LOLFed... Wow. Just Wow.

Friday, February 26, 2010

So I was reading Jodi Beggs' blog when I came across a post about LOLFed. If you don't get what this is, either stop failing at life or go look up what LOLCats is all about :P

Anyways, check the site out. I'll be adding it to the quick links bar on the left there. I'll also post a few of my favorite ones :)

LOLFed  (Note: Uber-Nerds only)




Destined for Econ?

Wednesday, February 24, 2010

In a recent interview with Greg Mankiw (full interview here: Mankiw Interview), Mankiw describes his reasons for becoming an economist. I found it interesting that his description is almost a completely accurate description of my academic interests. I won't lie; it was kind of creepy. Here's the excerpt:

"WellesleyWeston Magazine: You have had a remarkable career both in the public and private sector. What is it about economics that piqued your interest? 

Greg Mankiw: I first became interested in economics during my freshman year at Princeton. One of my friends was taking a microeconomics class; I started reading her textbook and found that I like economics, a lot. In many ways I am a prototypical economist. Economists share a couple of characteristics: they tend to be naturally better in math and science—economics is fairly quantitative—and they are generally more interested in public policy and social issues than in the substance of science. I have always been interested in politics—dinner conversation in my home often centered on what was happening locally and in Washington. But politics by itself seemed vague, random, and subjective. Economics appealed to me because it brought an analytic perspective to social policy questions."

A System Without Incentives Pt. 2

Tuesday, February 23, 2010

In my post a few days ago, I detailed one of the reasons for senioritis, chiefly that the GPA scale is based on a 4.0 scale, and that there is no difference between a 90% and a 99%. As if to add insult to injury, most of my teachers...

2. Give assignments that are not graded, but checked for completion (credit-based).

Before I go into a criticism of the checked-for-completion homework system, I'd like to give an example of a teacher who has it right. My junior year pre-calculus teacher knew how to work the system. He would give us our homework just as any other teacher does, but he would check eight random problems that we did. Not only that, he would grade our homework out of five (aka a lot of extra credit).

If we examine this system a bit, it becomes clear what is missing from the traditional credit-based system. Not only does it encourage sloppy work, it doesn't even encourage one to do his own work. Assume that I am a rationally thinking student thinking to maximize the value of my resources (time). Because the work is credit based, I will choose to do a poor job while spending little time rather than doing superb work that takes much time. The simple reason for this is that there is no difference between quality work and garbage work in a credit-based homework system. Why waste the extra resources when they contribute to nothing? By the same token, why even do your own work? Because copying homework poses a very small risk of getting caught in a credit-based system (as, by definition, the teacher is not closely checking the work;otherwise it would be graded), a rational individual who truly wishes to maximize his returns on his limited resources will choose to copy someone else' homework.

I understand the teacher's rationale for using a credit-based homework system: it's simply too convenient. With little to no work, the teacher can get his students to do work with minimal checking. However, they may not realize the perverse incentives system it creates. For maximum effect, may I suggest trying my pre-calculus teacher's method? I am in no way suggesting that it is perfect; grading eight problems and putting it out of five created large amounts of extra credit that brought out the worst of the GPA issue I discussed in my earlier post. However, such a system is indeed much more efficient at achieving the ultimate goal: to get students to quality homework.

I, of course, am no where near rational or amoral enough to cheat, but I have found myself spending less and less time doing worse and worse work. I believe this post explains the reasons for this.

If I began with an example of an exemplary teacher, I'd like to end with a not-so-exemplary one. The following teacher taught me a certain social studies related class, and I will never forget the work (or rather the lack of it) that I did in that class. All of the homework that we did was tracked by pages and lines. For example, we would have to take a page of notes, write a three line answer, or answer the question in a paragraph. You get the point. The result? Every student in the class had a wide ruled notebook, wrote in gigantic handwriting, and finished sentences on the beginning of a line.

Incentives matter. Q.E.D.  

A System Without Incentives

Saturday, February 20, 2010

Even senioritis can be explained by economics. I was sitting at home the other day, trying to focus on my calculus homework, when I realized that I simply had no motivation to continue. Unable to concentrate, my mind drifted and began thinking about the cause of my lack of motivation. Below are my conclusions. I will present my thoughts over the course of my next few blog posts. 

1. The GPA system at our school does not incentivize me to go beyond what's minimally required.

For the unaware, our school awards a 4.0 for an A in any class (90%-100%). Let's assume, for a minute, that the grade you get in a class is directly proportional to the time you invest into it and that you can predict perfectly the time you need to spend to get a certain grade (aka perfect information). In this case, why would any student invest more than the minimally required time to get a 4.0? They wouldn't.

