Random thoughts of an economist

Need some incense, sir?

Posted in Economics by kafuwong on January 10, 2017

Stepping out of Wong Tai Sin MTR station towards the Wong Tai Sin Temple, you will see a line of four persons trying to sell incense to tourists.  If you are like most tourists, you will walk pass them and go to the point of interest – the Temple.

Unlike most tourists, I was not in a hurry.  In my recent visit, I paused to observe how they did business.  Initially, I wanted to know how often they were successful selling incense and the characteristics of the sellers who were more able to persuade.  Yes, there was a person with only one hand.  I would assume that more people would buy from him.  Nonetheless, I did not stay long enough to see any successful sales.

Initially, I thought the four persons would compete against each other for business.  To my surprise, they did not circle the potential customers at the same time to compete for business.  Instead, they took turns.  They organized themselves in a line.  The one in the front would approach the passer-by.  After the attempt, success or not, he/she would move to the end of the line.

The business appeared organized.  The obvious advantage of such arrangement is to avoid vicious competition and potential conflicts among the salespersons. That all salespersons circling the potential customers at the same time to compete for business can be understood as an outcome of non-cooperation, an inferior outcome.  That all salespersons lining up to approach potential customers one by one can be understood as an outcome of cooperation, a superior outcome.

What caused the cooperation?  Economists have studied repeated games and found that cooperation (which yield better outcome) is more likely in “infinitely” repeated games.

Now, think about the several local dominant players in specific sectors.  Have you ever wonder why they appear cooperative?

Coming home for dinner, honey?

Posted in Life by kafuwong on January 9, 2017

The telephone rang.  I picked the phone.

“Are you coming home for dinner?” My wife asked.

“What time is it?”  I replied.

“It is already six thirty.”  She said.

“Gosh.  I should be leaving office soon.  Should be home for dinner by seven thirty.”  I said.

“Good.  Dinner will be ready by seven thirty.”  She said.

It was eight when I opened the door.  My wife said, “We just started fifteen minutes ago.  Almost done.  Your son and I decided not to wait any longer.  We did save some for you.  All in the rice cooker.”  I could tell she was annoyed that I was late — again.

That was a normal day.  My wife was home taking care of the household chore.  That included cooking a dinner for the family.  In a normal day, I would be late for dinner.  In fact, even if I got home early, I would continue to do my work in the study — until I was told dinner was ready.  Even with the dinner-ready announcement, I continued to work for some time (kind of to finish the things at hand) and would show up late at the dinner table.  My wife was not happy.

In recent months, our roles switched.  My wife is now working full-time.  I stay home to take care of the household chore.  That includes cooking a dinner for the family.  Now it is my turn to ask whether and when she will come home for dinner.  Just like me in the past, she is often late for dinner.  I feel annoyed.

Yes, I feel annoyed by my wife’s being late for dinner.  I am even more annoyed by my being late for dinner when my wife was the cook.  Today, I start to understand how much I was hurting my wife back then — but only when finally we have a role switch.

Because I have been through it, I am more sympathetic of the hectic schedule of my love ones, and thus try to be more tolerant and supportive.

Are you well educated enough?

Posted in Democracy, Economics, Information by kafuwong on November 5, 2016

Saw a line from the Economist about elections in democratic countries like the United States.  

We are not educated well enough to perform the necessary act of intelligently selecting our leaders.

When the election result is not to our liking, it is easy for us to BLAME THE OTHER voters that they are not educated well enough.  Wait a minute.  Is it so easy to be educated well enough?

Show me an orange and an apple. I can make a choice between the two. I can do so by look at their shape, size, color and smell.  That used to be a simple choice in the old days.  I might make a wrong selection occasionally but I will learn from my mistakes over time.  

But, nowadays, if it is known that most people chooses orange (or, are predicted to choose orange), the apple owner may decorate the apple so that it is more appealing to the consumers. By changing the shape, size, color and smell, say.  When most people now choose apple, the orange owner may decorate the orange so that it is more appealing to the consumers.

The competition can continue. More decoration techniques are invented to FOOL the consumers. The consumers are however ultimately interested in the taste of apples and orange. Fooled by the decoration, we as consumers may end up buying a bad apple.

To be a wise consumer, we need to understand the tricks of the decoration and thus be able to uncover the real thing.

And, that is not easy!  Certainly very costly!


Posted in Life by kafuwong on August 26, 2016













My dear books, good bye.

Posted in Economics, Life, Uncategorized by kafuwong on July 21, 2016

As I prepared my departure from HKU, I started to sort out things that I wanted to take home, and what to discard.

As I did not have to pay for the usage of my office space, I had kept a lot things that I had rarely touched.

Now, leaving HKU means that the usage of space at home to keep these stuff will become costly.  Like most people living in Hong Kong, I cannot afford to keep everything I have accumulated during my 14 years at HKU.  

