Wednesday, October 28, 2015

Survey Results

For those of you not in class today, we did an experiment for 5 minutes where everyone put away electronic devices during that time.  I told a story about why I wanted to perform that experiment.  Afterward, a survey was administered to get the reactions of students.

I posted a link to the results in Moodle.  Not surprisingly, they were varied.  I found the comments interesting.  I suspect you'll find them interesting as well.

As I have a PowerPoint already prepared for next Monday, I will make a video of that.  Whether I do so for future sessions, I'll leave open now.  I'm still hopeful that we can generate some back and forth on the issues and I'd much prefer that to giving a straight lecture.

Excel Homework Due 11/3 at 11 PM

This homework is on the simplest possible version of the principal-agent model.  It is this model that produces pay for performance as a feature.  It is important to understand this base model before we delve into various realistic ways of complicating the model.  (Mostly we will talk about that but I might do some additional modeling in class after going over the basic model.)  There is a video I'd like you to watch first.  It should give you the background you need to do the homework.

Excel File

Notes for class session on Bargaining

Foreshadow next class session on conflict - Argyris and Schon Model 1 and Model 2.

Thinking Gray - The Contrarian's Guide to Leadership


A live example of negotiation in the classroom (and thus an illustration of today's topic, bargaining).

This issue isn't mentioned in the course syllabus.
Bargaining Homework Submissions  (This link will only work for me.)

Saichel - Yiddish Word


The Zen of Listening

Peter Doolittle Ted Talk - Working Memory


John Nash The Bargaining Problem

Co-Opetition Brandenburger and Nalebuff

The Diffeq from Hell

Monday, October 26, 2015

Notes and Links for Class on Sharing the Marbles/Intrinsic Motivation

Volunteering - Peter Drucker

The Essential Drucker, a collection of Peter Drucker essays. It is not a new book, but it is worth the read. He argues that people should have two jobs, one for pay, the other where they volunteer. It is the second job that gives the sense of social responsibilities and fills in all the needs that the market doesn't provide. He also makes clear that people volunteer for two reasons, both of which need to be satisfied - they have to feel their efforts matter and they have to feel they grow from the experience so training to encourage growth is paramount.

Drucker Institute

Justice and Fairness - John Rawls

Rawls offers an alternative to utilitarianism (for us this is maximizing the social surplus).  He allows for some inequality, provided it is needed to benefit all.  He looks at society from a "Veil of Ignorance" where people don't know what station in life they will hold - rich or poor, talented or infirmed.  From there he concludes that the aim of society is to make those worst off have the highest attainable welfare.  (You can think of this as a maximin strategy for society as a whole.)

A Theory of Justice

Justice as Fairness

Group Work - Web site from Carnegie Mellon

While the potential learning benefits of group work are significant, simply assigning group work is no guarantee that these goals will be achieved. In fact, group projects can – and often do – backfire badly when they are not designed, supervised, and assessed in a way that promotes meaningful teamwork and deep collaboration.

Intrinsic Motivation  Maslow and Self-Actualization

Web site from Shippensburg University

Properties of the Self-Actualizer (Abraham Lincoln may be the quintessential example.)
Truth, rather than dishonesty.
Goodness, rather than evil.
Beauty, not ugliness or vulgarity.
Unity, wholeness, and transcendence of opposites, not arbitrariness or forced choices.
Aliveness, not deadness or the mechanization of life.
Uniqueness, not bland uniformity.
Perfection and necessity, not sloppiness, inconsistency, or accident.
Completion, rather than incompleteness.
Justice and order, not injustice and lawlessness.
Simplicity, not unnecessary complexity.
Richness, not environmental impoverishment.
Effortlessness, not strain.
Playfulness, not grim, humorless, drudgery.
Self-sufficiency, not dependency.
Meaningfulness, rather than senselessness.

Thursday, October 22, 2015

Nobel Prize - Angus Deaton

The Economics Nobel Committee made a good and sound choice for this year's prize.  If you went to graduate school in Economics, you would study his work in some depth, such as this text co-authored with Muelbauer.

