Japan: A culture of savers?

Many economists claim that Americans are spendthrifts and for good reason. The average American has over $9000 of credit card debt. Why don’t we act more like the Japanese and save? A NBER working paper by Charles Yuji Horioka, Wataru Suzuki, Tatsuo Hatta claim that Japan’s high saving rates in the 70s and 80s were…

Advice for Economics Grad Students

Greg Mankiw has a great post on Advice for Grad Students, with links to advice given by David Romer, Hal Varian, David Laibson and more.  Cochrane’s “Writing Tips for PhD students” is especially helpful for graduate students who are attempting to write scholarly articles.

Do Americans kids know anything about economics?

In 2006, the National Assessment of Educational Progress (NAEP) conducted its periodic assessment of the quality of American high school students. What is unique about the 2006 “Nation’s Report Card” was that it was the first time that high school students were tested regarding the subject of economics. How did they do? Well, it depends…

Want a 912% return in one year?

Sound too good to be true? Well, according to the Motley Fool website (“Best market“), Zimbabwe’s stock exchange returned 912% in 2006. The Mises Institute states that between January and the beginning of April 2007, the Zimbabwe stock exchange returned 595%, and looks to continue to be the top stock index in 2007 as well.…

The Fox in the Henhouse

“We want the protection the government provides, and we want freedom. Put those together, and what we really want is for our government, and the whole public sector, from firefighters to voluntary organizations, to be both responsible and responsive.” I recently finished reading the book The Fox in the Henhouse: How Privatization Threatens Democracy by…

Developments in Non-Expected Utility Theory

This week we have been looking at Expected Utility Theory (EUT) and its alternatives. Many people have challenged the empirical and theoretical basis for EUT. For instance, Matthew Rabin (Econometrica 2000) claims that EUT has implausible implications. For instance, if an individual would prefer $0 to playing a lottery with a 50% chance of losing…

Prospect Theory

Yesterday, I talked about expected utility theory (EUT). Today I will write about one on the major departures from EUT: Prospect Theory. This theory was developed by Nobel laureate Daniel Kahneman and Amos Tversky (Econometrica 1979). The four key characteristics of prospect theory are: Individuals use decision weights, π(p), rather than probabilities, p, when making…

Four Axioms needed for Expected Utility Theory

How do economists understand individuals preferences when there is risk? Without risk, economists generally believe that individuals have a utility function which can convert ordinal preferences into a real-valued function. This real valued function is the utility function. When risk enters into the picture, the expected utility theory (EUT) is used. This theory was developed…

China Makes, The World Takes

There is a very interesting article by James Fallows in The Atlantic Monthly regarding the manufacturing sector in China, with a particular focus on Shenzhen. The article requires a subscription but the Finance Famulus and The Huffington Post websites offer an excerpts.  There is slide show on the Atlantic website for free, however, which also…

Econ Department Rankings

Although a little out of date, I came across a recent rankings of U.S. Economics departments. The paper (“Rankings of U.S. Economics Departments“) is written by Richard Dusansky and Clayton J. Vernon and was published in The Journal of Economic Perspectives in 1998. The rankings are as follows: Rank University 1 Princeton 2 Harvard 3…