We interrupt your regularly scheduled Thanksgiving

by  Tyler Cowen in

Dubai World won't repay its debt on time and the government of Dubai won't pick up the bag, raising doubts about its credibility.  Who would bail out Dubai itself?  Maybe it will be an "interesting" weekend:

Banking stocks tumbled on concern about their potential exposure to
Dubai. Indeed, the cost of insuring against default by the emirate
jumped, with Reuters reporting the Dubai five-year credit default swap
being quoted as high as 500-550 basis points. This means it would cost
about $500,000 a year to insure $10m of Dubai’s debt. On Tuesday it
would have cost about $360,000.

Funds are surging into Germany and Japan, etc.  For purposes of comparison, Dubai CDS contracts now cost more than for Iceland.

If you're feeling a little down today, and looking for something to be thankful for, be thankful you have not lent money to Dubai.  Unless, of course, you have lent money to Dubai.

Ariely on Thanksgiving

by  Alex Tabarrok in

Ezra Klein asked Dan Ariely for Thanksgiving advice:

"Move to chopsticks!" he exclaimed, making bites smaller and harder to take. If the chopsticks are a bit extreme, smaller plates and utensils might work the same way. Study after study shows that people eat more when they have more in front of them. It's one of our predictable irrationalities: We judge portions by how much is left rather than how full we feel. Smaller portions lead us to eat less, even if we can refill the plate.

Speaking of which, Ariely suggests placing the food "far away." In this case, serve from the kitchen rather than the table. If people have to get up to add another scoop of mashed potatoes, they're less likely to take their fifth serving than if they simply have to reach in front of them.

"Start with a soup course," he says. That is what economists refer to as a default: Rather than putting everything on the table for people to choose, you begin by making the choice for your guests. If the first course is relatively filling and relatively low in calories, everyone will eat less during the rest of the meal.

Indeed, it's not a bad idea to limit the total number of courses. Variety stimulates appetite. As evidence, Ariely brings up a study conducted on mice. A male mouse and a female mouse will soon tire of mating with each other. But put new partners into the cage, and it turns out they weren't tired at all. They were just bored. So, too, with food. "Imagine you only had one dish," he says. "How much could you eat?"

What you eat, of course, is also important. Studies show that people aren't very consistent in the amount of calories they eat each day, but they're very consistent in the volume of food they eat each day. Thanksgiving is an exception to that consistency, but probably not to the underlying rule. Satisfaction doesn't depend on caloric intake; low-calorie, high-fiber foods and foods high in water content are filling. Thus, the more broccoli rabe there is at the table, the better.

Markets in everything, Thanksgiving day edition

by  Tyler Cowen in

Get the dog involved in the festivities with Merrick Thanksgiving Day Dinner Dog Food! 12 cans for $21.99 on Amazon.
The description: "The house is filled with love and the wonderful
smells of Thanksgiving infiltrate the air. Could it get any better as
you fill your plate with juicy slices of turkey and all the trimmings?
We don't think Thanksgiving should come only once a year, so we created
this meal for your dog to enjoy all year round."

The photos are here and I thank Courtney Knapp for the pointer.

Detroit fact of the day markets in everything

by  Tyler Cowen in

Here's all you need to know about the real estate market in Michigan: The 80,000-seat enclosed Silverdome, built for $55.7 million in 1975 to house the Detroit Lions, has sold for $583,000.

And you thought your home had lost its value during this recession.

Think about it this way: $583,000 will get you a decent, but not terrific, house in a nice neighborhood in Northwest Washington.  [TC: will it?]

According to this story from the Detroit News, the Silverdome — which is a bubble dome, pictures of which you can see here and here — was hoped to fetch at least $1.3 million; maybe as much as $3 million. The dome comes with 27 acres.

The full story is here and I thank Greg Finley for the pointer.

