Adam Galambos

Author: Adam Galambos

Entrepreneurship in Chicago

Thirty of us returned last night from another very successful Lawrence Scholars in Business trip to Chicago. Most of yesterday was “entrepreneurship day.” Before lunch, we went to ICNC, an incubator hosting over a hundred start-ups. We got to visit two of them, Souldier and Element Bars. The latter was a winner on Shark Tank! Our gracious hosts at ICNC were Steve DeBretto and Tom Cassell. Tom teaches the Entrepreneurship Practicum at the ACM Chicago Entrepreneurship program. The deadline for Fall 2012 has been extended, so it’s not too late to think about making this part of your next year. If you liked the two-day immersion experience we got in Chicago, you’ll love the term-long immersion experience you’ll get in the ACM program. Consider taking advantage of this great opportunity. The ICNC is not just a space to practice whatever your craft is, but it is also a community of entrepreneurs, with a strong support network.

After lunch at the Berghoff, we went to the Merchandise Mart to visit the just-launched hot new tech-incubator 1871. If your start-up might need a truck to pull up to your space, ICNC is where you’d want to be. But if you are a software start-up, you’d want to be at 1871, the intersection where the explosion of ideas takes place. Dozens of start-ups, six venture capital firms, four universities, many prestigious sponsors, and a number of mentors come together in a space designed beautifully for creativity.

I&E courses in 2012-13

If you are looking for I&E courses in 2012-13, you might know that you can already enroll in the Pursuit of Innovation (Fall), Entrepreneurship and Finance (Spring), and Financial Accounting and Entrepreneurial Ventures (Winter, Spring)  courses. In addition, two more courses might soon be available: Dean Pertl in the Conservatory is planning The Entrepreneurial Musician, and the Economics Department is probably going to offer Economics of Innovation and Entrepreneurship again next year. Stay tuned for updates!

Price controls don’t work

Here is the latest confirmation, from Venezuela. From the NYT article:

Asked where a shopper could get milk on a day when that, too, was out of stock, a manager said with sarcasm, “At Chávez’s house.”

At the heart of the debate is PresidenHugo Chávez’s socialist-inspired government, which imposes strict price controls that are intended to make a range of foods and other goods more affordable for the poor. They are often the very products that are the hardest to find.

Long lines of the kind described in the article  were common in socialist countries. The decision making process of a consumer in an economy with chronic shortages  is very different from that of our “standard Max U.” As a consumer, you might choose your desired consumption bundle from those you can afford, only to find that some of the items in that consumption bundle are not available. Or you might find that they are not available where you thought they were, and finding out where they are available is tricky. Economist János Kornai wrote a book on the Economics of Shortage, but his book on The Socialist System has a couple of chapters on the phenomenon of shortage as well. For more on this, take next year’s Comparative Economic Systems course (here is the course outline from last year).

Don’t miss that famous Chicago trip

The LSB program sponsors an educational trip to Chicago every year.  The purpose of the trip is to provide students an “immersion experience” in one of the country’s financial and entrepreneurial hubs.  The trip will take place during reading period, on May 3rd and 4th.  We will leave at 6:00 a.m. on Thursday, May 3, and return in the evening on Friday.

We will have a full schedule, visiting the following organizations: Chicago Mercantile Exchange, Madison Dearborn Partners, The Northern Trust Company, Deloitte, LBC Credit Partners, Industrial Council of Nearwest Chicago, Ennis Knupp + Associates, and the Chicagoland Entrepreneurial Center.

The costs of the trip are covered by the LSB program. The trip is open to all students. This trip is a great opportunity to learn about the business world up-close, in a way that you couldn’t do on your own. If you would like to join, register through LUworks.  Deadline to register and pay $20 refundable deposit is April 25.