Reminder: When Blog Posts and Comments Are Due

I try to read and comment on your blog posts on Saturday and for some posts that come in early I might do some reading and commenting on Friday.  This is why the deadline for these posts is Friday evening.  Many of you have been getting your posts done after the deadline.  If you get it in on Saturday, you are probably okay, especially if I'm still reading other posts at the time yours comes in.   There have been one or two weekends where I couldn't finish all the posts on Saturdays and had to read some of them on Sunday morning.  It is then that I will accept posts coming in on Sunday.  However, once I'm done reading all the posts that have come in, I'm done for that week.  If you submit later than that I will not read your post and you won't get credit for submitting it.

Earlier in the semester I accommodated late posts because I wanted everyone to start on a good foot.  We're past that point now.  Please get your posts in before the deadline.

There is an additional requirement that you respond to my comment on your post with a comment of your own.  Preferably, that happens before class on Monday.  Truthfully, that is too hard for me to monitor on a regular basis.  However, when I graded your blog posts last week I did read all your comments.  Many students are not making them.  I urge you to do so.  Point-wise there are 50 points (5%) of your raw score allocated for comments.  More importantly for me as a teacher, I'd like to know that you've considered what I said and that we're having a little back and forth on your posts.  That is there to encourage your learning.

On Monday, I'll try to bring this mechanism into our discussion of the Daniel Pink video.  I wonder if you can connect the two before our class next meets.

Wednesday, October 21, 2015

Some further thoughts on effort/shirking

I really like this quote from Gertrude Stein,

It takes a lot of time to be a genius, you have to sit around so much doing nothing, really doing nothing.

My interpretation of this is first, that one needs fallow time for reflection and other time for chatting with friends to generate formative ideas.  This incubation phase looks like no work is being done.  But that is not right.  It is the way things get going.  Then second, conscious thought doesn't always do the trick and sometimes the subconscious is very helpful in coming up with solutions.  That is one reason for sleep and dreams.  But the subconscious may be working even when we are awake.  So if you are engaged in something light and not too taxing of your attention, such as watching a junky program on TV, your mind may be at work on problem solving for the idea at hand.

If this is correct, it means that when you are always busy with tasks that someone else can tell you are doing them, then you don't have "time to think."  So you can have the appearance of working quite hard, yet end up not being productive in the sense of coming up with a breakthrough idea.  

And if you are, like me, an introvert then if you are denied this down time for too long a period you start to go bonkers.  As you get older you learn that other introverts crave this time for thinking.  Of course, a career in Academia accommodates this sort of behavior. There is the issue of whether it can also be accommodated in the business world, and if so how.

This means that fundamentally we can only really tell about effort for knowledge work in retrospect, by seeing what ideas come from the work.  During the production it is near impossible to distinguish from idling that is properly called shirking.  And even in retrospect it is hard to tell because many potentially good ideas end in up in the trash.  You can't tell ahead of time.  You have to try them out.

For your amusement, below is a copy of Picasso's famous painting of Gertrude Stein.

Excel Homework Due 10/27 at 11 PM.

The homework is on bargaining.  Note that M&R have a discussion of bargaining in Chapter 5.  You should read that.  The model they go through has both the buyer and seller having two types.  In the Excel homework, the model has a continuum of types on each side of the bargain.  In that sense it is harder but also more elegant.  And, I believe, it should give you a better understanding about the relationship between the private information and the inefficiency  created.

There is a fiction in the model that helps to understand what is going on.  The fiction is that there is a third party - an arbitrator - who provides rules for how the bargaining will happen, when trade will occur, and at what price.  The fiction is necessary because the model is static.  Real world negotiations happen over time and to model that correctly one needs a dynamic model.  There are such models, but they are well beyond the scope of our class.  So we will keep the modeling relatively simple and wave our hands about what happens in real world bargaining.

There is a rather extensive discussion in this homework before you log in.  I encourage you to read that carefully and not gloss over it.  It is about how to bargain well and what happens in real-world procurement, which entails a good deal of such bargaining.  There are practical lessons here that you can carry over to your work life, even if you don't engage in procurement.

