Evolutionary Fitness

If you are serious about getting healthy(espececially for guys), you've got to check out this guy: Art De Vany. I stumbled onto his blog about a year ago and I took some stuff from his preaching but did not follow it strictly, but it's always on the back of mind. Some of my habits, like not having any foods for hours before my workout(my theory is to really purge my body with workout), moderate fasting, bursty high intensity workout, cutdown on aroberics, came from his preaching, but I did not take seriouly his advice on eating. Today there is a link to his blog from MR(for complete different reason, Art is also interested in movie industry) and I spent some time on his website, oh boy it's time worth spending.

He is a retired economics professor at UC Irvine, could that be another reason that I want to get a Ph.D in economics :-) ?

Here is something CCP likes to hear

There are two approaches of getting rich for developing nations:

Institution view: build democratic institutions which will secure property rights and promote rule of law, and investments and growth will follow.

Development view: Let a 'good' dictator promote human and physical capital investment, then democratic institutions will come along when people become more educated and richer.

This paper argues for the latter and backs it up with a lot of econometric analysis:

we conclude the empirical analysis by looking at the timing of human capital accumulation and institutional quality. We find evidence consistent with the example of South Korea, namely that economic growth and human capital accumulation cause institutional improvement, rather than the other way around.

The economic success of East Asia in the post war era, and of China most recently, has been a consequence of good-for-growth dictators, not of institutions constraining them. Indeed,the Chinese example illustrates this point forcefully: there was nothing pre-destined about Deng,one of the best dictators for growth, succeeding Mao, one of the worst.

I tend to be in the same camp of the authors, from that sense I am rooting for CCP even though I know how corrupted it is(but what's the next best alternative? I have to ask myself, and I don't see a good one on the horizon). What I am concerned is that even the 'good' dictators won't go away by themselves, and it's notoriously hard to gauge the tipping point: when will good dictatorship become a drag on economic development? Further more, democratic institutions are not just means for economic development, they are ends too, for that matter when will people decide to sacrifice some economic growth for more political freedom when they can afford it? These are harder questions than the one addressed here.

Here is the original post from Econblog.

A new car or a vacation?

Here is an excerpt from WSJ(Mankiw has a link in his blog):

Think carefully about how you spend your dollars. While a new car may not boost your happiness for long, maybe a trip to Europe would.

"Money itself doesn't make you happy," [Harvard psychology professor Daniel] Gilbert says. "What can make you happy is what you do with it. There's a lot of data that suggests experiences are better than durable goods."

The car might seem like the better purchase, because it has lasting value. But, in fact, it sits in the driveway, slowly deteriorating. "Experiences don't hang around long enough to disappoint you," Prof. Gilbert says. "What you have left are wonderful memories."

This view certainly clicks with me, but I am well aware of that poeple do have quite different indifference curves, thus there is not much sense in saying one is better than the other. However, if the markets are efficient and prices are the right indicators, we might be able to find some validation for Gilbert's claim: the real prices of new cars have been falling and those of vacations have been increasing, in other words, the relative price of cars to vacations is falling, which tells us that more people are choosing vacations over cars.

A big caveat is that I ignore the supply sides in both markets.

Macroeconomics

Mankiw's recent paper Macroeconomists as Scientist and Engineer really puts things into perspective. If you are one of many people who are (rightfully) suspicious of economist's predictions, this paper might give you some insight into why economists(macroeconomists, to be a bit more precise here) can hardly agree on anything and they could be so off the target. But this is not what I want to talk about here, you will get it when you read the paper. Here I just want to make a side point about economics as a discipline.

A non-economist would tend to categorize economics into microeconomics and macroeconomics and assume it's a either-or relationship. That would be quite misleading. A more proper way to look at economics would be that there is the core economics, the so-called neo-classical Marshallian school of thought that is built on the assumed rational behavior of individual economic agents: utility and profit maximization, supply and demand, market efficiency, etc. On top of this foundation(or microfoundation if you like) comes out many applied fields in economics, and macroeconomics is just one of them(at least for the macroeconomics after 1960). Among other applied fields we have labor economics, industrial economics, international economics, financial economics(or finance for short), social economics(Gary Becker is the pioneer in this field), public finance, econometrics, law and economics, welfare economics, etc. Macroeconomists get their disproportionately large share of attention from the public because they are often in the news.