Economics Colloquium

Some Misconceptions about Preferences

Dan Hausman, Department of Philosophy, UW-Madison

Dan Hausman

Herbert A. Simon and Hilldale Professor
Department of Philosophy

University of Wisconsin – Madison

Monday, January 9, 4:30 pm

Steitz Hall 102

In this talk, which is drawn from my book, Preference, Value, Choice and Welfare (Cambridge University Press, 2011), I argue that preferences in economics are and ought to be understood as total comparative evaluations. They are consequently more like judgments than feelings, and they are not mere matters of taste. They cannot be defined by choices (as revealed preference theorists mistakenly maintain), and they cannot be defined in terms of self‐ interest or expected benefit. In addition, in contrast to what many economists believe, I shall argue that economics already contains an account of preference formation, and that it can  and  should say more about how agents form and modify their preferences.

This article gives you a preview:

In particular, I shall discuss three mistakes concerning preferences that are common among economists and other social scientists. There are others, but this article will be long enough as it is.

  • Preferences are matters of taste, concerning which rational criticism or discussion is inapplicable.
  • Preference rankings are rankings of alternatives in terms of expected (self-interested) benefits.
  • Preferences can be defined in terms of choices, as in revealed-preference theory.

And in a recent interview, this is what Professor Hausman has to say about his book:

The book is about preferences, mainly as they are and ought to be understood in economics, but I also have some things to say about preferences in everyday language and action, in psychology, and in philosophical reflection on action and morality. In this book I clarify the notion of preferences that economists rely on and to a considerable extent defend the way economists use the notion of preference. But I am also critical of misconceptions concerning preferences that many economists and other social scientists hold. Continue reading Economics Colloquium

The Future of College Admissions

Every year, thousands of students enroll at thousands of colleges in the US. Is the outcome of that process efficient? Or could students and colleges be matched in a way that makes everyone better off? Companies like ConnectEDU are building their business model on the answer being “Yes.” A recent article in the Washington Monthly ponders the future of the college admissions scene.

In 2009, the former Princeton University president William Bowen documented the pervasive problem of “under-matching” in higher education. Bowen examined a group of North Carolina high school students from across the income spectrum whose grades and SAT scores were good enough to get them into a top-tier university. Seventy-three percent of wealthy high performing students actually enrolled in such a university.

Only 41 percent of low-income high-performing students did the same. The under-matching rates for minority students and those whose parents never graduated from high school were similarly low. And under-matched students were significantly less likely to earn a college degree.

There are a number of reasons for this. Bad high schools usually lack the guidance counselors and visiting college recruiters that well-off students take for granted. Parents who haven’t been to college can’t use their experience to guide their children toward higher education. Plus, elite colleges are often very expensive and are becoming more so every year.

But there’s another culprit at work: the college admissions process itself. If you want to buy shares of stock, bid on antiques, search for a job, or look for Mr. Right in 2011, you will likely go to a marketplace driven by the electronic exchange of information. There will be quick, flexible transactions, broad access to buyers and sellers, and powerful algorithms that efficiently match supply and demand. If you are a student looking for a college or a college looking for a student, by contrast, you’re stuck with an archaic, over-complicated, under-managed system that still relies on things like bus trips to airport convention centers and the physical transmission of pieces of paper. That’s why under-matching is so pervasive. The higher education market only works for students who have the resources to overcome its terrible inefficiency. Everyone else is out of luck.

Though the article is a bit too long and meandering, it raises some very interesting questions, and it is not difficult to believe that the college admissions process is inefficient. How would it impact colleges if this process became much more efficient, and if information became much more easily available and usable? Would colleges become much more responsive to consumer needs?

The Washington Monthly also publishes rankings of colleges, based on three (equally weighted) criteria: “Social Mobility (recruiting and graduating low-income students), Research (producing cutting-edge scholarship and PhDs), and Service (encouraging students to give something back to their country).” Lawrence University comes in 99th overall (well below Beloit and Ripon), but ranks 46th in producing PhD’s (well ahead of Beloit and Ripon).

