Random thoughts of an economist

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!

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.

The redemption rate of cake coupons

Posted in Economics, Hong Kong, Information, teaching by kafuwong on February 16, 2015

A friend was trying to redeem his cake coupon from a chain bakery. His coupon was two days from expiry. If he had not done it in time, the chain bakery will gain.

Hm… What is the redemption rate of cake coupons? That is, how much do the chain bakery gain per year due to people’s failure to redeem their coupons?

I do not have the numbers. Nonetheless, here is a thought experiment.

Imagine that 40% of the cake coupons are not redeemed. Shop A is willing to sell the coupons at 60% of the nominal value. Of course, shop A will try to sell the coupons at the nominal as much as it can. Selling at full nominal value will ensure a gain of 40 dollar gain per 100 value of coupon. This is good money.

The problem is that shop A is not alone. Likely, shop B also sells similar coupons. If shop A is selling at full nominal value, shop B can steal shop A’s customers by selling the coupons at a small discount, say 5%. If information is perfect, all customers will buy the coupons from B. But, A is not stupid. Seeing the loss of customers, it will try to steal shop A’s customers by selling the coupons at a bigger discount, say 10%. …. We can easily see that this competition game will continue until both shops will be selling near at 40% discount. We see the power of competition.

Now, how do we get an estimate of the redemption rate? Easy. We go to shop A, tell them that we are going to get marry and are planning to buy a lot of cake coupons, and ask them the discount we can get. Do the same to shop B, just to double check. That “1-discount” will be close to the redemption rate.

Does it look suspicious to you? Check please!

Posted in Economics, Information, Leisure, teaching by kafuwong on October 9, 2014

A friend sent me a striking table of “actuarial study of life span vs. age at retirement”. The table shows a person who retires at age 49.9 will die at 86 on average, and a person who retires at age 65.2 will live to 66.8 on average. The data suggests that I should consider retiring early.

Wait a minute! A person who retires at age 65.2 will live to 66.8 on average? It is absolutely not consistent with my casual observations.

I could not help doing a quick search of “actuarial study of life span vs. age at retirement” (without the quotation marks, of course). Surprisingly, I found that the table was founded based on a real study –- a Boeing study done almost 30 years ago. The study has been circulated in the internet for many years and finally reached me. Lucky me!

Interestingly, Boeing has tried to tell the public that the chart or table was wrong. According to Boeing, there is simply no correlation between age at retirement and life expectancy of Boeing retirees.

Why are such rumors still around? I think it is because most users in the internet are not willing to spend much time questioning and verifying the accuracy of the information. Spreading some seemingly striking news/information attracts attention. Most of us feel happier with more attention from our friends. There is a cost of verifying the accuracy of the information, though. Such comparison of COST and BENEFIT dictates our decision whether to spread the rumors, though implicitly.

Spreading news/information is understandably more costly to people with good reputation of providing accurate information. Thus, one would expect reputable reporters less likely to spread news/information without careful verification. That tells us where to turn if we want accurate information and where to turn if we want some rumors to enjoy.

I do not like this kind of rumors. I try not to spread suspicious items. At the same time, though, I do like to test my ability in catching such problematic information and verifying them. It has become one of my major pastime. LOL.

Additional readings:
http://www.boeing.com/companyoffices/empinfo/benefits/pension/seminars/Rumor.pdf
http://www.intmath.com/blog/retiring-early-means-a-longer-life-an-urban-myth/822
http://www.bbc.com/news/magazine-18952037

Are you sure what you saw was black?

Posted in Economics, Hong Kong, Information, teaching by kafuwong on October 6, 2014

Beside the extreme of white and black, there is a spectrum of grey. Given a color of grey, some might conclude it as black and some white.

It depends on the referenced color. When grey is put next to white, it looks like black. When grey is put next to black, it looks like white.

I feel that I saw black. Then, I am sure that what I saw was not white. Because, if the color were in fact white, I would not conclude black — even if the reference were white.

How can I know that the color I was is likely grey? The color was in fact grey if some of my friends and I saw black and many others saw white.

