Wednesday, April 9, 2014

An interesting interview with Phelps

Edmund Phelps.  My favorite quote:
Of course, while house prices were going up, that became a substitute for saving. People would refinance their homes, take the profit and spend that, hoping that prices would go up again. And then they would do the same thing and spend that. But I do think this home-ownership craze does tie in with a newfound fashion for spending rather than saving. I'm old enough to remember in the 1930s and the 1940s when thrift, frugality was considered an important virtue. In those days we all knew Benjamin Franklin's aphorism, "A penny saved is a penny earned." Today, the official doctrine seems to be that a penny spent is a penny earned.
I like how well he articulates the proper trade off between renting and owning your home.  Owning a home is tied to the American dream, yet the choice isn't necessarily obvious.

Wednesday, March 12, 2014

The Enigma of Silence

The Wall Street Journal has an excellent article today on the Email Enigma: When the Boss's Reply Seems Cryptic.  Here's a key excerpt:
The number of emails sent or received daily by the typical corporate employee is expected to rise to 136 by 2017 from 121 this year, based on projections released last November by the Radicati Group, a Palo Alto, Calif., market-research firm. Managers, who receive the most, are "flooded by email," says Nancy Ancowitz, a New York business communications coach. Many a manager multitasks to get through it all, "emailing from a mobile device at a stoplight, typing with his thumbs," Ms. Ancowitz says. 
Some bosses don't answer at all. Nearly one-third of 700 employees surveyed by researchers at Florida State University said their bosses had given them "the silent treatment" in the preceding year, according to the 2006 study.
The article is pitched as a corporate problem, but the congestion of inboxes (and its associated problems) is not limited to the business world.  A number of my busiest colleagues prefer to be short and to the point in e-mail, and for the same reason as the article cites -- many of them receive 100 to 150 e-mails per day.
The entire article is worth a read, if you have the time.  As for me, I better get back to responding to e-mail.

Friday, February 14, 2014

Why Do We Learn Math?

I have been thinking a lot about how math and its role in higher education lately.  Before getting into my thoughts, let me quote (again) from a classic article by Gale and Shapley  [link here], which makes clear that math isn't numbers or calculus even, but a way of thinking:
Most mathematicians at one time or another have probably found themselves in the position of trying to refute the notion that they are people with "a head for figures," or that they "know a lot of formulas." At such times it may be convenient to have an illustration at hand to show that mathematics need not be concerned with figures, either numerical or geometrical. For this purpose we recommend the statement and proof of our Theorem 1. The argument is carried out not in mathematical symbols but in ordinary English; there are no obscure or technical terms. Knowledge of calculus is not presupposed. In fact, one hardly needs to know how to count. Yet any mathematician will immediately recognize the argument as mathematical, while people without mathematical training will probably find difficulty in following the argument., though not because of unfamiliarity with the subject matter.
The insight that Gale and Shapley put forth -- that mathematical training helps with forming and following structured logical arguments -- is a really important reminder for what role math should play in high school, college, and graduate education.  If our goal in education is to enhance our students' abilities to think critically and effectively analyze problems, mathematical training is indispensable.

This reason for taking math seriously is quite different than the usual motivation to push for better math and science education.  Usually, people (politicians, commentators, etc.) argue that math and science are the most practical of the subjects, and because we're going to be using these tools every day, we had better study them and master them.  That's how we end up to be engineers and scientists, and those are good, high paying jobs.

It is true that math is practical for these professions that use math, but math is so much more than that.  Mathematical training helps structure logic, logic facilitates problem solving, and any high-skilled job is going to require a lot of problem solving.  We should take math seriously because math is a language that is particularly well suited to posing, understanding, and solving problems.

On a closing note, the tricky thing about languages is that when you become fluent in them, you do not notice how much you use it.  This is especially true with mathematical training.  You may not use calculus every day, but the very fact that you learned calculus changes how you think and process information.  You're better at solving problems because you took calculus, and thus, have a richer experience in solving problems.  This is true whether or not you need to use calculus to solve the problem.  

