Package for the Week

Hidden from sight
Hidden from sight

Reads for this weekend are here. Farhad Manjoo muses whether anyone would be able to stop facebook. From expanding, that is. The site has really amassed a huge group of user in a short time and people have been wondering if it would be able to generate revenue and such. Truth is, Facebook has really changed the stuff we do online quite very much and helped the Internet leap ahead as a tool for social networking.

Daniel Gross wrote about his tour to China’s most important dam and muses over his inability to find a chocolate bar there. He got Slate.com readers to send in excuses for not being able to find a chocolate bar in China. Examples included:

“Your quest for chocolate at the Three Gorges would be like me looking for Chinese dumplings at the Hoover Dam,” wrote one Beijing resident.

Jokes aside, for your watching pleasure, check out Shashi Tharoor’s recent talk on TED.com about soft power, with particular reference to India.

Insuring Nothing

Nope, not insured against kids
Nope, not insured against kids

Tyler Cowen mentioned something about product insurance at one part of his book, Discover Your Inner Economist. He says that one should not argue with his wife when she insist on buying product insurance even when you know that the results are economic analysis are at your favour. Presumably, there are some other cost-benefit analysis taking place, at the level where the cost of winning the argument greatly overwhelms the benefit (which of course is the cash saved on the product insurance). The Economist asked why people continue to buy them even when products are unlikely to fail, which means that these product insurances are immensely profitable for the electronics retail sector. The researchers who examined purchase data from a big electronics retailer for over 600 households from November 2003 to October 2004 concluded that the purchases were linked to the shopper’s mood. Of course, a less-than-rational wife might be the explanation, but even the wife has a sound explanation for that:

[…] the emotional tranquillity that comes with buying a new warranty is not in itself without value, even if “rationally, it doesn’t make sense”.

But I find an ingredient missing in this story; the researchers probably falsely assume that all the shoppers have got the same level of perceptiveness. And I believe perception have all to do with the purchase of product insurance. Think about it, when was the last time you had a product which failed and the warranty period was just over and you blame yourself for not buying additional coverage? But how about the last time when you did buy the product insurance and it didn’t fail at all within the span of its usage, not once? Just like the belief that we’re unlucky enough to always join the slowest queue in the supermarket; our erroneous perception of the frequency we get unlucky can make us more frustrated with a product insurance unextended than a product which didn’t fail after we bought the coverage despite the fact that they probably inflicts the same cost on you. Obviously it actually hurts you more when you think back and regret not extending coverage; you probably won’t even think back on how stupid you were to buy product insurance for a reliable product since you’re using it happily.

This creates a bias for purchasing product insurance. Our faulty perception supplements our faulty memory in suggesting that buying product insurance would be the wise choice, going by the seemingly sound argument of ‘if the product fails, I’m protected; and even if it doesn’t, I get a peace of mind plus the retailers deserve the reward if they recommended me the durable kind of good’. You could very well have realised that if the product was that durable the manufacturer would already have taken a cut for that on the retail price and that if the product ran a high chance of failure the retailer wouldn’t even offer you the product insurance in the first place. And if your wife has anything to say about that, it’ll probably be “Must you be that calculative?”

Rising Yuan, But not now

Give Me a minute, will rise soon...
Give Me a minute, will rise soon...

In one of the economics essay I’ve written for A Levels Practice, I argued that the appreciation of Yuan is unlikely to solve the trade surplus problem that they have and thus reality will not play out as the Americans choose to believe – trade imbalance will continue to mount and China may risk deflation, following the fate of Japan in the past. I was very lucky because during A Levels a somewhat similar question came out and I made the same sort of argument with points already in my mind.

Most journals and publications I read insist on the need for Yuan to be revalued, giving little credit for the fact that China already allowed it to appreciate against the dollar substantially compared to the past. Without the unpegging of Yuan to the Dollar in 2005, trade imbalance could have been worst. That doesn’t mean that it was the appreciation of Yuan that naturally lend its hand at achieving balance; it was mainly the gradual appreciation and the timing it was allowed to appreciate. The Economist analysed China’s side of the Yuan policy. It gives a balanced account of how political forces and potential economic problems makes China hesitant about revaluing its Yuan.

It is unfair that America always seem to put China into bad light by hinting that China could make a difference (since its central government wield a whole lot of power) but don’t want to. The fact is that there are way too many instances where Americans had the power too, but then they’d exclaim that all sorts of lobbying and market forces are in the way. If China were to give in to this sort of pressure, it would make them way too weak. Besides, America isn’t always right (in fact, most of the time it isn’t); China has done too well in their transition from central planning to market economy so far and will continue to create their own path.

The Becker-Posner Blog also features Becker and Posner’s individual views on the need for China to revalue the Yuan and when so.

More Economics Notes!

Free Lunch!
Free Lunch!