However, seeing as perfect information is not available in real life (though I would argue that our first assumption holds true in general), people invest extra time to get higher grades purely as a measure of insurance. For example, not knowing how hard the final will be, you study more than what is necessary to get a 90%. As such, we can analyze the market for grades using insurance analysis (substituting price for time and grade for output). Saving the mathematical analysis for a later date, I'll simply note that the most important thing to keep in mind is that most people are risk adverse and tend to prefer at least some degree of insurance. This is more or less due to the fact that marginally, a very small increase in the number of hours invested can yield a very large increase in GPA (for example, the GPA difference between an 89% and a 90% is an entire point, but it may only take a few extra minutes of studying to achieve that 1% increase).

But even with this in mind, it's important to note that there is virtually no difference between a 98% and a 90%. I realize now that the later on into the year I go, the less my high school grades actually matter. As a result, I've become more risk tolerant because the potential downfall from a negative outcome (getting a low grade) has become significantly less.

School systems realize this perverse incentives system and many have taken the necessary steps to remedy it. Many schools now operate based on a 100 point scale, directly scaled to a student's percentage score. This system, in my opinion, is much better for motivating a student to achieve to his fullest, as the amount of time you invest will now be correctly reflected in your GPA.

Now That's Service!

Monday, February 15, 2010

We've been having some serious internet issues as of late, with our internet switching on and off repeatedly for the last 3-4 days. I, being the computer junkie that I am, thought that I could fix it myself. As it turns out, I couldn't (not really my fault though, turned out the issue was with a virus on our laptop that was jamming our wireless signal).

Exasperated, I finally gave our ISP a call (undoubtedly with a hint of annoyance in my voice). Throughout the course of my conversation with the ISP representative, I happened to mention that I was so upset that I would be switching ISPs. Lo and behold, three hours later, there was a technician at my door, chirp and eager to fix the problem.

Though the technician wasn't able to fix the issue (we had to call my dad's IT friend), the little episode is demonstrative of a principal of private enterprises: they seek profits. The lady on the phone was so concerned about losing a customer that she made an exception and sent a technician to our house on the same day I made my complaint.

As for me, I'll be switching to another ISP. I wouldn't want to reward failure.

Hopefully AT&T will have better internet technicians.

Graphical Analysis of the Fed Balance Sheet

Friday, February 12, 2010

I was reading Ben Bernanke's speech a couple of days ago (you can read it here: Fed's Exit Strategy) and I really began to wonder what the Federal Reserve's balance sheet looked like. Well, here it is... kind of.

The breakdown of the assets are posted below in two graphics. It doesn't show the Fed's liabilities, but those are straight-forward enough (i.e. money deposited to banks).

I would have just posted the table, but that's not as fun as looking at these and trying to figure them out :)





NOTE: Click to enlarge

Sex Ratios on College Campuses

Wednesday, February 10, 2010

A couple of very interesting reads from Marginal Revolution:

Supply and Demand
Revisiting the Marriage Market

The following passage I found especially interesting. It proposes a overly-simplified, albeit very concise and powerful model about how the "marriage market." Pair this with the unequal sex ratios of college campuses, and you can have some interesting results. I'll have to keep this in mind in selecting a college...

"Imagine... a marriage supermarket.  In this supermarket any man and woman who pair up get $100 to split between them.  Suppose 20 men and 20 women show up at the supermarket, it's pretty clear that all the men and women will pair up and split the $100 gain about equally, $50,$50.  Now imagine that the sex ratio changes to 19 men and 20 women.  Surprisingly, a tiny change in the ratio has a big effect on the outcome.
Imagine that 19 men and women have paired up splitting the gains $50:$50 but leaving one woman with neither a spouse nor any gain.  Being rational this unmatched woman is unlikely to accede to being left with nothing and will instead muscle in on an existing pairing offering the man say a $60:$40 split.  The man being rational will accept but this still leaves one women unpaired and she will now counter-offer $70:$30.  And so it goes.
If you follow through on the logic it becomes clear that in the final equilibrium no married (paired) woman can be significantly better off than the unmarried woman (otherwise the unmarried woman would have an incentive to muscle in with a better deal) and so because the unmarried woman gets nothing the married women can't get much more nothing.  Thus when the sex ratio is 20:20 the split is $50:$50 and when the sex ratio is 19:20 the split is more like to $99:$1 in favor of the men.
 The key simplification of the marriage supermarket is that the next best option to marriage (pairing) is worth $0--thus there is a long way to fall from the equal sex ratio equilibrium of $50.  If the outside option is worth more then changes in the sex ratio will have smaller effects.  Nevertheless, the logic of the marriage supermarket explains why a relatively small change in the sex ratio can lead to a large change in sexual and other mores affecting the marriage equilibrium."

Economics of a Super Bowl Ad

Sunday, February 7, 2010

So I've been doing some reading on prices of Super Bowl ads. These two were the most interesting:

Super Bowl Ad Prices Drop
Stock Price Correlated to Likeability of Super Bowl Ads


So evidently, even the market for Super Bowl ads has been hit by the economic downturn. But why are prices this high anyways? According to the article, the average price for a 30 second ad during the Super Bowl is $2.5 million. The average price for non-Super Bowl ads is around $350,000. In other words, the price you pay for a Super Bowl ad is around 7.14 times what you pay for a normal TV ad.