Thursday, January 30, 2014

Some interesting questions about car dealers

Relating to my posts on my experience negotiating for and buying a car, a reader wrote in with the following anecdote:
I came across your article regarding the Colorado auto dealerships and Sunday sales, and found it very interesting. 
We had a similar issue in Rhode Island some years ago.  Dealers also had to be closed on Sunday, and there was a fight (by many dealers) to be able to open. 
Being such a small state, the issue was that with dealers open in Massachusetts and Connecticut, these sales were actually "lost" by the dealer, as it was easy to go to a competing (and open) dealer on Sunday in one of those states. 
The state of Rhode Island also lost a significant amount of sales tax revenue when that happened.  This point was probably the main reason why the law was overturned, and dealers are now open on Sunday. 
What led me to your story, however, was something else entirely. 
I [...] have always been fascinated by economics.  I am struck by how dealers cut prices (to a point where they are unprofitable) in order to beat out a competitors offer.  It reminded me of the Prisoner's Dilemma theory, and I was doing some online research to see if anyone else had discussed this.  That's why I came upon your article. 
It seems that in acting in what they think is their own self-interest (getting the sale of the vehicle, at all costs) and then with competitors trying to do the same, the profit of a new car dealer has plummeted (zero or negative profit in selling cars, but still profitable in the service, parts, body shop and used car departments). 
 It's gotten to the point where in many cases a dealer is more profitable if the don't sell the car.  Truly a sad state.

I think that this reader raises a number of interesting questions about the car dealership market.  Two immediate questions, for example, are How well aligned are the incentives of the car salespeople, dealership, and the car company? and  Do dealerships sell cars as loss-leaders to make profit on the back end?  From the author of this comment, the answer would seem to be "not very" and "yes."  I also really liked the comment about how Colorado's ban didn't work in a state like Rhode Island because it was so easy to go to an adjacent state.  Very cool.

Aside from that, you might think that there are two other considerations.  On one hand, car dealerships are thought to price discriminate.  Perhaps, they make enough profit on the bad negotiators to offer some screaming deals.  Even better, they might sell a car "below cost" as a loss leader in a different way -- as a way of generating word-of-mouth advertising.  Of course, for this to work, they need to eventually charge someone a mark up.

Either way, the reader raises some interesting questions, and I thought I would share.

Tuesday, January 7, 2014

What does the rise of casinos say about the rest of our economy?

As someone with some research on the casino market, I found today's post by Tim Harford about the Vegas-isation of the economy to be fascinating.  I think the parallels Harford draws are interesting and insightful.  Even if you're not drawn in by casinos, I hope you'll be drawn in by his post.
What if the future of capitalism is not to be found in Shenzhen, Abu Dhabi or the Massachusetts Institute of Technology Media Lab – but in the Nevada desert? Natasha Dow Schüll, an anthropologist, has spent 15 years conducting field research in Las Vegas, culminating in a disturbing book, Addiction by Design. We are used to thinking of Vegas as a city of gaudy spectacle and the green baize of poker, blackjack and roulette tables. It is now a city of slot machines, which have grown like weeds because they are fantastically profitable. And the spread of machine gambling offers a worrisome portent of developments elsewhere in the economy. 
Three slot-machine innovations stand out: first, confusion by design; second, addictiveness by design; third, the use of play money. All have been made possible by the digital automation of the machine itself, which in Las Vegas as elsewhere eliminates the skilled service jobs of croupiers and replaces them with highly paid jobs in interface design and low-paid work as a security guard or waitress.
I have the feeling that Harford views the trend for these market innovations (exploiting confusion, addiction, and play money) as responding to a common shock, possibly technology, or a cultural shift.  That's possible, even plausible, but what if exposure to casinos causes people to take more risks elsewhere, or prefer other products that have casino attributes?  Research by Chi Liao, a Ph.D. student from University of Toronto, suggests that there might be some truth to this claim (paper here).  You might quibble with the details of that paper, but the idea strikes me as plausible and important, given the recent rise of casinos.