Wednesday, November 28, 2012


So the powerball jackpot is around $500M at the moment (or maybe more).  I've heard a lot of talk recently that it does not make sense to buy a ticket because your odds of winning are less than ___insert random unlikely event here___.  I took it upon myself to look up the odds of winning and calculate the expected value of a ticket.  Turns out that the expected value of the ticket depends on the size of the jackpot (surprise!).  You want to purchase a ticket for $2 if the expected value is greater than the $2 that you have to spend on the ticket.  In order to simplify things, I'll reduce all the non-jackpot figures.

You can expect to earn $0.36 + $(Jackpot/175,223,510).  That means that you should play only if (Jackpot/175,223,510) is larger than 1.64.  This happens when the Jackpot is more than $287,266,557...BUT, actually, what you'd need is a take-home value of $287,266,557.  After you take the lump sum and taxes come out of the jackpot it shrinks (I think to about 55% of its original size).  I guess that means that the jackpot has to be over $500,000,000 in order to break even in expected value terms.

Assuming no taxes and a jackpot of about $550M, the expected value of a ticket is about $3.50 so it makes sense to spend $2 on the ticket...IF IF IF you are the only winner and we are not worrying about taxes.

As more and more people play *technically as more tickets are sold*, the odds of having to split the jackpot increase.  Say you end up splitting a $600M jackpot if you win... then your expected value would be (300,000,000/175,223,501) + 0.36 = $2.07 which is just barely enough to justify buying the ticket (unless you really don't value the time that you spend waiting in line).  Also, after taxes it looks like your expected value is less than the cost of the ticket.

All that being said, I bought 5 entries tonight on my way home.  I don't expect to win, but the lottery gave me a ton of scholarship money and this could be viewed as a way that I'm giving back.  Good luck all you players.

Tuesday, November 27, 2012

100GB Free Google Drive Storage for Eligible Chromebooks

Looks like I missed out on this offer:  100GB Free Google Drive Storage (for 2 years) for Eligible Chromebooks.  For some reason, Google is not offering this to Cr-48, Acer AC700, or Samsung Series 5 computers.  I think it's strange that this offer would not be extended to older (early adopter) machines.  I know that the Cr-48s were given away in the first place and maybe that's one reason they're not being given even more, but I don't think that it would cost Google very much to allow ALL Chromebooks to have the free storage.

The free storage is only for 2 years and I bet that people would continue the subscription for $5/month after that.  I'm a little bummed that I don't get the free storage.  I've been stoked about my Chromebook and would consider getting another one in the future.

You can read more about the terms and conditions of this offer here.

Monday, November 26, 2012

Beer Choice as a Signaling Device

I just shaved today and didn't get carded at the store to buy beer.  I can almost always count on getting carded when I'm clean shaven.  I wonder if the beer I bought is one reason I did not get carded.  I picked up a 6er of Abita Restoration Ale and a big bottle of Abita Abbey Ale.

I think that underage drinkers are more likely to buy Natty Light or Bud Light or something along those lines.  I wonder how effective it would be for underage kids to try buying better beer as a signaling device that they are older.

Sunday, November 25, 2012

Tuesday, November 20, 2012

Monday, November 19, 2012

"Price Gouging" After Sandy

Notice that this gas station had gas.  One man informs the reporter that other stations are out of gas.  This one has gas precisely because they increased the price.  THE GAS STATION IS NOT FORCING ANYONE TO BUY THEIR GAS!  The price appears to be not high enough.  People are waiting in a very long line, so they must really want gas at this price.  Their demand for gas has increased due to the storm and they are willing to pay more for it.

Normally, gas is just used in their cars but now they are without centralized power production so many residents have a generator that they can use to keep the food in their fridge from spoiling.  Isn't that worth $5/gallon in unspoiled food alone?

Everyone should thank this gas station for raising its price so that there was still gas around for high valued uses like the generator above.  People who don't really need gas right now can wait until the price drops again before filling their tanks.  If the price stayed low, then everyone with 3/4 tank would try to top it off and there wouldn't be gas left for the generators.  Some people would benefit from paying a bit less for gas but others would be harmed by not getting it at all.

Sunday, November 18, 2012

Weekend in New Orleans

I just had a great weekend at the Southern Economic Association's annual meeting in New Orleans.  We got in late Thursday night and one of the people with us wanted to eat at the Arby's across from the hotel.  Unacceptable.  I asked the check-in girl where we should go instead.  We ended up about 2 blocks away at Daisy Dukes and I had alligator sausage for the first time.  It was delicious.  It was also filled with locals and devoid of tourists (except us).  