Monday, October 19, 2015

Buzzwords for class session

Life-Cycle Consumption   Graph
Income smoothing via borrowing and saving

Insurance - Savings as an income risk buffer

Experimental Consumption

Flexibility or Commitment

Human Capital Acquisation
En passant while working - professional development - further formal education

Job Ladder

Job Search


Sunday, October 18, 2015

Grades for Blog Posts First Half have been uploaded

This covers the five posts starting with your experience with teams and ending with managing income risk.  I did not count the post about your alias.  There are points allocated - the maximum was 125.  And there are some comments about your performance with suggestions on how to improve that in the second half of the course.

For those of you who did all the posts and got that done in a timely fashion, please know that I enjoyed this exercise of reviewing your work.   If you would like to meet with me one-on-one to further discuss your blogging, I would be delighted to do so at a mutually convenient time.  Please email me with a couple of times that works for you and we'll try set something up.

For those of you who did not do all the posts or got them in late and who have not previously spoken to me about your situation, please know that eventually i lost my patience on this and some of that carried into the comments.  It is a lot of work to provide this form of assessment and I get no pleasure at all from being your taskmaster rather than being your teacher.  With several of you I suggested that we do have a face to face meeting to see if we can right the ship for the second half of the course.  That would benefit both you and me.

Thursday, October 15, 2015

Two pieces worth reading

This first one is a book review written by Cass Sunstein of a new book by Akerlof and Schiller called Phishing for Phools: The Economics of Manipulation and Deception.

The other one is an Op-Ed in the NY Times written by Sherry Turkle called Stop Googling.  Let's Talk.  It is about the harmful effects in terms of developing empathy and good listening skills from always having your head on your phone or computer screen.

It might be interesting to put these two pieces together.  At the end of the first piece, Sunstein mentions a kind of individual called a sophisticate who is immune from phishing attempts because the person knows how to steer clear of them and devotes considerable attention to that purpose.  The good listening skills that Turkle talks about may be at the heart of what is necessary to become a sophisticate.

Wednesday, October 14, 2015

Random Seat Assignment or an Honor Code?

This piece is a fun read and touches on many course themes.  Have any of you experienced random seat assignment in a course?

Excel Homework Due 10/20 at 11 PM

This one you should find interesting.  It is on insurance under private information.  A person could be a low risk (low probability of loss) or a high risk (high probability of loss) but there are no distinguishing features that lets the insurance company know which type an individual is.  The individuals know which type they are, but if low risk types get better rates then both types have incentive to claim they are low risk.  The market must somehow address this incentive problem.

Monday, October 12, 2015

Examples for Essay Question on Midterm 1

Imperfect Monitoring

  • BP and Gulf Oil Spill
  • GM and faulty ignitions
  • Performance Enhancing Drugs and Pro Athletes
  • Exxon and Global Warming
  • StarKist (see previous post)
  • Procurement Example I did in class - WebCT Vista and Illiniois Compass
  • New President of U Iowa falsifying his resume
  • Concealed emails on Salaita matter
  • Black Sox Scandal
  • Bernie Madoff
Lack of alternative suppliers - local monopoly
  • Drug prices for patented drugs particularly those that treat life threatening illness. 
  • Strikes, such as by teacher unions
  • Cost overruns and project delays among defense contractors
Lack of alternative buyers - local monopsony
  • Amazon - employees put in extremely long hours and are very competitive with one another.  
  • Walmart - pays employees little, poor benefits.  
  • Apple Computers - squeezes parts suppliers.
Coordination Problems
Pure Coordination 
  • Technology Services (Campus) provides Illinois Compass.  ATLAS (LAS) provides Moodle.
  • MLB - American League has the designated hitter.  National League has the pitcher bat. 
  • Statistics taught on campus - from the Stat Department or the Academic Department.
  • Macs or Windows computers in the workplace (and in the classroom). 
  • Databases - Oracle or SQL (Microsoft)
Prisoner's Dilemma
  • How Markets Fail by John Cassidy - Do banks pursue a strategy of making only safe loans at low interest rates or pursue a strategy of also making risky loans at high interest rates?
  • The Ratings Agencies - Standard and Poors, Moodys - can they deliver low ratings to companies that pay them for their ratings? 
  • Grade Inflation
  • Doctors ordering unnecessary procedures to self-insure again malpractice.  (This one also has an element of pure coordination in it, in that really sick patients see multiple doctors who don't necessarily communicate with one another.)

