Monthly Archives: February 2020

Window allocation to the rooms benefiting the most

People seem to value having a window in their office or living room, more so than in a stairwell, closet or storage. It would be efficient and simple to design the floorplans to maximise the total benefit derived from windows. However, in both commercial and residential buildings, the corners (with the best window access) sometimes have stairwells or elevators instead of offices or living rooms. For example, in the MIT economics department (building E52), the seminar rooms have the biggest windows with the best view, and one corner of the building is a stairwell. In seminar and teaching rooms, people are supposed to look at the slidescreen or speaker, not out of the window, so the benefit of windows is little. Sometimes a window even adds negative value if the sun shines in people’s eyes and they have to spend a small amount of time closing the blinds.

If building regulations require a stairwell to have windows, thus be adjacent to an outside wall, then it would still be welfare-improving to locate offices at the corners, relegating the stairwell to the middle of a side of the building. Specifically, the side with the worst view or the side most prone to undesirable glare. Another way to comply with window requirements is to construct a shaft in the middle of the building (as in some New York highrises) and put the stairwells next to the shaft. 

Ebay should allow conditional bids

Ebay should allow buyers to bid for a single item across multiple auctions: make a bid for one item, then if outbid, automatically make the same bid on the next identical (as defined by the buyer) item and so on. This increases efficiency by joining multiple auctions for identical items into one market with many sellers and buyers. It also reduces selling times, because a buyer who just wants one unit does not have to wait until being outbid before bidding for the next identical item. Buyers generally are not continuously watching the auction, so there is a delay between being outbid and manually making the next bid. Buyers are willing to pay to reduce the delay, as evidenced by purchases at “buy it now” prices greater than the highest bids in the auctions.

More generally, bids conditional on being outbid would help merge auctions into markets, gaining efficiency and speed. For example, a buyer has different values for used copies of the same item in different condition and wants just one copy of the item. Conditional bids allow the buyer to enter a sequence of different-sized bids, one for each copy, with each bid in the sequence conditional on the preceding bids losing.

Linking the bids is not computationally difficult because Ebay already sends an automatic email to a buyer who has been outbid. Instead of an email, the event of being outbid can be used to trigger entering a bid on the next copy of the item.

Faster selling times benefit everyone: sellers sell faster, buyers do not have to waste time checking whether they have been outbid and then making the next bid, Ebay can charge higher fees to appropriate part of the increased surplus from greater efficiency. Ebay can also use the data on which items buyers consider similar enough to classify products and remove duplicate ads.

A browser extension or app can provide the same functionality: an email with title containing “You have been outbid” triggers code that logs in the user (with the credentials saved into a password manager or the browser) and types in a bid on the next copy of the item.

Free food for health and the environment

To motivate choosing vegan or environmentally friendly or healthy food, one option is to provide it for free. If people have eaten their fill, they are less likely to buy extra, whether meat or unhealthy. There are tradeoffs of course – any free resource tends to be overused.

For free food to be environmentally friendly, it should not be wasted and disposable utensils should be avoided. Food waste can be reduced by providing small portions to be eaten on the spot, with unlimited free refills of these small portions. All-you-can-eat restaurants already use this strategy by providing only small plates and bowls. The oversight of the food servers and other eaters and their disapproval of wasting food is a social deterrent.

The use of disposable dishes may be reduced by not providing any, requiring people to bring their own utensils, but some will then bring disposable and some will substitute away from the free food toward buying (unhealthy, delivered) meals in disposable containers. It is an empirical question whether the potential use of disposables outweighs the benefit of switching people to healthy and environmentally friendly eating. A dishwasher next to the food station eases the use of reusable kitchenware. Handheld foods (buns, sandwiches, wraps, whole fruit) do not require dishes.

Free food may lead to overeating and increase obesity. Any free resource tends to be over-used, especially if in limited quantity or available for a limited time. The latter overuse motives are eliminated by making the free food continuously available, but this exacerbates potential overeating. The obesity effect can be reduced by offering only healthy food without the somewhat addictive additives sugar, salt and monosodium glutamate. Foods like celery, iceberg lettuce, whole linseeds that provide fewer calories than it takes to chew and digest them (given inefficient human digestion, as opposed to the calories measured by the burn method) may actually reduce obesity when distributed for free. Again, it is an empirical question whether the potential costs of overeating and obesity neutralise the benefit of substituting towards healthier and environmentally friendlier foods.