Dell Battery Recall

It's in the news that Dell decided to voluntarily recall 4 million faulty laptop batteries that were sold in the last a few years. The total cost is estimated to be 200 million dollars. It's reported that there were 6 incidents of overheated battery catching fire, causing property damages. That makes me wonder if the recall makes much economic sense.

For the sake of argument, let me assume that the average damage of each incident is $2,000, including the total loss of the laptop plus the damage to the furniture. Let me further assume that there were some unreported incidents or ones being investigated, and the total number of incidents is 40(To make my math easier), which puts the odds of catching fire at 1 in 100,000. Thus the expected liability for each battery is only 2 cents, but the recall would cost Dell $50 for each replacement. Even if I vastly underestimated the odds and/or the damages and I was off by one order or two, still it would be hard to make the case for a recall. Why not Dell just let the victims sue it in the court and let the tort law take care of it? It looks like a no-brainer to me.

Of course the management of Dell is not as stupid as I make them look like: there are a lot other factors they have to consider. For one thing it is a huge PR campaign, the potential loss of sales due to a bad image could well be worth the cost of the recall. Also litigation costs would be far more than the actual damages. And last but not least, the government might step in and demand a mandatory recall if Dell did not act right now. So I would not say it's a bad decision by Dell to spend the 200 million here.

Now given the fact that Dell has to make the recall now, there might be a better and more efficient way of executing the recall if we all can be Coasian. The thing I wonder is what value a Dell laptop owner would put on the replacement, I bet some owners would continue to use the old battery as a backup after they get the replacement since the odds of catching fire is pretty slim. For the sake of argument let me assume that the dollar value a typical Dell customer would put on the replacement is $25, half of what would cost Dell to replace the battery. Hypothetically Dell could negotiate with each affected customer to settle somewhere between $25 and $50 and both parties would be better off. Apparently there are two problems with this approach: the transaction costs will be prohibitively high and customers will not voluntarily reveal their values. But economists have a tool to alleviate those problems: signaling. Dell could give their customers a choice: they can either demand a replacement or get $25 in cash and waive their future rights of litigation. Under this scenario those who value the replacement under $25 would be better off getting the cash compensation and those who value more than $25 would be the same, and at the same time Dell would save some money. From an economist point of view, this solution is Pareto superior to the simple universal recall.

So far I've deliberately withheld a key piece of information to make my argument: it won't cost Dell much for the recall, Sony will pick up the tab since it's Sony that supplied the faulty batteries. In other words, Dell has no incentive to improve the efficiency since it's not paying(#4 of Mankiw's 10 fundamental principles of economics). But I am being stubborn here and posing the same Coasian argument, but this time to the management of Sony: suppose the signaling scheme would cut the total costs of recall to 150 million, Sony could well negotiate with Dell to split the 50 million surpluses, as the result Dell will profit from the recall by 25 million and Sony will save 25 million on the recall. Again both parties are better off and it's Pareto superior to the simple recall.

You still think economiscs is a dismal science?

Decision making -- An engineer's perspective(with the help of psychologists and economists)

I am an engineer by trade and I tend to think this way. I've been wondering why some people are inherently more indecisive than others when confronted with choices. First of all I'd like to state that being indecisive is not a bad thing per se, depending on how you phrase it: most of people would agree that it's a virtue to be prudent and thoughtful. With that said, let me try to lay out my approach of dealing with decisions.

The first question I'd ask is whether you care about the consequence of a decision or not, if not, that's wonderful: just flip a coin and it's taken care of. A good example is where to eat out Friday night, if you just want to have some fun and hang out with your friends, pick a place that is not over crowded and enjoy it.

If you do care about the consequence, here comes my second question: do you know what you really want? In other words, do you have well-established values or preferences? If the answer is no, don't worry, that's quite normal and I've got some suggestion for you: pick the one with your first hunch and stick with it. In the process of acting you will create your own version of reality(and of course your values and preferences) and it's pretty much like a self-fulfilling prophecy: you will make sense out of your actions retrospectively to validate the 'correctness ' of your initial decision. Special thanks to the renowned psychologist Karl Weick for his insight and inspiration into sensemaking.

