Tyler Cowen's Blog, page 179

Call option markets in everything

Options Away lets you lock in the price of a flight and hold it for days or weeks.

The site is here, and for the pointer I thank Mitch Berkson.

Friday assorted links

1. A lovely biscuit for space?  Why the astronaut culinary nationalism?

2. The Pope says he would baptize aliens.

3. “It did not matter that she lacked a prostate.”  Various themes in this link.

4. Are Africa-American NBA fans more cosmopolitan?  Or simply more oriented toward individual stars?

5. “Panda dogs,” the culture that is Chengdu.

How eager is China to limit environmental damage from climate change?

They already have ruined the environment here, beyond what most people are willing to believe.  And for a long time to come.  Preventing further environmental damage by limiting climate change seems to the Chinese leadership like a small gain in comparison to the losses which already have been incurred.  Furthermore as Chinese environmental damage accumulates, in relative terms the climate change issue may loom smaller rather than larger.

This simple point is not well understood.  Consult the framework from Charles Karelis’s The Persistence of Poverty.

People here talk about the environment more than any place I have been — ever — but they are not talking about climate change.

Are home pages dying? And what is the value of a shadow reader?

Ezra Klein has a very good post on this topic.  He notes that for The New York Times:

…home page traffic has fallen by half over the last two years. This is true even though the NYT’s home page has been beautifully redesigned, and the NYT’s overall traffic is up.

The value of the company is up as well.  And then:

This is the conventional wisdom across the industry now: the new home page is Facebook and Twitter. The old home page — which is the actual home page — is dying a slow, painful death.

I’m skeptical. The thing about “push media” is someone needs to do the pushing. Someone has to post an article to Twitter or Facebook. That can be the media brand. It can even be the journalists. But when articles work it’s really coming from the readers.

Those readers of course are often the dedicated ones who find the article on your home page.  Ezra makes this additional point in passing, which I think is a neat example of how counterintuitive microeconomics can hold in the world of the internet:

Some of the most committed users are still clicking through the RSS feed (which is one reason Vox maintains a full-text RSS feed).

I would put it this way: the fewer people use RSS, the better content providers can allow RSS to be.  There is less fear of cannibalization, and more hope that easy RSS access will help a post go viral through Facebook and other social media.

When a blog is linked to the reputations of its producers, rather than to advertising revenue, the home page remains all the more important.  That is who you are, and many people realize that, even if they are not reading you at the moment.  I call those “shadow readers.”  For MR, I have long thought that the value of shadow readers is quite high.  (“Tyler and Alex are still writing that blog — great stuff, right?  I don’t get to look at it every day [read: hardly at all].  Why don’t we have them in for a talk?”)  In other words, a shadow reader is someone who hardly reads the blog at all, but has a not totally inaccurate model of what the blog is about.  For Vox or the NYT the value of a shadow reader is lower, although shadow readers still may talk up those sites to potential real readers.  For companies which run lots of events, such as The Atlantic, the value of shadow readers may be high because it helps make them focal even without the daily eyeballs.

What if everyone were a shadow reader?  What is the MRS between real readers and shadow readers?  And which are you?  Can a shadow reader sometimes be better to have?  After shadow readers don’t get so upset with you and don’t so much expect that you will write to please them!

Can you trust Chinese government statistics?

Political scientist Jeremy Wallace has a recent paper on this topic:

Economic statistics dominate policy analyses, political discussions, and the study of political economy. Such statistics inform citizens on general conditions while central leaders also use them to evaluate local officials. Are economic data systematically manipulated? After establishing discrepancies in economic data series across regime types cross-nationally, I dive into sub-national growth data in China. This paper leverages variation in the likelihood of manipulation over two dimensions, arguing that politically sensitive data are more likely to be manipulated at politically sensitive times. GDP releases generate headlines, while highly correlated electricity production and consumption data are less closely watched. At the sub-national level in China, the difference between GDP and electricity growth increases in years with leadership turnover, consistent with juking the stats for political reasons. The analysis points to the political role of information and the limits of non-electoral accountability mechanisms in authoritarian regimes as well as suggesting caution in the use of politically sensitive official economic statistics.