Given how cheap basic healthy foods are (rice and other dry grains under a dollar per kilo, cabbage, bananas, lemons, dry peas and lentils two dollars per kilo), the social benefit of providing these for free may outweigh the deadweight loss of taxation to finance their purchase. In this case, the government would actually save money in the long run (over the average life expectancy) by offering free food. Cooking the foods would increase the costs slightly, but not much if it is done continuously in bulk by machines (rice cookers, bread machines). No need to wash the cookers if a new batch goes in within hours and the heat sterilises the machine. Or the machine can wash itself if it is connected to a water supply, a drain and a soap dispenser and either has a mixing blade in it like a blender or the water supply has sufficient pressure to flush out the soap residue.

Prefereeing increases the inequality of research output

Why do top researchers in economics publish almost exclusively in the top 5 journals? Random idea generation and mistakes in the course of its implementation should imply significant variance of the quality of finished research projects even for the best scientists. So top people should have more of all quality levels of papers.

Nepotism is not necessary to explain why those at top universities find it easier to publish in top journals. Researchers at the best departments have frequent access to editors and referees of top journals (their colleagues), so can select ideas that the editors and referees like and further tailor the project to the tastes of these gatekeepers during writing. Researchers without such access to editors and referees choose their projects “blindly” and develop the ideas in directions that only match gatekeeper tastes by chance. This results in much “wasted work” if the goal is to publish well (which may or may not be correlated with the social welfare from the research).

In addition to selecting and tailoring projects, those with access can also better select journals, because they know the preferences of the editorial board. So for any given project, networking with the gatekeepers allows choosing a journal where editors are likely to like this project. This reduces the number of rejections before eventual acceptance, allowing accumulating publications quicker and saving the labour of some rounds of revision of the paper (at journals that reject after a revise-and-resubmit for example).

A similar rich-get-richer positive feedback operates in business, especially for firms that sell to other firms (B2B). Top businesspeople get access to decisionmakers at other organisations, so can learn what the market desires, thus can select and tailor products to the wants of potential customers. Better selection and targeting avoids wasting product development costs. The products may or may not increase social welfare.

Information about other business leaders’ preferences also helps target the marketing of any given product to those predisposed to like the product. Thus successful businesspeople (who have access to influential decisionmakers) have a more popular selection of products with lower development and marketing costs.

On the seller side, firms would not want their competitors to know what the buyers desire, but the buyer side has a clear incentive to inform all sellers, not just those with access. Empirically, few buyers publish on their websites any information about their desired products. One reason may be that info is costly to provide, e.g. requests for product characteristics reveal business secrets about the buyer. However, disclosure costs would also prevent revealing info via networking. Another reason buyers do not to publicly announce their desired products may be that the buyers are also sellers of other products, so trade information for information with their suppliers who are also their customers. The industry or economy as a whole would benefit from more information-sharing (saving the cost of unwanted products), so some trading friction must prevent this mutually beneficial exchange.

One friction is an agency conflict between managers and shareholders. If managers are evaluated based on relative performance, then the managers of some firms may collude to only share useful information with each other, not with those outside their circle. The firms managed by the circle would benefit from wider sharing of their product needs, because outside companies would enter the competition to supply them, reducing their costs. However, those outside firms would get extra profit, making their managers look good, thus lowering the relative standing of the managers in the circle.

Popularity inequality and multiple equilibria

Suppose losing a friend is more costly for a person with few contacts than with many. Then a person with many friends has a lower cost of treating people badly, e.g. acting as if friends are dispensable and interchangeable. The lower cost means that unpleasant acts can signal popularity. Suppose that people value connections with popular others more than unpopular. This creates a benefit from costly, thus credible, signalling of popularity – such signals attract new acquaintances. Having a larger network in turn reduces the cost of signalling popularity by treating friends badly.

