Perfect competition, or collusion?

by  Tyler Cowen in

Takashi Hashiyama, president of Maspro Denkoh Corporation, an electronics company based outside of Nagoya, Japan, could not decide whether Christie’s or Sotheby’s should sell the company’s art collection, which is worth more than $20 million, at next week’s auctions in New York.

…he resorted to an ancient method of decision-making that has been time-tested on playgrounds around the world: rock breaks scissors, scissors cuts paper, paper smothers rock.

In Japan, resorting to such games of chance is not unusual.  "I sometimes use such methods when I cannot make a decision," Mr. Hashiyama said in a telephone interview.  "As both companies were equally good and I just could not choose one, I asked them to please decide between themselves and suggested to use such methods as rock, paper, scissors."

Christie’s won, and here is the full story, via Jason Kottke.

How to be happy

by  Tyler Cowen in

The utterly charming Seth Roberts, best-selling author and paragon of scientific  self-experimentation, visited GMU last week.

Seth told us how to be happy.  "See other people’s faces in the morning."  Faces on TV work as well as real faces.  Conversational distance is ideal.  In his view, seeing faces at night makes people unhappy.

The best way to sleep better is to stand all day.  Also you should stop eating breakfast.  Seth claims we are programmed to wake about three hours before our usual breakfast time.  (Oddly this started happening to me about two weeks before his visit.)

Most college professors have too few skills to be useful teachers and we should reward diverse kinds of achievement.  Given the importance of division of labor in modern economies, there should be many ways get an "A."  Students should receive more individualized attention.

Here is Alex’s earlier post on Seth, and here.  Here is Seth’s blog.

On the bottom of Seth’s home page is some fascinating Powerpoint on economics: "In the beginning, hobbies.  Diversify expertise: procrastination."

Here are three things statistics textbooks don’t tell you.

Seth is a true American original and his work deserves the attention of every thinking person.

Global warming reversal?

by  Tyler Cowen in

Rumor has it that George Bush will shift course on global warming and support limits on carbon dioxide emissions.

I suspect that the United States is far more likely to take unilateral action on this issue than to engage in a multilateral treaty.  Americans enjoy feeling like magnanimous leaders, plus they believe that foreigners take advantage of them in treaties.  In contrast, the standard "international public goods" analysis suggests that each country will refuse to restrict emissions unless other major countries do the same.  This analysis neglects expressive voting, whereby voters choose policies to make themselves feel good, rather than to maximize their incomes.  After all, no single voter is decisive over the final outcome, so why not vote your conscience?  This suggests, by the way, that the global warming hold-outs will be the non-democracies.

Comments are open, but don’t debate the science of global warming per se, you already had a chance to do that.

Wages track productivity in Canada

by  Tyler Cowen in

More or less.  Here are the graphs.  The implications?

…consider the hypothesis that US real wages are being held
back by competition from low-wage countries such as China.  This is a
plausible story – we’d expect wages to converge eventually – but it
doesn’t square with the Canadian experience.  If anything, we’d expect
the effect to be even stronger in Canada, what with the 40%
appreciation of the CAD against the yuan since 2002.

The pointer is from New Economist blog.  And no, the difference is not there because the Canadians are caring people or because they did not elect that nasty Mr. Bush.  Mexican immigrants won’t explain stagnant wages along the middle end of the distribution.  One commentator has an intriguing suggestion:

Positive net employment change in Canada is most concentrated in the
high-paying energy sector in Alberta.  A great proportion of the jobs
being created demand high-skilled workers.  I wonder how much of the discrepancy in median incomes between Canada
and the US can be explained by the increase in job creation in Canada’s
energy sector relative to the type of job creation occurring in the US. 
Entry-level workers in BC and Alberta are getting paid big bucks.

Might the United States have experienced sectoral shifts which are unfavorable for median wages but favorable for wages at the upper ends of the distribution?  Another factor is that rising health care costs in the U.S. are absorbed into benefit costs but in Canada these costs are socialized to greater degree.  In any case economists have yet to get to the bottom of this mystery…

Economics and sociology: gains from trade

by  Tyler Cowen in

1. Here is a new paper by Fabio Rojas on that topic.  Hat tip to Organizations and Markets blog.

2. Tradesports.com is just starting betting on the new NBA season.  I looked at Sporting News; of their five experts, two picked Phoenix, two San Antonio, and one Miami.  No Dallas supporters there, or for that matter here.

3. Analysis of the new Booker shortlist; is it a changing of the literary guard?

4. Update: prediction markets and the law.

Should couples keep separate finances?

by  Tyler Cowen in

Megan Non-McArdle continues her transformation into a rational choice theorist:

While I can’t guess how
it will actually work out when I am faced with this in real life, I
like the idea of both partners putting two-thirds of each paycheck in a
joint account and reserving one-third to themselves.  ‘Cause why argue,
or even discuss, some personal purchases?  Buy it for yourself with your
own money, and look, no one cares!  It would also make gifts more
meaningful, if it came from your own hoard rather than shared money. 
And give you a reserve, if you are the cautious type.

