How does an entrepreneur set prices?

Traditional (neo-classical) economic theory has robust models of price-setting in two extremes. In a perfect market, identical firms sell identical goods at the same price, each firm covering its marginal costs, but no firm making any profit.

But where do normal firms and entrepreneurs set their prices, based on imperfect information regarding their competition, the potential clients, and the “unique” elements of their goods/services?

Here’s a picture:

My one-handed conclusion is that economists are very sure about a very rare set of market circumstances and very unsure (or they should be!) about 99% of market participants.

Interesting stuff

  1. Read: Guatemala’s citizens score a rare win (in Latin America) for democracy over corruption.
  2. Read: More old friends are caring for each other in the face of shrinking and fragmenting families. Very much related: Social media has turbocharged the “bowling alone” decay of social ties.
  3. Watch: “AI can do your homework… now what?
  4. Plan: Dutch banks are calling for climate risk labels for houses mortgages. Here’s one calculator by postcode [Dutch]

H/T to CD

Alexei Navalny, RIP

A hero under all circumstances.

We do not have many civic heroes these days — the people who fight with words rather than weapons to preserve domestic quality of life.

Three of my heroes, Clair Patterson, Jane Jacobs, and Rachel Carson, were civic heroes — they sacrificed a lot to help us all.

Another was Alexei Navalny, who was willing to die to help his fellow Russians.

Last week, Putin murdered him.

Putin didn’t murder him directly — just as MBS didn’t murder Jamal Khashoggi with his own hands — but Putin was 100 percent responsible.

I don’t think I was ever a fan of Putin, but he’s certainly turned from bad to worse since I began criticising him in 2005, but this 2009 post is better. I am not sure I would have been so brave if I was living in Russia. Navalny was beyond brave — not just criticising Putin to his face over the years, but returning to Russia to do so after Putin’s thugs failed to kill him with poison in 2o21. Navalny said: “I am not afraid of Vladimir the Poisoner of Underpants.”

That’s a hero, hands down.

I recommend these articles (“Why Russia Killed Navalny” and “The reckless heroism of Alexei Navalny“) to learn more about a leader the Russians needed but may not have deserved.

I look forward even more to Putin’s fall from power.

Interesting stuff

  1. Data != truth: 29 sets of academics, given the SAME data on gender and speaking in public, came up with disagreeing analyses. Related: 73 teams also disagree on how to interpret the SAME data on migration and support for social welfare.
  2. Read: America’s founders didn’t mean self-pleasure when they promoted  “pursuit of happiness” — they meant self-restraint.
  3. Listen to this really excellent discussion of how NYC’s 2019 regulation on “affordable” housing made housing less affordable. (The Dutch are doing more or less the same now.)
  4. Read how illegal drug producers pollute land and water in the Netherlands. Legalize and regulate drugs! Related: Farmers illegally dumping animal shit. Reduce industrial agriculture!
  5. Sad: Average world temperatures are now +1.7C over pre-industrial levels, with +2C in sight for 2030. Shit’s gettin’ real… Related: We need to think differently about how we describe the strength of hurricanes.
  6. Read this nice analysis of why democrats make housing more expensive than republicans.
  7. Read: Want less stress? Pay off your debt!
  8. Read this update on “lab diamonds,” which are chemically the same as “natural” (inhuman?) diamonds and thus pulling down prices by as much as 90%. Still, some people think they are too cheap (=not enough sacrifice for that ring?), which is why they need to raise the price — and attraction — by using my “eco-ring” idea 🙂
  9. Government failure in action: The Dutch government wants more affordable housing, so they’ve decided to expand supply limit prices, which has resulted in fewer and fewer new starts. What’s the challenge, says the city [in Dutch]? Builders can’t make enough money on new builds. Fail.
  10. Watch: If you believe in a “social license to operate”, then what explains McKinsey’s continued crimes against society?

Interesting stuff

  1. Shop! Someone made a useful AI-powered, reddit-sourced search engine for “buy it for life” products. Here’s advice on what bicycle to buy, for example.
  2. Maybe the neo-luddites are right to oppose the rise of tech-dictators?
  3. Read an analysis of why the Court struct down Trump’s claim that he could commit crimes (!) not just as president (!!) but also as a civilian (!!!). (The guy is really full of himself…)
  4. Read Neal Stephenson’s thoughts on AI (He coined the concept of metaverse)
  5. Read this fascinating (and well written) debunking of central planning, written in 1937 — 8 years before Hayek made his amazing contribution.

Who do you work for?

