Would Jerry be friends with Newman if they would find themselves alone in Alaska?
Have you noticed that when you are out of town for a long period you become friend more easily of people from the same origin as you? Maybe even people that you knew before but you never thought of being his/her friend, but now, you hang out pretty much all the time. Why is that?
Well, yes, as everything in this blog has costs associated to, making friends has costs as well. When you grow up in the same place having the same friends since high school you’ve become very close to them. You know each other pretty well. And you have many and good friends.
So, what if now you find yourself in a new city, with no known people around? Well, you’ll have to make new friends. Why? Good question. Maybe is part of your utility function, to have friends. Let’s use that as an assumption.
But, what is the problem? Well, you’ll have to invest time and effort in making good friends as those you left home. So, again, you encounter yourself with the problem of equating the marginal utility of the every minute invested in a new friend with the cost of your time. You will have to start going out for beer with some people you met at the office or the school, and then you will be start to trust them more and more so that they will gain the benefit of being your friend. The costs sometimes involves the time, the cultural barriers if you are in a totally different place or the cost of giving out information to your friends so that you will receive information about them.
But… there is a much simpler way. If you knew that there is another person or group of people your age that are from your home country in that city, it would be rational to try to contact them – even if you already know them and you were never friends with them before. Why? Well, there is no cultural barrier to cross, if you know them from before so you may have already some information about them, and as you, they are also looking for friends. So it means that the cost of “friending” with those people is less than with strangers in the street or in your new job.
Ok, let me try a graphical explanation (yeah right!). I would say that in this case your utility function is convex at the beginning and the concave after some inflection point in terms of time. Meaning that the first minutes or hours that you “invest” on an individual so that he/she will be your friend are not that productive (you won’t become best friends after one beer). However, the more you invest, the more “effective” is every minute until a point, maybe when you are already very good friends, that spending another minute won’t make you more than best friends with him/her.
So my argument is that the process of being very good friends with the people of similar background as you is much more faster, because you don’t start at the beginning of the curve, but at some more advanced point in which the marginal return of time is much higher. So in that sense, the costs of being friends with these people are lower.
People know this, and that is why in many framework in which they want you to become friends with others (to improve the productivity of the firm or to make you having a wonderful college/graduate school experience) they promote activities to lower the costs of making friends. They set up time to make you talk to each other, and to make you realize that you may have similar backgrounds. Or this is why companies do their “team events” every here and then. This is lowering the costs of knowing the people around you and becoming friends. This can explain many initiatives of getting people together in conflict zones such as Israelis and Palestinians children, students or adults. Lowering the costs of knowing each other will increase the chances of becoming friends and will induce higher productivity in the future.
So don’t be surprised if you see Jerry and Newman becoming new friends in a very remote place… well, maybe not.
Showing posts with label People. Show all posts
Showing posts with label People. Show all posts
Monday, February 16, 2009
Sunday, December 21, 2008
Secret Santa and Risk Aversion
Part of the Christmas Spirit is the Secret Santa game, or known as the “Secret Friend” in other places (such as Venezuela, where I grew up). I guess all of you know how it works, but just for those who don’t here is the main idea: a group of people decide to play the game, and randomly (or pseudo-randomly to be more correct) each individual receives a small piece of paper (or maybe an email if the recruiting is done virtually) with the name of another individual. Now, each person has to give at least one gift to the person that was assigned to him. The only thing that has to be taken care of by the organizers at the first stage is to make sure that no one received his own name.
This whole process is secret, meaning that if I received Juancito’s name in my little paper, then Juancito won’t know that I am his “Secret Santa” until I give him the final gift on a day that is agreed among all of the participants. There can be two ways to play this:
Now the big question is how much will you spend. As we have seen during all these posts, you as a rational consumer will think in the following way: you have to spend some money to buy a gift, and you are going to receive a gift back. Now, we assumed that there is a fixed utility from playing in the game (see previous paragraph), so now what is left is another computation: you will spend as much money in buying a gift for other person such that the utility that you will get from receiving the gift that they are going to buy you is equal or higher than what you could have bought for yourself with the money you are spending. That was long, let me rephrase it. Say that you know with certainty that you will receive a collection car that will raise your utility by 100 units (utility units have no meaning and it is just for the sake of the example). So, the money you will spend will be equal or less than what you need to consume something else that will raise your utility by 100 units or less. Meaning that if you decide to spend $20 dollars, it is because those $20 when you consume them in any other thing (restaurants, movies, etc) it will raise your utility by 100 units or less. Otherwise, you will spend less than $20 in your Secret Santa gift.
This formula becomes more complicated if you don’t know with certainty what the gift you will receive is - which is usually the case – because you don’t know who is buying it. So at this point, you will have to see the distribution across the members of your group, and only then your decision will be based in the expected value of the gift you are going to receive.
How can you know then what is the expected value? Well, if you know the persons you are playing with, then you can think about how wealthy or not they are or how much “givers” they are. If they usually invite you for a drink, or even for lunch once in a while, this means that the expected value of the gift you may receive goes up. If people are not like that, then you will lower the quantity you are willing to spend.
