Orthodoxy vs. Heterodoxy

Orthodoxy reflects history’s painfully acquired lessons – the sum of what we regard to be true. But not all of it is true. Progress requires identifying errors, which in turn calls for heterodox thinking. But learning becomes difficult when there are long delays between action and consequences, as when we try to regulate the water temperature while in the shower. When reaction times are slow, exploring the heterodox is necessary, but should be done with care. When all orthodoxy is thrown out the window, you get the disaster that was the Chinese Cultural Revolution – and that is today’s Venezuela.

Overdosing on Heterodoxy Can Kill You

Why Intellectuals Hate Capitalism

"...if you think about what really empowers the left to put high living-wage compensation, or minimum wages, or mandates of a bunch of benefits, or additional regulations on the business, it's because they don't think business is "good." They think business exists simply to maximize shareholder value and make profits. So if that's really the motivation for business, if it's not a more inclusive philosophy, then they feel quite justified in hamstringing business. Because they're basically a bunch of psychopaths running around trying to line their own pockets; we can't trust them to do the right thing, so we're going to have to do it for them.

 In a more inclusive view, business has these responsibilities to all its stakeholders, customers, employees, investors, suppliers, and the larger community. If business behaved like that, the impulse to regulate and control would be lessened."

[...]

reason: Do you think we're shifting into a mode of capitalism where the idea of "doing well by doing good" is really starting to come into focus and will start energizing the way people think about business, and for-profits and nonprofits, and how the two may not be so diametrically opposed?

Mackey: I really do. When you asked me the previous question, do I feel resistance from traditional free-marketeers and libertarians? Yeah. Old ones. But as they say, social progress is made one funeral at a time. Young people are eager for these ideas. I've oftentimes gone to business schools and talked about this, and I see the professors with their arms crossed, saying, "This is about shareholder value." But the students, the MBA students, they're lapping it up, because this is exactly what they want to believe. "Yes, I can get rich, and I can do good." That seems like a win-win strategy to them and to me.

Whole Foods CEO John Mackey on entrepreneurship, snobbery, and the minimum wage

A turning point in the history of finance

The debate before and after the publication of the famous Fama/French (1992) paper:

"Whenever a well-established paradigm is questioned, the reaction will be swift and often aggressive. It is no different in the world of academic finance. This is a good thing, as long as the reaction is honest and straightforward. Well-established prior beliefs should not be abandoned unless the contrary evidence is rigorously analyzed and found to be valid."

"The give-and-take that followed Fama/French (1992) represents one of the more interesting strands of the academic finance literature. Many a graduate student found a dissertation topic buried in this debate. One of the nice aspects of this area of inquiry was the fact that most of the important questions could be answered, if the researcher could find the necessary data. The papers that were written in response to the criticisms of Fama/French (1992) have impacted both the practice of finance and the theoretical study of financial economics. Seldom has an area of academic inquiry had so much real-world application."

Explaining Stock Returns: A Literature Survey

Information and Market Economy

GLEN WEYL

University of Chicago; 27

In his famous 1945 article, “The Use of Knowledge in Society,” F. A. Hayek argued that despite their inequity and inefficiency, free markets were necessary in order to allow the incorporation of information held by dispersed individuals into social decisions. No central planner could hope to collect and process all the information necessary for social decisions; only markets allowed and provided the incentives for disaggregated information processing. Yet, increasingly, information technology is leading individuals to delegate their most “private” decisions to automated processing systems. Choices of movies, one of the last realms of taste one would have guessed could be delegated to centralized expertise, are increasingly shaped by services like Netflix’s recommender system. While these information systems are mostly nongovernmental, they are sufficiently centralized that it is increasingly hard to see how dispersed information poses the challenge it once did to centralized planning.

Information technology thus fundamentally challenges the standard foundations of the market economy. For many years to come, economists will increasingly have to struggle with this challenge. Some will harness the power of the data and computational power provided by information technology to provide increasingly precise and accurate prescriptions for economic planning. Others, who value the libertarian tradition that has often been associated with economics, will be forced to articulate other arguments, perhaps based on privacy, that are not susceptible to erosion by the increasing power of centralized computation.