All good points.  I would stress, however, that Chinese statistics have many problems in them and so they are not simple overestimates of how the economy is doing, at least not over the last thirty years as a whole.  In some ways Chinese growth statistics have been, until 2008-2009, probably underestimating the actual progress on the ground.  In general, growth figures underestimate progress when changes are large, and overestimate progress when changes are small.  (One reason for this is that extreme progress brings a lot of new goods to the market and their marginal value is underestimated by their price ex post, since it is hard to adjust for the fact that the price ex ante was infinite or very high.)  In Western history for instance, our most significant period of growth was probably the late 19th through early 20th century, when the foundations for the modern world were laid, yet estimated growth rates for this period are not astonishingly high.  We’re missing out on the values of the new goods, for one thing.

For the pointer I thank Henry Farrell.

Against against commodification (markets in everything)

Jason Brennan reports:

Commodification is a hot topic in recent philosophy. There’s a limitless market for books about the limits of markets. The question: Are there some things which you permissibly may possess, use, and give away, but which are wrong to buy and sell? Most authors who write about this say yes. Peter Jaworski and I say no. There are no inherent limits to markets. Everything you may give away you may sell, and everything you may take for free you may buy. We defend that thesis in our book Markets without Limits, which will be published by Routledge Press, most likely in late 2015 or early 2016. As of now, we have a completed first draft.

We plan to commodify the book itself. We will sell acknowledgements in the preface of the book.

There is more information here.  I thank Michael Wiebe for a relevant pointer.

Academia as a bastion of free speech?

I was not aware how many of these cancellations have been piling up:

Haverford College on Tuesday joined a growing list of schools to lose commencement speakers to protests from the left, when Robert J. Birgeneau, a former chancellor at the University of California, Berkeley, withdrew from this weekend’s event.

Some students and faculty members at Haverford, a liberal arts college near Philadelphia, objected to the invitation to Mr. Birgeneau to speak and receive an honorary degree because, under him, the University of California police used batons to break up an Occupy protest in 2011. He first stated his support for the police, and then a few days later, saying that he was disturbed by videos of the confrontation, ordered an investigation.

Those at Haverford who objected to his being honored asked Mr. Birgeneau to apologize and to meet a list of demands, including leading an effort to train campus security forces in handling protests better; he refused.

Mr. Birgeneau bowed out a day after Smith College said that Christine Lagarde, head of the International Monetary Fund, had withdrawn from its commencement because of protests. Condoleezza Rice, the former secretary of state, said this month she would not deliver the address at Rutgers University after the invitation drew objections. Last month, Brandeis University rescinded an invitation to Ayaan Hirsi Ali, the Somali-born activist, over her criticism of Islam.

The story is here.  I have nothing to add to the obvious points here, but this is nonetheless worth emphasizing.

Thursday assorted links

1. What kind of beep is the proper beep? (and why does it bother you so much?)

2. Computers and the world of Go.

3. Why did AIDS spread more rapidly in the United States?

4. Daily Nous, a source of news about the philosophy profession.

5. The risks of football are sinking in, even in Texas.

So how is the economy of Chengdu doing anyway?

If you ask people here in Chengdu they will say it is doing fine, even professional economists will say that.  In fact they are surprised and unprepared to respond if you raise concerns.  Yet their answers do not fully convince me.  One said after a pause:

The economy is fine, the government said it will grow over seven percent this year.

Another said:

The economy here is great, last year we held an international congress in Chengdu.