The views of others are so important! Their views provide important information for me to correct my view of black. Those who are willing to tell me their different views deserve my best respect. Thank you.

Who would rush to claim that he/she is one hundred percent sure what he/she saw was black? Those who do not know the existence of grey. Those who fail to deduce the color of grey from the conflicting views. If these two groups of people insist what they saw as the only truth, clashes may follow.

One solution is education! Education helps broaden our horizon (seeing the existence of grey) and train our critical thinking (concluding grey)!

[Fine print: Assume that all of us are telling the truth.]

Be careful with your “title”!

Posted in China, Information, Life, Parenting, teaching by kafuwong on May 9, 2014

Saw a link in the Facebook about a page of supposedly prestigious “XYZ” university. But the title was shown as “XXX” university. If you had once been a student of the “XYZ” university, you should feel annoyed. One of my Facebook friends felt annoyed.

I joked: “Will they give a scholarship or Starbucks coupon to the first person who will write to point out the typo in “XXX University”? They should!”

After writing the joke, I couldn’t help visiting the link. I found no obvious errors on the page. In fact, I search for “XXX”, I could not find any trace of “XXX” in that page. Then, why would Facebook showed the page title as “XXX”? It turned out that the error was more fundamental than I thought. I found that Facebook used the “title” of the html page (hidden unless we pay special attention to it) as the title of the link. That is, when I viewed page source, I saw:

“XXX University” inside the html code of “title”.

If I were the administrator of the XYZ university, I would feel very embarrassed to see this error. So, I decided to send the administrator an email.

This is a laughable “hidden” error in your page of view-source: http://abcde.org/#news-students. The error shows on your facebook link. It should be “XYZ” instead of “XXX” in the “title”. Please check!

Several hours later, I got a reply from the administrator:

多谢之处。我们马上更正。

In English, “Thank you $#%. We will make correction immediately.

Although I am proficient in Chinese, that “$#% (之处)” is something I cannot make sense of. It is an obvious typo.

They made a mistake. I alerted them of the mistake. They returned with another mistake in their “thank you” email. So, it looks like “to them, making mistake is a rule rather than exception”.

Just for fun, I have just sent the administrator another email asking what he meant by “$#% (之处)”. What would you feel and say upon receiving my email — if you were the administrator?

When lamb means rat …

Posted in China, Economics, Information, Parenting, teaching by kafuwong on January 3, 2014

Some kebab stalls in Shanghai were found selling rat, not lamb. Now, donkey meat packs in WalMart are found to contain fox meat.

Such stories are not new to Chinese. The biggest story has been the milk contamination, I believe.

Food safety has become a big concern in mainland China. Mainlanders will come to Hong Kong to buy baby formula. A friend who occasionally has to work in mainland will bring their canned food from Hong Kong. One of my friends who visited mainland a couple weeks ago told me food safety would not be a problem if we were to eat with top government officials.

The food contamination shows that some people were trying to sell fox meat for the price of donkey meat. Why would they do that? Because fox meat is much cheaper than donkey meat. If they can mix fox meat into donkey meat and sell at the price of donkey meat, they will earn more profit.

What is wrong with such profit-maximizing “cheating” behavior? To economists, in a competitive market, we usually would not worry about such cheating behavior because they cannot last long. Someone is going to discover the cheats — eventually — and the market will penalize the cheaters. In today’s world with quick information flow, such cheating behavior should not last long. Cheaters will be penalized in no time. No one is going to buy from the company. Honest merchants will be rewarded. WalMart in China quickly recalled donkey meat products from some of its stores in China when tests have found them to be contaminated with fox meat. The reason is simple: they know that consumers will penalize them if they do not do so. The key is that we will need to make such information publicly available. Better, if we allow class lawsuit that will penalize companies that sell contaminated products. That will force these companies to conduct food safety check before food products are put on shelves. Then, the food suppliers will become much more aware of food safety.

Yes. We need to allow quick information flow and higher penalty for misconduct.