Friday was a full day of sessions.  I had to present on Sunday at 8am and I filled in for Rosie as discussant for a paper on Sunday at 1pm.  I ended up revising my presentation (and my discussion) after sitting in on a few of the sessions.  Some of the talks I saw were phenomenal and others abysmal.  One terrible presentation was actually a keynote on Friday night.  This guy droned on for over an hour in his monotone about how Obama sucks.  I didn't expect it to be that partisan.  A week ago, Mankiw railed on some policies but gave specific recommendations for making things better.

I went to dinner at the Palace Cafe on Friday night with the people from W. W. Norton Publishing.  Dinner was delicious and the people were all fun and interesting and smart.  I woke up on Saturday morning to go to their focus group for Dirk Mateer's new textbook.  They wanted feedback on their online homework component.  If they are able to incorporate all our suggestions, they'll have the best online homework solution on the market, hands down.  I still haven't read the chapters from the book, but I plan on doing that before I get a job somewhere.  The textbook should be out for the fall semester at a reasonable price.

I ran into a bunch of other people I know who don't live in Tallahassee.  I got to see Glenn from my cohort who now lives across the pond in Innsbruck and Krista who is in Switzerland.  I attended a couple sessions put together by Dr. Salmon and he even gave a talk at one of them.  I saw some people who I'd met last year in DC and even a guy from UF who I met last week at the teaching conference.  I also ran into the focus group people all day Saturday.  Whitney came to my presentation and we went to lunch together on Friday.  I think it's a great idea to get yourself on the agenda at conferences so that you can go and visit with colleagues from all over.  The only downside is missing a bit of class.

I was lucky enough to have Marc cover my class for me on Friday.  The class was about the crash of 2008 and Marc was working on Wall Street at the time, so I think he had a better perspective than I could ever have.  I hope to incorporate more guest lecturers into my course design in the future.  I don't want just to use them to free myself up but also to give my students some variety.  Speaking of changes to my course, I got a lot of great ideas on how to improve classes and presentations.  I've made note of the actionable items and I'll begin to incorporate them the next time I teach and maybe even make a few modifications for the rest of the semester (like leaving some extra text off my powerpoints when I present in class but making it available online for students to download).

I guess I didn't mention that we traveled in style.  Mike's Limousine sent us a 50 passenger bus.  It was supposed to be a 20 passenger bus for about 11 people.  We only had 7 ride the bus.  It's a bit of a waste, but better than everyone driving individually.  Better than putting miles on my car.  Nice to sleep on the bus (or write this blog post).  It was cheaper for the department than reimbursing all of our travel expenses.  All around great stuff.

Pick #321

Seven Mary Three - "Favorite Dog"

Tuesday, November 13, 2012

Open Letter to Peter Morici

Prof. Peter Morici
University of Maryland
Smith School of Business
College Park, MD
Dear Peter:
In your guest blog-post yesterday at CNBC you argue that the destruction caused by hurricane Irene will spark a “process of economic renewal [that] can leave communities better off than before” (“Economic Impact of Hurricane Irene“).  Central to your argument is your claim that, because of the rebuilding, “the capital stock that emerges will prove more economically useful and productive.”
In other words, whenever assets still in use are destroyed, wealth will thereby be created – that is, people whose assets are destroyed will be made richer – because these destroyed assets are replaced with ones that are newer and more productive.
I hereby offer my services to you, at a modest wage, to destroy your house and your car.  Act now, and I’ll throw in at no extra charge destruction of all of your clothing, furniture, computer hardware and software, and large and small household appliances.
Because, I’m sure, almost all of these things that I’ll destroy for you are more than a few days old (and, hence, are hampered by wear and tear), you’ll be obliged to replace them with newer versions that are “more economically useful and productive.”  You will, by your own logic, be made richer.
Just send me a note with some times that are good for you for me to come by with sledge hammers and blowtorches.  Given the short distance between Fairfax and College Park, I can be at your place pronto.
Oh, as an extra bonus, I promise not to clean up the mess!  That way, there’ll be more jobs created for clean-up crews in your neighborhood.
Donald J. Boudreaux

Sunday, November 11, 2012

Nash Equilibrium in Layman's Terms

My girlfriend watched a documentary about John Nash and how he overcame his schizophrenia.  I tried telling her about the Nash Equilibrium (NE) concept and she didn't either I did a poor job explaining or she wasn't focusing on my explanation or a bit of both.  I'm going to attempt to define NE and give an example in layman's terms below.

NE is a game theory concept, so it applies to games.  Economists use the word game a bit differently than other people, so you can think of a game as a scenario where more than one player interact with each other and the payoffs (perhaps who wins and who loses and by how much) are determined by the decisions of all the players.  A simple game is played on The Price is Right.  The winner is the player who guesses the number closest to the value of the item without going over.  All four players make a guess and therefore whether or not one player is a winner depends on the value of the item and the guesses of the other three players.  Likewise, paper-rock-scissors is a game.  If you throw rock, your payoff depends on what your opponent throws.

