2010

In a recent post, Professor Gerard wonders whether “we take our models too seriously or not seriously enough.” His question was prompted by this article from the Wall Street Journal describing the many ways in which certain well-known and less well-known economists seem to be obsessed with… well, economizing. But, if that is true, is it because cheapskates are attracted to the study of economics, or because economics makes people obsessed with money? One prominent economic theorist, Ariel Rubinstein, was so concerned with what he saw as excessive emphasis on profit maximization in economics that he decided to study this question empirically. His paper, A Sceptic’s Comment on the Study of Economics, seems to confirm his fears.

I am with Rubinstein on this one, and I find it important to emphasize that economics is not about selfishness and profit maximization at the expense of anything else that’s part of the “bigger picture.” On the other hand, some more of rational thought and maximization would do many people and organizations a great deal of good…

Megan McCardle at The Atlantic Monthly has an interesting column on the commercial real estate crash, and what it might imply about the residential crash. It turns out, the boom and bust of commercial property follows pretty much exactly the same trajectory as the residential market. Echoing Paul Krugman’s piece, McCardle points out that the overlapping trends undermine any number of explanations:

Yet we can’t blame this on predatory lenders tricking the unsophisticated into unwise loans, because these were basically all professionals. Nor can we argue that banks were willing to write toxic loans because they were just going to sell the garbage off to investors; a much smaller percentage of commercial mortgages were securitized (though that percentage did increase as the bubble inflated). And we certainly cannot blame them because they “should have known better” than their borrwers, who usually had more experience than the banks in pricing commercial real estate.

Somehow, everyone got stupid all at once.

So what was it?

To answer that question, John Cassidy of The New Yorker headed to Chicago to chat up the big thinkers from The Chicago School about what they think. Although the beginning presents what I think is a misleading caricature of Chicago versus the Keynesians in a black hat, white had fashion, it’s interesting to hear what the likes of Richard Posner, Gary Becker, John Cochrane, and Eugene Fama view the crisis. I especially liked reading about Fama, who canceled his subscription to The Economist because he was tired of reading the word “bubble.”

His piece is currently gated, but I have a copy if you care to take a look.

Applications are now being accepted for the Ninth Carroll Round at Georgetown University be be held on April 22-25, 2010.

The conference should be of interest to those students who are interested in international economic theory or policy and have done research in the field. If you have written a paper in the field or have a research proposal in place, this is a great venue to present your work and meet some of the nation’s best undergraduate students, practitioners, and scholars in the field. For more information, please see:

http://carrollround.georgetown.edu/

The submission deadline is February 15.

The Center for Teaching and Learning will sponsor workshops to provide students with an opportunity for a review of quantitative concepts. Each workshop will be held in Briggs 420 and is approximately 90 minutes long.

Workshop 7:00 PM on Monday, January 11, 2010

The goal of the algebra workshop is to share information on an algebra reference sheet that should empower students with a resource to help answer common algebraic questions. The algebra reference sheet will include information on fractions, exponents, algebraic properties, the order of algebraic operations and the FOIL method of multiplying binomials.

Workshop 7:00 PM on Tuesday, January 12, 2010

The goal of the graph workshop is to share information on a graph reference sheet that should empower students with a resource to help answer common graphing questions. The graph reference sheet will include information on the Cartesian Coordinate System, linear equations in two variables, the slope of a straight line, axis intercepts of a straight line and reading data from a graph.

Workshop 7:00 PM on Wednesday, January 13, 2010

The goal of the word problem workshop is to share information on a word problem reference sheet that should empower students with a resource outlining strategies for approaching word problems. The word problem reference sheet will include information on general strategies that encourage students to extract relevant information, organize the information into patterns and work toward the successful completion of word problems.

Happy new year to you Lawrentians and other fellow travelers. The Dow was up nearly 20% over the past 12 months, so perhaps our collective fortunes are on an upward trajectory. Unless, of course, you were holding “The Tiger Fund.”

Shareholder Value Destruction following the Tiger Woods Scandal

Christopher Knittel & Victor Stango

University of California Working Paper

December 2009

Abstract: We estimate that in the days beginning with Tiger Woods’ recent car accident and ending with his announced “indefinite leave” from golf, shareholders of companies that Mr. Woods endorses lost $5-12 billion in wealth. We measure the losses relative to both the entire stock market and a set of competitor firms. Because most of the firms that Mr. Woods endorses are either large or owned by large parent companies, the losses are extremely widespread. Mr. Woods’ top five sponsors (Accenture, Nike, Gillette, Electronic Arts and Gatorade) lost 2-3 percent of their aggregate market value after the accident, and his core sports related sponsors EA, Nike and PepsiCo (Gatorade) lost over four percent. The pace of losses slowed by December 11, the date on which Mr. Woods announced his leave from golf, but as late as December 17 shareholders had not recovered their losses.

See you in 2010.