Suppose people on average value a popular friend more than the disutility from being treated badly by that person (so the bad treatment is not too bad, more of a minor annoyance). Then a feedback loop arises where bad treatment of others attracts more connections than it loses. The popular get even more popular, reducing their cost of signalling popularity, which allows attracting more connections. Those with few contacts do not want to imitate the stars of the network by also acting unpleasantly, because their expected cost is larger. For example, there is uncertainty about the disutility a friend gets from being treated badly or about how much the friend values the connection, so treating her or him badly destroys the friendship with positive probability. An unpopular person suffers a large cost from losing even one friend.

Under the assumptions above, a popular person can rely on the Law of Large Numbers to increase her or his popularity in expectation by treating others badly. A person with few friends does not want to take the risk of losing even them if they turn out to be sensitive to nastiness.

Multiple equilibria may exist in the whole society: one in which everyone has many contacts and is nasty to them and one in which people have few friends and act nice. Under the assumption that people value a popular friend more than the disutility from being treated badly, the equilibrium with many contacts and bad behaviour actually gives greater utility to everyone. This counterintuitive conclusion can be changed by assuming that popularity is relative, not a function of the absolute number of friends. Total relative popularity is constant in the population, in which case the bad treatment equilibrium is worse by the disutility of bad treatment.

In order for there to be something to signal, it cannot be common knowledge that everyone is equally popular. Signalling with reasonable beliefs requires unequal popularity. Inequality reduces welfare if people are risk averse (in this case over their popularity). Risk aversion further reduces average utility in the popular-and-nasty equilibrium compared to the pooling equilibrium where everyone has few friends and does not signal (acts nice).

In general, if one of the benefits of signalling is a reduction in the cost of signalling, then the amount of signalling and inequality increases. My paper “Dynamic noisy signaling” (2018) studies this in the context of education signalling in Section V.B “Human capital accumulation”.

„People should have a choice” works both ways

Initiatives to counter unhealthy and destructive habits (smoking, gambling, junk food consumption) by taxing or restricting the addictive goods and services are often opposed with the argument that people should have a choice. One counterargument is that removing temptations from one’s future self is also a choice that people should have. For example, banning oneself from casinos. Similar registries could be instituted to ban oneself from buying alcohol or tobacco – the sales already require checking ID, so all that is needed is to compare the person’s identity against a database. For example, using a machine-readable ID which causes the machine to display “Do not sell” for people who have put themselves on the relevant list. Countries with universal machine-readable identification documents can use their existing systems for this. Examples are the European Union national identity cards.

Other ways to remove temptations from one’s way are restrictions on advertising, eliminating vending machines from a building, liquor stores near schools, alcohol and tobacco from the more visible areas of grocery shops. Just like people should have a choice to block spam emails, calls, web browser ads, they should have a choice to ban street advertising (of addictive goods or anything else) in their residential or work areas. Removing a public ad restricts some people’s right to see it, but empirically most people do not want to see more marketing in public spaces or elsewhere. Symmetrically, displaying a public ad restricts people’s right to avoid seeing it, so the question is how many people’s rights are restricted by banning vs allowing advertising.

The problem of annoying public advertisements may be resolved by smart glasses like Google Glass if these can detect advertisements appearing in the field of view and block these or replace with other images before the user sees these, similarly to how adblock software in browsers works.

The smartest professors need not admit the smartest students

The smartest professors are likely the best at targeting admission offers to students who are the most useful for them. Other things equal, the intelligence of a student is beneficial, but there may be tradeoffs. The overall usefulness may be maximised by prioritising obedience (manipulability) over intelligence or hard work. It is an empirical question what the real admissions criteria are. Data on pre-admissions personality test results (which the admissions committee may or may not have) would allow measuring whether the admission probability increases in obedience. Measuring such effects for non-top universities is complicated by the strategic incentive to admit students who are reasonably likely to accept, i.e. unlikely to get a much better offer elsewhere. So the middle- and bottom-ranked universities might not offer a place to the highest-scoring students for reasons independent of the obedience-intelligence tradeoff.

Similarly, a firm does not necessarily hire the brightest and individually most productive workers, but rather those who the firm expects to contribute the most to the firm’s bottom line. Working well with colleagues, following orders and procedures may in some cases be the most important characteristics. A genius who is a maverick may disrupt other workers in the organisation too much, reducing overall productivity.