Thursday, September 24, 2009

Nobel Prize Predictions

Here's the listing of predictions from Thomson-Reuters for the Nobel Prize in Economics:

ERNST FEHR (University of Zurich)

MATTHEW J. RABIN (University of California Berkeley)

WILLIAM D. NORDHAUS (Yale University)

MARTIN L. WEITZMAN (Harvard University)

JOHN B. TAYLOR (Stanford University)

JORDI GALI (Pompeu Fabra University)

MARK L. GERTLER (New York University)

This year, I have no strong picks. That said, I would like to see Prof. Fehr or Prof. Gali win.

Tuesday, September 22, 2009

2009 MacArthur Foundation Genius Awards

The MacArthur Foundation announced its genius awards today. MIT economist Esther Duflo was one of the winners.

Wednesday, September 16, 2009

Daniel Ellsberg on Democracy Now

Today, Democracy Now aired an interview with Daniel Ellsberg to discuss the new movie The Most Dangerous Man in America regarding Dr. Ellseberg's work during the Nixon administration and his leaking of Pentagon papers regarding the Vietnam war.

Dr. Ellsberg is know to graduate microeconomics students for his popularizing of what is known as the Ellsberg paradox:

Suppose you have an urn containing 30 red balls and 60 other balls that are either black or yellow. You don't know how many black or yellow balls there are, but that the total number of black balls plus the total number of yellow equals 60. The balls are well mixed so that each individual ball is as likely to be drawn as any other. You are now given a choice between two gambles:

Gamble A Gamble B
You receive $100 if you draw a red ball You receive $100 if you draw a black ball

Also you are given the choice between these two gambles (about a different draw from the same urn):

Gamble C Gamble D
You receive $100 if you draw a red or yellow ball You receive $100 if you draw a black or yellow ball

Since the prizes are exactly the same, it follows that you will prefer Gamble A to Gamble B if, and only if, you believe that drawing a red ball is more likely than drawing a black ball (according to expected utility theory). Also, there would be no clear preference between the choices if you thought that a red ball was as likely as a black ball. Similarly it follows that you will prefer Gamble C to Gamble D if, and only if, you believe that drawing a red or yellow ball is more likely than drawing a black or yellow ball. If drawing a red ball is more likely than drawing a black ball, then drawing a red or yellow ball is also more likely than drawing a black or yellow ball. So, supposing you prefer Gamble A to Gamble B, it follows that you will also prefer Gamble C to Gamble D. And, supposing instead that you prefer Gamble D to Gamble C, it follows that you will also prefer Gamble B to Gamble A.

When surveyed, however, most people strictly prefer Gamble A to Gamble B and Gamble D to Gamble C. Therefore, some assumptions of the expected utility theory are violated.

Tuesday, September 15, 2009

Did Taxes Killed the Beatles?

The Beatles are in the news (again). On 9.9.09 their Rock Band game was issued and the 40th anniversary of their break-up is approaching. In a new article, Daniel Finkelstein discusses the Beatles as a "triumph of capitalism." He argues that Brian Epstein's management of the band, and particularly the management of how and when the Beatles name was used in association with a product, made the band a huge commercial success.

After Epstein's death in 1967, many believe the band started on the road towards their break-up fueled by disagreements on management and financial issues. One way in which the financial stress of the Beatles was magnified was by the existing tax system. Quoting Finkeslstein (who is paraphrasing Tony Bramwell):

Bramwell was friends with all the group, present when Paul met John; he was Brian Epstein’s right-hand man, fixing gigs for Jimi Hendrix and mixing drinks with the Rolling Stones; and was still there when Phil Spector produced Let It Be. In his recent book Magical Mystery Tours (a wonderful insider memoir) Bramwell argues that it was penal tax rates that helped to destroy the group’s cohesion.

First told to give away vast amounts to avoid tax bills — which they did in a series of madcap ventures, offering money to any old person who dropped by with a demo tape — then told they had to make £120,000 in order to keep just £10,000. Soon their finances were in chaos and their energy sapped, as nutters beseiged Apple HQ pressing tapes on them. They also ran a clothes shop as a tax dodge.

