Random thoughts of an economist

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?

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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.

Why were there no toilet papers in the public washrooms in the old days?

Posted in China, Economics, Parenting by kafuwong on May 8, 2015

Most readers are astonished: Most of the “wind chimes” hanging on trees for a “Wind Chimes Festival” in China were stolen by tourists/visitors!

Tourists should not have stolen the wind chimes, should they? It is not ethical to take the wind chimes that is not yours.

On the other hand, shouldn’t the officials organizing the festival have predicted the stealing to happen? Not many years ago, Hong Kong provided no toilet papers in the public washrooms. Simply because the whole roll of toilet papers would be taken away as soon as it was installed. Anticipating this outcome, the government officials decided not to supply toilet papers in public washrooms (or at least not to replenish).

Why would Hong Kong people not remove the whole roll of toilet paper from public washrooms nowadays? Hong Kong people has become more ethical? Was there a campaign to teach Hong Kong people to be more ethical, and not to remove the whole roll of toilet paper from public toilet?

Yes, it is possible that Hong Kong people have been educated to become more ethical. On that, I am not so sure. I think the more important reason is that Hong Kong people has become richer. A roll of toilet paper is nothing when compared to their income/wealth. That is, richer people tend not to steal things like the toilet paper. (They may steal things that are of bigger value relative to their income/wealth.)

Thus, if the “wind chimes” is cheap relative to the tourist income/wealth, we would expect the wind chimes to stay on trees for a while. If the “wind chimes” is expensive (say gold wind chimes) relative to the tourist income/wealth, we would expect the wind chimes on trees to be gone in no time.

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.]

A will for a will!

Posted in Economics by kafuwong on September 25, 2014

One of my best friends put the following in his Facebook status

I’m finally meeting with a lawyer to draw up a will. If you were thinking of doing something extra nice for me, now would be a good time.

I enjoyed so much reading how his friends replied. Of course, there is no point of summarizing their replies. But, I thought you might be interested in what I said to him.

Funny you, my friend! Seeing your status, I will be meeting with a lawyer to draw up a will very soon. If you were thinking of specifying some gift for me in your will, now would not be a bad time.

Historic preservation is other people’s job

Posted in Economics, Environment, Historic Preservation, Hong Kong, teaching by kafuwong on May 17, 2014

A historic building near my workplace was being demolished to make room for a residential high rise. Some of my friends were annoyed by such development. They wanted the century old building to be preserved.

Obviously, there is a conflict in opinion of the owner and the public (my friends included) on such historic preservation issues. Lured by the hefty offer, the owner wants to sell the property to the developers. The public want the preservation. The owner would have no objection on the preservation if someone is willing to compensate him for the opportunity (of cashing in). The preservation should be done only if the total willingness to pay (from the public) for the preservation is larger than the best alternative (the value of the property. development). The big question is how much the public are willing to pay to the owner, in total.

Due to the public good nature, such decision and the finance of historic preservation often falls into the hands of the government. And, naturally, the government has to weight the conflicts.

People’s behavior is predictably rational!! If it is my property, I would like to be able to sell to the developers and pocket the money. If it is other people’s property, I would vote to force the owner to keep it as a heritage building. When we do not have to pay a cent, a lot of us will cry “preservation”. Yes! Let the government buy out the property! We tend to say we are willing to pay a lot to see the preservation.

This is a typical example of public good provision. When we do not have to pay for the public good out of our own pocket, we tend to claim we are willing to pay a lot for the public good. That is, an exaggeration of our willingness to pay in order to influence the decision of the government. If we rely on this process, we will have an “over-supply” of historic preservation. Imagine, we create a voting site for every historic preservation in question. Can you guess how many historic preservation projects will be done? In fact, almost all the time, no voting sites are created, no opinion polls are done. Often, we use the media to create a feeling that the public is willing to pay a lot for the reservation.

In the contrary, if we have to pay whatever we claim we are willing to pay, we tend to report less because one person’s understatement will unlikely change the decision of the government (that is approximately based on the total willingness to pay for the preservation and the value of development) and yet an understatement of our willingness to pay can help reduce our payment. When everyone is thinking in the same way, we will have an “under-supply” of historic preservation. Imagine, for every historic preservation in question, we can set up a donation account. Can you guess how many historic preservation projects will be done?

Like many public goods, the optimal supply of historic preservation is non-trivial. The key is to find out how much the public is willing to pay for the preservation. While it is possible to adopt some mechanism (e.g., Clarke-Groves mechanism) to induce people to truly reveal their willingness to pay, the decision of historic preservation often relies on a group of experts, and sometimes political debates.

Why do we rely on a group of experts? Because what the public say may not be as trustworthy as the impartial expert group.

[Additional reading: Handbook on the Economics of Cultural Heritage edited by Ilde Rizzo, Anna Mignosa.]

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?

Are you selling body art, pornography or cars?

Posted in China, Leisure, Parenting by kafuwong on March 29, 2014

A friend forwarded to me pictures taken in a supposedly car show. Most of the people in there pictures were not looking at cars. Instead, their eyes were on the so called body art on naked women. Apparently, some car shows in China has started to include body art on naked women as an additional attraction.

I have no objection on body art, on naked women and men. I have no objection on car shows. But, mixing them annoys me.

I think such body art on naked women is better shown in night clubs than in car shows. The theme of the car show is supposedly cars. If I go to a car show, I want to see cars. If I want to see art, I go to a museum or a gallery. If I want to see a show of naked women, I will go to some night club. If paint on naked women is really an art piece, show them in a museum and admit only adults.

Showing naked women in a car show (packaged as body art) is way OUT OF LINE.