Pick Up Lines for Economists

I like to prepare for worst-case scenarios. For example, let’s say you’re in an economics class and just happen to sit next to a very attractive female. And that she’s an aspiring economist. Let’s say this class is Introduction to Econometrics and that this fine specimen of a female is hanging on the professor’s every word. You know that you’re sitting next to the next Marianne Bertrand or Caroline Hoxby or another bad-ass economist that can’t use the mens bathroom.

Let’s use some simplified game theory, you have 3 options:

1. Say something normal. She will look at you, do a cost-benefit analysis of engaging in conversation with you, decide that she’d rather read her econ textbook which will maximize her PVLR and she terminates your conversation.

2. Choke and say nothing. You have already lost this game.

3. Use a witty pick up line that will appeal to her inner economist. You can only win her heart if you first win over her mind. But do you know any such pick-up lines? Probably not, thats why we prepare for such scenarios.

Here are 10 pick up lines to help you win over a budding economist:

10. I wish I could be your derivative so that I could lie tangent to your curves
9. Lets play a game where going out with me is the dominant strategy
8. I can stimulate you with my package
7. How can I lower your barriers to entry?
6. Your presence is one big positive externality
5. C’mon, it’s getting late, and we both know I’m your lender of last resort
4. I’m a pure public good…you can free-ride on me any time you want
3. You have a boyfriend? That’s ok. My girlfriend and I are into credit-swapping
2. I couldn’t help but notice your monetary base. Do you let a guy get to M3 on a first date?
1. I think you and me would have great potential output

(Note 1: Some of these are actually very suggestive, I recommend you use them wisely)

(Note 2: If you have any others, add them as a comment below!)

(Note 3: some of these lines were found on the internet)

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La Liga on top – Claims Refuted

I’m one of the many people around the world that check the SkySports football website multiple times a day. One of my favorite columns to read is that from Guillem Balague who is an expert on the La Liga. Like every week, I was delighted to see he had a new post – however some of the claims in this weeks post were worrisome. Now I don’t claim to know soccer as well as Guillem, after having taken one too many classes on applications of econometrics, I think I can spot some misleading statistics. Here is my 2 cents on why the stats he cites are misleading:

And to read the original article, check it out at:

http://www.skysports.com/opinion/story/0,25212,12087_6563395,00.html
Claim 1: La Liga is a more open league.

He cited for the last 6 years either Chelsea or ManU in the EPL or Barca or Real has won their respective leagues which suggests that both leagues are just as competitive. A better measure would be to calculate the variance between the league positions for both teams – I just did and its the same. This doesn’t mean he’s right though. If we were to calculate the variance for the top 6 teams for the last 6 years in both leagues, its much smaller in the EPL. He claimed the average points difference between the top 6 is closer, that doesn’t matter because it could be more skewed in La Liga (ie. the top two are close as are the next 4, but the difference between 2nd and 3rd could be 15 points – we should read the variance for better measure)

Claim 2: La Liga has no easy games

He cited the point difference between the top and bottom teams – but there is an endogeneity bias in this statistic, what if the top teams in La Liga know their final positions in the league several games in advance and hence field easier sides that lose points against weaker teams? What if the bottom teams do in fact play weaker sides against the top 2 in La Liga but are more likely to win their following games having rested their top players and hence the middle of the table is more densely populated – whereas in England bottom teams play their top players each weak who tire out faster and perform worse which leads a greater points game.

The statistic to support this claim does very little, we need to analyze the distribution and see what players actually play against top teams to understand this better.

Claim 3: La Liga has the best players

He says “judging by the 23-man shortlist for the Ballon D’Or, La Liga wins hands down. The Spanish competition had 11 Ballon d’or nominees out of 23, while the Bundesliga (five) and Serie A (four). The Premier League had three. And now that the winners have been announced, all three play for FC Barcelona.”