Economists assume that people work for themselves first, i.e., accepting payment (extrinsic motivation) to do something they would not do if they were not paid.

But that “model” ignores the role of intrinsic motivation (we do what we like) which plays a role — large or small — in determining where we work, but also how much we are willing to accept to do the work (more intrinsic motivation on offer means reduces the need for extrinsic motivation).

So it’s complicated.

Now get into the common problem of outsiders assuming you are there for intrinsic reasons when you are there for other reasons. For example:

  • You work at a non-profit, but only because of the salary (extrinsic).
  • You teach at a university but only because you want to be left alone to do research (different intrinsic reasons).
  • You say you care about the public interest but your company screws the public (extrinsic displaces intrinsic).

My one-handed conclusion is that you should not take someone’s motivational claim at face value. Better to watch to see how their behavior (revealed preference) aligns or clashes with their professed goals (stated preference).

Interesting stuff

  1. Read how “environmental protections” are blocking efforts to improve the environment (e.g., installing wind turbines)
  2. YouTube provides essential infrastructure, but it’s not regulated that way, so we have (a) no idea what’s posted and (b) how it’s disseminated. Time for a change?
  3. This engineering professor worries that grade inflation will kill people (I agree). Now Dutch medical schools will put more weight on a lottery and less weight on skill-based indicators. People will die.
  4. Ever run into Exitus acta probat? Maybe not while reading Ovid’s writing in  Latin, but maybe in translation as “the ends justify the means”?
  5. Think how higher education is broken… because tenured professors can always say no.
  6. Read: Does Silicon Valley threaten our societies with its “techno-authoritarianism”?
  7. Males in Gen-Z are more conservative; females more liberal. Listen to some of the social and political implications. (Good time to remind boys that trade schools are not just better for their temperaments… but also a source of greater earnings.)
  8. Listen to this first episode on Richard Feynman, one of the 20th century’s greatest physicists and public intellectuals.
  9. People (in the US, but also elsewhere) are too busy complaining about their “rights” (on the left and right politically) to get along. The consequences are not good:

    If you have no hope of success because you are a victim of injustice, how can you possibly be motivated to do anything? How can you have a sense of agency? A discourse that was intended partly to empower people who suffer from structural disadvantages, by revealing the underlying forces that produced their circumstances, may end up doing the exact opposite: It enshrouds people in their own victimhood, and in the feeling that they have no control over their life…

    In a culture where negativity is aligned with righteousness, anything good can be seen as a mark of ill-gotten privilege. And if by chance one does experience pleasure, don’t be so insensitive as to admit it in public, because that will reveal you are not allying properly with the oppressed.

H/T to BZ

Review: Adventures of Tom Sawyer

I am not sure if I read this book as a school assignment, but it’s obviously one of the great works of American fiction. Mark Twain published it in 1876, and now it’s available for free via Project Gutenberg.

The book’s hero is Tom, a twelve-year-old boy (it’s never stated). The plot involves Tom’s various attempts to (a) avoid school work and (b) go on adventures (often with Huck Finn) and (c) court Betsy Thatcher, a girl whose family arrives in town early in the book.

Long story short, Tom gets into a lot more adventures than he plans, which drives his Aunt back and forth between mourning Tom’s death, thanking heavens that he’s alive, and punishing him for driving her crazy.

The book’s tone of every day a new adventure is delightful and innocent, in contrast with that years’ events: the first telephone call, the first transcontinental (US) railway line, and the ongoing exploration and seizure of Native American territories.

…but by far the highlight is the lovely text, imbued with the priorities of boys in the face of adult silliness. Here are three examples:

He had had a nice, good, idle time all the while—plenty of company—and the fence had three coats of whitewash on it! If he hadn’t run out of whitewash he would have bankrupted every boy in the village. Tom said to himself that it was not such a hollow world, after all. He had discovered a great law of human action, without knowing it—namely, that in order to make a man or a boy covet a thing, it is only necessary to make the thing difficult to attain.

Shortly Tom came upon the juvenile pariah of the village, Huckleberry Finn, son of the town drunkard. Huckleberry was cordially hated and dreaded by all the mothers of the town, because he was idle and lawless and vulgar and bad—and because all their children admired him so, and delighted in his forbidden society, and wished they dared to be like him. Tom was like the rest of the respectable boys, in that he envied Huckleberry his gaudy outcast condition, and was under strict orders not to play with him. So he played with him every time he got a chance.