In a NE, no player can increase his own payoff by deviating if everyone else keeps their move the same.  Think about letting just one player (at a time) have a do-over...if they change their move, then we say they have deviated.  Another aspect of NE that hurts brains is that there can be multiple NE in one game.  I am going to describe a two player game for simplicity.

You and I get to pick an integer between 1 and 9 inclusive.  We do not get to communicate with each other about what we will pick.  Say that you pick a number by writing it down and giving the paper to a person organizing the game.  The payoffs are as follows:  if we pick the same number, then we each get paid that number of dollars (by the person who is organizing the game).  If we pick different numbers then we each have to pay the same number of dollars as the number we picked (to the person organizing the game).

Example 1 payoff:
I pick 5 and you pick 7.  Now I have to pay 5 and you have to pay 7.

Example 2 payoff:
We both pick 4.  Now we both get paid $4.

What about the NE?:
The moves we made in example 1 are not a NE.  If I were allowed to deviate, I would change my pick to 7 and we would both get paid $7.  If you were allowed to deviate then you'd pick 5 and we'd both get $5.  It only takes one of us wanting to deviate to make the scenario a non-NE.  The moves we made in example 2 are a NE.  If either of us were given the chance to deviate (given that the other player cannot change their move) then neither of us would want to because we'd go from getting $4 to paying something which does not make us better off.

Here's the tricky thing...
First of all, you have to get past the idea that this is a simultaneous move game and you will not know what your opponent has chosen until after you have made your move.  Second of all, you might have deduced that any time we both pick the same number in the game above leads to a NE.  That is correct.  There are 9 NEs for that game.  We could settle on any one of them and it would be a NE.  All other choices where we pick different numbers are not NEs because one of us would like to deviate if we knew that the other person would not be able to change his answer.

I hope that helps.  I can answer any questions in the comments.

Note: I've only discussed pure strategy NE because mixed strategy will blow your mind...and I can't say much about it to the lay person except that it would be bad for a player to commit to a strategy such as "always choose paper in paper-rock-scissors" because the opponent would then crush you by always choosing scissors.

Saturday, November 10, 2012

Greg Mankiw on Health Insurance

I was at the Cengage Learning annual teaching conference on Friday and had a great time.  Gail Hoyt gave a seminar for grad students about the top 5 tips for effective teaching & top 5 tips for the job market.  That was really good and followed by N. Gregory Mankiw's keynote address at lunch.  What Mankiw said really resonated with me.  I had no idea that he was so light-hearted and funny...I feel like he could give Yoram Bauman (the stand-up economist) a run for his money if he tried.

Mankiw's speech was about the fiscal challenge ahead.  I really liked what Mankiw had to say about gas taxes (there should be a ~$2.00/gallon tax on gas to help correct the negative externalities generated by driving) and getting rid of the mortgage interest deduction on taxes (even though I own a house, I realize that this is a terribly inequitable tax and costs our government lots of revenues).  What really resonated with me was his take on medical insurance.  I've actually had much the same conversation with my girlfriend and it was super duper neat-o to hear Dr. Mankiw express my views from his mouth to a room full of people/webcast full of viewers.  Here's the upshot of the problems with medical insurance:

People are using medical insurance as non-insurance.  Insurance should be for unexpected events, not regular medicine or treatments.  Since medical insurance compensation is tax deductible, people have too much of it.  To see why, consider what would happen if your auto insurance was tax deductible.  You would tell your employer that you're willing to take a pay cut if he pays for your auto insurance policy.  You would want better coverage than you currently have (as long as insurance is a normal good, which it's hard to argue otherwise).  Normal auto insurance now covers incidental things like accidents but it does not cover regular maintenance items like new tires, burned out headlights, oil changes, and filter replacement.  If you had the tax deductible setup, then you'd want as much of your car expenses to be covered by insurance (with a more expensive policy).  We would probably see clauses allowing insurance to cover filter replacement and oil changes.  People might even want to go as far as to have their policy cover gasoline fill-ups.

If this sounds ridiculous to you, consider someone with a monthly prescription that is covered by their insurance.  That might be too much insurance coverage.  I think that there are ways around "insuring" monthly prescriptions.  One reason why it's attractive to have insurance coverage for monthly prescriptions is the difference in cost between paying out-of-pocket vs. paying through insurance.  Part of the reason for the price difference is the market power of the insurance company compared to that of an individual consumer.  The insurance company can negotiate lower rates.  Another reason is that healthy people are subsidizing pill takers.  That setup might make sense for temporary prescriptions but not regular recurring prescriptions (which is like auto insurance covering gasoline).