Empirics and Psychology: Eight of the World’s Top Young Economists Discuss Where Their Field Is Going

Extensions to the marshmallow experiment

First of all, if you don't know what the marshmallow experiment is you can find it out on this wikipedia entry or through this hilarious video from Joachim de Posada. For the few who found the topic interesting, I'd recommend you this great article from The New Yorker too (HT to TBP).

That being said, here are some proposed extensions to the marshmallow experiment that I'd love to see (or do) some day. Any new ideas are welcome in the comments.

1. Try different candies!
   I just noted there are two strong underlying assumptions here: i) all kids like marshmallows; ii) all kids like them in the same way. I know is almost impossible to find kids who doesn't like candies, but I'm pretty sure is less improbable to find kids who does not like marshmallows as much as average kids. What if some of the kids "delayed" just because they didn't like that specific candy as much as others do? Couldn't that be a source of bias?
   
   A solution may be to show different candies at first, rank kids' preferences (or even measure them in some way), and then propose the deal. In other words, control for preferences' intensity.
   
   
2. Try more candy!
   This works as a solution to the problem described in 1., but also as a way to see if it's important to care about it. It would be interesting to see what would have happened if all the kids were offered 5 additional marshmallows instead of just one. Or maybe what if some kids had been randomly offered between 1-5 additional ones? Would results hold?
   
   By doing this, we could find if kids' ability to delay gratification depends on how they value the source of gratification. By common sense we would expect that the more they value marshmallows, the less they'll delay eating them; that having less to do with self-control abilities.
   
   
3. Define the level of uncertainty
   I'm not sure if kids were heavily assured they'll have the second marshmallow in the deal. What if some kids thought there was a chance of getting nothing at all if they didn't ate it as soon as they can? Then different levels of risk aversion would have done the rest. ("there might be some trick here... I'd rather play sure!! ...glup!).
   
   
4. Explain, then repeat the experiment
   Try doing the experiment one time, then explaining the kids what they just did and put them on trial again. This time set a longer awaiting time (let's say 25 minutes or even half hour). Would kids learn self-control? Can they?
   
   
5. Not if, but when will they eat it
   It would be fascinating to see some survival analysis techniques applied to answer this question. Among those who ate the marshmallow before the adult comes back, what determines that some ate at minute 1 and some others at minute 14? Would it be the same factors that explain why they finally ate it (or at last the same factors but in the same way?)?
   

Well, that's pretty much it. The new york article blew my mind with more ideas, but I think I'll take a couple of days reflecting about them before putting them here.

Cum hoc ergo propter hoc

Fuente: Correlation

Perfil de Roland Fryer

"He is a scientist, he explains, devoted to squeezing truths from the data, wherever that may lead"

Toward a Unified Theory of Black America, NYT 03/2005

¿Quieren mejores escuelas? contraten mejores Profesores!

Así lo afirma el economista de Harvard Edward Glaeser, en el Op Ed del Boston Globe de hoy.

¿Porqué Estados Unidos se convirtio en la mayor potencia económica del siglo XX?

David Brooks ensaya una respuesta aquí, en base a dos trabajos recientes:

• Goldin, Claudia and Lawrence Katz (2007)
  "The Race between Education and Technology: The Evolution of U.S. Educational Wage Differentials, 1890 to 2005"
  National Bureau of Economic Research. Working Paper Series 12984. March 2007. Disponible aquí.

• James J. Heckman (2008)
  "Schools, Skills, and Synapses"
  National Bureau of Economic Research. Working Paper Series 14064. June 2008. Disponible aquí.

Actualización: El NYT hace un breve pero excelente review del primer trabajo. (visto primero aquí)

Long-term effects of high energy prices

Charles Wheelan, The Naked Economist:

[...] In the "long run", everything is up for grabs -- where we live, how we live, how we get around, and even where we go. Smart folks ought to start thinking about what happens when energy prices are four or five times what they've been for most of the automobile age. It's not rocket science: Prices go up, and rational people and firms try to avoid those higher costs. [...]