So this scenario involves risk. By buying a gift you are taking the risk that at the end your utility will remain at least at the level it was before entering the game. A very risk averse person will always buy cheap gifts (even below the expected value of the gift he may received), because he prefers to cover his back and not spend too much money since he might get the bad gift. A risk lover person will be happy to play Secret Santa. The interesting issue is that this games appears to be consistent with individuals that show Decreasing Absolute Risk Aversion (DARA) – the wealthier you are, the more you can run the risk of buying a more expensive gift without your utility being hurt so much (if you have a lot of money and you received a bad gift, you can go afterwards to the mall and buy anything else to compensate for that).
So, this situation appears to show a “market” with failures. As any other markets, there have been “regulations” trying to solve the incompleteness of the information:
Happy Holidays!
This whole process is secret, meaning that if I received Juancito’s name in my little paper, then Juancito won’t know that I am his “Secret Santa” until I give him the final gift on a day that is agreed among all of the participants. There can be two ways to play this:
- The game lasts for a couple of weeks, in which people are expected to give “small gifts” constantly, until the last day of the game in which people give the “final gift”, and at that moment they reveal themselves to the “receiver” as their Secret Santa.
- The first stage of the game with the “small gifts” can be skipped, and people only buy one “final gift” revealing their identities as well in that very same moment of handing out their gifts.
Now the big question is how much will you spend. As we have seen during all these posts, you as a rational consumer will think in the following way: you have to spend some money to buy a gift, and you are going to receive a gift back. Now, we assumed that there is a fixed utility from playing in the game (see previous paragraph), so now what is left is another computation: you will spend as much money in buying a gift for other person such that the utility that you will get from receiving the gift that they are going to buy you is equal or higher than what you could have bought for yourself with the money you are spending. That was long, let me rephrase it. Say that you know with certainty that you will receive a collection car that will raise your utility by 100 units (utility units have no meaning and it is just for the sake of the example). So, the money you will spend will be equal or less than what you need to consume something else that will raise your utility by 100 units or less. Meaning that if you decide to spend $20 dollars, it is because those $20 when you consume them in any other thing (restaurants, movies, etc) it will raise your utility by 100 units or less. Otherwise, you will spend less than $20 in your Secret Santa gift.
This formula becomes more complicated if you don’t know with certainty what the gift you will receive is - which is usually the case – because you don’t know who is buying it. So at this point, you will have to see the distribution across the members of your group, and only then your decision will be based in the expected value of the gift you are going to receive.
How can you know then what is the expected value? Well, if you know the persons you are playing with, then you can think about how wealthy or not they are or how much “givers” they are. If they usually invite you for a drink, or even for lunch once in a while, this means that the expected value of the gift you may receive goes up. If people are not like that, then you will lower the quantity you are willing to spend.
So this scenario involves risk. By buying a gift you are taking the risk that at the end your utility will remain at least at the level it was before entering the game. A very risk averse person will always buy cheap gifts (even below the expected value of the gift he may received), because he prefers to cover his back and not spend too much money since he might get the bad gift. A risk lover person will be happy to play Secret Santa. The interesting issue is that this games appears to be consistent with individuals that show Decreasing Absolute Risk Aversion (DARA) – the wealthier you are, the more you can run the risk of buying a more expensive gift without your utility being hurt so much (if you have a lot of money and you received a bad gift, you can go afterwards to the mall and buy anything else to compensate for that).
So, this situation appears to show a “market” with failures. As any other markets, there have been “regulations” trying to solve the incompleteness of the information:
- One possible regulation is the “small gifts” and “final gift” mode of the game. By making people give small gifts during a couple of weeks before you decide how much to spend in the final gift you may get more information about the expected value of the final gift. However, this system is problematic. Your expected value is being affected by the person who is giving you the small gifts. If, for instance, you are receiving crappy gifts (if any) and you decide to buy a bad final gift you may be punishing a person who gave good gifts along the way. This is not fair. Again, if the game is composed by risk averse individuals, all gifts will be bad.
- A second one is to establish a spending range or limit for the “final gift”. This is clearly an expected value. Is an average in terms of price of what is going to be the gift you are going to receive. Clearly, this helps a lot, but if it is not mandatory it still leaves some space to uncertainty.
Happy Holidays!
Saturday, October 11, 2008
The opposite...
I was talking the other day over the phone with my good friend "A", and he told me how he saw the convoy of the President of the United States passing through the streets around his office. All the streets were closed, and of course, traffic jams were all around.
So, I told him about the story I am about to tell you now, which is related to some interesting concept of how expectations can change themselves and also change behavior, as economic science suggests.
Well, it was around April 2008, and the US President - George W. Bush - came to Jerusalem in an official visit. I was living in Jerusalem then, and along to all the residents in the city, we were "warned" by the police department that a number of streets will be closed during the official visit. The recommendation was to avoid using any kind of transportation, because heavy traffic jams were expected during those days. Well, when the day came, I called my boss and told him I will work from home (lucky I of having that possibility). My office was in Kiriat Gat, a city located some 80 km distance from Jerusalem, and I thought that on my way back - around 6 or 7 pm - all the streets will collapse in traffic jams.
The day came, and what happened? Well, apparently I was not the only one with the same expectations, and the equilibrium around most of the residents of the city was the same - staying home for the day. The streets were EMPTY... It was more than perfect for those who used their cars that day.
