Tag: Economics

The Empathy of Critical Thinking

Marissa Mayer, the V.P. of Search Product and User Experience at Google made an interesting point during the last ten minutes of her interview on the Charlie Rose show. (link)

Charlie Rose: Why did you choose computer science at the beginning?

Marissa Mayer: I grew up thinking I was going to be a doctor. And I started off as a biochem double major at Stanford. And at the end of my freshman year, I realized I loved chemistry, was very good at it, but it’s a lot of memorization, right? It’s a lot of memorize this chemical equation. And when I went home, I realized that all my friends who were at other schools studying biology and chemistry were learning the exact same material. In the exact same way. And I thought, well what could I do that would be unique to Stanford, that Stanford does really well and also would teach me not just facts but how to think better, how to be a better critical thinker, how to be a better problem solver. And that’s when computer science came in because in computer science, they have one of the best programs in the country, and you get to working on a new problem every day. So it’s not so of what you know or what you’ve memorized, but it’s more how do you think about problems.

Marissa’s comment regarding wanting to challenge her thoughts struck a nerve with me and made me realize that most of my post-secondary education has been the type that encourages rigorous and critical thinking.

In undergrad, I studied economics – what we do with what we have. That simple summary leaves open many variables and a lot to think about. Beyond understanding the language necessary to be fluent in any field, the study of economics provides a student with a unique method of viewing each and every daily interaction. One of the basic assumptions is that we are rational beings. Moving from that assumption to the next, and trying to solve a problem takes on a step-by-step process. A chain is setup as the student realizes that shifting one variable may have an effect on many others. Once he’s thought long enough like this, it becomes difficult to make decisions because he realizes that everything can be rationalized. It’s just that some outcomes are better than others.

I studied creative writing as well, which was, and still is, to this day, the most challenging task I’ll ever undertake. Nothing is more intimidating than a blank page because it is completely on the writer to fill it. He can draw from his life, the news, stories friends tell, or nothing at all. But when it comes down to it, making something up for others to read is an incredibly frightening thing to do. It’s a narcissistic and selfish thing to do. To think that what he has to say is worth someone else’s time. Yet, writing is the single most freeing thing I do on any given day because it challenges and renews me. It is a way to order my thoughts, my perception of the world, and my understanding of my relationships.

And perhaps now, more than ever, critical thinking is a matter of my daily routine. The appeal of a law degree upon applying to law school was that the degree would have a wide application – law, business, entrepreneurship, teaching, etc. What I underestimated was what exactly would compose that degree. Now that I’m nearly finished with law school, I’ve come to group the value of my expected degree as follows. Primarily, I have learned a critical and logical method of thinking. This is a vague and fleeting tool, but significant nonetheless. Ancillary to the method of thinking is the day to day knowledge and experience – basically, how to find what I’m looking for – that comes with having attended law school for three years. While there is value in each of these things, only from critical thinking do I derive any personal satisfaction.

It’s only now, as I review my education, that I realize why I have pursued my chosen fields of study. Each one has challenged my thinking and opened my eyes to new things. Economics, writing and law have each allowed me to better make sense of the world around me. Not only can I attempt to answer life’s questions, but I can give answers with support and argue for my position. I can understand where others are coming from and empathize with their viewpoint. I can challenge them and be challenged, knowing full well that there may not be a definite answer.

Giffen Goods Study in China

Giffen goods are “goods for which a lower price decreases the quantity demanded. This occurs when a negative income effect (the good is inferior) exceeds the substitution effect.”

Greg Mankiw, who authored the textbook I used for my introductory microeconomics class while at the University of Michigan, asks the following question:

Do giffen goods exist?

He links to a study of two provinces in China.

We conducted a field experiment in which for five months, randomly selected households were given vouchers that subsidized their purchases of their primary dietary staple. Building on the insights of our earlier analysis, we studied two provinces of China: Hunan in the south, where rice is the staple good, and Gansu in the north, where wheat is the staple. Using consumption surveys gathered before, during and after the subsidy was imposed, we find strong evidence that poor households in Hunan exhibit Giffen behavior with respect to rice. That is, lowering the price of rice via the experimental subsidy caused households to reduce their demand for rice, and removing the subsidy had the opposite effect. This finding is robust to a range of alternative specifications and methods of parsing the data. In Gansu, the evidence is somewhat weaker, and relies to a greater extent on segregating households that are poor from those that are too poor or not poor enough. We attribute the relative weakness of the case for Giffen behavior in Gansu to the partial failure of two of the basic conditions under which Giffen behavior is expected; namely that the staple good have limited substitution possibilities, and that households are not so poor that they consume only staple foods. Focusing our analysis on those whom the theory identifies as most likely to exhibit Giffen behavior, we find stronger evidence of its existence….

To the best of our knowledge, this is the first rigorous empirical evidence of Giffen behavior. It is ironic that despite a long search, in sometimes unusual settings, we found examples in the most widely consumed foods for the most populous nation in the history of humanity.

The Economics of Beanie Babies

Here’s an interesting passage from Ty, Inc. v. Publications Int’l, Ltd., a case I recently read in Introduction to Intellectual Property. The case is concerning whether Publications Int’l is violating Ty’s copyright by publishing books with images of Ty’s Beanie Babies. The description of Ty’s marketing strategy is used to set up the differences and similarities between children’s and collectors’ approach.

As a marketing gimmick, Ty deliberately creates a shortage in each Beanie Baby by selling it at a very low price and not producing enough copies to clear the market at that price. As a result, a secondary market is created, just like the secondary market in works of art. The secondary market gives widespread publicity to Beanie Babies, and the shortage that creates the secondary market stampedes children into nagging their parents to buy them the latest Beanie Babies, lest they be humiliated by not possessing the Beanie Babies that their peers possess. The appeal is to the competitive conformity of children – but also to the mentality of collectors.

As far as I’m concerned, the best use for Beanie Babies was to wipe the dust off computer and TV screens.