Just a couple of days back, I was searching for Economics essay questions just for fun and I stumbled upon Fiveless, an initiative by Zhuoyi from RJC 2 years ago when he was doing A Levels. It was a site with a wonderful array of materials for various subjects. Since Zhuoyi actually took A Levels the same time as me, I was kind of disturbed by the fact that I hadn’t stumble upon this site earlier when I was preparing for my exams. But there’s a chance that if that had happened, I wouldn’t have started ERPZ, thinking that someone else has already took up the job.

In any case, I wrote to Zhuoyi to inform him that I would like to consolidate the materials he has so nicely done up and make them available on ERPZ; he kindly agreed and I’m glad to push out the first set of materials that resulted from this ‘collaboration’. It’s a set of 40-page economics notes, summaries and cheat sheets. I’ve updated some of the statistics Zhuoyi has compiled in the notes, altered the formatting slightly to give a more consistent look, added content pages (that are frankly pretty much for the sake of cosmetics) and added very minimal of economics content. I hope I can find time to fill in the gaps because I’m aware that the notes lack content on some topics required in A Levels, but for now, it’s already pretty impressive. The link is also available under Economics Section.

All credit goes to Zhuoyi who’ve made such a great set of notes and generously shared them online under the Creative Commons Remix License. Anyone interested in building upon the work I’ve continued can leave a comment to request for a editable document version of the file from me.

Holding Ideas

All at the same time...
All at the same time...

Some students struggle with social sciences and humanities like Economics, Geography and History because they think they can’t hold two contradictory ideas at the same time and not take a side. Economist are somewhat famous for being able to do that and often criticized for being that way. As a matter of fact, humans are remarkably capable of doing that; we overrate our consistency of thought and the need for ideas that don’t contradict. When we demand scientific proofs for certain claims yet openly express faith in certain religious claims, we’re adopting contradictory frameworks of proof.

The reason why these subjects require that we hold contradictory ideas or for us to withhold judgment of these ideas is the lack of a proper quantitative approach to evaluating them. We might be able to come up with pros and cons but we are unable to assign a positive figure to denote the value and significance of the pro and a corresponding negative figure for a con and then evaluate them in an accounting matrix that will tell you which is better and how much better. Any attempts at that will be subjective and arbitrary anyways. As a result, it is important that students of these subjects hold on to them without judging but maintain the ability to dissect and analyse these ideas, zoom into certain features and investigate different aspects of it when necessary. More importantly, we’ll have to master our language and internalize the nuances of the typical jargons used in the field to discuss these observations we make.

As humans, we will definitely have preferences for some explanation over others as well as some outcomes over others and this is a reason behind all the disputes that social scientist usually have with each other, including high profile ones by economists. And worst, unlike sciences where there are experiments everyone can agree on to check their ideas and theories to discover ‘the truth’, the search for truths in social sciences have often ended in vain because of the dynamic nature of the field. Scientists might not agree before a discovery is confirmed (Linus Pauling, a super-Nobel laureate with 3 Nobel prizes famously believed that DNA’s structure should be a Triple Helix) but once it is confirmed, we find little delusional souls continuing with their false beliefs unless they are ignorant of the confirmation. Economics had its share of control experiments that happened in the world, often by chance. Unfortunately, they can never be repeated perfectly and their results are never agreed upon by experts in the field.

This is not to say that the subjects offer little value to the world; in fact the dynamic nature of these fields mean that there is always questions to answer and things to explore readily. And that is why we need more people to be able to hold different ideas at the same time and have different opinions on the same issue under different sort of circumstances and be able to see the world this way.

Back in Competition

A recent article on Slate.com revisited the theme of competition, something I’ve been writing about (here and here) in response to their articles. Ray Fisman discusses studies on whether man or women are more competitive and whether any difference is explained by nature or nurture.

More importantly perhaps, he questions the significance of competition in our world and whether it is a good thing at all. I believe, like many other things, a balance has got to be struck somehow. Once we reach a certain threshold whereby competition achieves positive gains, its cost will start outweighing benefits.

Look whos trailing....
Look who's trailing....

But perhaps the problem isn’t one of female passivity—many have claimed that if women ran the world, there wouldn’t be any wars, and anyone who has read testosterone-driven Wall Street accounts like Liar’s Poker, or more recently House of Cards, might question whether all-out competition is the best way of managing our economy. If competition is nurture rather than nature, perhaps we’d all be better off if we lost a little of our warrior instincts.

I know it sounds rather like an economic analysis but this applies for practically everything. We are entering an age of sophistication where competition basically consist of sub-units of collaboration, which is in turn divided into sub-units of competition. Just think about it, when we work at a company, we may be competing with our colleagues for attention from boss but the whole department, together with the boss is collaborating to compete against other departments and other bosses to a higher level and the company on the whole is collaborating to compete against a rival company and the industry as a whole (perhaps beverages) is competing against another (say food, they’re all competing for consumers’ stomach space). Competition and collaboration are not ends of a spectrum but co-evolutionary forces that shapes the world and our sophisticated activities.