Saturday, October 10, 2015

Sorry Charlie

In the process of grading the essay I became aware of this class action lawsuit against StarKist, which found they had too little tuna in their cans and too much water.  Presumably, a deliberate act of this sort is done expecting to get away with it, not to get caught.  On this one water is cheap, tuna expensive.  So in this fraud StarKist was clearly lowering its costs to an unsuspecting public.

Friday, October 9, 2015

The New Microsoft - A Zen-like approach in high tech

This piece is worth a read even if you are a diehard Apple fan.  The interesting part of it is about corporate tone, as set by the CEO.  One the one hand, it is a lot easier for a leader to embrace a Zen-like approach when the R&D the company has done the last few years has produced some blockbuster successes.  On the other hand, maybe real invention follows when leadership takes a calm and reflective approach.

Overview of Background Resources

This is a quick version of what I did in class a week ago Wednesday after assigning the students who were present to Project teams.  This video is mainly for those students who weren't present, but might also be useful to those who were there.

At this point, all students in the class have been assigned to project teams.  It would be good now for each team to identify the project they want to work on.  After tentatively deciding that, please contact me by email so I can agree with your plans or make some modifications that I think will improve your project.

Wednesday, October 7, 2015

No blog post this weekend/Graded exams returned in class on Monday.

Because I have exams to grade there is no blog post due this weekend.  It gives you some time when you can meet with your teammate and get going on your project.  Please let me know when you have an idea/topic for that.  I want to give the Okay on your projects and possibly tweak what you intend to do, to assure that it relevant to what the class is about.

In class on Monday I will return the graded exams.  We will also do a brief review of the exam, before starting in on our next topic.  Interesting your preparation before the exam offers some good real-world evidence about the topic, so we will discuss that too.

Excel Homework Due Tuesday 10/13 at 11 PM

This is the homework on the Math of Risk and Risk Preference.   While you might be able to grind through it without viewing the content in the previous post, my expectation is that you will have done so.  It will greatly increase your understanding of what is going on.

Also, if you are an eager beaver in the crowd and do the homework before class next Monday (I applaud the eager beavers in the class) note that when you get to line 86 of the spreadsheet it says we have covered these ideas in class already.  We should get to those ideas on Monday, if only briefly.

Please look at this before you start the next Excel homeowrk

Each of these should be reviewed before doing the next Excel homework, which assumes that such a review has been performed.  They should be familiar already, based on what you've been exposed to in Econ 202 and 203. There may be some new stuff on risk preference. I'd be curious to learn what is old hat and what is new for you. Note that there is a bit of overlap between each of these. Nonetheless, I strongly encourage you to review them all, so you have a firm understanding of the fundamentals. The second one emphasizes and algebraic approach. The third, a graphical approach. You should be familiar with both.

Notes on the Math and Philosophy of Probability  (This is a pdf file.)

Increasing Risk and Risk Aversion (This a video in YouTube.  You can find a link to the PowerPoint file on which it is based in the description of the video.)

Expected Utility and Jensen's Inequality (This a video in YouTube.  You can find a link to the PowerPoint file on which it is based in the description of the video.)

You should be able to get through all of this in under 45 minutes.  Of course, the less familiar it is to you, the longer it will take to get a good understanding.

Tuesday, October 6, 2015

Student Questions About The Coming Midterm

Student questions about the exam should be posted here.  That is where I will answer them.  There already are some questions and answers posted.

Friday, October 2, 2015


I just received the email below from Google. I believe our Upcoming Course Items in the left sidebar of the class site relies on this XML feed.  So it will stop working soon before the Thanksgiving break.  As there is nothing I can do about it, do note that there is a full class calendar on one of the Tabbed pages.  You will have to use that instead.  It is a little less convenient.  I regret that but its the best we can do under the circumstances.


From: “The Google Calendar Team“
Reply-To: “The Google Calendar Team“
Date: Friday, October 2, 2015 at 2:51 PM
To: Lanny Arvan
Subject: Important announcement about XML feeds in Google Calendar

Important announcement about XML feeds in Google Calendar

Because of low usage, and in an effort to streamline our services, from 18 November 2015, XML feeds will no longer be available in Google Calendar. You're getting this message because you're currently viewing or sharing a link to one or more of your calendars using an XML feed.
We apologise for any inconvenience caused. Google Calendar will continue to support three ways of viewing your calendars in other applications or on websites. You can:
  • Access your calendar in other applications, such as Microsoft Outlook or Apple Calendar, using iCal.
  • Embed your calendar in your website or blog using HTML.
  • Use the Google Calendar API to display, create and modify calendar events if you're a developer.
Finally, you can always view and manage your calendars using the Google Calendar app for Android, iPhone or on the web.

