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.

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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.

On the Economics of Attention

Have you ever realize how some people (and not only girls!) get shocked when you refuse to pay attention to them?? as if they were thinking that just because they have something to say or show, the rest of the world is obliged to check them out.

Well, Herb Simon once said that the fundamental scarcity in the modern world was scarcity of attention. Why might this be true? applying some Ec101 thinking: if there are demands for everybody’s attention, there is certainly not as much supply. So here is a rule of thumb by Hal Varian to keep in mind:

"if you want someone to pay attention to you, you have to give them a reason to do so"

Let it be for conferences, thesis seminars, friends, and even flirting: it applies in the same way. Finally, here's another interesting quote by Simon that explains why:

What information consumes is rather obvious: it consumes the attention of its
recipients. Hence a wealth of information creates a poverty of attention, and a
need to allocate that attention efficiently among the overabundance of
information sources that might consume it

I found it astonishing true

Economía Política

En la linea del post anterior (sobre Ciencia Política y Economía), Silvio Rendon nos ofrece este insight desde el 2007 North American Summer Meetings of the Econometric Society que se viene realizando en Duke University. Ojo a la actualización!

Silvio nos cuenta de una charla a la que asistió sobre el Estado de la Cuestión de la Economía Política, dada por Antonio Merlo de la U. Pennsylvania. Un rápido vistazo a su CV nos muestra Publicaciones como estas:

• Political Careers or Career Politicians? (with Andrea Mattozzi).
• Mediocracy (with Andrea Mattozzi).
• Bicameralism and Government Formation (with Daniel Diermeier and Hulya Eraslan)

Pero un par de trabajos llamaron especialmente mi atención:

• Whither Political Economy? Theories, Facts and Issues, in R. Blundell, W. Newey and T. Persson (eds.), Advances in Economics and Econometrics, Theory and Applications: Ninth World Congress of the Econometric Society, Cambridge: Cambridge University Press.
• Whither Political Economy? Theories, Facts and Issues: Extended Version.

Sumamente interesante.

Democracia y Crecimiento Económico

Edward Glaeser y Daron Acemoglu intercambiar ideas sobre Democracia y Crecimiento Económico en este link del Wall Street Journal.

Considero que, mas allá de la inevitable contraposición Harvard vs. MIT, o Educación vs. Instituciones como determinantes del éxito de una Democracia; lo verdaderamente interesante del vinculo son las valiosas referencias electrónicas a los trabajos de los autores (et. al.) que se van encontrando, respecto a los temas que poco a poco se van tocando...

Varios de los artículos referidos podrían considerarse como referentes básicos a los trabajos de frontera que están acercando a la Economía y la Ciencia Política en años recientes. Pero de todas maneras, haría mayor énfasis en los trabajos de Daron Acemoglu. Para muestra, unos botones:

• De Facto Political Power and Institutional Persistence
• Economic and Political Inequality in Development: The Case of Cundinamarca, Colombia
• Why Not A Political Coase Theorem? Social Conflict, Commitment and Politics
• Economic Origins of Dictatorship and Democracy

De los tres, estoy casi totalmente convencido que el primero podría tener aplicaciones directas a la historia del Peru...

Actualización: Veo con pena que el link murió.... asi que copio un pequeño fragmento que encontre en el blog Public Economics. Como quien dice, para que sepan lo que se perdieron...

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Is Democracy the Best SettingFor Strong Economic Growth?

March 13, 2007 on WSJ

http://online.wsj.com/public/article_print/SB117330214622129995-wXADlsfRHp9Z34RAyyVjN_w1yBI_20080311.html

Ed Glaeser writes: Rich countries are stable democracies. Poor countries tend to be political basket cases, careening between brutal dictatorships and unstable semi-republics. The relationship between democracy and wealth might suggest democracy naturally leads to prosperity. This view is comforting and also gives us another reason to enthusiastically try to export democracy globally.

While I yield to no one in my passion for liberty, the view that democracy is a critical ingredient for economic growth is untenable. There is no robust statistical relationship to back it up, and Robert Barro actually found2 democracy reduces growth, once he statistically controls for the rule of law.

It is, however, true that growth rates vary much more under dictatorships3 than under democracies. Anti-development autocrats, such as Mobutu Sese Seko4 or Kim Jong Il5, are about the worst thing for economic growth, other than civil war. But many of the best growth experiences have been in less-than-democratic regimes that invest in physical and human capital such as Lee Kwan Yew's Singapore6 or post-Mao China. Some dictators are even better than democrats at restraining the growth-killing practice of expropriating private wealth. I think the relationship between democracy and wealth reflects the power of human capital -- education -- to make countries both rich and democratic. If you put enough smart people together, they'll figure out how to govern themselves and gravitate towards democracy7.

* * *

Daron Acemoglu writes: I agree with Ed on many points. In the postwar era, it's true that democracies haven't grown faster than autocratic regimes. Plus, there are clear examples of fast growth under dictatorships; see South Korea under Gen. Park Chung Hee8. So, why haven't democracies been more successful? I believe the answer lies in recognizing two things. First, there are different kinds of democracies. And second, it's important to consider that economic growth and democracy have a very different relationship over the long term -- that is for periods as long as 100 years -- than over the short or medium term.

Many societies counted as "democratic" using standard measures are really "dysfunctional democracies" where traditional elites dominate politics through control of the party system, political influence, vote buying, intimidation and even assassination. Colombia, which has had regular democratic elections for the past 50 years, is a typical example9. In others, democratic institutions survive, but there is significant in-fighting between ethnic groups, religious groups or social classes. The situation in Iraq would be the most extreme -- but not a unique -- example. Finally, many democracies suffer economically from populist and irresponsible macroeconomic policies, which are often adopted after transitions from repressive dictatorships and during periods when politics are turbulent and conflicts over wealth distribution are strong.
On the second point, it's true that autocratic regimes can generate growth for certain periods of time by providing secure property rights and good business conditions to firms aligned with political powers. But modern capitalist growth requires not only secure property rights, but also creative destruction, that is, the entry of new firms with new ideas and technologies that replace the successful firms of the past. Creative destruction requires a level playing field, which democracies are better at providing because they have more equal distributions of political power than autocracies or monarchies.

So, if we look beyond the past 60 years, we see that it was the U.S., with its democratic institutions, that created the environment for new businesses to enter, flourish and spur the industrial growth of the 19th century. There were many rich autocracies and repressive regimes in the 18th century, including places like Cuba, Haiti and Jamaica. But it was the U.S. that grew rapidly over the next two centuries while these autocratic regimes stagnated10.The relationship between human capital and democracy that Ed raises is fascinating. But I will return to that in a little in the context of the causes of democracy.

....