would extend to potentially unlucky days?

So how were Indian returns today?  (Check here).

Here is a John Nye and Noel Johnson piece on how Asian children do (better!) if they are born in the Year of the Dragon.

Yglesias vs Yglesias

by  Alex Tabarrok

Matt Yglesias May 30, 09:

This goes back to a point I was making a while ago about how dangerous it is that the public discourse is so dominated by low-quality freelance philosophy done by people with PhDs in economics. I’m fairly certain that if Mankiw were to walk over to Emerson Hall he could find some folks (possibly T.M. Scanlon who I know sometimes reads this blog) who could explain to him that there’s little grounds for the belief that a commitment to utilitarianism is the main justification for redistributive taxation.

Matt Yglesias July 20, 09:

…the point here is that the marginal utility of money income declines as it grows. This is also a strong argument for believing that redistributing money from wealthy or high-income individuals to the poor or to public services will be welfare-enhancing.

Clearinghouses and credit default swaps

by  Tyler Cowen in

Sebastian Mallaby sends me a link to this paper, with this summary statement:

This paper analyzes the market for credit default swaps and makes specific recommendations about appropriate roles for clearinghouses and about how they should be organized. Clearinghouses are not a panacea and the benefits they offer will be reduced if there are too many of them. Further, clearinghouses that manage only credit default swaps but not other kinds of derivative contract may actually increase counterparty and systemic risk, contrary to the assumption of many policy makers.

Dismantling the Temple

by  Alex Tabarrok

Economic populist William Greider, writing in The Nation, makes the case against the Fed. 

Six reasons why granting the Fed even more power is a really bad idea:

1.†ˆIt would reward failure. Like the largest banks that have been bailed out, the Fed was a co-author of the destruction …The Fed instead allowed, even encouraged, the explosion of debt and inflation of financial assets that have now collapsed….

2.†ˆCumulatively, Fed policy was a central force in destabilizing the US economy. Its extreme swings in monetary policy, combined with utter disregard for timely regulatory enforcement, steadily shifted economic rewards away from the real economy of production, work and wages and toward the financial realm, where profits and incomes were wildly inflated by false valuations…

3.†ˆThe Fed cannot possibly examine "systemic risk" objectively because it helped to create the very structural flaws that led to breakdown….

4.†ˆThe Fed can't be trusted to defend the public in its private deal-making with bank executives…

5.†ˆInstead of disowning the notorious policy of "too big to fail," the Fed will be bound to embrace the doctrine more explicitly as "systemic risk" regulator. A new superclass of forty or fifty financial giants will emerge ….The Fed, having restored and consolidated the battered Wall Street club, will doubtless also shield a few of the largest industrial-financial corporations, like General Electric (whose CEO also sits on the New York Fed board). Whatever officials may claim, financial-market investors will understand that these mammoth institutions are insured against failure…

6.†ˆThis road leads to the corporate state–a fusion of private and public power, a privileged club that dominates everything else from the top down….

It's a pretty good list especially the points that too big to fail will be embraced even more under the idea of a "systemic risk regulator" and that this road leads to the corporate state.  Just consider the implications of Gary Gorton's proposal for the government to guarantee "senior tranches of securitizations of approved asset classes."

The natural conclusion of Greider's damning list would seem to be a monetary system truly independent of politics such as a commodity standard or free banking. Sadly, but not surprisingly, Greider's own proposal for a Congressional Monetary Office, something like the Congressional Budget Office, solves none of the fundamental problems. 

Don’t take this the wrong way

by  Tyler Cowen in

The prospects for health care reform seem to be dimming.  If I were a progressive I would be wondering right now whether Medicare was a tactical mistake.  The passage of Medicare meant that most old people get government-provided health care coverage.  Yet the way to get things done in this country, politically, is to get old people behind them.  Further health care reform doesn't now seem to promise much to old people, except spending cuts on them.  Given their limited time horizons, old people don't so much value system-wide improvements, which invariably take some while to pay off.

If Medicare had not been passed, might this country have instituted universal health care coverage sometime in the 1970s?

Paul Romer update

by  Tyler Cowen in

David Warsh reports that Romer has resigned from Stanford and he has a plan to change the world:

…[he has] a scheme to persuade nations around the world to adopt “special administrative zones,” managed in many cases by foreign governments, based on the model of Hong Kong, which, for 150 years, was administered from afar by Britain. “Hong Kong was the most successful economic development in history,” says Romer. The rules developed there over time were codified, copied and installed by the Chinese government in four special zones along the coast in the 1980s; the experiment worked so well that the system was adopted country wide.

Romer presented a rehearsal version of his ideas at a seminar in May at San Francisco’s Long Now Foundation. You can watch Romer’s A Theory of History, With an Application online (or just this five-minute snippet), or read Long Now co-founder Stewart Brand’s summary of the talk. It costs $995 to watch in real-time, along with all the rest of the proceedings, the 18-minute version that Romer plans to deliver this week in England.  But presumably the talk will be available online soon enough; the TED forum bills itself as offering “riveting talks by remarkable people, free to the world.” And, according to Brand, Romer plans to open an Institute with a website this summer.

I'm all for this idea (how would the Swiss do in Nigeria?), but I fear that Hong Kong is a cautionary tale in the other direction.  Due mostly to the pressures of nationalism, the world's most successful development experiment was ended without a second thought.  And its initiation was backed by brute colonial force.  Which country is most likely to allow another country to manage part of its territory in a new experiment?