EG was one of the most fun and exciting conferences I have been to.  The talks were very good, the variety was wonderful, and I got to meet many wonderful people.

There are many EG talks online, many of them also get on the TED site.  Here is my talk:

another paper on cheating is out: http://tinyurl.com/b7tkpw

February 19th was the one-year anniversary for the publication of Predictably Irrational.

To celebrate I called the chef at Rue Cler — Jason Bissey — and asked him to make an irrational dinner for us.

Here is what he came up with:
As soon as we sat at the table they gave us the check and thanked us for coming — asking us to come again soon.

Next, we each got a randomly chosen dessert accompanied by cappuccino & espresso served in wine glasses.

Jason stopped by a few minutes later, spilled some wood chips on the floor, handed me a broom & dustpan and asked me to sweep the floor (which I did, and I did a good job at it).

For the entrée: they asked who didn’t eat seafood and who didn’t eat pork and made sure to give the person who didn’t eat seafood the scallops and the person who didn’t eat pork the pork dish.

The appetizer was next.  It was delicious but a few seconds after I started eating Jason came out of the kitchen and as he walked by, he helped himself to a few of the shoestring onions from my plate and just keept on walking.

Soup and salad were next. We were given large serving spoons to eat the soup with and very, very small forks for the salad.  The server stopped by a few times to make sure that everything tasted horrible and that we were having a miserable time.

At the end, she asked who had the scallops and then said “Well you’ll be needing these” as she handed those who had the scallops an Imodium AD pill in a tiny plastic cup (an Antidiarrheal medicine).

Jason – Thanks a lot. I don’t think we will forget this meal for a long time.

Last night I was on the NEWSHOUR with Jim Lehrer — and today I got an email from a viewer that told me that I should have shaved…

In a story that just appeared in The Atlantic, Gregory Clark, a professor of economics at the University of California at Davis, described some of his concerns with the profession of Academic Economists.
In this story he also used a paper on online dating (one of mine) to show how economists are working on irrelevant topics.  And while I think that the dating market is an important topic to study, and even more to try and improve, I think that his overall criticism is worth paying attention to.

Here is the text:

Dismal scientists: how the crash is reshaping economics
With the chattering classes consumed by concern for the devastated value of their 401K funds, and their suddenly precarious lifestyles, there has been much anger and scorn directed at those former masters of the universe, financiers.

But the shock to the world of finance has been echoed by a shock to the world of academic economics that is just as profound.

In the long post WWII boom, as free market ideology triumphed, economists have won for themselves a privileged place inside academia.

First there is the cash. It astonished some when Washington University, a school with an economics department of modest prestige, hired economists David Levine and Michele Boldrin by offering salaries well in excess of $500,000.  But most high ranked economics departments have professors earning in excess of $300,000.  Not much by the pornographic standards of finance, but a fat paycheck compared to your average English or Physics professor.

It is not just the stars.  Journeyman assistant professors in economics routinely come in at $100,000 or more. And, unlike the hard sciences, they do this fresh from their PhDs, without a publication to their name and without years of low pay as post-docs.

The high salaries have been accompanied by dramatic declines in the teaching burden.  The research demands of our advanced science leave little time for the classroom.  In good universities faculty typically teach only two courses a year – one of which has to be a graduate seminar.  The masses in the Econ 1 classes are often abandoned to the tender mercies of graduate students.

Then there is the economics “Nobel” Prize.  Not a real Nobel, but a prize funded by the Bank of Sweden in honor of Alfred Nobel, with all the royal trappings of the Nobel.  That makes economics star players really attractive to universities.  When Edward Prescott of Arizona State won the Nobel he was paraded at half time at a football game.  There is nothing like a Nobel for luster and fund-raising.

Why did academic economics generate so much prestige? Sure, modern economics is technically demanding.  But so, for example, are theoretical physics and archeology, and physics and archeology professors are (relatively) dirt poor.

The technical demands helped limit the supply of economists. But what drove demand was the unquenchable thirst for economists by banks, government agencies, and business schools – the Feds, the Treasury, the IMF, the World Bank, the ECB.  Economics had powerful insights to offer the world, insights worth a lot of treasure.  Economics was powerful voodoo.  Any major university or research institute wanted to arm itself with this potency.

The current recession has revealed the weaknesses in the structures of modern capitalism.  But it also revealed as useless the mathematical contortions of academic economics.  There is no totemic power.  This for two reasons:

(1) Almost no-one predicted the world wide downtown.  Academic economists were confident that episodes like the Great Depression had been confined to the dust bins of history.  There was indeed much recent debate about the sources of “The Great Moderation” in modern economies, the declining significance of business cycles.

Indeed as we have seen this year on the academic job market, macroeconomists had turned their considerable talents to a bizarre variety of rococo academic elaborations.  With nothing of importance to explain, why not turn to the mysteries of online dating, for example.

I myself was so confident of the consensus of the end of the business cycle that I persuaded by wife after the collapse of Lehman Brothers to invest all her retirement savings in the stock market, confident that the Fed would soon make things right and we could profit from the panic of a gullible public.  The line “Where is my money, idiot?” is her’s.

(2) The debate about the bank bailout, and the stimulus package, has all revolved around issues that are entirely at the level of Econ 1.  What is the multiplier from government spending?  Does government spending crowd out private spending?  How quickly can you increase government spending? If you got a A in college in Econ 1 you are an expert in this debate: fully an equal of Summers and Geithner.

