Housing Cycle

Interest Rate and Housing Cycle by Casey Mulligan

"The longevity of homes is the reason why interest rates, especially long-term rates, are an important feature of the housing market. The lower our long-term interest rates, the more weight the market puts on value created in the distant future, and the more houses are worth."

睇報學經濟 - Does Solvency Matter?

Paul Krugman, 2008 Nobel Laureate in Economic Science, wrote on Social Security in his NYT weekly column this Monday. He said that Social Security will remain solvent at least until 2030's and therefore it is illegitimate to support any proposal on Social Security cut (ibid).

The article is, of course, more than a strike back to Social Security cut proposer (actually the article is about fiscal austerity). Nevertheless, among the various arguments raised in his article, one issue pops up (and keeps popping up) in my mind, and that is "Does Solvency Matter" or better phrased as "Only Solvency Matter".

Yes, we "know" (I presume I know) Social Security is unlikely to go bankrupt until 2030's, but does that mean we shouldn't cut Social Security?

Again, the answer (for me at least) is "NO, NOT NECESSARY".

Argument 1:
Doesn't ECON101 say (social?) utility is maximized when marginal benefit equals to marginal cost, but not when the action's (net?) utility remains positive (or non-negative)?

Argument 2:
If so, does that mean to cut or not to cut, solvency is "a", but not "the sole", consideration?

Does that mean Mr. Krugman is wrong?

Ans: No, he doesn't, given that

1.
2.
... ...

Dear reader, I intentionally leave the conditions blank and make it a challenge to you to spot them out (hints: under what circumstance(s) does the condition of having non-negative utility an optimal? what happens when average cost equals to marginal cost? under what circumstances will that likely happen?). I also leave it to you to decide if the underlying Krugman philosophy is sound and followable.

To trust or not to trust, that's your own question.

Sustainability

Is unsustainable sustainable?

See this.

Does Speculation tend to Stabilize Prices?

Ed discussed speculating activities in his blog. I didn't read his paper on speculation (as I don't have the full access to it) , so I cannot comment on its conclusion "禁止摩貨勢必令市價波動幅度增加".

The paper's conclusion may be correct (and its validity is not this post's subject). But, theoretically, speculation does not necessarily tend to stabilize prices! It usually does when we use the term "speculation" for what is "arbitrage" (over time, or across different participating parties, or a mix of both). The problem is that speculation can be postulated, in addition to arbitrage, as buying when the price path is rising and selling when it is falling, in which case price volatility increases.

I suggest the following to interested readers:-

1. section 6.2 of J. Hirshleifer and J. Riley's "The Analytics of Uncertainty and Information"
2. Baumol, W., "Speculation, Profitability, and Stability," Review of Economics and Statistics, 30 (August 1957)
3. Friedman, M., "In Defense of Destabilizing Speculation," reprinted in Friedman, M. The Optimum Quantity of Money and Other Essays.

睇報學經濟﹣鄧監製

無記前金牌監製鄧監製接受壹仔訪問，說無記出品十年如一日，內容對白白痴到不能接受程度。

鄧監製在訪問中指 “外國劇，內地劇，製作模式跟無綫出品，已經完全不同 ... ... 只不過無得揀。收看免費電視，基本上可以話係無選擇。無競爭，管理層自然樂於因循下去 ... ...”， 並說 “流水作業，一樣可以有性格。監製絕對有權按照流水作業方式在有限成本下擺自己的簽名落去。搭景，係咪可以有少少要求，搭靚啲用多了錢，咪慳在其他地方囉。”

鄧監製的出品如何及其對電視台營運的看法是對是錯非本文評論範圍。本文重點乃鄧監製對搭景的意見。經濟學假設人尋最大利潤（maximize profit)，而得最大利潤的均��點(equilibrium position)為每生產要素的邊際利益（marginal product of x)等如其邊際成本(marginal cost of x) - x = 演員、景、編劇 ... ... 等。於是要賺盡，無記劇的生產非「搭靚啲景用多了錢，咪慳在其他地方囉」，而是令每生產要素x的邊際利益等同其邊際成本，即搭景的邊際成本等同其邊際利益，否則無記會少賺了錢 ﹣先在搭景上“虧”，其後在"慳“的地方“賺“少了。

當然，無記朝中有“忠臣”，成功以“海報逼真啲，收視係咪升一點？唔會，唔改 ... ...”制止鄧先生「損害」無記股東之舉。

是股東之幸？是觀眾之不幸？是鄧監製「有志難伸」之大不幸？

鄧監製還是繼續當監製好，盤數還是讓數佬睇吧。比較優勝定律(law of comparative advantage)不是開玩笑的。

Comment on "On Web's Cutting Edge, Anonymity in Name Only"

From Wall Street Journal

On Web's Cutting Edge, Anonymity in Name Only

What (x+1) did was introducing a fact finding algorithm, and, perhaps, suggesting an optimal response function to its client, e.g. Capital One, based on the fact(s) found.

As discussed in yesterday's post, there are two potential problems in the (x+1)/Capital One relationship, namely, the reliability of (x+1)'s "fact" finding service, and, if (x+1) does offer suggestions to Capital One on response, the incentive compatibility between (x+1) and Capital One.

Any (serious) conflict of interests between the two contracting parties can ruin the set-up.

I am interested to know, if possible, a little more about the remuneration clause(s) of the (x+1)/Capital One service contract.

Designing an algorithm shouldn't be considered a violation of privacy. It is the data collecting process which the Authority should focus on.

睇報學經濟﹣陸東說（Andrew Says)

星期日蘋果訪問陸東，陸東說：

“港股現時 13、 14倍 PE（市盈率）” （１）

“萬九至二萬二點，仲要維持一段較長時間”（２）

“與其買滙控，不如買內銀股“（３）

１、２及３皆資訊，但性質不同。

訊息１提供“事實"。受訊者在決定是否相信有關訊息後決定下一步行動（入市or otherwise）。訊息提供人的sincerety 是問題（即陸示有冇呃你, e.g. PE 是否13、14倍）。

訊息２是「機率性訊息」 （而且好大機會包含１的訊息﹣即陸示得悉１後推出２）。Again，受訊者在決定是否相信有關訊息後決定下一步行動。訊息提供人的sincerety 是問題。

３有別於１及２。該訊息（內含２機會甚大）提供下一步行動見意（非純資訊提供）。受訊者要決定是否相信有關recommendation。訊息提供人的sincerety 及其利益與受訊者是否一致是問題。

有趣的問題（之一）是在知道１、２及３時，旁觀者或受訊者能否re-engineer 陸示的決策過程及work back 其對未來state of the world 的預測？如能，在什麼條件之下？

Bob Aumann 的研究（引申）指出在一定條件下，以上問題的答案是 “Yes, we can!”。當然問題不止於此。之後要問的是在己知情況及條件下閣下當下的最佳策略為何。

Aumann 因有關研究（貢獻之一）於2005年諾獎桂冠。

歐民的研究significantly “enhanced our understanding of conflict and cooperation”，並將經濟學研究範圍及approach 推向新世界（唔好搞錯，唔係推俾彤叔）（例如reward structure set-up，contract terms structuring，multi-party conflict resolution... ...）。