A couple years ago NPR's Planet Money podcast had an episode about Somali pirates. (The pirate part starts at 9:35). There was all sorts of interesting stuff about division of labor, allocation of shares, pirate venture capital, etc. Some of this paralleled early modern piracy (as given a scholarly analysis in Peter Leeson's work and a romantic perspective in innumerable books and movies since Treasure Island) but in other respects it's very different. In particular, whereas early modern piracy was mostly about seizing cargo and the crews were left alone if they surrendered promptly, Somali piracy is more similar to piracy in antiquity in that it's basically maritime kidnapping. The typical instance of Somali piracy isn't that different from what a young Julius Caesar experienced when he was kidnapped by pirates and held for ransom on his way home from political exile in Asia Minor. One interesting detail in Plutarch's report is that, "When these men at first demanded of him twenty talents for his ransom, he laughed at them for not understanding the value of their prisoner, and voluntarily engaged to give them fifty."
It's not entirely clear if we should take Plutarch's report at face value (he also tells us that Caesar constantly insulted his captors as being, for instance, too uncivilized to appreciate his poetry) but for the sake of argument let's accept that Caesar rather brashly gave away too much information in the game of price discovery. According to a hostage negotiator quoted by This American Life, giving away this information is apparently typical of hostages and is counter-productive to their release as it narrows the bid-ask spread. Economists would describe hostage negotiation as a bilateral monopoly price negotiation that is structurally just a special case of chicken. That is, unlike a barrel of oil or a freight car full of soybeans which can trade on an extremely liquid market with innumerable buyers and sellers, a hostage has exactly one seller (the kidnappers) and exactly one buyer (the employer and/or family of the hostage). When there is only one buyer, the opportunity cost for ransoming the hostage is zero. Likewise, the employer and/or family has no realistic alternative means to recover the hostage. In order for everybody to walk away happy, we need a cooperate-cooperate outcome: the kidnapper has to give up the hostage and the employer/family has to give up a ransom. This structure also characterizes art theft, which in practice is not a matter of fencing art on the black market but ransoming art to a museum's insurance company.
If we model a bilateral monopoly negotiation only two things should matter. The first is, as always in a game of chicken, the willingness to accept failure. The more willing you appear to walk away, the more bargaining power you have. In a more protracted game this can cash out as willingness to delay which we can treat as a defect-defect outcome on the installment plan. In fact in the Planet Money episode on Somali piracy, the hostage's party did balk and break off negotiations for weeks at a time until the pirates were willing to come down on price.
The other thing that should matter is the capacity to pay. If the pirate knows for an absolute fact that the hostage's people simply can't raise more than a million dollars then it would be pointless for them to demand two million dollars. Of course there is an issue of information asymmetry in that the hostage's party has much better information on its assets than do the pirates and so the pirates may be skeptical of the hostage's party pleading poverty (especially if the hostage has foolishly told them how much money they can get). We see this at work in the TAL story's point that kidnapping insurance holds the condition that you can't tell anyone you have kidnapping insurance.
Here's something that the econ model tells us shouldn't matter: the going rate. In normal markets the going rate matters, but only because it provides the opportunities for substitutes and this creates the "law of one price." For instance, when I go to a grocery store and see a loaf of bread for $4 I won't buy it. An economist would say I forgo this purchase because I know perfectly well that the going rate for a loaf of bread is about $2.25 and so I can go elsewhere and get bread cheaper. Similarly if I go to the Honda dealer to buy a Honda Accord, it is relevant for me to mention price quotes offered by other Honda dealers for an Accord or even how much Toyota dealers ask for a Camry because it is entirely credible that I'll walk off the lot and go to rival car dealers offering very close substitutes for this dealer's cars. However if my sister is locked in a basement in Ciudad Juarez and the kidnappers can credibly commit to not letting her go unless I raise $x, it is completely irrelevant that in the past kidnappers accepted ransoms of $x/2 since I don't have the relatively good fortune of dealing with a kidnapper who demands $x/2 but am stuck with one who demands $x. There are no other places where I can buy the freedom of my sister and so the only price that matters is the one being demanded by her particular kidnappers. (Note to any cartels reading this: I don't have a sister).