- The Calendar team

© 2015 Google Inc. 1600 Amphitheatre Parkway, Mountain View, CA 94043, USA
You have received this mandatory email service announcement to update you about important changes to your Calendar product or account.

Thursday, October 1, 2015

About the Class Project - Reasons

There are two possible types of class project.  One is a review of a scholarly paper written by professional economists on a topic that is relevant to the class.  The other is a case study, again on a topic that is relevant to the class.  These alternatives do offer teams a choice as to the type of project they will do.

Each type of project has a goal associated with it and these goals are quite distinct.  If we did this course over both the fall and the spring then perhaps each team would do both types of project.  Given our current circumstance, one project is all we can squeeze in.

* * * * *

The review of a scholarly paper is meant to give students some experience with how academic economists communicate their research ideas with other economists.  I suspect most if not every student in the class has never read such a scholarly paper, although most of the students in the class are economics majors.  In graduate school for PhD students, the bulk of what students read are such papers, at least after they have finished the first year set of core courses.  The thought here is that undergraduates should have a little bit of this sort of experience as well.

There are two barriers of skill that I hope we can avoid via selection of the papers that are candidates for review.  The first is math modeling.  The second is econometric analysis of the data and the results of the various hypothesis testing done in the paper.  I suggest that students don't read those sort of papers.  They likely will find them impenetrable.  Not that long ago I tried to read a paper I had written in the late 1980s.  Some of the argument was over my head now - and I was the author of the piece!

This leaves papers that are without equations and multiple regression results but where the writing is for economists, not generalists.  This may still be difficult to penetrate, but based on the extra credit projects students did for the class last year, I believe it is possible with some effort.  One reason for doing this with another student this time around is that the two of you can hash out what the paper is saying.

Understanding the issues in the paper is indicated by being able to translate the arguments to a generalist.  The purpose of your review is to provide such a translation.

* * * * *

Our course is taught in a fairly theoretical manner.  While I do try to include examples from when I was an administrator, there is the issue of whether those carry over outside of higher education into the business world that many of you will enter.

Students want to learn practical stuff.  I've known that for some time and have written a bit on it about ten years ago.  The case study project is meant to appeal to this student motivation.  The idea is to find a rather rich real world example, explore its features, and then generalize the lessons learned from the example.  Sometimes cases suggest hypotheses that others have not yet articulated.  Other times cases offer evidence in support of a hypothesis that is widely regarded as possible.  (Note - it is very hard to confirm an economic hypothesis with the same sort of precision as confirming an astronomy hypothesis, such as the one about the earth revolves around the sun.  The evidence we have for an economic hypothesis may be insufficient to "prove" the hypothesis is true.  The absence of controlled experiments in economics means many hypotheses can't really be tested.)

For the case study an additional aspect of the project is to tie the case to subject matter of our class.  In that sense the case study is like the blog posts.  The difference is that for the blog posts you are using your own prior experience.  With the case study you are using experience from the business world that you've read about.

As I said in class yesterday, I've not taught with case studies in an econ class before.  The reason, apart from never being trained in the case method, is that I've been unsure whether students can make the connections between the case and the course subject matter.  I said yesterday that these projects are an experiment.  One aspect of the experiment is to see whether students can make the right sort of connections between the case and course content.

* * * * *

There is one other reason for the projects that is worth mentioning here. While I try to teach the class where a foundation is built early and then we build on that later, there is no doubt that the course has elements of going from one topic to the next, with none covered in much depth.  For example, we could make the entire course focus on transfer pricing and really understand transfer pricing as a consequence.  As it is we have one Excel homework that is partially on it and likewise one blog post.  So the topic is covered, but not so deeply.  The project is meant to give you some experience in learning an economics idea with greater depth.  How you go about doing the project will determine whether that purpose is met.