While economists will tell us that the market will correct this kind of cheating behavior, most of us feel that it is not happening — at least not quickly enough. In my opinion, it shows a failure in education. Our education system is supposed to teach us honesty. Does it not? Cheating is like a habit and an attitude. Like smoking, cheating can be additive. It is difficult to change once you have acquired it. You teach your kids to cheat, you kids will cheat. You cheat, your kids will learn from you and become cheaters. When substantially number of people cheat, we will feel that we would look stupid if we do not cheat as well. As we cheat ourselves, we begin to tolerate the cheating behavior of others. A vicious cycle!

I have not lost hope for China. Challenges also mean opportunities. Gradually, more small networks of trusted companies will appear. They will benefit from being honest with each other. Honesty is maintained within the group because one will be expelled from the group (and hence the benefit) When one is caught dishonest within the group.

All Americans are nice people and most of them lives in either Wisconsin or Minnesota.

Posted in Information, Life, Parenting, Statistics/Econometrics, teaching by kafuwong on November 26, 2013

During my high school years. I thought all Americans were nice people and most of them lived in either Wisconsin or Minnesota. Because… all Americans I met during my high school years were from either Wisconsin or Minnesota and they were all very nice people.

Now I know this view is biased. My biased view is due to the small sample size I had (the sample of only nice Americans from Wisconsin and Minnesota). Now I understand that my view was wrong because I had looked at demographic data and found that there are a lot more Americans from the other States than from Wisconsin and Minnesota. And because I have met not-so-nice Americans since my high school years.

Now I understand that my view is necessarily biased because no matter how hard I try, I can only obtain an incomplete picture of the world (limited time, limited brain power). There are many people out there who know what I do not know and therefore can teach me good lessons.

What do you know about drumstick?

Posted in Information, Leisure by kafuwong on May 11, 2012

On Facebook, a friend updated her status “Omg I got a drumstick”.  Several friends liked her status.  I felt peer pressure!  Would look stupid if I failed to like her status when everyone likes it?

Why would anyone be so excited about having a drumstick?  Drumstick is supposed to be “the leg of chicken”, isn’t it?  There must be a reason.  Thanks to the internet, I found that drumstick can mean several things (http://en.wikipedia.org/wiki/Drumstick).  (1) Drum stick can be a tool for playing drums; (2) Drumstick can be a kind of vegetable (Moringa Oleifera) that can keep the glucose level in the blood in check. (“This fact is based on a research done in the Department of Nutritional Science, Faculty of Applied Bioscience, Tokyo University of Agriculture, Sakuragaoka, Setagaya-ku, Tokyo, Japan. “, http://diabetes.ygoy.com/2009/10/08/drumsticks-can-reduce-blood-sugar-level/); drumstick can mean ice cream (in fact, Drumstick is a brand of ice cream); drumstick can mean the leg of a bird; Drumstick can mean a video game character found in Diddy Kong Racing; Drumstick can be a chewy candy by Swizzels Matlow; Drumsticks can be an Indian film (produced in 1955). 

Thank you so much, my friend.  Although I still do not know what you meant, your status helped me learn the various meaning of drumstick, especially Drumstick  (Moringa Oleifera) that can help regulate blood sugar level.

To learn you do not require fees, and you do not need any uniform.

Posted in Information, Parenting, teaching by kafuwong on December 30, 2011

“To learn you do not require fees, you just need one uniform.” — 3 Idiots (a Bollywood movie)

Internet has changed that.  To learn you do not require fees.  You do not need any uniform, either.  All you need is an access to internet and determination to learn. 

Many years ago, education was a luxury.  The tuition fee was a big barrier that prevents the poor from school attendance, not to mention the need of bringing home some bread at early teens.  The better the education, the more costly the tuition fee.

Want to learn from professors of MIT, Stanford, Yale, UC-Berkeley, etc?  You do not need to worry about the tuition fee any more.  Get an internet connection and you will be able to watch lectures by the best professors in the world.

Will you give me a chance of interview if I write in my CV that I have watched all the video lectures produced by UC Berkeley?   Will you believe that I have achieved the level of Berkeley graduates?  Will I get the same kind of job offers like the other Berkeley graduates?