And nonetheless, much like how most people who haven't studied statistics balk at the idea that the ratio of sample size to population size is irrelevant to statistical inference, people seem to have a strong intuition that the "market price" is relevant to a bilateral monopoly even though the whole idea of a bilateral monopoly is that there is not really a market but only a series of discrete one-off transactions. In the absence of substitutability, "comparable" transactions are irrelevant as they don't imply opportunity cost. This is the main thing I found so fascinating about the Planet Money episode, over and over again the hostage's party balked at the pirates demands as unreasonable in being out of line with the "market price." We only get the pirates' story second hand, but apparently at no point did they explain to the hostage's party that "market price" doesn't really exist in a bilateral monopoly. (Maybe Mogadishu University needs a better econ department).
There are two ways, which are only partially incompatible, to look at why people insist that there is a market price. The simple model is to see us as making Bayesian inferences about the price the other party is willing to accept. If a pirate asks me for $10 million when I know that previous ransoms for similar hostages from similar pirates were about $1 million, I face two possibilities. It may be that I'm facing an usually greedy or unreasonable pirate and $10 million really is the price from which he will not budge. However it seems more likely that I'm dealing with a regular pirate, who like most pirates in the past will ultimately settle for about $1 million but who is just floating a high initial figure in case I'm especially bad at this. In this sense the distribution of prices for similar transactions may not be directly relevant in the sense of providing opportunities for substitution (or the credible threat to avail myself of them) but it is still relevant as information about the zone of possible agreement. This is consistent with the Planet Money story in that Filipinos are cheaper to ransom than Europeans by an order of magnitude. Presumably this reflects Bayesian inference on the part of the pirates from the hostage's nationality as to how much the hostage's party should be able to raise. Alternately we could imagine that pirates always start with the same bargaining position but the Filipinos are less able to pay and so the pirates eventually reach this through ad hoc price discovery on a case-by-case basis. This strikes me as implausible though and I think pirates probably learned pretty quickly what they can reasonably expect for each nationality.
This is a nice explanation and it has the appeal of bending but not breaking the economic model of the actor, but it's not clear how seriously we want to take it and even if it's ultimately true it may not reflect the subjective experience. For instance, one of the main explanations for racial discrimination is that it reflects Bayesian inference about aspects of human capital that aren't readily observable. This model was devastated by Devah Pager's audit study showing that employers prefer to hire white men with a criminal record rather than black men without a criminal record, whereas the "statistical discrimination" model predicts that ascriptive discrimination should be weaker than and diminish greatly in the presence of information about relevant traits at the individual level. In the wake of the Pager study the best case you can make for the statistical discrimination model is that our intuitions are Bayesian in the aggregate but are too low level for us to override with directly relevant information (or, for that matter, with the conscious desire to avoid stereotyping on legal or ethical grounds). It's not unlike the argument that evolution made sex feel good so that we will propagate our genes, but it still feels good when you use birth control. So we might prefer a model that is ultimately consistent with people using prevailing price as information in bilateral monopoly negotiations, but is proximately and subjectively more about meaning.
Although the discipline of economics has many valuable things to teach us about how markets work, especially in the long-run, the subjective experience of someone bargaining does not necessarily reflect thinking through how a rational actor would apply price theory (competitive markets) or game theory (monopolistic markets) to the situation. Rather people take moralized approaches to exchange and seem to apply various relational models to exchange, which includes not only market exchange but also gift exchange, patron-client ties, and primitive communism. Moreover, even when people accept that a situation is one of market exchange it does not come naturally to think of price like modern economists think of it, as "market clearing." Rather much as people intuitively expect physical objects to behave by Buridan's impetus rather than Newton's inertia, people's intuitive notions about price can have less to do with how economics thinks of it than how Aristotle, Aquinas, and Marx thought of it, as "just price" or "fair price." We see the Aristotelian/scholastic/Marxist understanding of price institutionalized in price controls and laws against gouging. The intuition many people seem to feel is that the long-run prevailing price has moral weight and deviations from this price (as for instance in a supply or demand shock leading to "gouging") are immoral. Hence historical bread riots often involve not exactly stealing food but rather mobs enacting vigilante price controls. Most recently we saw this is in a class action lawsuit against concession prices in movie theaters. As an American and someone who studies exchange professionally, economics comes naturally enough to me that my immediate reflex to this story is to think this guy needs to understand two-part tariffs and tell him if he doesn't like the theater's prices nobody is forcing him to go there or to eat once he arrives. However the fact that somebody felt sufficiently indignant to sue over being offered the opportunity to buy a bucket of popcorn for $6 shows us that the perspective assumed by academic economics doesn't necessarily come naturally to people. Similarly, when the hostage's party is negotiating a ransom with pirates both the pirates and hostages may be behaving in ways that are ultimately consistent with a game of chicken under conditions of bounded rationality and Bayesian inference about asymmetric information, but in the immediate subjective sense they may simply be feeling that the recent run of ransoms sets an expectation of what it is fair to pay for this particular hostage.