Well, this is not the end of the story. A month later, Bush came back to celebrate the 60th Israel's Independence anniversary in May 2008. Again, all of us, Jerusalem residents, were warned: because of security reasons, most of the streets in downtown Jerusalem (where I used to live) were going to be closed during those days. So, what was the outcome? People, thought that the previous equilibrium was stable, and everybody used their cars that day (including me...). It took me about 3 hours to get from the University to my place at 6pm, when the ride usually takes about 15 minutes. It was really crazy. Everybody was in the same situation. The equilibrium was the opposite of the previous one. People expected all the other people to stay home, and take advantage of an "empty" Jerusalem, free of traffic. Expectations were adjusted to the previous outcome, and people behaved according to those expectations.
So, what is the lesson from all of this? I don't know. But what I do know is that this whole story reminds me of George Constanza when he realized that everything he decides to do is wrong, so Jerry advises him to do the following: "If every instinct you have is wrong, then the opposite would have to be right". And indeed, he goes for it, and everything seems to improve for him. Here is a scene from that episode: "The opposite". Enjoy it!
So, I told him about the story I am about to tell you now, which is related to some interesting concept of how expectations can change themselves and also change behavior, as economic science suggests.
Well, it was around April 2008, and the US President - George W. Bush - came to Jerusalem in an official visit. I was living in Jerusalem then, and along to all the residents in the city, we were "warned" by the police department that a number of streets will be closed during the official visit. The recommendation was to avoid using any kind of transportation, because heavy traffic jams were expected during those days. Well, when the day came, I called my boss and told him I will work from home (lucky I of having that possibility). My office was in Kiriat Gat, a city located some 80 km distance from Jerusalem, and I thought that on my way back - around 6 or 7 pm - all the streets will collapse in traffic jams.
The day came, and what happened? Well, apparently I was not the only one with the same expectations, and the equilibrium around most of the residents of the city was the same - staying home for the day. The streets were EMPTY... It was more than perfect for those who used their cars that day.
Well, this is not the end of the story. A month later, Bush came back to celebrate the 60th Israel's Independence anniversary in May 2008. Again, all of us, Jerusalem residents, were warned: because of security reasons, most of the streets in downtown Jerusalem (where I used to live) were going to be closed during those days. So, what was the outcome? People, thought that the previous equilibrium was stable, and everybody used their cars that day (including me...). It took me about 3 hours to get from the University to my place at 6pm, when the ride usually takes about 15 minutes. It was really crazy. Everybody was in the same situation. The equilibrium was the opposite of the previous one. People expected all the other people to stay home, and take advantage of an "empty" Jerusalem, free of traffic. Expectations were adjusted to the previous outcome, and people behaved according to those expectations.
So, what is the lesson from all of this? I don't know. But what I do know is that this whole story reminds me of George Constanza when he realized that everything he decides to do is wrong, so Jerry advises him to do the following: "If every instinct you have is wrong, then the opposite would have to be right". And indeed, he goes for it, and everything seems to improve for him. Here is a scene from that episode: "The opposite". Enjoy it!
Monday, September 8, 2008
Parking Tickets and Incentives...
When I arrived in Jerusalem in 2004, I was very excited about fulfilling my dream of becoming an Israeli citizen. I even remember one day, I was walking down the streets, and then suddenly, a policewomen approached to me and asked me for my ID. I did not have a clue why did she stop me, but I guess I did not realize that she was about to fine me for jaywalking… yes, can you believe that? Jaywalking!!! Well, it was not a much transited avenue, but a single lane street. Of course, I was so excited of being able to speak in Hebrew that I happily gave her my ID, still without knowing about the ticket. Then she told me that I crossed the street without waiting for the walk signal, and I received a NIS 100 fine (about USD$20 at that time). I was dumb, I could have given her my Venezuelan ID, and speak in Spanish… In any case, while she was writing me the ticket, there were many other people doing the same thing as I did, and were not being punished as I was...
On that time, just when I arrived, without a job, paying that ticket was for me a lot of money. The average income for a new immigrant in Israel, who has not been inserted yet in the labor market, is about NIS 20 an hour (minimum wage). So, the fine for me was worth 5 hours of work… a lot…
This is exactly what fines are all about, or should be. Every person has a limited amount of time in which he decides whether to work or not, in order to consume goods, or to have some leisure respectively. But of course, for everyone, the “value” of time varies, depending on your schooling, experience, tenure, etc. So, fines are a punishment for low income people, or more specifically, people that cannot win more by avoiding law (like parking on a prohibited spot for example) than the cost of the fine.
For instance, imagine New York City. Now imagine you are a wealthy business man, who has a meeting that will make you earn about USD$2000, and the meeting is somewhere in Manhattan, where free parking spots are virtually impossible to find. So, you have another 10 minutes for your meeting to start, and you are still going around the block with your car trying to find a place to park it. Well, you have the information that a parking ticket will cost you USD$200… so if you park on the street, on a prohibited spot, then you will be earning $1800 instead of $2000. However, if you don’t park, you are not earning anything. What would you do? Obviously, the parking ticket is not a strong enough incentive to this person not to park where he cannot. It is all about the cost of time.
I was riding in the T (subway) in Boston, MA and I saw a sign which said: “It is prohibited by law to smoke in this train. Anyone who obeys this law will be punished with a fine not higher than $50, imprisonment for no longer than 8 days, or both”. Ok, so let’s analyze this. From my point of view, this is a very good incentive to respect the law. For an individual who has a very high cost of time, he surely doesn’t mind paying the $50, but he cannot take the risk of being 8 days in jail, and having all those foregone earnings while he is not in the office. On the other side, an unemployed individual, in terms of cost of time, being in jail for eight days is not what makes him worse off, but the USD $50 that he has to pay. I think this is a wise signal.