I asked myself repeatedly, “Is there anything I cannot live without?”  “Is there anything I will likely use in the near future?”   Most of the stuff in my office do not pass these tests.

Mostly books, I decided to give away.  There are a lot of books that have sat on my shelf for a long long time and had rarely been referred to.  Time to say good bye to them.

Now, in retrospect, I should give them out long long time ago.

A long break, I need.

Posted in Life by kafuwong on July 13, 2016

No.  I have not reached the age when my employer would push me out of the door.

Yes.  I still have value to my employer.  He still wants to keep me.

It is my choice to take a break — a long break, possibly.  There does not seem to be a mechanism for me to take a long break  — say a year or two — from my job and return afterwards.  Allowing anyone in my institution to take such a long break might cause difficulty for my employer to hire a short-term replacement.  With such anticipation, my natural choice is to resign.

In my case, I would not call it a resignation.  The good old contract arrived my desk a while back and I simply had decided not to sign.

A thought on how to evaluate whether education expansion helps improve mobility.

Posted in Econometrics, Economics, Hong Kong, Statistics/Econometrics, teaching by kafuwong on September 11, 2015

We often see reports comparing the median income of university graduates over time. The sad news is that the median income of university graduates are often found declining over time. One common conclusion is that the expansion of university education has not helped improve social mobility. And, university graduates seem to be doing worse than before.

While median income is easier to compute, I do not think it is the right measure to address the question of social mobility, or how university graduates nowadays fare when compared to the previous cohorts. A correct measure is some form of median income with an control of the expansion of university education.

Imagine the following hypothetical situations. Suppose that we have a stable population structure. Suppose 20 percent of high school graduates can attend university ten years ago. Imagine we end up with 20 persons achieving high school level and 5 persons achieving university level. The median income of high school graduates was X1 and that of university graduates is Y1. Y1 is usually higher than X1, reflecting the difference in ability of the two groups and added value of education.

For the sake of illustration below, let’s assume that the 5 university graduates have incomes of 12100, 12200, 12300, 12400, 12500. Obviously the median income is 12300. That is, Y1=12300. Let’s further assume that the top 5 earners of high school graduates earn 8100, 8200, 8300, 8400, and 8500 respectively.

Today, due to the expansion of higher education, 40 percent of high school graduates can attend university. Following from the example above, we end up with 15 persons achieving high school level and 10 persons achieving university level. Suppose then the 10 university graduates have incomes of 11100, 11200, 11300, 11400, 11500, 12100, 12200, 12300, 12400, 12500. Let’s denote the median income of high school graduates as X2 and that of university graduates as Y2. Note that the median income X2 is based on a smaller group size while that of Y2 is based on a larger group size. We can easily imagine that X2 will be lower than X1 because we can imagine that the top five earners (“more able”?) were removed from the original high school group and put into the university group. And Y2 will be lower than Y1 because the university group includes the “less able” ones.

Thus, if we compare the change of median income by education groups, we are bound to see a deterioration in income in BOTH GROUPS. Some would conclude that education expansion is bad.

Wait a minute. Obviously, the five persons who achieved university level because of the education expansion achieve a higher income. (11100, 11200, 11300, 11400, 11500) versus (8100 8200 8300 8400 8500). A substantial improvement in social mobility (as measured by income) due to the education expansion, isn’t it?

That is, we are evaluating whether education expansion is useful, we should focus on these 5 persons who had not the chance to study university but now have the chance to do so.

If we still insist on using measures similar to median income of the university graduates across time to conclude whether university graduates are doing worse than better, we need to make an adjustment. From the example above, we probably should compare the top 25 percentile income level today to the median income 10 years ago!

Generalization based on the sample size of one

Posted in Hong Kong, Statistics/Econometrics, teaching, Water by kafuwong on July 21, 2015

Recently, lead in water has occupied headlines of major newspapers in Hong Kong. Experts are consulted. Some experts appeared to mis-speak carelessly. The most laughable statement was made by a medical doctor, who is a consultant of the “Hong Kong Poison Control Network”. He remarked that lead poisoning can be caused by chewing on a pencil, among many other causes. It was so laughable that it is widely circulated on the internet.

Admit it, most of us do not know why this statement is laughable. OK. It is laughable because pencils (called “lead” pen in Chinese) do not contain any lead in the writing core nowadays. Although the writing core of some early pencils were made of lead, it has since replaced by the non-toxic grahpite. (http://pencils.com/pencil-history/) And, the statement came from a consultant of the “Hong Kong Poison Control Network”.

In fact, at least supposedly so, nowadays even the paint cover of pencils should not contain lead so that most pencils are safe for chewing (not encouraged).


