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.
Trump is replacing his national-security adviser with John Bolton, a persistent advocate of military intervention.
On Thursday, Donald Trump replaced a man who built the case for war with North Korea as a last resort with a man who just made the case for war with North Korea as more of a first resort. Trump announced that National-Security Adviser H.R. McMaster will be succeeded by John Bolton, the George W. Bush-era United Nations ambassador who has advocated for U.S. military action to prevent Saddam Hussein, Ayatollah Khamenei, and most recently Kim Jong Un from amassing weapons of mass destruction.
North Korea is an “imminent threat” to America because it is only months away from achieving the capacity to deliver nuclear warheads to the U.S. mainland, Bolton wrote in late February in The Wall Street Journal. Therefore “it is perfectly legitimate” for the U.S. to defend itself “by striking [North Korea] first.”
Gigantic piles of impounded, abandoned, and broken bicycles have become a familiar sight in many Chinese cities, after a rush to build up its new bike-sharing industry vastly overreached.
Last year, bike sharing took off in China, with dozens of bike-share companies quickly flooding city streets with millions of brightly colored rental bicycles. However, the rapid growth vastly outpaced immediate demand and overwhelmed Chinese cities, where infrastructure and regulations were not prepared to handle a sudden flood of millions of shared bicycles. Riders would park bikes anywhere, or just abandon them, resulting in bicycles piling up and blocking already-crowded streets and pathways. As cities impounded derelict bikes by the thousands, they moved quickly to cap growth and regulate the industry. Vast piles of impounded, abandoned, and broken bicycles have become a familiar sight in many big cities. As some of the companies who jumped in too big and too early have begun to fold, their huge surplus of bicycles can be found collecting dust in vast vacant lots. Bike sharing remains very popular in China, and will likely continue to grow, just probably at a more sustainable rate. Meanwhile, we are left with these images of speculation gone wild—the piles of debris left behind after the bubble bursts.
The Cambridge Analytica scandal is drawing attention to malicious data thieves and brokers. But every Facebook app—even the dumb, innocent ones—collected users’ personal data without even trying.
For a spell during 2010 and 2011, I was a virtual rancher of clickable cattle on Facebook.
It feels like a long time ago. Obama was serving his first term as president. Google+ hadn’t arrived, let alone vanished again. Steve Jobs was still alive, as was Kim Jong Il. Facebook’s IPO hadn’t yet taken place, and its service was still fun to use—although it was littered with requests and demands from social games, like FarmVille and Pet Society.
I’d had enough of it—the click-farming games, for one, but also Facebook itself. Already in 2010, it felt like a malicious attention market where people treated friends as latent resources to be optimized. Compulsion rather than choice devoured people’s time. Apps like FarmVille sold relief for the artificial inconveniences they themselves had imposed.
How sugar daddies and vaginal microbes created the world’s largest HIV epidemic
VULINDLELA, South Africa—Mbali N. was just 17 when a well-dressed man in his 30s spotted her. She was at a mall in a nearby town, alone, when he called out. He might have been captivated by her almond eyes and soaring cheekbones. Or he might have just seen her for what she was: young and poor.
She tried to ignore him, she told me, but he followed her. They exchanged numbers. By the time she got home, he had called her. He said he wasn’t married, and she doesn’t know if that was true. They met at a house in a different township; she doesn’t know if it belonged to him. Mbali, who is now 24, also doesn’t know if he had HIV.
She enjoyed spending time with the man during the day, when they would talk and go to the movies. But she didn’t like it when he called at night and demanded to have sex, which happened about six times a month. When she refused him, he beat her. For her trouble, he gave her a cellphone, sweets, and chocolates.
Among the more practical advice that can be offered to international travelers is wisdom of the bathroom. So let me say, as someone who recently returned from China, that you should be prepared to one, carry your own toilet paper and two, practice your squat.
I do not mean those goofy chairless sits you see at the gym. No, toned glutes will not save you here. I mean the deep squat, where you plop your butt down as far as it can go while staying aloft and balanced on the heels. This position—in contrast to deep squatting on your toes as most Americans naturally attempt instead—is so stable that people in China can hold it for minutes and perhaps even hours ...
Schools are moving toward a model of continuous, lifelong learning in order to meet the needs of today’s economy.
When the giant Indian technology-services firm Infosys announced last November that it would open a design and innovation hub in Providence, the company’s president said one of the key reasons he chose Rhode Island was its strong network of higher-education institutions: Brown University, the Rhode Island School of Design, and the Community College of Rhode Island.
In a higher-education system that is often divided between two- and four-year colleges and further segregated between elite and nonelite institutions, it’s not often that a community college is mentioned in the same breath as an Ivy League campus. Nor is a two-year college seen as a training ground for jobs in the so-called creative economy, which include industries such as design, fashion, and computer gaming that typically require bachelor’s degrees.
John Dowd is the president’s second personal lawyer to leave the job and it’s the second major change to his legal team this week.
Updated on March 22 at 1:15 p.m.
John Dowd announced he will depart his position as President Trump’s lead personal lawyer in the Russia investigation, the second person to leave that job in less than a year.
Dowd announced his exit late Thursday morning. The specifics of the decision remain obscure—The Washington Post described it, somewhat paradoxically, as “a largely mutual decision”—but the departure comes amid rising frustration from the president with his legal team and frustration from the legal team over Trump’s refusal to follow advice. Dowd had been a particularly strong voice arguing against Trump testifying to Special Counsel Robert Mueller, and over the weekend Dowd called for Mueller’s firing, initially telling The Daily Beast he spoke for the president, then later insisting he spoke only for himself.
“I thought we would at least know what was going to happen to us.”
At first, Elena Remigi thought getting British citizenship would be a formality. Though she was born in Milan, she had lived in the United Kingdom for more than a decade. She owned a house, she had a car, and she even got permanent residency—an arduous process that involves filling out an 85-page application and providing a stack of documents to prove eligibility. But after Britons voted in June 2016 for the U.K. to leave the European Union, she thought the long and expensive process to get a British passport would be worth it.
It was so easy before. In much the same way an American from, say, Nebraska, could pick up and move to New York without having to go through an immigration process, let alone change citizenship, one point of the European Union was to give all European citizens the same kinds of rights to live and work anywhere in Europe. Moving from Milan to London was a lot like moving from Omaha to Ithaca. Except it’s not anymore—but nobody’s exactly sure yet what it’s supposed to be like.
How evangelicals, once culturally confident, became an anxious minority seeking political protection from the least traditionally religious president in living memory
One of the most extraordinary things about our current politics—really, one of the most extraordinary developments of recent political history—is the loyal adherence of religious conservatives to Donald Trump. The president won four-fifths of the votes of white evangelical Christians. This was a higher level of support than either Ronald Reagan or George W. Bush, an outspoken evangelical himself, ever received.
Trump’s background and beliefs could hardly be more incompatible with traditional Christian models of life and leadership. Trump’s past political stances (he once supported the right to partial-birth abortion), his character (he has bragged about sexually assaulting women), and even his language (he introduced the words pussy and shithole into presidential discourse) would more naturally lead religious conservatives toward exorcism than alliance. This is a man who has cruelly publicized his infidelities, made disturbing sexual comments about his elder daughter, and boasted about the size of his penis on the debate stage. His lawyer reportedly arranged a $130,000 payment to a porn star to dissuade her from disclosing an alleged affair. Yet religious conservatives who once blanched at PG-13 public standards now yawn at such NC-17 maneuvers. We are a long way from The Book of Virtues.