If the answer is yes to my second question that you know very well that ticks you, here is my final question: are there a lot uncertainties with the decision that you need more information to make a educated guess? If yes, then you are not alone, we all face those difficult decisions from time to time and there are no easy solutions. In most cases you need good information and sound judgments to make a good decision. But still here economists can provide some help with its favorite tool of cost-benefit analysis: it takes time and resources to gather and analyze information, and the research efforts have to warrant the expected benefits of a sound decision. Empirical evidences show that people tend to over research on a trivial decision and under research for important ones, so don't spend too much time over where to shop or how to get coupons to save a few bucks, instead spend more time on who you will fall in love with(based on my own utility function, of course). Further more, we need to strive for plausibility rather than accuracy of information when facing a complex situation(Again credit to Weick).

Finally, I have a condensed version for computer geeks:

IF (you don't care about the consequence)
      THEN Flip a coin
ESLE IF ( you don't know what you want)
      THEN Ask Weick for help
ESLF IF ( You can't see thru the uncertainties )
      THEN Ask an economist for help, and Weick also.
ESLE IF ( Still can't make up your mind )
      Congrats! You could be the President of USA.

Time Management

I intended to have some readings done during the summer break: books I bought a while back but unfinished, books I rushed to the end and would like to read for a second time, and of course some new ones I want to read. But it seems I can hardly find any free time to sit down and read when I am apparently not that busy at all, which prompts me to take a look at my time management, naturally.

I found out that there are three levels of time management, tactical, strategical and philosophical. Most of the time management skills focus on the tactical level: make a list, plan your day, cut off unnecessary communications/distractions, take one step at a time, etc. At next level you should know differences between important things and urgent tasks: always tackle the important things first even thought they might not seem urgent right now, otherwise you would always be in the fire fighting mood.

One of the implied goal of time management at tactical and strategical levels is to be more productive, get more things done with our limited time, or put in a slightly different way, try to cut down the 'unproductive ', play time. For example, we will try to reduce our time of watching a sitcom or playing a video game. However, one has to ask a philosophical question that isn't our goal of life to enjoy ourselves and have a good time? It might be rational to have a sense of control in our life and manage our time in a disciplined fashion, nonetheless we do get most of our satisfications and pleasures from our irrationalities: be it watching TV, playing games, drinking/partying. From that sense we might want to take a second look at why we need time management in the first place.

Commitment

There is a blog on MR about if blogging makes the blogger's life better:

when I know I'm going to blog an experience, I'm committed to making it a positive experience, and since intention and reaction mostly define the quality of an experience, it usually turns out positive.

Taken one step further, it might boil down to the principle of pychological commitment. In Managing with Power, Pfeffer states that one way of influencing other person is to have him/her committed to you. The characteristics of pychological commitment is to have the other person taken voluntary, public and irrevocable actions. Once the commitment is made, his/her subsequent behaviors are bound to it.

In this case, the blogger is committed to himself/herself , and it's more of a voluntary action than a public or irrevocable one. However, if the blogger has established a reputation as a prolific and insightful blogger, his/her commitment might be public as well, even irrevocable to some degree.

My Favorite Blogs

Marginal Revolution : Tylor Cowen and Alex Tabarrok, two Austrian School Economists at GMU.

Greg Mankiw's Blog: Harvard Econ Professor, Bush's ECA chairman 03-05.

Macroblog : David Altig, Adjunt Econ Professor at Univ. of Chiago, VP of Federal Reserve Bank Cleveland.

Econbrowser : James Hamilton of UC San Diego, and Menzie Chinn of Univ. of Wisconsin.

Econlog : Arnold Kling and Bryan Caplan, also two Econ professors at GMU.

Beck-Posner Blog : Gary Beck, Econ professor at Univ. of Chicago, and Richard Posner, a law professor there.

Brad DeLong's Blog : Econ profesosr at UC Berkeley.

Freakonomics : From the authors of the book: Steven Levitt, Chicago Econ professor, and Stephen Dubner, a journalist.

Economist's View : Mark Thoma, an Econ professor at Univ. of Oregon.