But what can be done with parking tickets? If we start putting in jail everybody who parks his car wherever he wants, then maybe half humanity will be behind bars. Well, I heard that in Finland, parking tickets are given taking into consideration your wages. For higher wages individuals, then your parking ticket will be higher. I don’t know exactly how does this work, and how do they construct the correct incentives so that people won’t try to cheat, but, if I have any Finn reader, please feel free to comment.
In any case, I am sorry for being away for such a long time, and there are more posts coming soon.
Thursday, July 24, 2008
These pretzels are making me thirsty!!!
The general equilibrium theory proves - and this is the principle of free market economy - that when each individual maximize his and only his own utility, then the economy will reach prices that will lead it to an equilibrium which is efficient. The exact terminology is "Pareto Efficiency", which means that it is not possible for one individual in the economy to be better-off without causing any other individual to be worse-off...
Ok, so let's be honest with all these stuff. First of all, the theory is based on very specific assumptions, which we don't know for sure if they take place in the real world - such as assuming that our preferences are convex sets... how can I know if my preferences are a convex set? Well, actually that is not such a crazy assumption, but it does not matter now. This is not the point of this post.
The point of this blog is, that we usually meet people all the time in the streets, which are of course maximizing only and only their own utility, and totally ignoring the utility of others... and I am certain that this is not leading to any efficiency whatsoever. During the past two weeks I have experienced some of these situations, and those people are so dumb that their actions deserve to be spread around the world through my blog so that you can join me in thinking how dumb they really are...
The first situation was while driving to the Hebrew University in Agron St. in Jerusalem. There were two jeeps each on one lane, talking to each other (it seems like they were very good friends, and did not talk in a while). The street of course is two lanes wide, and there was a traffic light some meters ahead of the two jeeps. The traffic light was red, but then in turned to be green. These two individuals kept talking to each other (there were no more cars before them), while I am honking constantly behind them, letting them know that (1) the traffic light is already green and they should move on, and (2) that I am pretty upset! I was completely ignored. These guys kept talking about their wives, or their mothers (just as I did inside of my car) and just ignored me and the other cars behind of me honking. In any case, they decided to say goodbye after a minute or so of the light being green, and they accelerated in order to catch the green light. Guess what? When I reached the junction, the traffic light turned red (they actually passed in yellow). Of course, then the taxi driver behind me started yelling at me that I was not agressive enough and he blessed me by saying that I was an idiot... That also pissed me off. What was he expecting me to do?
So now that I mentioned taxi drivers, they are separate species in these kind of stories. Again, a couple of days ago, traffic light turns green, and the taxi cab does not move. That was a wider street and I could move on the side, but, why does he do that? He just doesn't care AT ALL about what is happening behind him... He just stayed there. But this thing of stopping on a green light is common down here. Once I could not pass the traffic light because a guy who was lost stopped on the green light and asked a police woman how to keep going... a police woman! Can you believe it? Then when I got stuck in the red light because of him (he did manage to pass in yellow) I asked the same police woman: "If you give tickets for crossing on red, why don't you give tickets for stopping on green?"... She just laughed and did not replied me.
Another story (I have lots of these). With my two friends M&M we were driving to Mount Scopus in Jerusalem, and at some point the road is only one lane wide, and everybody must pass through a small tunnel. That is exactly on the side of the Old City walls, and there is a space for buses to stop there so that they can drop their passengers. Well, this nice bus driver in front of us did not find a place to stop on the side, because there were many other buses, and he decided to stop in THE MIDDLE OF THE ROAD! He dropped all his 40 passengers, of course, no pressure, the rate of going out of the bus was like a 0.2 passengers/second, meaning a passanger every 5 seconds. He just ignored that there was a line of 30 cars behind him, and that maybe an ambulance could come by, or that there are other people in the world other than himself that can be in a rush and have to get on time to a meeting or class!!!
And this is related to the fact that people sometimes think that they are the only one in a hurry, and others in the world have things much less important to do than themselves. I can feel this specially when going to the doctor. While sitting in the waiting room (everybody made his appointment, and everybody is waiting for his number to be called), then always a guy suddenly comes to you and ask you if he can go before you because he is on a hurry, and he does not have time... What does he think? That I love to come everyday and sit on a waiting room just for fun? What does he want me to answer: "Well, actually I'd love to! I'd love to sit here for another two hours and wait, probably your life is more important than mine, so come over!"... This really annoys me. People really do think that others are less busy... why? That is probably because of the signal you are giving (or not giving) waiting in line. If you are sitting quietly without asking everybody else if you can step in before them, then you are giving a signal that you don't care to wait, and this might be perceived as a consequence of not being busy. But, my question is why he did not think about the fact that he would be busy at that hour when making an appointment that day at that hour?