The bailout debate has also been conducted in terms that would be quite familiar to economists in the 1920s and 1930s.  There has essentially been no advance in our knowledge in 80 years.

It has seen people like Brad De Long accuse distinguished macro-economists like Eugene Fama and John Cochrane of the University of Chicago of at least one “elementary, freshman mistake.”

It has seen Treasury Secretary Timothy Geithner, guided by Larry Summers, one of the most respected economists of our time, produce a bailout plan for the US financial system stunning in its faltering vagueness.

Bizarrely, suddenly everyone is interested in economics, but most academic economists are ill-equipped to address these issues.

Recently a group of economists affiliated with the Cato Institute ran an ad in the New York Times opposing the Obama’s stimulus plan.  As chair of my department I tried to arrange a public debate between one of the signatories and a proponent of fiscal stimulus — thinking that would be a timely and lively session.  But the signatory, a fully accredited university macroeconomist, declined the opportunity for public defense of his position on the grounds that “all I know on this issue I got from Greg Mankiw’s blog — I really am not equipped to debate this with anyone.”

Academic economics will no doubt survive this shock to its prestige.

Will we be as well paid?  A recent article in the Wall Street Journal suggests the days of the $500,000 economics professor may have passed.

But more importantly, will the focus of academic economics change?  That is hard to tell.  But I would rate the chances of Chrysler producing once again a competitive US automobile at least as high as the chances of academic economics learning any lesson from this downturn.  (What was the price of that Chrysler stock we bought, dear?)

Happy Anniversary —

A year ago today Predictably Irrational was published.

A year ago I gave my first set of Radio and TV talks, and did my first book reading.

It has been an amazing year — I learned a lot and had lots of fun.

Thanks

Dan

In the wake of all this public anger over bankers’ salaries, and within weeks of taking office, Barack Obama is proposing “common sense” executive pay guidelines—at least in companies receiving government money. These measures call for executive salaries not to exceed $500,000; any further compensation could only be in the form of stocks, which can’t be sold until the government is paid back. No doubt this makes us feel better to some extent, but the question is, will it work?

I think not, and here’s why: if we were designing the stock market from scratch and offering people $500,000 a year plus stock incentives, I’m sure we would get lots of qualified people who would kill for this job, and not only for the salary but also as an important civil service to maintain the financial system on which we depend. But this is if we started from scratch, which we are most assuredly not. Instead we’re dealing with existing bankers who are accustomed to millions a year plus millions in stock options. These people have made up, over the years, a multitude of reasons why this is the least that they deserve for their efforts and skills (how many people can admit to being paid much more than they’re worth?). This is a problem of relativity. To these bankers, in view of their “normal” pay, it looks like an offensive and irresponsible offer. My guess is that they will not accept these conditions, or if they do, they’ll find other tricks to pay themselves what they think are “right” and fair wages, which is what they earned heretofore.

What would I have done if I’d been the financial czar in this situation? I would try to turn over a new leaf; incentivize the creation of new banks with a new pay structure; promote the idea that bankers are not greedy bastards but have a crucial social responsibility so that a whole new generation would take this approach and want these positions. The “old bankers” who feel they needed millions of dollars to do their jobs well could try and compete in this new market, but we’d see who actually wanted to bank with them when the alternative is a new bank with more idealistic underpinnings and a better, more realistic, and more transparent, salary structure.

Today I am working on an expanded version of my book — I am going to include some ideas about the stock market and some other random ideas

Given Valentine’s Day and the state of the market, let’s consider which approach to finding love is better: 1) the free market system where everyone can find their own date and figure out who and what is best for themselves; or 2) a regulated market where your parents, family, or perhaps some kind of matchmaker have a say. This may be an impractical question these days (how many people let their mothers set them up?), but this is still a complex problem that’s been discussed for millennia, without any apparent solution. But here’s a boon for anyone who is starting to lose hope of finding love: a study that shows the importance of commitment to happiness.

The world of dating has grown increasingly complex, we have online dating, speed dating, casual dating, traditional dating (I think it’s still around anyway), and so on. The problem is, that with so many options, commitment to a relationship becomes difficult—you never know if there’s someone more perfect for you just around the corner. In a world where switching partners is difficult, people are likely to hang on and attempt to work things out. But in a world where it’s easy, or seems easy, to switch partners, people are likely to give up when things first go wrong. And yet, the ever-present temptation that there is someone out there who is better can be incredibly devastating to our personal happiness.

So we have to wonder then, how important is commitment? Dan Gilbert and Jane Ebert conducted a study with this question in mind using photography. In their experiment, they gave students a short course in taking black and white photos and taught them how to develop their pictures in the darkroom. Half the people were told that they could pick one of their pictures to be professionally enlarged and developed, which they could then keep. The other half were told to pick two pictures to keep, and that they could change their minds until the minute that the film was sent off. These people had a continual temptation to change their choices, so they had time to consider and reconsider which of their prints were the best.
Later, each participant was asked to rate their level of happiness with their prints. Guess who was happier, those who chose a photo and stuck with it, or those who had flexibility and time to make the perfect selection? As it turned out, the people who could alter their choices were much less happy than the first group. The principle behind this is that when we have to deal with a certain reality, we get used to it and often come to prefer it. But if we think we can change it, we don’t force ourselves to cope, so inevitable imperfections—whether in people or in pictures—can drive us to distraction. And the same thing happens with marriage. If we think of marriage as an open market and always have half an eye on other options, we’ll be less likely to be happy.

We just got result from a new study — it seems that people who wear counterfeit products end up cheating more when they have the chance.