The impossibility of equilibrium

Interesting article states equilibrium is an impossible state to achieve. Firstly there is a problem of having enough information, then there is the issue of events repeating identically in order to be able to make an accurate measurement and comparison.

"For any one individual, constancy of the data does in no way mean constancy of all the facts independent of himself, since only the tastes and not the actions of individuals can be assumed to be constant. As all those other people will change their decisions as they gain experience about the external facts and about other peoples' actions, there is no reason why these processes of successive changes should ever come to an end" (Hayek 1937 [1948] p49)."

Why, rather when, does the process converge? More importantly, does the convergence happen while people are still interested in the event? As a random example, if the price of horse driven carriages stablized in the year 1950, a number of decades after people stopped using them and had moved on to cars, then is this convergence of any import? All decisions made with imperfect information when the market was still in flux must have influenced the rest of the economy in myriad ways. How does one account for that, if at all?

How (not) to end an interview

Most companies, when they interview, fly the candidate to their office, put him up at a fancy hotel, feed him dinner at a fancy restaurant, but they manage the end -- the closure -- extremely poorly. The majority of interviews end abruptly and they just send the majority of candidates a form letter saying "No". Well, what a waste of money and effort! Doesn't the typical firm lose out on an incredible amount of goodwill, not to mention free publicity, at the end of interviews, by ignoring Kahneman's Peak-End Rule:

... we judge our past experiences almost entirely on how they were at their peak(pleasant or unpleasant) and how they ended. Virtually all other information appears to be discarded, including net pleasantness or unpleasantness and how long the experience lasted.

Here are some sane thoughts on interviewing from a guy who runs a technology start-up. One point that stood out:

I always, always leave about 5 minutes a the end of the interview to sell (my firm). This is very important even if you are not going to hire them. If you've been lucky enough to find a really good candidate, you want to do everything you can at this point to make sure that they want to come to (our firm). Even if they are a bad candidate, you want to get them excited about (our firm) so that they go away with a positive impression of the company. Think of it this way: these people are not just potential hires; they are also customers. They are also salesmen for our recruiting effort: if they think that (our firm) is a great place to work, they will encourage their friends to apply.

Discrimination in hiring

Came across this interesting thought today:

... government's interventionist policies in the labor market can make the bad kind of discrimination we normally think about more prevalent. For example, European Union countries have very strict laws on firing people compared to the United States. Because of this, it is more costly for a firm to hire somebody.

Now, if I am an employer and I know that I am stuck with a worker once I hire him, don't you think I will be more likely to economize on information (i.e., discriminate) before I hire him? Conversely, in a free-market, I will be more likely to take a risk on somebody and give him a chance (and not indulge my initial "prejudices") because I know if he ends up being a poor selection, I can easily fire him. Those who advocate "fair labor laws" had better be careful what they ask for.

Global warming, really?

Among all the shrill voices condemning mankind for causing global warming, are a number of skeptics. An excerpt from a recent op-ed "Earth in the balance", Wall Street Journal, July 2nd 2006:

Most of the climate community has agreed since 1988 that global mean temperatures have increased on the order of one degree Fahrenheit over the past century, having risen significantly from about 1919 to 1940, decreased between 1940 and the early '70s, increased again until the '90s, and remaining essentially flat since 1998.

...

So what, then, is one to make of this alleged debate? I would suggest at least three points.

First, nonscientists generally do not want to bother with understanding the science. Claims of consensus relieve policy types, environmental advocates and politicians of any need to do so. Such claims also serve to intimidate the public and even scientists--especially those outside the area of climate dynamics.

Secondly, given that the question of human attribution largely cannot be resolved, its use in promoting visions of disaster constitutes nothing so much as a bait-and-switch scam. That is an inauspicious beginning to what Mr. Gore claims is not a political issue but a "moral" crusade.

Lastly, there is a clear attempt to establish truth not by scientific methods but by perpetual repetition. An earlier attempt at this was accompanied by tragedy. Perhaps Marx was right. This time around we may have farce--if we're lucky.

The next Amazon...

An interesting article from 2004, The Long Tail, now also a book, says the Internet, being an almost free distribution channel, resurrects the majority of items that would otherwise have faded away as non-hits -- those items that do not get mass market appeal, which had low demand at the time of their introduction, which dropped out of cultural consciousness when retailers stopped selling them, the ordinary items from the forgotten past. In fact this so-called Long Tail may have a bigger sales volume than all the hits in the mass market! An excerpt:

What's really amazing about the Long Tail is the sheer size of it. Combine enough nonhits on the Long Tail and you've got a market bigger than the hits. Take books: The average Barnes & Noble carries 130,000 titles. Yet more than half of Amazon's book sales come from outside its top 130,000 titles. Consider the implication: If the Amazon statistics are any guide, the market for books that are not even sold in the average bookstore is larger than the market for those that are. In other words, the potential book market may be twice as big as it appears to be, if only we can get over the economics of scarcity. Venture capitalist and former music industry consultant Kevin Laws puts it this way: "The biggest money is in the smallest sales."

The same is true for all other aspects of the entertainment business, to one degree or another. Just compare online and offline businesses: The average Blockbuster carries fewer than 3,000 DVDs. Yet a fifth of Netflix rentals are outside its top 3,000 titles. Rhapsody streams more songs each month beyond its top 10,000 than it does its top 10,000. In each case, the market that lies outside the reach of the physical retailer is big and getting bigger.

When you think about it, most successful businesses on the Internet are about aggregating the Long Tail in one way or another. Google, for instance, makes most of its money off small advertisers (the long tail of advertising), and eBay is mostly tail as well - niche and one-off products.

Are you a profitable customer?

More and more companies are beginning to use LifeTimeValue metrics to reward their best customers and to exorcise their devil customers. How soon before the non-profitable customers get warranty denials and poor customer service, just like the practice of denying claims in the insurance industry? (According to the 1999 Kaiser Family Foundation study, 42 percent of physicians said that their most recent treatment denial was ultimately resolved in the patient's favor. Source: Kaiser Family Foundation and Harvard University School of Public Health. Survey of Physicians and Nurses. Menlo Park, Calif: Henry J. Kaiser Family Foundation; July 1999.)

The task of Economics

A quote from The Book History Conspired to Bury, by the libertarian Lew Rockwell:

People tend to make two errors regarding economics. They believe it is either not a science because it deals with human beings, or it is a science requiring positivist methods that do not account for the irreducibly human ability to choose among economic alternatives. Neither is tenable, but the third option is not generally known: to see the task of economics as discovering, explaining, and applying the economic laws that dictate the limits of the intellectual and political imagination while making full allowance for the reality of individual choice.