Oh, and one more thing about Caesar. Plutarch tells us that after he was ransomed he got some ships, raided the pirates, and had them all crucified.
Experts on Turkish politics say the use of that term misunderstands what it means in Turkey—and the ways that such allegations can be used to enable political repression.
Over the last week, the idea of a “deep state” in the United States has become a hot concept in American politics. The idea is not new, but a combination of leaks about President Trump and speculation that bureaucrats might try to slow-walk or undermine his agenda have given it fresh currency. A story in Friday’s New York Times, for example, reports, “As Leaks Multiply, Fears of a ‘Deep State’ in America.”
It’s an idea that I touched on in discussing the leaks. While there are various examples of activity that has been labeled as originating from a “deep state,” from Latin America to Egypt, the most prominent example is Turkey, where state institutions contain a core of diehard adherents to the secular nationalism of Mustafa Kemal Ataturk, which is increasingly being eroded by the government of Recep Tayyip Erdogan. Turkey has seen a series of coups, stretching back to 1960, as well as other activity attributed to a deep state.
Lip service to the crucial function of the Fourth Estate is not enough to sustain it.
It’s not that Mark Zuckerberg set out to dismantle the news business when he founded Facebook 13 years ago. Yet news organizations are perhaps the biggest casualty of the world Zuckerberg built.
There’s reason to believe things are going to get worse.
A sprawling new manifesto by Zuckerberg, published to Facebook on Thursday, should set off new alarm bells for journalists, and heighten news organizations’ sense of urgency about how they—and their industry—can survive in a Facebook-dominated world.
Facebook’s existing threat to journalism is well established. It is, at its core, about the flow of the advertising dollars that news organizations once counted on. In this way, Facebook’s role is a continuation of what began in 1995, when Craigslist was founded. Its founder, Craig Newmark, didn’t actively aim to decimate newspapers, but Craigslist still eviscerated a crucial revenue stream for print when people stopped buying newspaper classifieds ads.
When my wife was struck by mysterious, debilitating symptoms, our trip to the ER revealed the sexism inherent in emergency treatment.
Early on a Wednesday morning, I heard an anguished cry—then silence.
I rushed into the bedroom and watched my wife, Rachel, stumble from the bathroom, doubled over, hugging herself in pain.
“Something’s wrong,” she gasped.
This scared me. Rachel’s not the type to sound the alarm over every pinch or twinge. She cut her finger badly once, when we lived in Iowa City, and joked all the way to Mercy Hospital as the rag wrapped around the wound reddened with her blood. Once, hobbled by a training injury in the days before a marathon, she limped across the finish line anyway.
So when I saw Rachel collapse on our bed, her hands grasping and ungrasping like an infant’s, I called the ambulance. I gave the dispatcher our address, then helped my wife to the bathroom to vomit.
Humans have been living and working with horses for more than 5,000 years, since the first domesticated equines had their teeth worn down by primitive bridles in northern Kazakhstan. Hands could not have built modern civilization without the help of hooves—to haul ploughs, pull carriages, march soldiers into battle, and carry messages of love and war across hundreds of otherwise-insurmountable miles.
An unlikely pairing of wily predator and one-ton prey, humans and horses have managed to successfully communicate across the species barrier because we share a language: emotion. Experienced riders and trainers can learn to read the subtle moods of individual horses according to wisdom passed down from one horseman to the next, but also from years of trial-and-error. I suffered many bruised toes and nipped fingers before I could detect a curious swivel of the ears, irritated flick of the tail, or concerned crinkle above a long-lashed eye.
The preconditions are present in the U.S. today. Here’s the playbook Donald Trump could use to set the country down a path toward illiberalism.
It’s 2021, and President Donald Trump will shortly be sworn in for his second term. The 45th president has visibly aged over the past four years. He rests heavily on his daughter Ivanka’s arm during his infrequent public appearances.
Fortunately for him, he did not need to campaign hard for reelection. His has been a popular presidency: Big tax cuts, big spending, and big deficits have worked their familiar expansive magic. Wages have grown strongly in the Trump years, especially for men without a college degree, even if rising inflation is beginning to bite into the gains. The president’s supporters credit his restrictive immigration policies and his TrumpWorks infrastructure program.
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During the late 19th century, blacks and whites in the South lived closer together than they do today.
