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Home / Tag Archives: 17. Making decisions with uncertainty

Tag Archives: 17. Making decisions with uncertainty

Is inflation transitory and how long will interest rates stay low?

Right now, interest rates (mortgages) are 3% and inflation is 5%.  This cannot last because those who lend are getting paid back with dollars that cannot buy as much as the dollars they lent.  If inflation stays at 5%, interest rates have to rise to compensate lenders, e.g., to 8%.MarginalRevolution.com has an answer: “I think the inflation will last two to three years, and it will be bad,” Cowen said. But really grim hyper-inflation à la Carter-era, he thinks is unlikely. It could only...

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Why does De Beers’ sell bags of uncut (and unappraised) diamonds for a single take-it-or-leave it price?

Yoram Barzel, writing in 1977, argued...  “Had the contents of a particular bag been available for appraisal by all buyers,” Barzel explained: “[E]ach would have spent resources to determine the properties of the diamonds. … In other words, because buyers were spared the costs of evaluating individual stones, they were willing to pay De Beers more for the average stone.  (link)

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Nobel awarded for inferring causality

This year's Nobel prize in econ goes to three economists who developed methodologies for identifying correlation from causality.  We have blogged extensively about why causality is important to business and how to design experiments or analyses to identify it.  In particular, use the web app to teach regression to understand the two mistakes you can make:  Type I (mistakenly inferring causality) and Type II (mistakenly inferring no causality) errors occur.  Try the learning exercises in this...

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Gender and majors, happiness, single-sex education, and for-profit education

 Interview with Claudia Golden:On why men are more likely to major in economics:One of the problems that we have, as a field, is that when students — before they even come into their freshman year, and they’re asked what do they want to major in, women will — if they want to major in the social sciences — will put down psychology, and men will put down economics, so we lose them before they even unpack their suitcases.On happiness:...people recenter their happiness. You can be in a place in...

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Danish Criminals respond to incentives

The Effects of DNA Databases on the Deterrence and Detection of OffendersAnne Sofie Tegner Anker, Jennifer L. Doleac and Rasmus LandersøThis paper studies the effects of adding criminal offenders to a DNA database. Using a large expansion of Denmark's DNA database, we find that DNA registration reduces recidivism within the following year by up to 42 percent. It also increases the probability that offenders are identified if they recidivate, which we use to estimate the elasticity of crime...

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Why is Bezos such an extraordinary manager?

Reading Amazon Unbound by Brad Stone, his second bio of Jeff Bezos and Amazon, which picks up where The Everything Store left off.  In the book, Bezos punishes managers for wasting time on small incremental--and successful--projects. It is as if Bezos recognizes the perverse incentives created by ordinary managers, who punish employees for making the more-visible Type I errors (doing something that they shouldn't), rather than the less-visible Type II errors (failing to do something they...

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Big data and the curse of dimensionality

I just finished a fabulous book, Everybody Lies, written by Seth Stephens-Davidowitz.  From the Amazon description of the book: Everybody Lies offers fascinating, surprising, and sometimes laugh-out-loud insights into everything from economics to ethics to sports to race to sex, gender and more, all drawn from the world of big data. What percentage of white voters didn’t vote for Barack Obama because he’s black? Does where you go to school effect how successful you are in life? Do parents...

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