Archive for August 11th, 2016

Building a balance sheet of a sandwich seller and then lending him a loan..

August 11, 2016

This is a superb tale from Kshama Fernandes of IFMR.

She narrates how an IFMR executive built a balance sheet of a sandwich seller and gave him a loan:

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Booking pandits online for Hindu rituals…

August 11, 2016

It is all happening. Just sit anywhere in the world and let the pandit in another part of the world conduct your hindu rituals..

 

1984: The year the Olympics were mostly privatized

August 11, 2016

Didn’t know this at all. Olympics in LA were mostly through private efforts:

 

Put off by the financial setbacks experienced by Montréal and still grappling with the turmoil and political unrest left by the Cold War, the 1984 Summer Games were not particularly popular when it came to attracting potential host cities. In fact, only two cities even officially bid to host the 1984 Olympic Games: New York City and Los Angeles.

Los Angeles won the bid in the end, but its residents were not enthusiastic about this decision nor were they willing to foot the bill. The people of Los Angeles were so adamant about protecting their tax dollars from wasteful spending that they proceeded to pass a city charter prohibiting the use of public funds to be used for Olympic facilities. The city now had the honor of hosting the Olympic Games, but no way to pay for it.

Fortunately, a local businessman with a reputation for being budget-conscious stepped up and spearheaded the Los Angeles Olympic Organizing Committee (LA84). Comprised of other successful entrepreneurs and business-savvy individuals, the Committee’s goal was simple: find private funding for the Olympic Games, a feat that had never been done before.

Through private fundraising, corporate sponsorships, and fiscal discipline, the Committee pulled off the unthinkable.

…..When all was said and done, the 1984 Los Angeles Summer Olympic Games cost a total of $546 million dollars. When compared to the $50 billion spent on the 2013 Sochi Winter Games, the amount spent by LA84 seems almost minuscule.

While it would be unfair to call the ’84 Games a purely “private” endeavor, as the Committee did still receive some federal funding, the 1984 Summer Games showed the world that when it came to hosting the Olympics, privatization was not only possible, it was also the most efficient way to get the job done.

There is a paper as well on this. Wonder where this idea got lost..

A short primer on behavioral economics..

August 11, 2016

Eyal Zamir of Hebrew University of Jerusalem (Faculty of Law) has a short piece on behavioral economics. Paper is titled as law and economics but much is on economics. After all economics is seen as much cooler than anything else.

The author discusses various heuristics and how that distorts the rational thinking. He also points to the criticism on the field.

A host of critiques have been leveled against JDM research, as well as its implications for economic analysis in general, and for economic analysis of law in particular. One critique is that the JDM research agenda has over-emphasized the instances in which heuristics lead people astray, when in fact heuristics are an excellent, fast, and frugal way of decision-making in most cases (Gigerenzer, Todd et al. 1999). While this contention may well be true, its implications appear to be limited—akin to asking whether the glass is half empty or half full. Some commentators, especially those concerned about the possible paternalistic implications of JDM studies, have questioned the external validity of JDM laboratory findings, arguing that they may disappear with monetary incentives, or that the market is expected to drive out bad judgment (see, e.g., Mitchell 2002). However, these claims run counter to the findings of thousands of empirical studies. These include studies attesting to the prevalence of cognitive biases in real-life behavior and studies demonstrating that incentives often do not eliminate biases, and sometimes even exacerbate them. Moreover, while market competition may possibly drive out firms whose managers fall prey to cognitive 9 biases, competition concomitantly strengthens the incentive for suppliers to exploit consumers’ biases.

Finally, an important critique commonly leveled against behavioral studies is that they produce a long list of heuristics and biases, rather than a unifying, simple model of judgment and decision-making of the sort provided by RCT. In response, considerable progress has been made in recent years in systematization and theorization of JDM. However, ultimately one must concede that there is an inevitable tradeoff between descriptive validity and simplicity. As Kahneman has put it, “life is more complex for behavioral economists than for true believers in human rationality” (Kahneman 2011, p. 412). Disregarding this complexity and pretending that people are rational maximizers is not a compelling strategy for legal theoreticians and policymakers, since the law has a powerful impact on the real lives of real people.

Behavioral thinking is just one of the ways to provide alternative thinking to the rational school. Neither it is “the framework” nor the researchers should push it on those lines.

It has been known that  people are not rational and assuming the same is oversimplification. But due to lack of ideas on the same, the assumption continued. This was challenged by psychologists like Kahneman and Tversky who provided with frameworks to think through how behavior influences economic decisions.

The problem is rational school remains the dominant way of teaching in economics. Beh eco remains in the fringes and at best offered as an elective in few places. So it does not help students appreciate an alternative framework. This is where bulk of the trouble has always been. Let students figure which framework suits them rather than just fight amidst each other for superiority.

There is space for everyone in the game..

Museum economics: how the contemporary art boom is hurting the bottom line

August 11, 2016

Superb piece by Prof. Robert Ekelund of Auburn University (HT: MR blog). The popularity of museums in US is shocking to most Indians who rarely visit museums.

Prof Ekelund says it is economics which should drive working of museums. They are like any other orgainsation. Currently. three factors are affecting museum economics: fashion, demographics and billionaires.

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