Assorted links

by  Tyler Cowen in

1. Reprogramming predators, and maybe a pan-species welfare state too.

2. The six great fantasy novels?

3. Forum on the new Robert Pozen book on the financial crisis.

4. Do you wish to hear the other side?  Here is George Selgin's case for deflation, now on-line and free.

5. Ezra and Mark Bittman, the behavioral economics of Thanksgiving.  And here, with Dan Ariely.

6. Pollution is moving to Asia; good maps.

6. Future deficits are worrisome.  James Hamilton: "Is it possible that some time within the next five years, the U.S.
Treasury will run an auction in which there are not enough bids to roll
over the debt? My answer is yes."

Who buys cosmetic surgery?

by  Tyler Cowen in

Not just the rich:

…cosmetic surgery is now primarily consumed not by the rich, but by the
working and lower-middle classes, sometimes even by the poor. 
According to the American Society for Aesthetic Plastic Surgery (ASAPS),
about 1/3 of cosmetic surgery is consumed by people who make less than
$30,000 a year.  About 70% of it is consumed by people who make less
than $60,000 a year. It is mostly women (90%) and mostly white,
middle-aged women (80% and between 35-55 years old).

Here is a more complete account.  In the Reid bill there is a tax on cosmetic surgery.  In my view cosmetic surgery is not just a zero-sum game but rather it leads to better matches, more matches, and more people who are happy with their looks or with the looks of their partner(s).  It also leads to higher levels of trust. And it's a sector that has, overall, lowered costs over time.

For the pointer I thank Coates Bateman.

The Impact of No Child Left Behind on Student Achievement

by  Tyler Cowen in

Preliminary results are in, and they suggest it has helped with math skills but not with reading achievement, as measured in the 4th and 8th grades.  Via Thomas Dee and Brian Jacob:

The No Child Left Behind (NCLB) Act compelled states to design
school-accountability systems based on annual student assessments. The
effect of this Federal legislation on the distribution of student
achievement is a highly controversial but centrally important question.
This study presents evidence on whether NCLB has influenced student
achievement based on an analysis of state-level panel data on student
test scores from the National Assessment of Educational Progress
(NAEP). The impact of NCLB is identified using a comparative
interrupted time series analysis that relies on comparisons of the
test-score changes across states that already had school-accountability
policies in place prior to NCLB and those that did not. Our results
indicate that NCLB generated statistically significant increases in the
average math performance of 4th graders (effect size = 0.22 by 2007) as
well as improvements at the lower and top percentiles. There is also
evidence of improvements in 8th grade math achievement, particularly
among traditionally low-achieving groups and at the lower percentiles.
However, we find no evidence that NCLB increased reading achievement in
either 4th or 8th grade.

That is from an NBER paper, I do not yet see an ungated copy on-line.  To my skewed perspective, this is an intuitive result.  Math skills are more the result of drill, whereas you have to learn how to love to read and much of that happens within the family, not at school.  Math is therefore easier to "teach by central planning," so to speak.

Whale size, an interior solution

by  Tyler Cowen in

How is this for a sentence to ponder?:

It’s a lot of water, the scientists have found: in one lunge, a fin whale can momentarily double its weight.

The full article is here and I'll peg it as one of the very best short pieces I've read this year.  Here is another stunning excerpt:

In order to make lunge-feeding work, you have to have a really big
mouth to capture enough water in one gulp. But in order to have a big
mouth, you need a big body. And in order to keep that big body running,
you need to get a lot of food. And in the very act of getting that
food–diving deep, lunging open-mouthed, and then pushing a
school-bus-sized volume of water forwards–requires a lot of energy on
its own.

Goldbogen and his colleagues wondered what sort of trade-off
lunge-feeding whales faced between the costs and the benefits of eating
like a parachute. To find out, they took advantage of measurements
scientists made of hundreds of fin whales at whaling stations in the
1920s.

For the pointer I thank Carl Zimmer.  Herman Melville would have been proud.