HT: Market Design

A brief stint for homo faber

The latest issue of The Economist looks at technocrats in charge:

EVEN before Plato conceived the philosopher-king, people yearned for clever, dispassionate and principled government. When the usual run of rulers proves cowardly, indecisive or discredited, turning to the wisdom and expertise of a technocrat, as both Italy and Greece have done in recent days, is particularly tempting.

Those of us who just finished reading The Road to Serfdom read those words and sense the cozy comfort of an argument close to our hearts. When the article goes on to say: “Crankishness aside, technocracy and autocracy have long been natural bedfellows,” we expect HAYEK to jump off the page any moment—he is lurking between the lines no more. But, curiously, this venerable British weekly ran an article on technocracy and autocracy without mentioning that most famous economist to stroll the halls of the London School of Economics.

Their conclusion? “History suggests that technocrats do best when blitzing the mess made by incompetent and squabbling politicians.” Perhaps the reason for the omission of Mr. Hayek was not so much a conscious decision as unfamiliarity. If a few others throw in a buck, I’m happy to do my part in sending The Economist a copy of TRtS. The Reader’s Digest version.

(Some) Harvard Econ Students Unhappy

The “Ec 10 Walkout” at Harvard has garnered some media attention—Ec 10 being the famous introductory economics course at Harvard, “taught” by Gregory Mankiw. Only about 10% of his class walked out, which comes out to be about 70 students. (Yes, that means that the intro econ lectures at Harvard have 700 students, and they see Mankiw about 5 times and from far away.) The revolution was, in fact, televised. When I was in 7th grade, we did something similar in math class, but nobody paid much attention. Probably because we didn’t have youtube.

NPR managed to find a freshman who went on the record with this statement: “I’m someone who lives below the poverty line, my family’s extremely poor. And having a class like this that promotes gaining at the expense of millions of people disturbs me and bothers me at my core.”  A few more students made similar statements: “Their specific criticisms are that economics as taught in this class, formally called Economics 10, failed to prevent the financial crisis and does nothing to narrow the gap between rich and poor.” Read more. These quotes confirm that even at Harvard, one can apparently find students who are clueless about economics yet feel that they are in a strong position to criticize it. Mankiw’s blog has a post on the event, including the students’ open letter, and another post on the NPR interview with Mankiw on the subject. Finally, take a look at this defense of Ec 10 from a student.

Tweakers, not Inventors

A recent New Yorker piece by Malcolm Gladwell argues that Steve Jobs was a tweaker, not an inventor. He quotes a paper in which Meisenzahl and Mokyr make the argument that England took the lead during the industrial revolution partly because it had more “tweakers.” In explaining England’s success, they say people “who had the dexterity and competence to tweak, adapt, combine, improve, and debug existing ideas, build them according to specifications, but with the knowledge to add in what the blueprints left out were critical to the story.”

HT: Cheap Talk

Daylight… Savings?

These days we don’t set back clocks very much any more, but instead our cell phones tell us that it must be the end of daylight saving time (although our cell phones do set us back quite a bit).

Dali clocks
Dali: The Persistence of Memory

The idea of daylight saving is famously attributed to Benjamin Franklin, but it was first introduced only about a hundred years ago. It has been policy in most of the US for about 50 years.

But does it really save energy? Surprisingly little research seems to have been done about that question. A 2008 NBER working paper considers the issue, taking advantage of a “natural experiment” in Indiana, where some counties used DST while others did not until 2006, when DST was sanctioned for all of the state. (Since it is often not possible to create lab experiments to resolve empirical questions in economics, we must rely on so-called “natural experiments” and a mysterious practice called “econometrics.”) Here is what the authors, Matthew J. Kotchen and Laura E. Grant, find:

The history of DST has been long and controversial. Throughout its implementation during World Wars I and II, the oil embargo of the 1970s, more consistent practice today, and recent extensions, the primary rationale for DST has always been the promotion of energy conservation. Nevertheless, there is surprisingly little evidence that DST actually saves energy. This paper takes advantage of a unique natural experiment in the state of Indiana to provide the first empirical estimates of DST effects on electricity consumption in the United States since the mid-1970s. The results are also the first-ever empirical estimates of DST’s overall effect.