Now, a third kind of stories. Here in Israel this is very common, or at least that is how I perceive it. You are sitting in front of the bank employee, with the doctor, with the income tax office employee or even with a lecturer (meaning that you already waited in line, and it is your turn) and then, suddenly, a third person comes along, and start talking and asking questions to the person who is receiving you. It can be in person (such as other bank employees that come and talk to the employee you are sitting with to ask him about how to do this and how to do that) or it can be by the phone (the personal phone of these people rings). So, when this happens I am expecting that they will say to their peers or other people: "Hold on sir, I am with a customer"... But no! They answer them and keep talking, and even on the phone! Can you believe it? I am just sitting there as an idiot, and these guys are talking to other people... I think this does not appear to be that annoying, but let me exemplify it. I went to arrange some things at the income tax office (this is a story by its own, coming soon) and I waited in line and I sat in front of the lady who received me. Then, I start explaining her what do I need, and she starts seeing my stuff, and it appears that I was missing one small document. Then she receives a call in her cell phone, god knows from who, but it seems like it was family or something, and she started checking this person's details on the computer (she asked him for his ID number and started to answer questions about income tax). So, I then thought to myself, what is this lady doing? Tell your cousin or your mother (I was thinking about her mother as well inside of my head) to come, wait in line and do their stuff just like I did... or if you want to help them, don't be so insolent, and do that after working hours, or when you are not receiving anyone else. Then I could not stand it and I asked her: "Lady, are you with me or what?", and she started screaming at me: "Wait sir, you don't have all your documents, and I am working, this phone call is work"... of course is work, that is exactly my complain, work, but only with people in front of you, and not with your family that is calling you to give them a hand without coming over here. Of course I shut up, and waited, like an idiot.
But these people get pretty upset when you complain about these things. Also, once in the bank I was waiting in line, and there were lots of people, and I was called and it seems like the manager was also receiving people in line to help her piers. So I sat with her, and as expected, every 2 minutes another employee of the bank came and ask her what to do, how to do it, when to do it, etc. I also told her: "I am sorry, but why can't you concentrate on me for a second, I feel it is disrespectful"... Well, she did not scream, but she told me: "Look, I do not receive people usually, and I am making you a favor that I received you now...". Why does she think she was making me a favor? Maybe she is making a favor to the other employees, but not to me. I would have prefer sitting with anybody that can do my stuff without interrupting me every 2 minutes. Moreover, if she knows that she has to assist her staff constantly, why did she start to receive people from the beginning?
In sum, these are the things in life that make you think, what the hell are they teaching me at school? Here everybody is trying to maximize his utility and, no way, this is not efficiency. But what I have learned, and sadly I agree, that in these situations one can only take a deep breath and say to yourself: "These pretzels are making me thirsty!!!"
Ok, so let's be honest with all these stuff. First of all, the theory is based on very specific assumptions, which we don't know for sure if they take place in the real world - such as assuming that our preferences are convex sets... how can I know if my preferences are a convex set? Well, actually that is not such a crazy assumption, but it does not matter now. This is not the point of this post.
The point of this blog is, that we usually meet people all the time in the streets, which are of course maximizing only and only their own utility, and totally ignoring the utility of others... and I am certain that this is not leading to any efficiency whatsoever. During the past two weeks I have experienced some of these situations, and those people are so dumb that their actions deserve to be spread around the world through my blog so that you can join me in thinking how dumb they really are...
The first situation was while driving to the Hebrew University in Agron St. in Jerusalem. There were two jeeps each on one lane, talking to each other (it seems like they were very good friends, and did not talk in a while). The street of course is two lanes wide, and there was a traffic light some meters ahead of the two jeeps. The traffic light was red, but then in turned to be green. These two individuals kept talking to each other (there were no more cars before them), while I am honking constantly behind them, letting them know that (1) the traffic light is already green and they should move on, and (2) that I am pretty upset! I was completely ignored. These guys kept talking about their wives, or their mothers (just as I did inside of my car) and just ignored me and the other cars behind of me honking. In any case, they decided to say goodbye after a minute or so of the light being green, and they accelerated in order to catch the green light. Guess what? When I reached the junction, the traffic light turned red (they actually passed in yellow). Of course, then the taxi driver behind me started yelling at me that I was not agressive enough and he blessed me by saying that I was an idiot... That also pissed me off. What was he expecting me to do?
So now that I mentioned taxi drivers, they are separate species in these kind of stories. Again, a couple of days ago, traffic light turns green, and the taxi cab does not move. That was a wider street and I could move on the side, but, why does he do that? He just doesn't care AT ALL about what is happening behind him... He just stayed there. But this thing of stopping on a green light is common down here. Once I could not pass the traffic light because a guy who was lost stopped on the green light and asked a police woman how to keep going... a police woman! Can you believe it? Then when I got stuck in the red light because of him (he did manage to pass in yellow) I asked the same police woman: "If you give tickets for crossing on red, why don't you give tickets for stopping on green?"... She just laughed and did not replied me.
Another story (I have lots of these). With my two friends M&M we were driving to Mount Scopus in Jerusalem, and at some point the road is only one lane wide, and everybody must pass through a small tunnel. That is exactly on the side of the Old City walls, and there is a space for buses to stop there so that they can drop their passengers. Well, this nice bus driver in front of us did not find a place to stop on the side, because there were many other buses, and he decided to stop in THE MIDDLE OF THE ROAD! He dropped all his 40 passengers, of course, no pressure, the rate of going out of the bus was like a 0.2 passengers/second, meaning a passanger every 5 seconds. He just ignored that there was a line of 30 cars behind him, and that maybe an ambulance could come by, or that there are other people in the world other than himself that can be in a rush and have to get on time to a meeting or class!!!