Convexifying the choice set.  Who would expect that from a water engineer?  Money decisions do not have to be all-or-nothing.  Totally separate finances are undesirable, if only for symbolic reasons, but why not opt for a middle point? 

The key problem, in my view, is not overspending from a common pool of money.  Rather it is that couples use money as a medium for conducting ongoing fights, and thus the value of partially separate finances as a safety valve. 

The percentage of separate funds should rise with:

1. The age of the parties when married.  The two people might be very good together, but used to making their own money decisions.

2. The number of preceding marriages.

3. The two parties each earning decent or at least roughly comparable incomes. 

4. Small numbers of children or grown, out-of-college children.

5. Portfolio safety.  Portfolio riskiness should be borne jointly.

6. Inversely with the size of the mortgage and other fixed commitments.  The common fund should be spent on something which is not merely automatic.

Surely state property laws should matter, as should the strength of Kahneman-Tversky framing effects, but I haven’t quite figured out how.

Can you think of other relevant variables?

Private spam regulation?

by  Tyler Cowen in

What if Google decided to make a Gmail account cost $1 a year instead of giving it away for free?  And what if you had to use a valid credit card to pay for it?

And further, what if your Google e-mail address had to include your real name?

And what if a violation of Google’s anti-spam rules (I’m assuming they’d have some) would cost $20 per incident?

Suddenly Google would become the gold standard.  People would happily let it through the spam filters.  You could trust it.  People would become suspicious of anyone who used any other online e-mail service.

That is from Seth Godin’s Small is the New Big.  Being a naive economist, I would sooner conclude that spam isn’t so big a problem any more.  It is at least a smaller problem than the costs of forcing everyone to use a single credit card-based email service.  Of course we can imagine less monopolistic versions of this idea but we return to the notion that the open-access provision of the Internet seems more valuable than avoiding spam.

Beckett vs. Duchamp

by  Tyler Cowen in

The two were not evenly matched.  Duchamp was one of the best players in France, and no doubt swept Beckett off the board in most of their encounters.  But still they enjoyed each other’s company, and continued to play.  The two came together again in the summer of 1940, converging on the Atlantic coastal town of Arcachon, southwest of Bordeaux, as they fled the Nazi onslaught.  All summer they played lengthy chess games together in a seafront cafe.  While their conversations were not recorded, we can imagine that they discussed their mutual interest in chess’s dialectic between total freedom and complete constriction, between choice and futility…[Beckett] once remarked that the ideal chess game for him would end with the pieces back in their starting positions.

That is from David Shenk’s new The Immortal Game: A History of Chess.  If you are going to read only one book on chess, this is it.  I don’t read this stuff any more, but was persuaded to buy it by Stephen Dubner’s strong blurb.

The Great Risk Shift

by  Tyler Cowen in

That is the new book by Jacob Hacker which should, and probably will, have a big impact on national debate.  The main argument is that American incomes have been growing steadily riskier.  (Here is a related article by Hacker, and here is U.S. Census data.)  A few points:

1. The most convincing of the graphs is the one which shows "Americans’ Chance of a 50 Percent or Greater Income Drop."  In 1970 this risk was at about 7 percent; it has been rising upward and now stands at a little over 16 percent.  I would be happier if the relatively wealthy were excluded from this diagram, although I doubt if those people are driving the results. 

2. Chapter two blames the new ethic of personal responsibility, and associated policy changes, for increased income volatility.  Data suddenly are absent, and I cannot help but note that most forms of domestic government spending, including social insurance programs, have grown steadily.  Nor can Clinton welfare reform be blamed here.  This is the weakest chapter in the book.

3. Chapter three on risky jobs is not strong on data compared to the contrasting results found in this working paper and also the writings of John Haltiwanger and others.

4. Chapter four on families discusses divorce, but we do not learn how much of the growth in income volatility stems from family splits.  The author does point out that the divorce rate peaked in the 1980s yet income volatility continues to climb.  The relative importance of divorce is the one question this book should have answered, and could have answered, but didn’t answer.

While divorce raises income risk, it may lower utility risk, especially for women.

I am also dismayed that the author cites a U.S. savings rate of zero, overstates the risk of housing investments (if all homes exogenously became very cheap even homeowners are better off), and cites the dubious book The Two-Income Trap.  There is not enough discussion of asset values and new possibilities for consumption smoothing.  How volatile are the data on consumption?

5. Chapter five on risky retirement focuses on pensions and nails it.

6. I don’t buy chapter six on "Risky Health Care."  The real risk of dying too young, or being severely crippled too young, has never been lower.  Again, risk is more than just financial risk.

The bottom line: We do need pension reform.  Otherwise Hacker needs to separate out the importance of divorce and better distinguish financial risk from utility risk.  If people are spending more money to lower their utility risk — most of all spending on divorce and healh care — the results are suddenly less troubling.  I am far from certain this is the relevant scenario, but Hacker does not establish, or even try to establish, the contrary.

Addendum: Arnold Kling argues that, in a risky world, we should strengthen incentives to save.