This one is probably the easiest to refute. No shit La Liga has the most nominees, its because Spain won the World Cup! Had England or Italy won it we would have had an entirely different story. Winning the World Cup does reflect on good players, but that is one of several elements. The fact that half of Barca’s first team played for Spain could suggest that Barca just have the best players, but I think what is more telling is the fact that they played together all year (as did Real Madrids’ Spanish players) and developed team chemistry over the years which was put to use at the World Cup. So its circular logic, better team chemistry (in addition to talent) among players wins the World Cup, and winning the World Cup makes Barca seem like a better team and their players as individually more talented. Obviously Barca is a great team – but please don’t underestimate these other variables.

Also if we are just going on Ballon D’Or nominations, at least present to us which countries have had the most nominations over a larger period of time – such as the last 10 years. And then please realize that teams that there is a spotlight bias – that is players in less competitive leagues are very visibly more talented than equally talented players in more competitive leagues.

Claim 4: The EPL has more money than La Liga (and yet it isn’t as good)

This was a more subtle claim as he tried to argue that La Liga has developed the best players instead of bought them, he said: “No doubt some will respond by stating that all of this proves that La Liga simply throws money at attracting the biggest players in the game.” And then went on to say that they hadn’t bought them.

If you disregard Real Madrid whose Galactico Policy had buying expensive players at its essence, I can agree with this – I think if you take down total amount paid in wages and transfers for all the teams in La Liga and the Premier League you would get the right answer. My gut says its probably the EPL teams that spend more.

Additionally I think the tangent claim that he has made over his last few posts about players from Barcelona’s Youth Academy has to be seen with respect to its selection bias. Yes I’m sure its a great academy that is great for development, but they also attract the best young players. I doubt that their academy can take some random child off the streets of Equatorial Guinea and turn him into the next Ronaldhino – though I’m sure he’d still be a lot better than if he were to continue to play street soccer. Also note that they recruit good young players from all over the world very heavily, where do you think Argentinian Messi and the Mexican Dos Santos brothers came from.

Claim 5: La Liga is more entertaining

He specifically said “Well, quite how you measure excitement is impossible to define; but if it’s in terms of goals scored, again, La Liga just about comes out on top over that same six year period.”

I quite agree with his framework here, excitement is an unobservable factor, and also one that varies greatly from person to person. So he used an observable variable, that is number of goals scored, which is correlated with excitement and so is a decent measure of it. However, I would say that just one measure is too simplistic of an analysis to measure excitement. Goals certainly have a strong correlation with excitement, but so do rivalries, derbies, importance of matches, clashes between players, etc. These all should be in some way analyzed to be able to come to a more holistic understanding of which games are more exciting. And then perhaps fuse that with some more economic measurements of excitement such as the percentage of stadiums that are filled, average stadium size relative to local population, how much spectators pay for seats in the stadium etc.

On a last note, Guillem seem to imply towards the end of the article that Jose Mourinho wanted matches to be more exciting, but that was a very weak point if that is indeed what he was trying to say.

Not that I know better than Guillem, I just don’t buy his arguments. He said at the beginning: “if you’re going to disagree with me, you’re going to have to avoid churning out the same old clichés!”

I don’t disagree with the argument that led to his post (the principal claim was that Barcelona are one of the top 3 teams throughout history), I do think that Barcelona are currently the best team in the world, and possibly one of the top 3 teams of all time (but not because I have quantified it, but because I know very little about the great teams throughout history). But I don’t buy the majority (if any) of the claims he made in his most recent blog post. And without some good analysis, I implore you to do the same.

The joyless or the jobless

Great article from the economist at:
http://www.economist.com/node/17578888?story_id=17578888

Here’s the first paragraph as a preview:
IN 2006 Richard Layard, an economist at the London School of Economics, argued that unhappiness was a bigger social problem in Britain than unemployment. In the “Depression Report”, which he co-wrote, Lord Layard pointed out that more people were claiming incapacity benefits because of depression and other mental disorders than were on the dole.

