Archive for January 25th, 2008

Repugnance in markets

January 25, 2008

Ronald Coase discovered firms exist as pricing mechanism couldn’t coordinate (as advocated by free market advocates) as there were transaction costs and the firms were best positioned to take care of those transaction costs. Then we had theories from Doug North where he said markets worked bnest if we had proper institutions. Then we had work from Akerlof, Spence and Stigilitz which took off after Akerlof’s seminal piece called Market for lemons. It brought the importance of information asymmetry being persistent in markets leading to ineffective markets.  Next was the work from Behavior Economics/Finance field pioneered by Kahnemann and Tversky which questioned the basic assumptions of economics- rationality.

Basically, all four said in their own way that markets don’t work as efficiently and effectively as we assume it to be. I thought these four main theories summarised more or less about inefficiency of markets. However, I soon realised more is to come.

On reading Greg Mankiw’s post on repugnance in markets where he simply points to a forum discussing the same, I never gave it much thought. However, on reading the background paper by Alvin Roth, I was really taken back that there is something called repugnance which could be brought into the equation as well while discussing markets.

What is repugnance? Wikipedia says

The term wisdom of repugnance describes the belief that an intuitive (or “deep-seated”) negative response to some thing, idea or practice should be interpreted as evidence for the intrinsically harmful or evil character of that thing.

How does it impact working of markets? Well, those products/services which a society deems as repugnant (but are useful like an exchange for trading kidneys) will not trade in the usual way as the other products. First, there will be a reluctance to come forward and offer such products and second even if they do come, the outcomes are not going to be efficient as these markets will have only very few takers.

Roth offers many examples of repugnant markets like insurance products for children& old, gambling and betting markets, adoption, etc. Then he shows how it leads to problems in market design and how he tried to solve them in some cases.

Excellent stuff. Highly recommended! A different and fresh perspective.

I now realise, it could be made part of behavior economics. Using BE theories, attempts could be made to reduce repugnance as elimination might not be possible.

India’s test cricket record at home and away

January 25, 2008

I had posteda while back over India’s performance in test cricket. The post basically looked at how Indian team has performed pre and post Sunil Gavaskar. I mentioned that I would cover India’s performance at home and away test matches to get more clarity on the picture. And I have included the recently concluded Perth test as well in the analysis.

Here are the results:

 

In Number

In %

Before Gavaskar

in India

Away

in India

Away

Played

69

48

Won

12

3

17.4

6.3

Lost

19

30

27.5

62.5

Draw

38

15

55.1

31.3

In Number

In %

During Gavaskar

in India

Away

in India

Away

Played

69

60

Won

16

9

23.2

15.0

Lost

14

21

20.3

35.0

Draw

38

30

55.1

50.0

Tie

1

In Number

In %

After Gavaskar

in India

Away

in India

Away

Played

72

96

Won

35

18

48.6

18.8

Lost

14

35

19.4

36.5

Draw

23

43

31.9

44.8

  • During G’kar we see improvement in winning ratio in Indian and away test matches. The number of draws remains the same in India matches but improves substantially in away matches. Pre-G’kar we lost most matches abroad and in his time the draw and winning %, both improved.
  • After Gavaskar, winning has improved substantially in India. The number of draws comes down fromm  55% to 32% . The number of losses in India has also declined marginally from 20% to 19%. So, it has become harder to beat India in India.
  • However, the story isn’t much different as far as away test matches are concerned. The winning % has improved from 15% to 19% and number of draw % has declined from 50% to 45%. The loss % has increased after Gavaskar from 35% to 37%. A better indicator is that total draws and wins declines from 65% to 63.5%.
  • Now, another interesting piece- out of the 18 post Gavaskar wins abroad, 17 come post 2000. India won a  test match in Sri Lanka in 1993 and then the next win was in B’Desh in 2000. The real turn around came from that great win in England in 2002 in Leeds. Since then India has won in England, Australia, South Africa, Pakistan etc. The total wins have been 18 compared to 9 during Gavaskar. New Zealand is one place where a win is due for a long time; the last win was in 1976 at Auckland!
  • If we look at wins in India, the wins have been pretty consistent in 1990s and 2000s

The summary is post-G’kar India has started winning much more in India. However, it took a while for India to start winning abroad after G’kar left. Since then, it has been quite a ride.

Assorted Links

January 25, 2008

1. Mankiw doesn’tsupport the fiscal stimulus. Atleast he is sticking to his previous view.

2. Rodrik discusses a new paper on trade

3. Fin Prof points to the Societe Generale fraud which has shaken the financial system further.

4. EPSA blog points to an article on India’s education problem.

5. Econbrowser on recession betting

6. MR on why so many lawyers join politics.

7. Ajay Shah points to another article on media ethics

8. TCA points to 3 papers which help you understand the nature of markets.

9. Shanmuganathan N has an interesting piece in Mint


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