Now let's consider the issue from a viewership standpoint. According to the above article, the expected viewership for today's Super Bowl is around 100 million people. Now, let's look at figures for something comparable. According to Nelsons Rating data for the week ending January 31st, the top viewed program was the "NFL 2010 AFC-NFC PRO BOWL," generating 12.3 million viewers (this is way above viewership for the State of the Union, by the way, which generated a paltry 5.7 million viewers). If we analyze the viewership data, we find that viewership for the Super Bowl is approximately 8.13 times that of a normal, highly watched football game. 

An even more convincing relationship shows if we analyze the issue from the perspective of advertising dollars per viewer. From the Super Bowl data, the price would be around 2.5 cents per viewer. For the non-Super Bowl data, the price is around 2.8 cents per viewer. 

Keeping in mind that some people (like me) watch the Super Bowl purely for the commercials, and it's safe to say that buying 30 seconds on the Super Bowl can even be a good deal. Rather than being overpriced, the price of 30 seconds for a Super Bowl ad is pretty much the same if we consider it from a per viewer basis instead of a per time basis.

The second article is really just a reminder that investment ideas come from the strangest places. If you see any great commercials, don't forget about the company behind the commercials (I will personally be keeping an eye on Godaddy.com).

It just goes to show that economics can be found everywhere.

Merle Hazard (HAHA GET IT???) at the AEA Humor Session

Friday, February 5, 2010

I'll let you draw your own conclusions from this one...

Jodi Beggs at the AEA Humor Session

I've been looking for some videos of the AEA Humor Session (a whole session of economics humor? Yes please). This is what I've found so far, but I'll post more as I find it.

For the unaware, Jodi Beggs is the Harvard trained economist who is in charge of the "Economists Do It With Models" blog. You can access her blog from the left hand "quick links" bar. She also has video lectures online for introductory economics. If you're in an econ class right now and need some quick resources, go on youtube and look up "jodiecongirl"

The videos I found quite entertaining, if you're into this kind of humor. And yes, she uses a comic from xkcd in the third video, which completely made my day.





At This Rate, We May Never See the Ipad

Wednesday, February 3, 2010

Courtesy of xkcd.

How Much Money Does a Buffet Make?

Tuesday, February 2, 2010

I was talking with my friend the other day and we got into a discussion about buffets (yeah, like the restaurant). Supposedly, a local buffet had raised its prices to $15 per person. I remembered going to that same restaurant few years ago, when prices were only around $10 per person. I'm sure there has been inflation since then, but a 50% increase in prices is a bit drastic.

I thought about the issue a bit after I went home. There were many possibilities to the mysterious price increase: increases in the quality or quantity of food, improvements in the quality of service, or even renovation that improved the general atmosphere of the restaurant. All of these were (and still are) legitimate possibilities. I haven't been to the said restaurant in a few years, so I don't really know if these factors have changed. This, therefore, adds some significant confounding variables to this analysis, which makes my idea somewhat akin to pure speculation (aka don't use it for your next research paper).

Still, the idea makes sense both from a logical and economic standpoint.

My idea is that buffets suffer from the problem of adverse selection. The concept is not that difficult to grasp. Taking into account the fact that buffets charge by person and not by item (the very definition of a buffet) and the fact that people have varying food consumption capacities, the problem immediately becomes clear. Assume that the current price for a given buffet is $6. If I can eat $10 worth of food and my friend can only eat $3 worth of food, going to the buffet is then a very bad deal for my friend (a loss of $3). I, however, am getting a net benefit of $4 from going to the buffet. The logical solution is for my friend to stop going to buffets.

This presents a problem for the buffet restaurant. Because it sets its price based on the price it takes to feed the average customer, a decrease in the number of people who don't eat very much will shift this average higher. If the average customer eats more, then the firm must increase its price to keep profits. But if it increases prices, people who originally benefited from the lower price would drop out of the market! (If the price went from $6 to $7, people who benefited at  $6.50 would stop going to buffets).

This is probably why buffets charge different prices for children and adults, in an attempt to price discriminate. This is probably why buffets make overly greasy food and give you giant glasses of water that constantly get refilled. This is probably why McDonald's heats their coffee to super-high temperatures so that the customer never has a chance to refill. This is also probably why movie theaters only allow for refills with the largest sized popcorn. The bottom line is, the less you eat, the more these firms make.

But in the end, how much does a buffet make? The answer is as ambiguous as that of any two armed economist: It depends. If the firm is smart enough to take the price discriminatory and profit generating measures necessary, the answer is probably a decent sum. If it goes into the market with a complete blind eye to the issue of  adverse selection, the results might be more humbling (which might explain why two or three Chinese buffets have failed in our area in the past few years).

So the next time you're at a buffet stuffing yourself full and wondering why prices are so high, just tell yourself to eat less. Get everyone to do it, and prices are sure to fall. You can afford to eat a bit less. That food isn't good for you anyways.