Our main finding is that—contrary to the policy’s intent—DST results is an overall increase in residential electricity demand. Estimates of the overall increase in consumption are approximately 1 percent and highly statistically significant. We also find that the effect is not constant throughout the DST period: there is some evidence for an increase in electricity demand at the spring transition into DST, but the real increases come in the fall when DST appears to increase consumption between 2 and 4 percent. These findings are generally consistent with simulation results that point to a tradeoff between reducing demand for lighting and increasing demand for heating and cooling. According to the dates of DST practice prior to 2007, we estimate a cost to Indiana households of $9 million per year in increased electricity bills. Estimates of the social costs due to increased pollution emissions range from $1.7 to $5.5 million per year.

Addendum: Watch your step!

Schumptoberfest is here

This year’s turbocharged Schumptoberfest is also known as the ACM workshop on Innovation and Entrepreneurship in the Liberal Arts Curriculum. You can find the program online at, or click on the posters below. The keynote address is open to the public, and you wouldn’t want to miss it if you are on campus. If you are interested in some of the other sessions, talk to Professor Gerard or Galambos.

Blooming entrepreneurship

If you’d like to find a shining example of an entrepreneur who is a Lawrentian (and an Economics major to boot), I suggest you google Abir Sen. The most recent news item that will show up is this Bloomberg report announcing that WellPoint, the largest insurer, is buying most of Bloom Health, which Abir founded and has been leading as CEO. Before this venture, he co-founded RedBrick Health, another innovative health care company. But wait, there is more. From the Bloom Health website:

Before co-founding RedBrick Health, Abir co-founded Definity Health and was part of the team that invented the Personal Care Account, the predecessor to the Health Savings Account. Abir has also worked as an advisor to Fidelity Investment’s Health and Welfare Business, where he helped launch Fidelity’s benefit consulting business. He began his career at Deloitte Consulting, where he advised large managed care organizations and integrated delivery systems on M&A and turnaround strategies.

Abir has a B.A. in Economics from Lawrence University and an M.B.A. from the Harvard Business School. Other than health care, Abir’s interests include aviation, border collies and U2.

Those of you who have had the chance to meet him on campus know that he is a great guy to talk to. He is a great believer in the liberal arts education, which he has been able to apply to solving problems in the world. If we’re lucky, we might see him on campus again this year, so look for his name on this channel.

There is no such thing as a law in Economics?

In an anecdote recounted in some economics books, Vilfredo Pareto is giving a presentation, only to be interrupted repeatedly by an indignant Gustav von Schmoller with this provocative question: “But are there laws in economics?” The next day, Pareto, dressed like a beggar, approached Schmoller in the street. We turn to Organizations and Markets for the rest of the story:

“Please, sir,” Pareto said, “can you tell me where I can find a restaurant where you can eat for nothing?” “My dear man,” replied von Schmoller, “there are no such restaurants, but there is a place around the corner where you can have a good meal very cheaply.” “Ah,” said Pareto, laughing triumphantly, “so there are laws in economics!”

Could this be the origin of the famous “law” about free lunches? Not likely, based on a quick look at Wikipedia. The history there, confirmed by Google searches of contemporary books, does raise a different question, though: Had Pareto and Schmoller been at a conference in New Orleans rather than Geneva, would they have had to revise their notions of certain economic laws? Because in that case, Schmoller’s answer would have had to be something like: “Why, in just about any public house you can eat for nothing this time of day! Try the one around the corner, they serve oyster stew! All you need to do is buy a drink for fifteen cents.” If the drinks are not overpriced at 15 cents, is the lunch still free? Some sources suggest that the whole “free lunch” custom was, in fact, a relief program, a socially necessary outcome of high unemployment and poverty. This would merit (and require) more than a superficial Google search, so I’ll leave it as an exercise to the interested reader.

