Archive for August 28th, 2008

Get Nobel Prize ideas in a parking lot

August 28, 2008

It is amazing to find how all these Nobel laureates get ideas which lead to The Prize after all. I had pointed earlierhow Markowitz got a Nobel Prize idea after he got a tip from a stock-broker.

I was reading this Nobel Prize speechof Gary Becker (1992 winner) where he explain how he got one of the many ideas for which he got the prize while trying to park his car:

I began to think about crime in the 1960s after driving to Columbia University for an oral examination of a student in economic theory. I was late and had to decide quickly whether to put the car in a parking lot or risk getting a ticket for parking illegally on the street. I calculated the likelihood of getting a ticket, the size of the penalty, and the cost of putting the car in a lot. I decided it paid to take the risk and park on the street. (I did not get a ticket.)

As I walked the few blocks to the examination room, it occurred to me that the city authorities had probably gone through a similar analysis. The frequency of their inspection of parked vehicles and the size of the penalty imposed on violators should depend on their estimates of the type of calculations potential violators like me would make. Of course, the first question I put to the hapless student was to work out the optimal behavior of both the offenders and the police, something I had not yet done.

This led to building the rationality theory of crime:

In the 1950s and 1960s intellectual discussions of crime were dominated by the opinion that criminal behavior was caused by mental illness and social oppression, and that criminals were helpless “victims.”¬†

I was not sympathetic to the assumption that criminals had radically different motivations from everyone else. I explored instead the theoretical and empirical implications of the assumption that criminal behavior is rational, but again “rationality” did not necessarily imply narrow materialism. It recognized that many people are constrained by moral and ethical

However, police and jails would be unnecessary if such attitudes always prevailed. Rationality implied that some individuals become criminals because of the financial rewards from crime compared to legal work, taking account of the likelihood of apprehension and conviction, and the severity of punishment.

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I was wondering what would Becker think if he walks into a parking lot in Mumbai? Why did he buy the car?? 

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Assorted Links

August 28, 2008

1. WSJ Blog points to Fedspeak – Lockhart

2. ASB calculates the expenses and tracking errors of index funds in India….No wonder there are no takers with costs being so high. I also don’t understand why expenses are so high?

3. JRV points¬†to¬†his comments on¬†Raghu Rajan’s Jackson Hole paper

4. IDB on branchless banking

5. ICB on IPOs 

6. PSD Blog points doing business might get easier in India


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