Mas sobre la crisis financiera

Primero fue Ben Bernanke. Ahora, el mismísimo Alan Greenspan comenta los origenes de la "Mortage Crisis".

HT: Greg Mankiw

Hoy recomendamos:

El nuevo Blog de Simon Johnson. Este Profesor (on leave) de Sloan-MIT, no solo es el flamante nuevo director del departamento de investigación del IMF; también es coautor de muchos interesantes trabajos sobre el crecimiento económico de largo plazo, junto a uno de mis economistas favoritos.

Muy recomendable echarle una mirada a su current research.

La reciente agitacion de los mercados financieros y la FED

Ben Bernanke pone en contexto el desarrollo reciente de los mercados financieros, y explica el razonamiento detrás de las acciones llevadas a cabo por la Reserva Federal estadounidense. Vale la pena leerlo completo...

The Recent Financial Turmoil and its Economic and Policy Consequences
FED's Chairman, Ben S. Bernanke
The Economic Club of New York, New York, New York
October 15, 2007

La cita que abre mi trabajo de Tesis...

"I believe it is wrong to view investors, including long-term investors like Buffett and short-term investors like hedge fund managers, as parasitical rent-seekers. Yes, they are motivated by self-interest, but by buying undervalued securities and selling overvalued ones, their actions bring the prices of capital assets closer to fundamental value. Those asset prices govern the allocation of investment resources, which in turn is paramount for the success of the economy. So, while making themselves rich, investors make the economy more productive for everyone--as if led by an invisible hand."

Gregory Mankiw, The Social Value of a Wall Street Career

II Coloquio de Estudiantes de Economía 2007

Repodruzco a continuación la información sobre las bases del Coloquio, tal cual llego a mi correo pucp el dia 04/09/07. Ojo para los interesados: la convocatoria es totalmente abierta, no es solo para alumnos PUCP.

-----

El II Coloquio de estudiantes de Economía tiene por objetivo el promover y
alentar la investigación académica de los alumnos y propiciar el diálogo entre
éstos, profesionales y todo el público interesado en temas económicos de
relevancia para el país.

Lugar y Fecha del evento

Miércoles 14, jueves 15 y viernes 16 de noviembre. Facultad de Ciencias
Sociales, aula J – 101. Hora: 6 p.m. – 9 p.m. Ingreso Libre

Temas 1/

El tema de la presentación de trabajos
de investigación es libre, siempre y cuando sea relacionado al ámbito económico.

Participantes

Están invitados a participar
todos los alumnos de la Especialidad de Economía y egresados del año 2006 de
todas las universidades del país. Los trabajos podrán ser presentados también de
manera grupal.

Entrega de trabajos

Los trabajos
deben de ser entregados en un sobre cerrado con un seudónimo en la Mesa de
Partes de la Facultad de Ciencias Sociales de la Pontificia Universidad Católica
del Perú, dirigido a la Secretaria de la Especialidad de Economía, Sra. Sigrid
Anderson 2/.

Además de la entrega impresa del trabajo, se requiere la
entrega del mismo en formato electrónico (diskette) y la entrega de una hoja en
donde figuren los datos personales del participante (o los dos participantes).
En esta hoja, tienen que figurar el nombre, teléfono, correo electrónico,
situación (egresado o no, ciclo de egreso de ser el caso), universidad de
pertenencia y título del trabajo.

Adicionalmente, es obligatoria la
entrega impresa de un resumen ejecutivo (aproximadamente entre 500 y 700
palabras).

Fecha de entrega de trabajos

viernes
5 de octubre

Mayores informes

coloquio_economia@pucp.edu.pe

/1 Se insta a los
alumnos y / o egresados que están preparando sus tesis de licenciatura a
participar en el evento. El trabajo a presentar, como es evidente, no debe ser
el trabajo de tesis que están o han realizado, sino que puede ser una adaptación
de la misma. Esto no quita el carácter de inédito al momento de presentación de
la tesis.
/2 El horario de atención de Mesa de Partes es de lunes a viernes
de 7:30 a.m. a 9:00 p.m.