Listening to Doug Bernheim, he pointed out that there is a big problem with asking hypothetical questions like below:
“three economists from Cornell University, and Miles Kimball of the University of Michigan. They persuaded hundreds of people to answer conundrums such as: would you rather earn $80,000 a year and sleep 7.5 hours a night, or $140,000 a year with six hours’ sleep a night?”

The reporting bias in such questions is very high and people’s behavior is very different from their answers in many cases because. The reason is that they can fill in the hypothetical answer in any way they want and simplify it to an Option A or B answer for the interviewer.

I agree with Bernheim for the most part, but I think there is a weak correlation with such surveys and behavior, especially given they answered what they would actually do.

Leads me to 2 thoughts:
1. Either conformity bias is ridiculously high – people get high paying jobs because everyone else says more money is good
2. Or Utility and happiness are qualitatively two different things. Utility is more like excitement, like a sniff of cocaine, and happiness is not simply long term utility but something we haven’t quite specified in a model. Need to study some Buddhist monks to understand more about the economics of that sort of happiness.

Bad Carrots: Incentive Structures for Governments

Levitt and Dubner revealed in Superfreakonomics the hidden theme of their first book, that people respond to incentives. I’d say that it’s a principle of economics that people respond to incentives in order to maximize their utility, the twist Levitt and Dubner put on this principle was to include social and moral incentives in addition to the common financial incentives.

Gary Becker is one of my favorite economists of all time because he also understood this and applied these principles of economics to varying topics such as crime and marriage and demonstrated how important incentive structures really are in governing behavior. Economists have known this for quite a while, and have also recognized structures with perverse incentives, yet have failed begin to correcting many of them.  — On a side note I think a lot of academics quite wrongfully refrain from actively promoting their scholarship. For years the World Bank used the Harrod-Domar model to assign foreign aid when we knew the model was fundamentally flawed. This is why I commend people like Jeff Sachs, Dick Thaler, Dambisa Moyo etc, who might not have the right answers, but challenge the status quo and will eventually lead to better decision making because they questions the underlying assumptions of our current practices and policies.

But back to the previously scheduled blog post:

African government structures have a very bad incentive system in place. The lack of strong law enforcement, transparency and accountability of the government have led to several government officials embezzling national resources and trying to acquire power and wealth instead of focusing on the development of the country. There is a moral hazard when it comes to obtaining power: greedy citizens seek government posts because they know it can make them wealthy and you have the wrong people trying to claim power. I can speak on behalf of Tanzania, who have had former Prime Minister Edward Lowassa resign due to him being caught in a scandal, and former President Mkapa who was accused of amassing incredible amounts of wealth during his presidency. I’m not the best person to tell you what’s what, but I wouldn’t be surprised if most African leaders have used their power to enhance their personal fortunes – ask Mohammad Ibrahim who failed to give a prize for African Leadership last time around.

African Dictators

Good governance has become a buzz word in UN circles and is claimed to be the reason for a lot of growth for African nations. Given the moral hazard of rising to power in Africa, how can we re-engineer the incentive structures to improve governance?

Heres a thought: what if we were to use aid to pay governments. Instead of the World Bank assigning it based on need and project financing, aid could just be a reward for good governance. Obviously there are a lot of problems with that and it gives a significant amount of power to developed nations – but what if they gave all the money to the African Union who was to distribute it based on government performance? Would that enforce good governance (and also reduce the World Bank meddling with policies set by governments)?

What if governments were engineered in such a way that presidents didn’t have to earn a salary but instead were paid directly by the tax payers. That definitely wouldn’t stop leaders from misappropriating national resources, but it incentivizes them to work for the people. If a certain amount of every citizens’ taxes were allocated just to pay a political leader, they could choose whether to pay the president, their local MP, or an opposition leader based on the work that was being done for them. And to add a further twist, lets say the president or the prime minister of a country failed to ‘earn’ a certain threshold from the people, they would be ‘fired’ from their post – as if the president is the CEO of the country and each (tax-paying) citizen is a shareholder.