The “paradox of choice” is not robust

by  Tyler Cowen in

I missed this one while traveling, so I am grateful to the loyal MR reader who pointed it out to me:

… the psychological effect may not actually exist at all. It is hard to find much evidence that retailers are ferociously simplifying their offerings in an effort to boost sales. Starbucks boasts about its “87,000 drink combinations”; supermarkets are packed with options. This suggests that “choice demotivates” is not a universal human truth, but an effect that emerges under special circumstances.

Benjamin Scheibehenne, a psychologist at the University of Basel, was thinking along these lines when he decided (with Peter Todd and, later, Rainer Greifeneder) to design a range of experiments to figure out when choice demotivates, and when it does not.

But a curious thing happened almost immediately. They began by trying to replicate some classic experiments – such as the jam study, and a similar one with luxury chocolates. They couldn’t find any sign of the “choice is bad” effect. Neither the original Lepper-Iyengar experiments nor the new study appears to be at fault: the results are just different and we don’t know why.

After designing 10 different experiments in which participants were asked to make a choice, and finding very little evidence that variety caused any problems, Scheibehenne and his colleagues tried to assemble all the studies, published and unpublished, of the effect.

The average of all these studies suggests that offering lots of extra choices seems to make no important difference either way. There seem to be circumstances where choice is counterproductive but, despite looking hard for them, we don’t yet know much about what they are. Overall, says Scheibehenne: “If you did one of these studies tomorrow, the most probable result would be no effect.”

That's by Tim Harford.  In my view, the so-called paradox of choice is one of the most overrated and incorrectly cited results in the social sciences.  The full account is here.

How worried should we be about the deficit?

by  Tyler Cowen in

There have been many posts on this topic lately, start with Paul Krugman and Brad DeLong if you need to catch up.  Today I have a few simple points:

1. Even if "it is fine to borrow more" is the most likely scenario, it is not the only scenario.  Let's take a page from Marty Weitzman on climate change.  The worst-case scenarios matter too, because they can be very, very bad.  We need to think probabilistically about this issue.

2. Are there current intelligent discussions of the implied interest rate volatility embedded in current options prices?  If we are looking for market tests, why not start there?  Focusing on the point estimate of the market interest rate(s) discourages you from thinking probabilistically.

3. I know less about Belgium but I am not reassured by Krugman's point that "Italy can do it."  I and many other observers consider Italy's economy to be a basket case which will only get worse.  Nor is Japan in a satisfactory place, economically speaking.

4. Krugman writes: "Belgium is politically weak because of the linguistic divide; Italy is
politically weak because it’s Italy. If these countries can run up
debts of more than 100 percent of GDP without being destroyed by bond
vigilantes, so can we."

I would interpret this evidence differently.  A high deficit often is an unfavorable symptom of bad politics, even if you think the high deficit is economically OK on its own terms.  It's a sign that you have dysfunctional institutions and decision-making procedures, as indeed they do in Belgium and Italy.  I believe that the not-always-swift American voter in fact understands high deficits — correctly — in this light.  They don't hold theories about "crowding out," rather they sense something in the house must be rotten.  And so they rail against deficits, as do some of their elected representatives.  It's a more justified reaction than the pure economics alone can illuminate.

When water regularly overflows from your toilet, you want the toilet fixed, whether or not the water is doing harm.

Sweet Trade

by  Alex Tabarrok in

Here is a fun, easy and effective experiment that instructors can use to illustrate the gains from trade.  The instructor puts chocolate bars ("fun-size") or other candy in bags, one bag for each student. (Alternatively, you can use the type of small items that you can find at a dollar store.  Filling the bags is where the most work comes in especially if you have a large class). Students open the bag and are then asked to write down how much they would be willing to pay for the bag's contents.  But before snacking, students are allowed to trade.  After a few minutes of trade, ask the students to write down their valuation again.  Voila!  Gains from trade.  With a few numbers pulled at random from the students you can do a back of the envelope calculation for the total increase in value.  The experiment doesn't take long and the students will appreciate the candy!

A hat tip to Randy Simmons who first introduced this experiment to me.