Bramwell blames Harold Wilson, the Prime Minister, directly. “There were enough new regulations and red tape to tie up free enterprise for years ... One minute Swinging London was like a giant theme park, the envy of the world, then they — Wilson and his gang — closed it down. It was as if they went out and stamped on it.”

The following video provides a re-enactment (sort of) of Bramwell's account of the band

For the record, and given my last post, I'm not a Beatles fan.

The Economic History of Acting Black (?)

Roland Fryer and David Austen-Smith have a very intriguing article entitled "An Economic Analysis of Acting White" (QJE, 2005). In the article, they document the tension between signaling to the job market and signaling to peers. The simple story is that, for example, you may feel ostracized by peers for doing well on an exam even though this type of good performance may help you in the labor market down the road. When I was in high school, this was an important phenomenon which kept a lot of talented people from doing their best. (My high school had, in my opinion, a very low graduation rate.)

I'm currently reading Elijah Wald's How the Beatles Destroyed Rock and Roll. Wald documents American of popular music in the U.S. (I haven't got to the part where the Beatles wreck things.)

During the ragtime period (ranging from the 1880's through the 1920's depending on what source you look at) composers like Scott Joplin and Kerry Mills wrote dance music that became the foundation of many social dances of the period. This was also an important time for immigration to the U.S. and presented many moves by immigrants to assimilate into American culture. Since European immigrants were coming from a culture that emphasized folk music/dances and had less in common with the white upperclass in the U.S., acting black became a means for new immigrants to fit in socially and become parts of the communities in which they lived. Citing Wald,
Acting black became an ethnic lever, a way for Jews, Irish, and Central and Southern Europeans to assimilate into the white mainstream. (p. 30)

Friday, September 11, 2009

Understanding Neuroeconomics

A friend of mine forwarded me the following video. It features Colin Camerer and Steven Quartz of CalTech explaining the methods and implications of neuroeconomics for our understanding of the emotions, risk taking behavior and our understanding of markets.

Tuesday, September 8, 2009

Latest Salary Information by Major

Here's the latest data from on the salaries by major. In the ranking on their page, economics ranks 5th (out of 75, behind the engineering degrees). English (my brother's major) ranks 47th. The business degrees (international business and business administration) rank 28th and 35th.

Annual pay for Bachelors graduates without higher degrees. Typical starting graduates have 2 years of experience; mid-career have 15 years. See full methodology for more.

Friday, September 4, 2009

Krugman on the desperate state of macro

Paul Krugman has a lengthy article in the NYTimes explaining "what went wrong" with macroeconomics. "As I see it, the economics profession went astray because economists, as a group, mistook beauty, clad in impressive-looking mathematics, for truth." Obviously, he has decided that the approval of his academic colleagues isn't important to him anymore... Any views from the macroeconomists among us?

Thursday, September 3, 2009

A little humor as classes are set to begin

Classes start next Tuesday. My wife has this comic hanging on our 'fridge.

Tuesday, September 1, 2009

The Ultimate Veblen Good

Curtis Eaton (here), myself, (here and here) and many others have written on Veblen goods: goods that are valued largely as symbols of social status. Perhaps this is the ultimate Veblen good:
Los Angeles Times (Aug 25, 2009): It was a day of ups and downs when the online bidding ended Monday for the crypt above Marilyn Monroe.
Elsie Poncher, whose husband Richard Poncher is entombed in the crypt at Pierce Brothers Westwood Village Memorial Park, said she wanted to sell it to pay off the more than $1-million mortgage on her Beverly Hills home.
A bidder from Japan appeared to be the winner of the EBay auction, with an offer of $4,602,100 -- $100 more than the next highest bid.
In addition to being above Marilyn Monroe, it was once owned by Joe DiMaggio and the tomb next to it is owned by Hugh Hefner. My favorite quote from the article:
Elsie Poncher, who is in her 70s, plans to move her husband's remains to the crypt designated for her, and when the time comes, she'll be cremated. She said that when her husband was dying, he made a request. "He said, 'If I croak, if you don't put me upside down over Marilyn, I'll haunt you the rest of my life.' "