This sort of system has problems of its own for example: if presidents are fired too often it could cause instability. Or only political leaders with a lot of money to advertise their impact would get paid and not those who did a lot of work but were to busy to parade their accomplishments.

I don’t claim these are good or even feasible ideas. Just thoughts that have the potential of reforming the way current incentives play out. And that’s really what modern-day economists and policy makers should be questioning. How can we rethink our incentive systems and redesign them to get desired results? And this can be on a smaller level than trying to tackle the problem of top-level governance. How do we make sure the local village deputy isn’t misappropriating funds for the village clinic? How can we keep a local NGO accountable to spend foreign donations just on malaria eradication schemes and not on a new bicycles for their kids?

These carrot problems don’t exist as much in the West. But if most African governments could establish and enforce a rule of law like the West, maybe us African economists wouldn’t be so concerned with carrot problems either.

In Search of Meaning: The Finite Game of Life

Is life really a finite game?

Think about it. You work hard in high school to go to a premier college. If you’re lucky and end up at Stanford, so far you’re doing well since you’ve landed yourself at the best university in the world. Now you’ve got to work hard and try to get the best job, or get into the best graduate program. And from there on you’ll have to work even harder to have the best career, most expensive car, mansions etc.

Is it all a game, where the objective is to have the most “successful” life?

And who are your competitors? Your peers, the ones who go to high school with you, your college friends, your co-workers.

What may be the saddest part is that we know we can’t win such a game. It’s very unlikely that one of us will be the next Bill Gates or King of Saudi Arabia or whoever else you think has won it. Instead we are competing to have the highest rank compared to our competitors. So when you’re 50 and you meet someone who went to college with you, in the back of your mind you’re likely to be calculating who’s more “successful” so far.

That is the sadness of such a finite game. And anyone who tells you they aren’t after the money is still just as bad. Groups of people (that compete with each other) set their own rules and objectives on how to measure success. If you work in the non-profit world this may be who has the highest rank within a certain organization, or the amount of money you’ve spent on programs or the number of lives you’ve “changed.”

What about a religious perspective? Doesn’t religion define life as a ‘test’? And at the end the number of good deeds less the bad deeds in your life will be tallied up and that will decide whether you ‘win’ the game and go to heaven or ‘lose’ the game and go to hell.

If only life were an infinite game. And not in the economic sense, not to try to win at each stage in the game (because then life is a somewhat infinite game with each stage such as going to college, getting a job etc are all finite games within the infinite game). No, instead if only life were an infinite game with a horizon over the history of the universe. So your actions in this lifetime will have reverberating effects for those that come after you, and after them until our species evolves and the sun explodes. And even after that. So that there was no ‘judgment day’ and that whatever you do in this lifetime is somewhat meaningless in a finite game, but has significant implications for an infinite game.

Such a paradigm is more relaxing, because it changes our objectives from trying to just win the game to a higher order of living. The positive energy and impact in our lives is our contribution to the universe. And the optimum solution then becomes to produce as much of this ‘positive energy’ or whatever else will remain after us whether that be knowledge, art, experience for others. Such a life sounds more noble than the former.

Pain for Gain? Should work make us unhappy?

Going back my Econ 52 days (Advanced Macro taught by Pete Klenow) – we’d have a standard utility function for people. In summary the function implied that working was painful for humans and that leisure is what we prized – and that we worked at the level when the marginal pain from working was equal to the marginal gain from leisure.

I guess it makes a lot of sense from an econ point of view especially when we are solving equations – but its kinds of sad to think that our job which might consume anywhere from 60-100 hours of our week doesn’t really give us pleasure.

But when you think of people who have found ‘their calling in life.’ Do they also experience marginal pain for each hour worked? Maybe they enjoy the first 30 hours and then they’d rather be doing something else for the next 30. Who knows.

But as a thought experiment, think about having a job that you truly loved doing and were willing to devote yourself to. It could have positive diminishing marginal utility so you would stop working when the last hour worked was as pleasurable as an extra hour relaxing. But wouldn’t that have a serious implication for our general happiness?

