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Archive for the ‘Incentives’ Category

The following quotes are from a book describing a real set of events:

[The incident] is an extraordinary example of what happens when you get… a dozen people with an average IQ of 160… working in a field in which they collectively have 250 years of experience… employing a ton of leverage.

It’s hard to overstate the significance of a [government-led] rescues of a private [corporation].  If a [company], however large was too big to fail, then what large [company] would ever be allowed to collapse?  The government risked becoming the margin of safety.  No serious consequences had come about in the end from the… near-meltdown.

Was the incident:

a) The savings and loan scandal

b) The collapse of Enron

c) The sub-prime mortgage meltdown

d) none of the above

First correct answer gets to invest in an exciting new bridge project I’m involved with in New York!

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It is by now common wisdom that our current financial crisis is due in large part to misplaced incentives in our financial system. Analysts and fund managers were rewarded for short-term thinking and risk-taking. If we can rework our financial system to reward long-term, careful planning, it is often argued, we can avoid collapses like this in the future.

While I agree that misplaced incentives were a fundamental problem, the question of how to change this is rather more deep and complex than I think many people realize.

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I just tweeted on a subject that I suspected would cause a stir, and so it has, I’m moving it here:

RafeFurst: I strongly support a soda tax! RT @mobilediner: check it out:  a Soda Tax? http://amplify.com/u/dvl

coelhobruno: @RafeFurst what about diet soda? Would it be exempt?

RafeFurst: @coelhobruno no diet soda would not b exempt from tax.  Tax should be inversely proportional to total nutritional content.  Spinach = no tax

Lauren Baldwin: I do as well … and while they are at it they should tax fake fruit juice too.

Kevin Dick: I think this would be an interesting experiment. I predict a tax does not cause any measurable decrease in BMI.

Kim Scheinberg: New York has had this under consideration for a year.  Perhaps surprisingly, I’m against it. In theory, people will drink less soda. In reality, it will just be another tax on people who can afford it the least.

Leaving aside the “rights” issues and just focusing on effectiveness, I guess we can look towards cigarette taxes and gasoline taxes and see what the lessons are.  What do these forebears suggest?

As an FYI, there is supposedly a new total nutritional score (zero to 100) that is to be mandated on all food in the U.S. by the FDA.  Can anyone corroborate this and its current status?  Presumably this would be the number to base a tax on.

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Who wants to pay for email? You just might. Many people have suggested that adding a nominal cost to e-mail would serve to fight spam by rendering it largely unprofitable. With Centmail, some Yahoo researchers propose adding a penny postage stamp to each e-mail, representing a penny donation to charity. Since most people already donate to charity, it is not believed that this idea will actually cost anything.

In an effort to make Centmail a reality, a formal protocol and API has already been developed. While I am somewhat worried that a large-scale adoption of the protocol will incentivize significant non-profit and charitable fraud, the economic burden due to spam should be greatly reduced. It’s a cool idea by good people and I urge you to check it out.

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What’s fascinating to me about this is not that it works so well and or that there might actually be support in the Obama administration for doing it on a national scale, but rather that there has not been a backlash against it yet.  What are the odds that something like this will actually get implemented?  Is it actually a good thing?

hat tip: Annie Duke’s mom

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Everyone has heard about the Large Hadron Collider, arguably the most ambitious and complex engineering project ever undertaken, anywhere.  The purpose, no less ambitious, is to answer all sorts of burning questions about the nature of the universe, including whether the Standard Model of particle physics is valid.  Given such ambition and high stakes, it would surprise most people that the LHC is managed in a collaborative manner with very little hierarchy.  Essentially it’s a giant, crowdsourced science experiment.

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Short but brilliant TED talk by Joachim de Posada.  I love the economic point he makes at the end.

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