Showing posts from October, 2016

Predicting the 2016 US Presidential election

Is it possible to have a more accurate prediction by asking people how confident they are that their preferred choice will win?
One consequence of this hectic election season has been that people have stopped trusting the polls as much as they did before. Which is surprising given that in the US, unlike the rest of Europe, pollsters and particularly polling aggregation sites (like FiveThirtyEight) have on aggregate been quite accurate in their predictions thus far. Still, one cannot escape the overall feeling that pollsters are losing their reputation, as they are often being accused of complacency, sampling errors, and even deliberate manipulations.
There are legitimate reasons for this however. With the rise of online polls, proper sampling can be extremely difficult. Online polls are based on self-selection of the respondents, making them non-random and hence biased towards a particular voter group (young, better educated, urban population, etc.), despite the efforts of those behin…

The trade-off between equality and efficiency reexamined

After having read and reviewed Stiglitz's book earlier this week, and after having written the following paragraph... "I too have long considered the relationship between equality and efficiency to be non-linear, instead of just a simple trade-off. Too much equality isn’t good since it reduces incentives, but neither is too much inequality. I would say the relationship is of an inverted-U type where moving to both extremes – too much and too little equality is bad for the economy. The trick is to find an optimal point which reduces the level of inequality where it offers more opportunities for everyone, but also just enough for it to continue to drive incentives. More on that in my next blog post." ...I just had to dig deeper into the whole equality-efficiency trade-off. So I picked up a seminal book from a man who specialized in economic trade-offs, none other than - Arthur Okun! Okun is more famous for his "law" stipulating the linear relationship (read: trad…

What I've been reading (vol. 11): Atkinson & Stiglitz

Atkinson, Anthony (2015) Inequality. What Can Be Done? Harvard University Press & Atkinson, Anthony (2008) The Changing Distribution of Earnings in OECD Countries. Oxford University Press
The first two books, both written by the same author, Oxford economics professor Sir Tony Atkinson, will be reviewed jointly. The reason is that the earlier book, The Changing Distribution of Earnings in OECD Countries is more a case study summary of the empirical facts behind the rise of inequality in the West in the past century, the point of which is again summarized in the first few chapters of the author’s latest book Inequality. Basically the earlier book is a very detailed portrayal of the worrying inequality trend in the case of 20 OECD economies. It has two main parts – the first which depicts both the theoretical arguments and the summary of the historical trends for all the given countries, and the second which (on over 200 pages) details all the data, the graphs and the individual expla…

2016 Nobel prize awarded to Hart and Holmstrom for contract theory

It's that time of the year again - Nobel prize awards! After being awarded to a single recipient two years in a row (Deaton in 2015, Tirole in 2014), this year the Nobel in economics is shared by two worthy winners, both relatively unknown outside the economic arena. The reason is that both Oliver Hart from Harvard, and Bengt Holmstrom from MIT, are theorists. What is their area of expertise? Contract theory, arguably the most complex field in modern economics. Which is why this year's prize is another laudable effort to commemorate this very important branch of economic theory for the very first time. 
So what's contract theory all about? Or to be more precise, what was the significance in their contribution? The official statement says the following: "Modern economies are held together by innumerable contracts. The new theoretical tools created by Hart and Holmström are valuable to the understanding of real-life contracts and institutions, as well as potential pitf…