“English Too Easy for Hungarians”

That is the title of a WSJ blog piece that describes the latest efforts of the Hungarian government to save the country. I think they are finally on to something. English, they say, is so easy that one can hardly avoid learning it. So, why waste those precious early years on something trivial? Learn French instead, or some other proper language. It seems to me that there are several plausible reasons why they couldn’t go wrong with this policy. 1) The historical record is clear: Any country where English is spoken or was introduced as a language has suffered economically. 2) Clearly, wasting one’s younger years learning an easy language has a negative effect on one’s thinking. I can’t think of a single famous mathematician or scientist or philosopher whose native tongue was/is English. 3) Why learn English, when everybody in the world is doing it? In this new, globalized world, differentiation is the name of the game.

I couldn’t agree more that English is very easy. Not only do all native speakers achieve stunning eloquence by age 12, but even Hungarians master the language by… some age. At least the 10% of the population who speak it… sort of. As this video demonstrates, our (still relatively young) Prime Minister Viktor Orbán can spontaneously switch to English to respond to a question at a press conference. I am glad he didn’t waste his time perfecting his English, but focused on his pre-primeminister studies instead.

Russian used to be very popular compulsory in schools (even in my younger years). I am sure we could still find quite a few Russian teachers who were suddenly out of work 20 years ago. It’s a complicated language, requiring many hours of focused mental effort, and hardly anyone else in Europe speaks it (west of us…). Putting those Russian teachers back to work could be a win-win for everyone.

Summer Reading, Part 2

I am not sure what I’ll be reading this summer, but I’m happy to share some of my candidates for summer reading. In any case, these might be worth considering for your summer reading list.

I have been interested in information theory for some time, and James Gleick’s The Information: A History, A Theory, A Flood looks like great summer reading. It is accessible and broad-ranging, as far as I can tell so far. If you are interested in the technical details, something like the Elements of Information Theory by Thomas Cover and Joy Thomas will help.

I heard Larry Robertson talk about entrepreneurship at a symposium this year, and I was very impressed by how he approached the topic. So, I am interested in learning more about his approach from his book, A Deliberate Pause: Entrepreneurship and Its Moment in Human Progress.

When countries are ranked according to how important a role entrepreneurship plays in their economies, Israel almost always comes out near the top. In their book Start-Up Nation: The Story of Israel’s Economic Miracle, Dan Senor and Saul Singer look at the possible reasons. I am half-way through the book, and I like how the authors try to offer as nuanced a view as they can. In searching for reasons, it is often tempting to run with a “simple” cultural explanation. While culture certainly must play a role,  there are many other important factors, sometimes interacting with culture. I am especially interested in how government policy has enabled the blossoming of entrepreneurial ventures.

Following my interest in entrepreneurship in the arts, I hope to get to Why Are Artists Poor? The Exceptional Economy of the Arts, by Hans Abbing. The author is both an artist and an economist, so I am hoping for some really well-informed and rigorous analysis.

Moving on to innovation, I can’t wait to read Inside Real Innovation by Fitzgerald, Wankerl and Schramm. Professor Brandenberger has built up my expectations quite a bit through his enthusiastic summary of some of the main arguments, including the emphasis on the non-linearity of the process of innovation.

Well, if you get to any of those, let me know what you think. I will definitely read something more literary as well, but I am really not sure what that will be. In addition, I hope I’ll have a chance to listen to some great live music every now and then, and I wish you the same.

Are you smarter than an 8th grader (from Moscow)?

There is more...

You can find out by giving these problems a try. For comparison, here is an 8th grade contest from Math League, which I am not familiar with at all.It definitely wins in the cool pictures category. I suppose you wouldn’t want 8th graders to get bored while solving math problems in a competition. (There is a nontrivial risk of boredom, actually.) To be fair, one can find much better math competition problems in the US, like this one, called Abacus. By a remarkable coincidence, “[t]he program is based on a printed journal for gifted students, originating in Hungary over 100 years ago.”