And this is related to the fact that people sometimes think that they are the only one in a hurry, and others in the world have things much less important to do than themselves. I can feel this specially when going to the doctor. While sitting in the waiting room (everybody made his appointment, and everybody is waiting for his number to be called), then always a guy suddenly comes to you and ask you if he can go before you because he is on a hurry, and he does not have time... What does he think? That I love to come everyday and sit on a waiting room just for fun? What does he want me to answer: "Well, actually I'd love to! I'd love to sit here for another two hours and wait, probably your life is more important than mine, so come over!"... This really annoys me. People really do think that others are less busy... why? That is probably because of the signal you are giving (or not giving) waiting in line. If you are sitting quietly without asking everybody else if you can step in before them, then you are giving a signal that you don't care to wait, and this might be perceived as a consequence of not being busy. But, my question is why he did not think about the fact that he would be busy at that hour when making an appointment that day at that hour?
Now, a third kind of stories. Here in Israel this is very common, or at least that is how I perceive it. You are sitting in front of the bank employee, with the doctor, with the income tax office employee or even with a lecturer (meaning that you already waited in line, and it is your turn) and then, suddenly, a third person comes along, and start talking and asking questions to the person who is receiving you. It can be in person (such as other bank employees that come and talk to the employee you are sitting with to ask him about how to do this and how to do that) or it can be by the phone (the personal phone of these people rings). So, when this happens I am expecting that they will say to their peers or other people: "Hold on sir, I am with a customer"... But no! They answer them and keep talking, and even on the phone! Can you believe it? I am just sitting there as an idiot, and these guys are talking to other people... I think this does not appear to be that annoying, but let me exemplify it. I went to arrange some things at the income tax office (this is a story by its own, coming soon) and I waited in line and I sat in front of the lady who received me. Then, I start explaining her what do I need, and she starts seeing my stuff, and it appears that I was missing one small document. Then she receives a call in her cell phone, god knows from who, but it seems like it was family or something, and she started checking this person's details on the computer (she asked him for his ID number and started to answer questions about income tax). So, I then thought to myself, what is this lady doing? Tell your cousin or your mother (I was thinking about her mother as well inside of my head) to come, wait in line and do their stuff just like I did... or if you want to help them, don't be so insolent, and do that after working hours, or when you are not receiving anyone else. Then I could not stand it and I asked her: "Lady, are you with me or what?", and she started screaming at me: "Wait sir, you don't have all your documents, and I am working, this phone call is work"... of course is work, that is exactly my complain, work, but only with people in front of you, and not with your family that is calling you to give them a hand without coming over here. Of course I shut up, and waited, like an idiot.
But these people get pretty upset when you complain about these things. Also, once in the bank I was waiting in line, and there were lots of people, and I was called and it seems like the manager was also receiving people in line to help her piers. So I sat with her, and as expected, every 2 minutes another employee of the bank came and ask her what to do, how to do it, when to do it, etc. I also told her: "I am sorry, but why can't you concentrate on me for a second, I feel it is disrespectful"... Well, she did not scream, but she told me: "Look, I do not receive people usually, and I am making you a favor that I received you now...". Why does she think she was making me a favor? Maybe she is making a favor to the other employees, but not to me. I would have prefer sitting with anybody that can do my stuff without interrupting me every 2 minutes. Moreover, if she knows that she has to assist her staff constantly, why did she start to receive people from the beginning?
In sum, these are the things in life that make you think, what the hell are they teaching me at school? Here everybody is trying to maximize his utility and, no way, this is not efficiency. But what I have learned, and sadly I agree, that in these situations one can only take a deep breath and say to yourself: "These pretzels are making me thirsty!!!"
Tuesday, July 8, 2008
On ultraorthodox jews and ancient tribes in Africa
I was talking to my ex-boss a couple of weeks ago about economic development. We talked about how the west tries to promote public policies that induce economic growth and a better "quality of life" on the less developed regions.
He told me "You know, I saw a poll the other day about happiness, and the Jewish ultra-orthodox sector (in Israel) was the happiest one... So why do you want them to go and study, or to go and participate in the labor force? They are happy just the way they are". Well, two things should be taken into consideration:
1) My ex-boss is himself a religious guy (not an ultra-orthodox, but of course that he has some kind of sympathy towards them).
2) I am not a big believer of polls. Moreover, I am not a believer of polls when they try to measure something that is unmeasurable, like happiness.
What is happiness? How do you measure it? Ultra-orthodox Jews, together with Israeli Arabs, are the poorest sectors of society in Israel. Not only in terms of money, but also in terms of education. So, how come they are happy??? But on the other side, if they are that happy, why do they need political parties that promote laws for their sector. But this is an issue for another debate.
Well, economists are aware of the difference between wealth and happiness. People are not better-off by how much money they make, but how much utility they have from consumption, leisure, human capital, having children, etc. However, our mistake is that we think that the utility function of most human beings are similar in their components. For example, everybody enjoy consumption. Is this a fact? I am not sure.
Another example is the one that came up in a conversation with two fellow students: M and R. They are very bright, so they deserve to be immortalized in the web pages of my blog. Take for example a lost tribe in Africa. Maybe they have higher utility than any average new yorker well positioned family. Who says that if we introduce to that tribe schools, hospitals and more efficient markets they will be better-off?
Well, there are some possibles answers. First, the tribe is happier in terms of what they know. Is this so? For example, let's assume that the well positioned family can afford living as the tribe. Why don't they do that? Maybe this means, by revealed preferences (see the previous post) that living near central park with 2 BMW's is making them better-off. On the other hand, the tribe cannot afford living in Manhattan, probably. So, in terms of what they have they are the happiest, but because they don't know that they could have a better quality of life.