Internet is a powerful tool. A friend appeared excited about the lead poisoning from pencil chewing story that he added a catchy title to his sharing of the news report about the doctor’s statement: “If you cannot trust doctors, who can you trust?”

It is this catchy and exaggerated statement that caught my attention. I have to admit, I like it.

Nevertheless, the statement is clearly too much a generalization based on the sample size of one. That “specific doctor” may not be trustworthy on this specific issue, but it does not mean that “specific doctor” is not trustworthy on other issues. Certainly, it does not mean that other doctors are not trustworthy.

Beware of similar generalization from a small sample of observations.

Repairmen needed to give electrical pencil sharpeners a second life

Posted in Economics, Environment, Hong Kong, Parenting by kafuwong on July 16, 2015

A year ago, the ten-year-old electric pencil sharpener in our office began to fail. It was one of those better electric pencil sharpeners and could stopped automatically on sharpened pencils. Our office had no choice but to dispose the old one and to buy a new one of the same model. I took the old one home to let my son play with it.

The new one malfunctioned within days. As it was under warranty, the office then got a replacement. The newly replaced one worked but lacked the function of automatically stopping on sharpened pencils. My colleagues called the company for a repair. The salesperson said the new one did not have this function of automatic stopping and refused to send anyone to repair it. (Bad salesmanship, and lies as well!) After a year, it failed. Now, as it was no longer under warranty, the office decided to discard it. Again, I took it home to let my son play with it.

Were we successful in resurrecting the two pencil sharpeners? To my colleague’s surprise, we did. (I said “we” because I made substantial contribution.) On the ten-year-old pencil sharpener, we discovered that it just needed some oil — it took us a long time to discover. After applying some oil, it worked like new.

One the one-year-old, the major problem was a mis-alignment of a switch. Not only that we brought it back to life successfully, we also fixed the function of automatically stopping on sharpened pencils.

No, I am not trying to brag about how good we are in repairing the machine.

Here is my observation: Many years ago (when I was younger), a lot of broken electrical appliances were repaired and used for a long period of time. Now, most broken electrical appliances are thrown away. The natural question is WHY!

I think the answer lies in the cost of purchasing new electrical appliances and the labor cost of repairment. The labor cost has gone up substantially in Hong Kong. The cost of buying new electrical appliances is low. When the cost of repairment is higher than the cost of buying new electrical appliances, the decision is not to repair. As more people make similar decisions of not to repair their broken electrical appliances, more broken electrical appliances will end up at landfills.

How to reduce the amount of broken electrical appliances in landfills? We need more rag-and-bone men and repairmen.

Anyone interested in joining me to collect and repair broken electrical pencil sharpeners?

Can you believe that?

Posted in Hong Kong, Information by kafuwong on July 2, 2015

Saw an article a couple days ago about a comparison of prices of beer across the globe.  Hong Kong is the second most expensive city to consumer beer at the pub.  (http://www.scmp.com/news/hong-kong/economy/article/1830376/hong-kong-second-most-expensive-city-world-beer-drinkers)  Should we be surprised to see the catchy DISTORTED titles such as “Hong Kong second most expensive city in the world for beer drinkers”?  

I could not help sharing it with a beer buddy who knows a thing or two about beer and has been in Hong Kong a couple of times.  I added my observation:  “Much cheaper to buy from supermarkets.”

I am not surprised that he had already seen the study because beer is always on his radar.  Here is his comments:

This study has been well publicized but has a fundamental distortion in its methodology. I read the longer version in the Wall Street Journal. It picked the bar prices from only three hotel chains..Hilton, Best Western, and Holiday Inn..to create its pricing index. As most travelers know, hotel bar prices are likely to be inflated over the regular market offerings. This is well illustrated by the bar prices published for Prague with an average price of $4.32 for a 1/3 liter. Even very good microbrews in a normal Prague pub sell for around $1.80 for a 1/2 liter.

So while the study may be generally correct in a comparative analysis of bar prices for cities, it gives a distorted pricing level. It’s pretty much like most of those ever-present annoying “best or most expensive cities” lists in which the originator (usually in the travel or relocation business) of the “study” uses an expedient methodology that addresses the tourist or ex-pat with company/institutional financial subsidy audience instead of the traveler or resident of those cities.

I think we have a lot to learn from him.  In reading any report, mind the details.  The title “Hong Kong second most expensive city in the world for beer drinkers” is biased/distorted and is meant to catch our attention. I wonder how many of us would question the information contained in the title?  How many of us would read the news content for additional information.    How many of us would try to read the report to find out what is really in it? How many of us would read the “fine print” and “research methodology” in the report for additional information?

The problem is: when we have so much information floating around, how can we read the details of every report and be able to tell which is trustworthy and which is not?  Difficult!

At least, now, we know not to trust the newspaper title “Hong Kong second most expensive city in the world for beer drinkers” and anything similar.