One feature in these compositions was a nursed and petted melancholy; another was a wasteful and opulent gush of “fine language”; another was a tendency to lug in by the ears particularly prized words and phrases until they were worn entirely out; and a peculiarity that conspicuously marked and marred them was the inveterate and intolerable sermon that wagged its crippled tail at the end of each and every one of them. No matter what the subject might be, a brainracking effort was made to squirm it into some aspect or other that the moral and religious mind could contemplate with edification. The glaring insincerity of these sermons was not sufficient to compass the banishment of the fashion from the schools, and it is not sufficient today; it never will be sufficient while the world stands, perhaps. There is no school in all our land where the young ladies do not feel obliged to close their compositions with a sermon; and you will find that the sermon of the most frivolous and the least religious girl in the school is always the longest and the most relentlessly pious. But enough of this. Homely truth is unpalatable

Brilliant. FIVE STARS…

Is there a classic that you’ve recently (re)read?

Here are all my reviews.

Interesting stuff

  1. Listen to yet another discussion of what we can do to “save the planet ourselves.”
  2. Read an interesting (maybe convincing, to me) critique of airline deregulation in the US. Perhaps a bit too much?
  3. Climate chaos is arriving, via “known unknowns.” Here’s a short read.
  4. A blast from the past (1958!): The Problem of the South [of Italy]: The Redevelopment of the “Mezzogiorno”
  5. Listen to this discussion on “the freedom to speak your mind” with the president of Wesleyan.
  6. Read We’ve Forgotten How to Use Computers (it’s all about the mouse!)
  7. Read The suburbs as a Ponzi scheme… which does make sense if you consider (a) debt and (b) deferred maintenance.

Review: When a Crocodile Eats the Sun

A white woman in South Africa suggested that I read this 2006 book by Peter Godwin, and I am glad that she did.

I mention the color of her skin because skin matters in this memoir of how Zimbabwe fell apart in the late 1990s. This “change of condition” was shocking for many (including me) because of Zim’s prior reputation and status as a safer, richer place than its neighbors. This book explains how those relative positions changed as Robert Mugabe (Zim’s dictator) struggled to hold power. (There are strong parallels with Venezuela’s more recent descent into chaos, which was fueled by a similar “power at all  costs” dynamic.)

Background: Whites controlled Southern Rhodesia in the post-colonial period, but they lost power to Black rebel groups, one of them (ZANU-PF) which was led by Mugabe. After this 1980 liberation, Mugabe allowed the Whites to stay and work, which meant that they continued to run large efficient commercial farms. These farms did not just give Zimbabweans food security and jobs (at least 100 workers for every farm owner, plus around 3-400 dependents), but also export earnings and a reasonably prosperous countryside.

The Issue: Mugabe could not deliver on his promises of a better life for all, so he started blaming Whites twenty years after they had lost power. Plenty of Blacks knew Mugabe was trying to save his own skin, and they joined a rival political party (the MDC) in an attempt to vote Mugabe out.

The Chaos: Mugabe brutally suppressed this peaceful, democratic opposition. Godwin’s memoir traces how Mugabe’s thugs attacked and terrorized Black and White Zimbabweans, extracted $1 in booty for every $999 they destroyed. Citizens’ suffering is immense (Wikipedia):

…at the time of independence in 1980, the country was growing economically at about five per cent a year, and had done so for quite a long time. If this rate of growth had been maintained for the next 37 years, Zimbabwe would have in 2016 a GDP of US$52 billion. Instead it had a formal sector GDP of only US$14 billion, a cost of US$38 billion in lost growth. The population growth in 1980 was among the highest in Africa at about 3.5 per cent per annum, doubling every 21 years. Had this growth been maintained, the population would have been 31 million. Instead, as of 2018, it is about 13 million. The discrepancies were believed to be partly caused by death from starvation and disease, and partly due to decreased fertility [as well as emigration]. The life expectancy has halved, and deaths from politically motivated violence sponsored by the government exceed 200,000 since 1980. The Mugabe government has directly or indirectly caused the deaths of at least three million Zimbabweans in 37 years. According to World Food Programme, over two million people are facing starvation because of the recent droughts the country is going through.

Godwin’s memoir is compelling because it weaves between his reporting as a journalist and the stories he tells about his friends and family.

Oh, and what about the title? It refers to a belief that a celestial crocodile will eat the sun when it is unhappy with humans on earth. Mugabe, despite an unprecedented repeat eclipse in the middle of the chaos, stayed in power for years after this book (he died in 2019). His replacement is not much better. Pity the people of Zimbabwe.


Here are all my reviews.