However, maybe if we give the tribe air tickets to New York and a place to stay in Manhattan, they will probably ask us to go back to their little place after a while.
So here we are talking about culture. The quality of life that we are used to have in the west also affects the culture we live in and the same happens the other way around: culture affects the quality of life. So the debate turns to be more difficult. What culture is better? How do you measure 'culture efficiency' or whatever?
I think there is no way to do so.... And probably given their culture, the tribe in Africa and the ultra-orthodox Jews are the happiest. But, maybe (as my friend M said yesterday), the incentive to induce a change in these societies is not necessarily for their sake, but for ours. If ultra-orthodox Jews will increase their labor supply, and will have better schooling indicators, this will have a positive impact on the economic indicators of Israel. Although they won't be necessarily better-off, we will. And if the society as a whole will be, is it worth to induce the changes in these societies?
This is already not a dilemma for economists... or at least not for me.
In the meanwhile, I will start thinking about the next topic...
He told me "You know, I saw a poll the other day about happiness, and the Jewish ultra-orthodox sector (in Israel) was the happiest one... So why do you want them to go and study, or to go and participate in the labor force? They are happy just the way they are". Well, two things should be taken into consideration:
1) My ex-boss is himself a religious guy (not an ultra-orthodox, but of course that he has some kind of sympathy towards them).
2) I am not a big believer of polls. Moreover, I am not a believer of polls when they try to measure something that is unmeasurable, like happiness.
What is happiness? How do you measure it? Ultra-orthodox Jews, together with Israeli Arabs, are the poorest sectors of society in Israel. Not only in terms of money, but also in terms of education. So, how come they are happy??? But on the other side, if they are that happy, why do they need political parties that promote laws for their sector. But this is an issue for another debate.
Well, economists are aware of the difference between wealth and happiness. People are not better-off by how much money they make, but how much utility they have from consumption, leisure, human capital, having children, etc. However, our mistake is that we think that the utility function of most human beings are similar in their components. For example, everybody enjoy consumption. Is this a fact? I am not sure.
Another example is the one that came up in a conversation with two fellow students: M and R. They are very bright, so they deserve to be immortalized in the web pages of my blog. Take for example a lost tribe in Africa. Maybe they have higher utility than any average new yorker well positioned family. Who says that if we introduce to that tribe schools, hospitals and more efficient markets they will be better-off?
Well, there are some possibles answers. First, the tribe is happier in terms of what they know. Is this so? For example, let's assume that the well positioned family can afford living as the tribe. Why don't they do that? Maybe this means, by revealed preferences (see the previous post) that living near central park with 2 BMW's is making them better-off. On the other hand, the tribe cannot afford living in Manhattan, probably. So, in terms of what they have they are the happiest, but because they don't know that they could have a better quality of life.
However, maybe if we give the tribe air tickets to New York and a place to stay in Manhattan, they will probably ask us to go back to their little place after a while.
So here we are talking about culture. The quality of life that we are used to have in the west also affects the culture we live in and the same happens the other way around: culture affects the quality of life. So the debate turns to be more difficult. What culture is better? How do you measure 'culture efficiency' or whatever?
I think there is no way to do so.... And probably given their culture, the tribe in Africa and the ultra-orthodox Jews are the happiest. But, maybe (as my friend M said yesterday), the incentive to induce a change in these societies is not necessarily for their sake, but for ours. If ultra-orthodox Jews will increase their labor supply, and will have better schooling indicators, this will have a positive impact on the economic indicators of Israel. Although they won't be necessarily better-off, we will. And if the society as a whole will be, is it worth to induce the changes in these societies?
This is already not a dilemma for economists... or at least not for me.
In the meanwhile, I will start thinking about the next topic...
Monday, July 7, 2008
The Kibbutz
I just came from the festive dinner marking the last day of the 19th summer school in economic theory at the Hebrew University. I saw Kenneth Arrow, an economics Nobel price laureate, and one of the most brilliant minds of the world, being called by the waiter to serve the rice... well, he actually did not serve it, but he opened the large pot. In any case, I never thought that I could be having dinner with seven Nobel price laureates and talk about nothing...
In any case, things that one never thought that could be happening, can actually happen. As the pioneers who came to Israel in the fifties and founded the kibbutzim, it was not possible seeing the kibbutz falling apart as they are today (or at least most of them).
Well, it is not my intention to explain why kibbutzim are falling apart, but here is an interesting story. Last Friday, I went to a Kibbutz near Jerusalem to have dinner at my neighbor's family. I became very good friends with my neighbor who is a very nice girl who also studies at the Hebrew U.
The kibbutz has been almost fully privatized. I don't know exactly how is the income from the kibbutz activities distributed, but I do know that the kibbutz members keep their wages as they are (either if they work inside or outside of the kibbutz).
One of the decisions is that the kibbutz land will be divided among its members. Also, they are transferring the ownership of the houses from the kibbutz to the families. Since houses are on land (duh!), families that receive ownership on their house, are receiving also ownership on the land below it. Ok, so problem solved you may think. Let's give to everybody their house and their little garden so that they can seed tomatoes in it.
Well, guess what? There are some houses with two stories, and two families living there - one on each floor. So, what can we do there? We can give ownership per floor, but each family will receive half of the land that belongs to them.