When I raised the typical worries, they were more or less shrugged off.  There is an attitude out here – in China’s “west” – that of course these problems exist, the people from Beijing and Shanghai have been screwed up for a long time, but we fine folk of Chengdu have known about that pretty much forever don’t let it bother you now.  As a point of comparison, I spoke to a number of highly informed people in Shanghai and they were much more pessimistic about the Chinese economy.

Could it be Chengdu’s rise to prosperity is so recent — considerably postdating that of Shanghai or Beijing or the South — that such a growth experience is still the dominant emotional memory and thus it cannot be dislodged from people’s minds?  If that were the case, people out here are truly unprepared for the Chinese economic squeeze in progress and that will make it much worse.

I have seen quite a good number of empty apartment buildings along various roads and the most common sight in town is the sign “Louis Vuitton — coming soon.”

Or shall we side with the simple null hypothesis that the residents of Chengdu are right and this foreigner — and much of the foreign press along with him — is simply misguided altogether?

In any case, this visit has increased the variance of my estimate for how China will do over the next few years.

Why do we respond to charismatic leaders?

There is a new paper by Benjamin Hermalin, with the intriguing title “At the Helm, Kirk or Spock? Why Even Wholly Rational Actors May Favor and Respond to Charismatic Leaders.”  The abstract runs like this:

When a leader makes a purely emotional appeal, rational followers realize she is hiding bad news. Despite such pessimism and even though not directly influenced by emotional appeals, rational followers’ efforts are nonetheless greater when an emotional appeal is made by a more rather than less charismatic leader. Further, they tend to prefer more charismatic leaders. Although organizations can do better with more charismatic leaders, charisma is a two-edged sword: more charismatic leaders will tend to substitute charm for real action, to the organization’s detriment. This helps explain the literature’s “mixed report card” on charisma.

Here is what actually drives the argument:

As shown below, a savvy leader makes an emotional appeal when “just the facts” provide followers too little incentive and, conversely, makes a rational appeal when the facts “speak for themselves.” Followers (at least rational ones) will, of course, understand this is how she behaves. In particular, the rational ones—called “sober responders”—will form pessimistic beliefs about the productivity state upon hearing an emotional appeal. But how pessimistic depends on how charismatic the leader is. Because a more charismatic leader is more inclined to make an emotional appeal ceteris paribus, sober responders are less pessimistic about the state when a more charismatic leader makes an emotional appeal than when a less charismatic leader does [emphasis added]. So, even though not directly influenced by emotional appeals, sober (rational) responders work harder in equilibrium in response to an emotional appeal from a more charismatic leader than in response to such an appeal from a less charismatic leader.

Would this same reasoning also imply we should choose intrinsically panicky leaders, because then, if we see them panic, we would think the real underlying situation isn’t so bad after all and we are simply witnessing their innate propensity to panic? Yet no one would buy that version of the argument.

I will instead suggest that we (sometimes) follow charismatic leaders because they have high social intelligence, and most of all because other people are inclined to follow them.  Some of those followers of course do not have rational expectations but rather they are touched by the charisma directly.  Given that, why not follow the focal leader, even if you yourself are not touched by the charisma?

A related question is to ask how many recent world leaders are in fact charismatic.  Obama and Clinton yes, but how about David Cameron?  How about most Prime Ministers of Japan, Abe being a possible exception?  Arguably Merkel has become charismatic through a sort of extreme, cultivated anti-charisma, but I would not cite her in favor of the theory.  Any Canadian since Trudeau?  Helmut Kohl?

Putin?  Well, he’s not charismatic to me but now we’re getting somewhere.  And what does Putin have that say Prime Ministers of Japan do not?  Could it be a citizenry that gets excited relatively easily by the brutish?  Come to think of it, the USA has a wee bit of excitability of its own, though more about national pride and foreign policy than anything like Putin.  Hint: does your theory predict that Argentina will have charismatic leaders relative to Denmark?  Yes or no?

In which business sectors are the CEOs most likely to be charismatic?

For the pointer I thank the excellent Kevin Lewis.