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.

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?

To Stop Exam Cheats, Economists Say, Try Assigning Seats - The Chronicle of Higher Education via kwout

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.

Setup and Algebra of Insurance Model

We will cover this presentation in class tomorrow.

We will also use this for demonstration.

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.)

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.

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.

Satya Nadella and Microsoft’s Very Good Day - The New Yorker via kwout