CHARLOTTE, N.C.—Growing up here in the 1940s and 1950s, Sevone Rhynes experienced segregation every day. He couldn’t visit the public library near his house, but instead had to travel to the “colored” library in the historically black area of Brooklyn, a neighborhood that used to be in the center of Charlotte. He attended a school for black children, where he received second-hand books, and where the school day was half the length of that of white schools, because the black school had too many children and not enough funds. Sixty years later, he says, Charlotte is still a segregated city. “People who are white want as little to do with black people as they can get away with,” he told me.
This is, unfortunately, not a surprising account of North Carolina, or of the South more generally. The South of the 1950s was the land of fire hoses aimed at black people who dared protest Jim Crow laws. Today, schools in the South are almost as segregated as they were when Sevone Rhymes was a child. Southern cities including Charlotte are facing racial tensions over the shootings of black men by white policemen, which, in Charlotte’s case, led to massive protests and riots.
On Saturday, the president slipped away from the doubters in Washington to address a Florida crowd filled with loyal supporters.
MELBOURNE, Fla.—After four miserable weeks of being locked up in presidential prison—starved of affection, suffocated by bureaucracy, tormented by the press—Donald Trump made a break for it Saturday.
Touching down just before sunset here in the heart of Trump Country, the president was greeted as he emerged from Air Force One by an adoring crowd of 9,000 super-fans, many of whom had stood in line for hours to see him speak. Trump made no effort at masking his gratitude. “I’m here because I want to be among my friends,” he told them, adding, “I also want to speak to you without the filter of the fake news.”’
The rally was widely trumpeted in the press as a return to the campaign trail, and it’s easy to see why. The event had all the trappings of Trump-style electioneering—he deployed the same slogans, recycled the same stump-speech rhetoric, and walked out on stage to the same soundtrack. What’s more, the White House made clear earlier this week that the rally was being funded not by the federal government but by his campaign, making this perhaps the earliest launch to a reelection bid in history.
The Scandinavian country is an education superpower because it values equality more than excellence.
The Scandinavian country is an education superpower because it values equality more than excellence.
Everyone agrees the United States needs to improve its education system
dramatically, but how? One of the hottest trends in education reform lately
is looking at the stunning success of the West's reigning education
Trouble is, when it comes to the lessons that Finnish schools have to offer,
most of the discussion seems to be missing the point.
The small Nordic country of Finland used to be known -- if it was known for
anything at all -- as the home of Nokia, the mobile phone giant. But lately
Finland has been attracting attention on global surveys of quality of
life -- Newsweek ranked it number one last year -- and Finland's national
education system has been receiving particular praise, because in recent
years Finnish students have been turning in some of the highest test scores
in the world.
Radical longevity may change the way we live—and not necessarily for the better.
“So, you don’t want to die?” I asked Zoltan Istvan, then the Transhumanist candidate for president, as we sat in the lobby of the University of Baltimore one day last fall.
“No,” he said, assuredly. “Never.”
Istvan, an atheist who physically resembles the pure-hearted hero of a Soviet children’s book, explained that his life is awesome. In the future, it will grow awesomer still, and he wants to be the one to decide when it ends. Defying aging was the point of his presidential campaign, the slogan of which could have been “Make Death Optional for Once.” To (literally) drive the point home, he circled the nation in the “Immortality Bus,” a brown bus spray-painted to look like a coffin.
He knew he’d lose, of course, but he wanted his candidacy to promote the cause of transhumanism—the idea that technology will allow humans to break free of their physical and mental limitations. His platform included, in part, declaring aging a disease. He implanted a chip in his hand so he could wave himself through his front door, and he wants to get his kids chipped, too. He’d be surprised, he told me, if soon “we don’t start merging our children with machines.” He’d like to replace his limbs with bionics so he can throw perfectly in water polo. Most of all, he wants to stick around for a couple centuries to see it all happen, perhaps joining a band or becoming a professional surfer, a long white beard trailing in his wake.
Even within a university as famously offbeat as the Massachusetts Institute of Technology, Random Hall has a reputation for being a little quirky. According to campus legend, the students who first lived there in 1968 wanted to call the dorm “Random House” until the publishing house with that same name sent them a letter to object. The individual floors have names, too. One is called Destiny, a result of its cash-strapped inhabitants selling the naming rights on eBay; the winning bid was $36 from a man who wanted to name it after his daughter.
In 2005, another plan started to take shape in the corridors of Random Hall. James Harvey was nearing the completion of his mathematics degree and needed a project for his final semester. While searching for a topic, he became interested in lotteries.