So I have a solution. Let's cut the house in two, and wait for the immediate response of the families. The first that says "NO! GIVE THE HOUSE TO THE OTHER FAMILY, WE PREFER THE HOUSE NOT BEING DESTROYED" are the winners! They keep the house.
Ok, this won't work. Actually, also the strategy of King Solomon wasn't perfect. Maybe the fake mother is also a good human being, and prefer that the child will stay alive, and she was also faster in her response. It is not that we go on the street and we are totally indifferent to murderers who kill everybody but our sons...
In any case, the question is: which family is keeping the house? The one who lives in the upper floor or the other one? How do you take a fair decision?
Well, the decision was based on kibbutz tenure. The family who has been a member of the kibbutz for a longer period of time, is the one keeping the house. The other family will receive land to with a new house.
Total justice or total catastrophe? Maybe the second. Families (of course those who are not keeping the house) are going to the court to sue the kibbutz for the decision. Even though they are receiving a new place, most of them prefer to stay in their current house, which is located in a better spot. So look at the irony. The kibbutz: the big, strong, happy and indivisible family... this is what happening 60 years later. The own members who founded the kibbutz are suing the same kibbutz, because of private property issues...
The kibutztroika is an unavoidable process. Since kibbutz members know about quality of life outside the kibbutz, does this mean that they are revealing their preferences? Economic theory explains about the revealed preference. If you have 5 bucks, and you can buy either a cup of coffee or a cup of tee, and you decide for the coffee, then I can understand from that behavior that you prefer a cup of coffee over a cup of tea, and that actually, the coffee makes you happier than the tea.
If kibbutz members can still maintain their lives inside of the kibbutz but they have decided to have an "out of the kibbutz" life... Is this a reason to think that the free market is better than the socialism of the kibbutz? Or maybe they can't maintain the kibbutzim as they are? Is it because that the rate of return to agriculture has significantly dropped since these kind of jobs do not require high levels of human capital? Who knows... I can't answer this question, and probably neither can you, but this could be a nice discussion.
In any case, as I just told Prof. Arrow walking out of the restaurant: "Thanks! The rice was wonderful!"
Here you can see a small report on the kibbutz:
In any case, things that one never thought that could be happening, can actually happen. As the pioneers who came to Israel in the fifties and founded the kibbutzim, it was not possible seeing the kibbutz falling apart as they are today (or at least most of them).
Well, it is not my intention to explain why kibbutzim are falling apart, but here is an interesting story. Last Friday, I went to a Kibbutz near Jerusalem to have dinner at my neighbor's family. I became very good friends with my neighbor who is a very nice girl who also studies at the Hebrew U.
The kibbutz has been almost fully privatized. I don't know exactly how is the income from the kibbutz activities distributed, but I do know that the kibbutz members keep their wages as they are (either if they work inside or outside of the kibbutz).
One of the decisions is that the kibbutz land will be divided among its members. Also, they are transferring the ownership of the houses from the kibbutz to the families. Since houses are on land (duh!), families that receive ownership on their house, are receiving also ownership on the land below it. Ok, so problem solved you may think. Let's give to everybody their house and their little garden so that they can seed tomatoes in it.
Well, guess what? There are some houses with two stories, and two families living there - one on each floor. So, what can we do there? We can give ownership per floor, but each family will receive half of the land that belongs to them.
So I have a solution. Let's cut the house in two, and wait for the immediate response of the families. The first that says "NO! GIVE THE HOUSE TO THE OTHER FAMILY, WE PREFER THE HOUSE NOT BEING DESTROYED" are the winners! They keep the house.
Ok, this won't work. Actually, also the strategy of King Solomon wasn't perfect. Maybe the fake mother is also a good human being, and prefer that the child will stay alive, and she was also faster in her response. It is not that we go on the street and we are totally indifferent to murderers who kill everybody but our sons...
In any case, the question is: which family is keeping the house? The one who lives in the upper floor or the other one? How do you take a fair decision?
Well, the decision was based on kibbutz tenure. The family who has been a member of the kibbutz for a longer period of time, is the one keeping the house. The other family will receive land to with a new house.
Total justice or total catastrophe? Maybe the second. Families (of course those who are not keeping the house) are going to the court to sue the kibbutz for the decision. Even though they are receiving a new place, most of them prefer to stay in their current house, which is located in a better spot. So look at the irony. The kibbutz: the big, strong, happy and indivisible family... this is what happening 60 years later. The own members who founded the kibbutz are suing the same kibbutz, because of private property issues...
The kibutztroika is an unavoidable process. Since kibbutz members know about quality of life outside the kibbutz, does this mean that they are revealing their preferences? Economic theory explains about the revealed preference. If you have 5 bucks, and you can buy either a cup of coffee or a cup of tee, and you decide for the coffee, then I can understand from that behavior that you prefer a cup of coffee over a cup of tea, and that actually, the coffee makes you happier than the tea.
If kibbutz members can still maintain their lives inside of the kibbutz but they have decided to have an "out of the kibbutz" life... Is this a reason to think that the free market is better than the socialism of the kibbutz? Or maybe they can't maintain the kibbutzim as they are? Is it because that the rate of return to agriculture has significantly dropped since these kind of jobs do not require high levels of human capital? Who knows... I can't answer this question, and probably neither can you, but this could be a nice discussion.
In any case, as I just told Prof. Arrow walking out of the restaurant: "Thanks! The rice was wonderful!"
Here you can see a small report on the kibbutz:
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