Like anything else that gives us pleasure, such work would also have diminishing returns. And you would only stop working when the last hour worked gave you as much pleasure as other things such as working out, eating, sleeping, spending some quality time with your friends etc.

So even if your work made you happy (had a positive but diminishing marginal utility), you’d never work for all 168 hours in a week. But in general that would make you a lot happier over your lifetime than a job which gave you negative marginal utility – but that’s just intuitive.

Any thoughts, criticisms, comments on the topic are welcomed.

This is also another pondering on utility, the first edition is at: https://uchumist.wordpress.com/2010/06/17/ponderings-on-utility/

The Mexican Drug Lord Oligopoly makes for an interesting problem

As my undergraduate career furthers I find my classes asking similar questions:

  • How do we maximize profits?
  • How to we capture consumer surplus?
  • How do we maximize welfare?
  • How do we minimize externalities?
  • How do we design the market so it is pareto efficient?

But here is a problem that no-one ever asks. How do we destroy a market?

Last winter break I was choosing a relaxing vacation spot that wouldn’t break the bank. Given the geographic proximity, Mexico was on my list. Thats until I brought it up with one of my aunts (and by aunt I mean my parents’ friend who is a woman – it’s an Indian thing to do). She’s a travel agent and told me about the perils of visiting Mexico. So I put it off for a later date in life.

Living in the Global Citizenship theme part of Crothers Memorial (our dorm), I was able to learn a bit about the Mexican drug trade from one of my residents. Turns out it really is as bad as I was told. Too many people are involved and it’s too unsafe for visitors to enter that region and its also very unsafe for people who have lived for generations in the areas where the drug lords are centered. Lots of lives have been lost and more than that a sense of safety has also been lost. I’m sure this is a very complicated problem, but this is my understanding based off a conversation I had:

There is a demand for drugs from the US (I actually can’t even say with certainty which drug, though I would guess it would be cocaine). And Mexican drug lords are willing to supply it because the revenue from the drugs is much higher than all associated costs.

Here are a few costs for the drug lords:

  • Its illegal, so they incur some cost by hiding or bribing or threatening law enforcers
  • There is competition in the market, and this is brutal competition in the sense that drug lords could be losing friends, colleagues and family due to the internal war
  • There is also the marginal cost of producing the drug
  • I guess there is also a cost associated with distribution to the US – ie. hiring drug mules or whatever method they use
  • I’m sure there are many more that I can’t think of given my primitive understanding

There are lots of externalities associated with the market that the drug lords are obviously not paying for:

  • Loss of civilian life
  • Destruction of the legal system
  • Loss of a sense of security in surrounding areas
  • Loss of GDP due to the fewer number of tourists (and I’m sure GDP has been hurt due to several other reasons)

It’s impossible for the government to even try to get the drug lords to pay for their externalities and solve the ‘market failure’. And even if it were logistically possible, I think the externalities are too high that no single price would justify the functioning of such a market.

So here is where the economists come in. How do you destroy such a market? The obvious framework to look at is do both a demand and a supply analysis.

From the supply side – it seems that if we were to increase the costs so much that few drug lords would participate in the market seems reasonable, but how do you do this? The costs associated with the loss of life within the organization and within their personal lives doesn’t seem to do anything for the drug lords. The government can’t do too much to curtail this illegal activity. Perhaps they could raise prices for goods such as fuel and ammunition (or whatever the drug lords use in production) to a point where the costs are too high, but then that has too many implication for civilians who are unfairly victims of such policy. Conversely one may think of increasing supply in the US to lower the prices for drugs – though this obviously wouldn’t fly.

What about the demand side? How do you get Americans to demand fewer drugs. I doubt educating intoxicated drug users will have a great impact. Though it would be interesting to see what the equivalent of fair trade drugs would look like. Perhaps set up more rehab centers? Or get cocaine users to switch to other drugs – though this again is not feasible.

I don’t have a good answer for how to destroy this market. If you do, send it to the appropriate authority, I’m sure they will reward you in some way.