“Uncle Sam will save you from bad feng shui”

The “avuncular state” is one of  this week’s topics in the Comparative Economics Systems course. Should the state take a more paternalistic role? The Economist covers the topic fairly regularly, and you can probably guess which side they are on. This week’s issue has an entertaining (and worrisome) piece in the Schumpeter blog on the “Licence Raj.” As the quote in the title of this post says, even interior designers must be licensed in Florida. Requiring licensing raises wages by about 15% in a profession, the article says.

While The Economist sees licensing requirements as a weight pulling down entrepreneurship, others see that 15% wage bump as a perfectly good reason to require licensing. In Germany, for instance, the traditional and highly developed apprenticeship system ensures that students who do not go on to university end up with respectable, satisfying work as licensed craftsmen and women, for a living wage.

Listen to this recent OnPoint show for more on this.

LSB Chicago trip, 2011

It’s the third time, and that makes it a tradition: reading period in Spring term means that it’s time for the Lawrence Scholars in Business Chicago trip. Open to all Lawrence students, the trip is sponsored by the LSB program, and made possible by the generosity of Lawrence alumni who open up their board rooms for our students. For two days, 33 Lawrence students got an immersion experience in Chicago’s bustling world of business and finance.

At the Chicago Mercantile Exchange, Natalie Garber ’97, Daniel Kolev ’98, and Michael O’Connell ’81 reassured us that a liberal arts education is the perfect foundation for much of what they do at the CME. O’Connell, a Managing Director with broad previous experience in the financial industry, was a biology major at Lawrence, and advised students to take the hard courses and do well in them in order to show both ambition and ability to potential employers. (Not to mention that doing well hard courses has the added benefit of learning a lot.) We had a chance to look at the trading pits, too, to hear the yelling, and to learn the basics of the zany hand-signal language that traders use.

On the 46th floor of Three First National Plaza, Harry M. Jansen Kraemer ’77 welcomed us to Madison Dearborn Partners with lunch

and a (connected and convex) table big enough for 35 people. With an amazing view of Lake Michigan and downtown as a backdrop, we had a fascinating, captivating, interesting dialogue with Harry Kraemer. He reminded us that he has very few answers, but many opinions, and then shared many of those opinions with us. On careers: divide a sheet into three columns, write things you enjoy doing in the first, things you would rather avoid in the second, and in the third column, write down occupations that maximize what’s in the first column while minimizing what’s in the second. If this seems simple, that’s because it’s meant to be: Kraemer prefers to make things simple, whenever that’s possible. That is a rare gift, and one we appreciated very much as we listened to him explain, in simple terms, what private equity firms do, how they do it, and what the interesting issues surrounding those activities are. Though Kraemer’s charisma cannot be conveyed in a book, many of his opinions can, and you can read about them here. Kraemer generously presented to every one of us a signed copy of his book.

Continue reading LSB Chicago trip, 2011

Real markets, really interesting panel

On the heels of a fascinating Chicago trip, we have the Investments Summit coming to Lawrence on Saturday, 4:00—6:00, in the Hurvis room. Click the poster for more details. Our panelists bring a variety of backgrounds and experiences:

Charles Saunders ’84, Partner and Senior Portfolio Manager, NorthRoad Capital Management; Dean DuMonthier ’88, Portfolio Manager, Copia Capital; Guy Scott ’88, Co-Portfolio Manager and Executive Vice President, Janus International Equity Fund; Hugh Denison ’68, Portfolio Manager, Heartland Advisors; Markus Specks ’06, Hedge Fund Analyst, Varde Partners, Inc.

In addition to some of the basics of the investment trade, there will be a special focus on high energy prices. How do rising energy prices affect portfolio construction? Which companies suffer or benefit from rising energy prices? This is a great opportunity to learn about issues that are of great interest today, from the perspectives of people who are participating in the markets and who see the most recent developments up-close. See you there!