How many lightbulbs does it take to change a planet?

Problem is, how many people it takes to make the change?
Problem is, how many people it takes to make the change?

95, according to Tony Juniper, Executive Director of Friends of the Earth in UK, in his book of the same title. When I first saw this book at Central Library, I thought it had tips and nitty-gritty details about how one can do his part for the environment in his daily actions. Coming from his background as an activist, this book is far from a step-by-step guide but instead a huge tome for policymakers to think about the many environmental issues that plague us ranging from climate change to biodiversity. His perspective is very British but the vast range of recommendations are very useful in any context. Some of his 95 ideas are quite overlapping and repetitive and not all are very solidly supported by data, but otherwise he makes quite good arguments for his recommendations. He infuses a lot of his personal experiences with Friends of the Earth, and it touches me to see how much has been done by activist groups for the environment, despite its being David in a David-versus-Goliath battle against Big Government and Big Multinationals.

I cant possibly list all 95 ideas here, but I have spent the past few days compiling them into Word document. I dont own this book after all, and it will be good for me to remember and keep in mind all these ideas that can come in very useful in future if I decide to go into environmental activism. An idea I found interesting is the creation of corridors for wildlife to migrate as a result of climate change, rather than creating static, fixed-border reserves that do not allow animals to migrate poleward for instance in the event of rising temperatures due to global warming. It seemed like quite a “duh!” solution but it has not been implemented yet. His being an expert on birds brings another dimension to his ideas, which care a lot for biodiversity and bring a very local, on-the-ground view about the effects of environmental ruin on wildlife.

The book is not just a must-read for environmentalists and environment activists but also for policymakers and politicians who need to know and be concerned about the environment because of its wide-ranging impact not just on biodiversity but also on equality and democracy for example. He supports his ideas with justifications that are economic as well, so he is not exactly one who advocates for a poorer quality of life for us all so that Earth can be saved.

Go borrow this book from the library now!

Fake Stuff

NPhone rocks!
NPhone rocks!

The Economist ran a story about counterfeit handsets in China lately. Counterfeiting and piracy is not exactly all imitation and no creativity but it does actually hurt the economy, or so claimed by original manufacturers because it affects their incentives to innovate. The difficulty lies with assessing whether the consumer would even consume the good in the first place if the imitation is not available. As a matter of fact, I think the best way for these problem to solve themselves is for consumers to realise which one of the products (real or fake) offers them the utility they need. In most cases, people may just be satisfied with imitations then so be it; the original manufacturers simply may not have profited from these group of consumers who would otherwise not be able to afford the real thing.

It is only when the utility functions of these products coincide and people switch from using original to fakes that matters (but the difference should be made up by the disparity in quality or the time lag in introduction of imitations) and becomes a huge problem. And it would be a bad thing if manufacturers ends up engaged in the competition of who is best able to prevent piracy – that’s senseless innovation that penalizes the society in general. Take Digital Rights Management (DRMs) for example. It sucks, everyone hates them and games like Red Alert 3 lost business because of it (though most part of its lack of popularity was attributed to its poor interface design and lame scenarios) and consumers hate big firms for them.

Perhaps intellectual property should be contained in ways that are stricter such that innovations built upon ideas that belongs to others are welcomed. In many sense, parodies are imitations, and so are fan fiction, built upon characterization or story frameworks that belongs to others. We should perhaps start treating the NPhone’s relation with iPhone like Shrek’s relation with Matrix. A joke.

A Little Late

Send Immediately!
Send Immediately!

I almost totally forgot about the package this week! For a start, check out how exactly you should be reading stuff at all in order to be studying effectively. The articles that are linked there serves as good reads for your weekend although they’re all from The Economist. Itay Talgam presented a great talk about leadership of conductors at TED.com.

In addition, I wrote something about choosing stuff to read again. Yea, that’s all for this week. I’m pretty busy you see. Have a great weekend.

Using Reads

I had a friend who once told me, why waste time reading something when you can’t gain anything from it? His idea is that if you ever read anything, you should try to maximize your benefits from it and for him, he does so by taking notes on paper while reading and staying very focused when he’s reading anything (admittedly, he rarely reads for entertainment).

I’m less extreme but I must agree with his general idea of seeking to benefit from the stuff we read since we’re exhausting our attention on them anyways. It is corollary to the idea of doing the best and achieving the best if you’re to bother to do anything at all. I’ve therefore, come up with an example of how we can best make use of what we read through asking ourselves questions that would help relate our readings to the things we learn in school. The idea is to constantly focus on looking out for examples where ideas we read about are being applied and fill our minds with a thorough understanding of how the real world has shaped the ideas that we hold about it.

I hope I can do more of such for other publications and meanwhile, you’ll always be able to access this page through a link under Economics Notes.