The Filter^

Chart of the day

Sent to me by a student, who had the politeness to not reveal where he thinks I fall... (!)

Overcoming Bias : Rah Price Manipulators

Some metrics are more corruptible than others, and prediction market prices are especially incorruptible.  In fact, big money manipulators with legislative agendas would be good for climate change futures markets!  If most anyone can play, we expect a real money prediction market to get more accurate as more big money powers are known to want to manipulate them.

via www.overcomingbias.com

When I teach classes on prediction markets, the issue of manipulation understandably comes to the fore. So here's Robin Hanson, with links to papers, maintaining the view that manipulation raises the gains from arbitrage, and thus tends to make markets more accurate.

Kant on kidneys

The Transplanting of Teeth, Thomas Rowlandson, 1787 (buy it here)

I'm one of the few people that work in business schools who (i) think that MBA students should learn something about ethics; (ii) does not feel compelled to slip it through the back door in any of my classes. I lament the fact that lecturers feel qualified to talk about ethics purely because they believe it is "under emphasised", regardless of their lack of expertise or specialisation. I talk about ethics a lot, but mostly in terms of drawing a boundary between what is and is not suitable discussion for my economics class. I would love to hire experts to teach it properly.

That said, in one class we do stray very close to that line as I instigate a discussion on kidney markets. Having spent time learning how markets function, and how managers can use them, I want to talk about limits to markets and pick extreme cases that challenge people's prior beliefs. Of course, whether we should have markets or not in kidneys is irrelevant - the objective is to think through alternative institutional mechanisms.

With both of these points in mind, I've just finished Michael Sandel's Justice. Although I don't buy his treatment of libertarianism, it is a good "pop" overview of moral philosophy, and something I feel comfortable recommending to students that do want to think more about ethical problems. He does talk about kidney markets, and I learnr the following:

English caricaturist Thomas Rolandson shows a scene in a dentist's office in which a surgeon extracts teeth from a chimney sweep while wealthy women wait for their implants. Kant considered this practice a violation of human dignity. A person "is not entitled to sell a limb, not even one of his teeth"* To do so is to treat oneself as an object, a mere means, an instrument of profit

I know that libertarians can be accused (somewhat fairly) of trying to force opponents to make simplistic distinctions, but can anyone see where you can draw a line in this argument? It doesn't take much of an understanding of John Locke to respond "what else is your body, if not an instrument of profit?" 

Anyway, just think about all that food the chimney sweep can afford now that he's sold his teeth...

*Immanuel Kant "Duties towards the body in respect of sexual impulse" (1784-85), translated by Louise Infield and published in Lectures on Ethics (1981), p.165

FT.com - The grasshoppers and the ants - a contemporary fable

If you want to accumulate enduring wealth, do not lend to grasshoppers.

via www.ft.com

Martin Wolf writes a beautiful contemporary fable - get it on your reading lists now!

The Ethicist - The Kidney Was a Gift

Last fall, a stranger donated a kidney to my husband. We offered her a gift after the operation, which she declined. Recently she wrote us that her house is in foreclosure, and she needs money. We obviously have no legal responsibility to respond, but what is our ethical responsibility? I wish it were legal to sell organs; it would be much cleaner in many ways.

via www.nytimes.com

Those of us who discuss markets for kidneys in class may be interested in this article.

Internalising opportunity cost

In class I talk about the iPhone app "Meter", which allows you to input the salaries of colleagues and then start a timer, to reveal the opportunity cost of meetings. I've just noticed this product which does the same thing:

Many people lament about how unproductive the traditional “business meeting” is. One or more participants feel the need to assert their opinion at great length, or simply regurgitate the same information multiple times. Most of us sit passively through these time-wasting meetings because … well … I don’t know! But now you can have the facts on your side when you want to remind people that any particular meeting is wasting time.

Bastiat's Window

Tom Palmer presents a short film explaining the Broken Window Fallacy (via Ben Pratt).

Quotes I like: Ernst Kantorowicz

There are three professions which are entitled to wear a gown: the judge, the priest, the scholar...

... This garment stands for its bearer's maturity of mind, his independence of judgment, and his direct responsibility to his conscience and his god. It signifies the inner sovereignty of those three interrelated professions: they should be the very last to allow themselves to act under duress and yield to pressure.

Ernst Kantorowicz (cite)

I'm in Paris tomorrow for a graduation ceremony, and it's not customary for faculty to wear robes. But if it was, does anyone know whether you're supposed to wear your undergraduate paraphernalia or post-graduate (notice the shirt & tie!)?

Microeconomics - time preference and diminishing marginal utility

I've been reading through some of the lecture notes of my good friend (and former GMU colleague) Isaac DiIanni. I'm thinking about interest rates, and he has a wonderful gift for staying true to the Mengerian and Misesian habit of patient, deductive reasoning. Consider the following:

Demand curves slope downwards - because we live in a world of scarcity, people satisfy their most pressing needs first

Supply curves slope upwards - opportunity costs rise as output increases

Now consider the market for loanable funds:

Demand curve slopes downwards - as you borrow more money, you put it to less urgent needs (and must sacrifice more urgent future needs)

Supply curves slope upwards - as you lend more money, the value of the current needs you are forsaking gets larger (and the value of the future needs you are attaining gets smaller)

So here's my question: Is this controversial?

Indicators for scenarios (a cursory glance)

It's time once more to build scenarios. An important component of building scenarios is the use of indicators, or "signposts". I thought I'd share some interesting ones here. Firstly, here's a dashboard from Russell Investments:

Of course the main issue with a dashboard is what you put in it. Here are some less conventional indicators that have caught my eye over the year:

• Baked Bean index
• Popcorn index
• Underwear index
• Hot Waitress index

Jason Kottke has plenty more. Open question - does anyone have any good sources for indicators about timber prices, copper, or other indicative natural resources?