Results for “prizes”
215 found

Markets in prediction, revisited

You can now bet on future developments in the tech sector. The questions include the following:

1. When will Google have an IPO?

2. Will SCO be awarded damages? [in its lawsuit against IBM at the District Court in Utah]

3. When will there be a commercially available electronic device using ultrawideband technology?

4. Will Oracle acquire PeopleSoft Inc?…before March 31st, 2004.

Here is the website. There are no cash prizes, but it is not just for pure play either. The top ten winners receive prizes from Circuit City. If you are wrong about everything, you lose nothing.

My take: I’ve long been intrigued by the idea futures concept. One central question is whether they can perform some function that current asset markets do not already satisfy. I’ll say no for this version of the idea. For instance some of the other predictions involve the future value of the NASDAQ index. Many of the others can be satisfied, albeit with noise, by betting on the relevant companies. Note also that Circuit City wins publicity for sponsoring the contest, which points to another truth about idea futures. In financial terms they are a zero-sum game for the investors, so a sponsor may need an external incentive, such as publicity value, to market the idea. If idea futures have a breakthrough use, it may well be within companies, such as to evaluate competing R&D proposals.

Thanks to Daniel Akst for the pointer to the link.

We should spend More on Health Care

Tyler appears to be growing more skeptical of the value of health care spending (see his posts here and here). A simple model explains most of what is going on and why he and another of my very smart colleagues Robin Hanson, are wrong. In the graph below spending on health care is on the X axis, health outcomes are on the Y axis. Spending shows diminishing returns. We are currently at point Q on the graph labeled T1 – note that at this point marginal increases in spending have little effect on output (Tyler asks, What margin has low value? Answer: The marginal dollar). Even fairly large increases or decreases in spending will not change outcomes very much given that we are currently at point Q.

Why are we spending so much as to push us into the flat portion of the production function? One reason is that out-of-pocket expenses for medical care are much lower than true costs – we typically are spending someone else’s money. A second reason is that the marginal utility of wealth is low if you are dead so spending on health care near the end of life has unusually low opportunity cost. A third reason may be that various psychological factors make the desire to avoid regret particulary strong for health care, as Tyler speculated earlier.

Although the marginal dollar has low return the value of improvements in medical technology is enormous. These gains are illustrated by the shift from T1 to T2. It has been estimated, for example, that increases in life expectancy from reductions in mortality due to cardiovascular disease over 1970-1990 has been worth over $30 trillion dollars – yes, 30 trillion dollars (for this research see: book, papers, summary). A conservative estimate is that 1/3rd of these improvements in life expectancy were due to better medical technology. One third of the annual benefits is $500 billion – this is much more than total government spending on medical research (the budget of the entire NIH is around 25 billion).

The low value of medical spending at a particular point in time and the high value of medical research over time suggest that we would be much better off if we cut back on medical care spending and devoted the funds to medical research. We should spend less on Medicaid, Medicare, Prescription drug plans etc. and use the savings to better fund the NIH (or other methods of increasing medical research such as prizes etc.)

HealthModel.JPG

Hypotheses about envy

1. We envy those close to us, who get paid just a bit more, not Bill Gates.

2. Men find it hardest to forgive other men for their success with women.

3. Men do not much envy women because they view women as “one of life’s prizes”.

4. The philosophers who wrote most insightfully about envy were all bachelors (Kant, Kierkegaard, Schopenhauer, Nietzsche).

I found these claims in Joseph Epstein’s recent, and entertaining, book Envy. Here is an interview with Epstein. Here is an essay by Epstein on envy. Here is a whole host of Epstein-related links.

My take: I envy how well he writes, but was comforted to read that tenured academics typically earn more than he does.

Chess and mixed strategies

Many laboratory experiments fail to find evidence for the game-theoretic concept of “mixed strategies.” But Doru Cojoc, a graduate student at Clemson University, looks at data taken from the world of chess, where high prizes are on the line and we find repeated games between the same players (there is no copy of the paper on the web).

A player might prefer one opening move over another (e.g., “1. e4” vs. “1. d4”), but if a player always uses his favorite, the opponent will find it easier to prepare a defense. So players tend to vary their opening moves in an effectively random manner, as confirmed by Cojoc’s data from championship matches. The returns to differing opening moves end up being the same, in expected value terms, even though players have their favorites. Note: For purposes of contrast, I would like to see if chess champions do any better with their favorite moves in non-repeated settings, Cojoc says he is working on this.

Doru tells me he is also preparing work on whether chess players ever reason using backwards induction strategies. And click here for a lead on the Chiappori, Steve Leavitt, and Tim Groseclose paper on mixed strategies in soccer.

By the way, did you know that for world championship games since 1951, the player with white is more than twice as likely to win as the player with black (26% white wins, 12% black wins, 61% draw)?

Thanks to Bob Tollison for the pointer on this work.

Why executives should be paid more than they deserve

If workers are paid their marginal product its difficult to understand why some CEOs are paid such high wages. But think of the CEO’s wage as a prize. Valuable prizes make everyone else work hard in order to become the CEO. With this model, the tournament model (JSTOR) of Lazear and Rosen, it may even make sense that CEO wages go up as profits go down. After all, shouldn’t prizes be set highest when motivation is most required? No doubt, some will see this argument as more proof that economists are just shills for the capitalist class.