If my gasoline were subsidized, you can bet that I'd drive more than I do now.  So would everyone else.  It's a tragedy of the commons type problem.  The monetary outlays on gasoline would increase and people would be concerned about the rising costs of auto insurance...but they wouldn't want to remove the moral hazard (speaking just about the gas and not about reckless driving) associated with purchasing that insurance.

Speaking of the rising cost of medical insurance, Mankiw does not think this is a bad thing.  One reason why the cost has increased is that the productivity of medical capital has increased.  We are also able to do amazing things with medical technology that we couldn't in the past.  When I broke my wrists, I was able to regain a near full range of motion.  I was informed by my surgeon that I would have about half the range of motion in each plane had this accident occurred only 5 years earlier.  Mankiw offers a thought experiment:  would you agree to pay the rate on medical treatment paid by your grandfather (in his 40s) in exchange for only getting the care that he could have received all those years ago.  Mankiw's personal answer is no.  My answer is no.  What about yours?  Consider the drugs that have been invented since then.  The MRI technology, laser surgery, etc.  Those things are more expensive than the older alternatives, but they're also more effective.  Mankiw further points out that we do not seem to experience diminishing marginal utility in years of life like we do for consuming other goods.  Nobody says "I've made it to 74 and it's all downhill from here...I don't care if I live another year."  We do say "I've had 47 slices of apple pie...I would hate to eat a 48th."  Given that a goal of medical care is to prolong life (or to improve the quality) then he thinks that we'd be willing to spend plenty more on it.  Perhaps with everything else getting cheaper we have more money to spend on medical care.  He would like to see medical care keep increasing in cost to keep up with the technological improvements.

I think another reason medical costs have risen is the shift in demand for medical services caused by insured people.  I'll admit that I've gone to the clinic at school for a sore throat because the visit was free.  I would not have driven to the doctor's office and paid $100 for a similar visit.  Driving down the cost of medical care will require: 1) aligning doctors' incentives to provide cheaper medical care, 2) driving down demand for medical services...perhaps by a preference shift toward healthier lifestyles or sudden death inducing activities and/or 3) a bigger increase in the supply of medical inputs.

I hope I've done some justice to his talk.  I've added some of my own thoughts along the way, so don't get mad at Greg if you disagree with anything above unless directly attributed to him.

Thursday, November 8, 2012

Chromebook Update: External Monitor

W00t! My chromebook now recognizes my external monitor at its native resolution!  I can mirror monitors, but I cannot run dual monitors.  It's steps in the right direction.  The improvements keep coming every 6 weeks.

Wednesday, November 7, 2012

Obama FTW

I am amazed at the numbers from the election.  The popular vote went 50% Obama, 48% Romney, but Obama's electoral votes outnumbered Romney's 303 to 203.  That's some good campaigning and maybe a little bit of luck.

I had been thinking about Obama's lame duck presidency as a bad thing.  Now, I wonder if he will get some really great stuff done in that time.  I think that he has good intentions, but you know what they say about good intentions (if you don't know, it's either "the highway to hell is paved with good intentions" or "good intentions don't guarantee good outcomes).

I really hope that fiscal sanity can be restored.  By some measures, Obama's done a great job (see here) and by others he's done poorly (see here).  Unfortunately, I couldn't vote for either of the major candidates yesterday.  I cast a throw-away vote for Gary Johnson.  Funny enough, it was Romney's own propaganda that made me decide that I could not vote for him.  Not that my vote would have made a difference anyway (although at this time Florida still has not been officially called, the vote difference is near 46,000 votes).

Saturday, November 3, 2012

VO2 Max Update

I went to do my second VO2 max session for Emery's study on Thursday.  There was slight improvement because I got 65mgO2/kg weight/minute, up from 64 a couple weeks ago.  I still got stuck at the same part of the test (running up an 8% grade at 9.5mph aka 6:19 per mile)...but this time I lasted about 15-20 seconds longer than last time.

We determined that my speed for the downhill run (DHR) portion of the test will be 9.4mph.  That's pretty cool because the farthest I've ever run in an hour is 9.32 miles (well, I ran a 15k in 59:52).  I'll be running down a 5% grade for that entire hour.  I think it'll start to hurt after 40 minutes.  I guess the whole goal of the study is to make sure that I'm extremely sore.  There are moments when I wonder exactly what would make me sign up for something like this...but then I think it's cool again.

Friday, November 2, 2012

Pick #319

Japandroids - "I Quit Girls" from Post-Nothing

edit 11-7: I saw Daniel Tosh wearing a Japandroids shirt on his 11-6 broadcast of Tosh.0!  I wonder if he saw this post before making a wardrobe decision.