Maybe it is Time to Buy a House?

Over the weekend I had a house warming party (thanks to all those who came!). I didn’t buy a house, I’m still renting. I’m not ready to pull the trigger yet on buying as I’m not sure where in the DC-Baltimore area I’m going to want to live in the coming years.

People have told me over the last couple of years, that now is the time to buy a house and the down turn is over. I’ve ignored the real estate agents, I’ve ignored the arm chair economists, I’ve ignored my economists friends, but here is another data point.

It appears that a few people who predicted real estate crash are starting to get back into real estate. This LA Times article chronicles a few including most famously Paul Krugman.

This still isn’t enough to sway me but just another data point indicating that things might be looking up in the real estate market.

Stephen Strasburg and the Ultimatum Game

One of the classic games in game theory is called the ultimatum game. In the game there is a stack of money, say $100 in $1 bills, and two people. Person A, let’s call him Mark, gets to make an offer of how to split the $100 with person B, let’s call him Stephen. Once Mark offers Stephen an amount of money, Stephen has two choices he can accept the offer or reject it. If he accepts Stephen keeps the amount offered and Mark keeps the rest. Now Stephen can also reject the offer in which case they both get nothing.

Economic Theory says Mark should offer Stephen $1, since Stephen will think $1 is better than nothing he we’ll accept so the result is Mark gets $99 and Stephen gets $1. But when economists do experiments they find that people in Mark’s position usually offer between $25 and $50 to people in Stephen’s position. Why because those in Stephen’s position will typically reject offers if they feel they are unfair, so even though it might better for Stephen to accept an offer of $10 he might reject it because it is unfair.

This situation in some sense is happening in real life. Mark in this story is Mark Lerner the owner of the Nationals (Washington DC’s baseball team). This year they drafted Stephen Strasburg with the #1 pick in the draft. Now suppose instead of the $100, we think of the pot as the future value of Stasburg as a baseball player. Mark will make Stephen a contract offer, which is Stephen’s share of the pot. Now there are slight differences since during contract negotiations Mark can make multiple offers. But in the end (Monday at midnight) if Stephen rejects it he gets nothing, but so does Mark.

Well not exactly, the Nationals get another pick next year to make up for their inability to reach a deal with Strasburg, while Strasburg gets to try to be drafted last year. We can model this with game theory too, but it just raises the minimum offer Strasburg will accept. A rejected offer happened in negotiations with Adam Crow the Nationals top pick last year.

The lesson is that Mark Lerner and the Nationals are playing a game with a real human, so they need to make an offer that Strasburg thinks is fair.

Bill and Seth’s Excellent Adventure

Bill Easterly gives this response to the Queen of England’s question to British economists why they could not predict the current crisis.

“First, Your Majesty, economists did something even better than predict the crisis. We correctly predicted that we would not be able to predict it. The most important part of the much-maligned Efficient Markets Hypothesis (EMH) is that nobody can systematically beat the stock market. Which implies nobody can predict a market crash, because if you could, then you would obviously beat the market.”

When I first read this response it kind of blew my mind and I really liked. I still really like it, but it got me thinking about a conversation I was having recently about time travel (yes, bear with me on this one). The what if game was suppose you were transported back to a certain year with all your current knowledge and abilities. What would you do?

So let's suppose Bill Easterly and I are transported back in time with all of our current knowledge to January 1st 2006. We know there is a financial crisis coming. With our perfect knowledge of the crisis, how do we stop things. I don’t think we can. Sure we can sell all of our stock and maybe try to short a bunch of stock. One issue is that we could be capital constrained, we likely couldn’t get a hold of enough money to really make a difference in the market.

So not only would a person have to have perfect knowledge, but also the ability to change things. That’s asking a lot.

But I’m sure Bill and I would have one most excellent adventure.

Pan Asian and Menu Design

Thanks to Greg and my dad who commented on yesterday's post and helped me think of other types of food that is served like dim sum . Greg mentioned Mongolian BBQ, in the past when I have had it, you build your own stir fry at a salad bar then give it to a grill cook. My dad suggests the Brazilian steak house, but I have not been to one either, I knew about the meat part but I thought there was also a salad bar involved. I think more research is needed. Who is up for some grilled meat?

Now on to today’s topic Pan Asian restaurants. Last week I ate at two places that serve sushi, Chinese, Thai, and Vietnamese food. The first (Asian Bistro, Silver Spring) I think does a decent job on sushi, but misses the mark on Chinese I haven’t strayed from the sushi too much. The second (Spices, Cleveland Park) seems to do a decent job at all with a type of greatest hits menu (California Rolls, Pad Thai, Pho).

The benefit to having an eclectic menu is if my friend wants curry and I want sushi we can go to the same place. If a menu gets too small (say one or two items) the restautant loses groups with one person who doesn’t like the food. If a restaurant’s menu gets too big, it will be harder for the cooks to do any well or have enough fresh ingredients. Maybe that is why the second restaurant with the shorter greatest hits menu tends to do better at any one dish. Other factors like higher prices and location probably play a roll too.

My advice be weary of restaurants with too many menu items (unless they are on wheels)

Dim Sum: Why is it the only buffet on wheels?

On Saturday I went out to eat dim sum with 15 friends. For those of you have not experienced the fun of dim sum. At many places you sit down and then waitresses come by with carts full of tasty steamed dumplings and little dishes of tasty things. You point to what you like then it is set on your table and you eat. Many times you have hardly sat down and there are 5 or 6 dishes on your table already.

I can’t think of another cuisine that all the food is prepared then brought around for you to choose. To do this type of style I think you would need several things: a restaurant with high turnover and many customers, dishes that work well in small plate style, and cheep workers to bring around the food. Dim sum has all three. There are sushi boat/train places where sushi passes you by and you can pick it up, but perhaps labor is too expensive in Japanese restaurants and sushi has more expensive ingredients. Other than that if a place is not a food made to order place, then it is a buffet.

If you can think of other foods sold like dim sum let me know.

Poor People Everywhere “Waste” Money

Only now he's off to collect their unemployment benefits, electronically delivered to their bank accounts by the state of Indiana: $268 for Kelly, $390 for him.
"Payday," he says, driving to an ATM.

He withdraws $700, which he tucks into a front pocket of his jeans. He buys a Pepsi, four packs of Marlboro Lights and $20 in gas.

From this article in the Washington Post follows a family of four in Indiana struggling in the current recession. We might be quick to judge that Scott the dad of the family in the story is wasting money on cigarettes and Pepsi, later we read he spends an afternoon at a bar. It made me think of some work on developing countries where people who make less than $1 a day still save money for parties instead of eating (previous post here).

In some ways the similarities between the family living off of $1 a day and the one profiled by the Post are closer than we might think

Cash for Clunkers: The Money is Actually Being Spent

I think one thing is being missed by economists criticizing the cash for clunkers program (see freakonomics), the money is actually being spent, which seems to be the point of a stimulus to get people to spend money. I’m a little reluctant to trust the estimates of a sales analyst from GM, but one quoted in the LA Times suggests that the cash for clunkers has increased sales 115,000 since the program’s start.

A back of the envelope calculation using an estimate of $27,000 per car (average US car sale price in 2009), suggested the 1 billion dollar program created over 3 billion dollars in sales. The impact of a stimulus is often tied to a concept economists call a multiplier (see detailed description here), in short the multiplier is for each dollar the government spends how many times is that $ spent in the economy. A multiplier of 3 (as in my back of the envelope calculation) would be on the high end of the impact of government. This doesn’t even take into account what the car dealer and companies will do with the extra sales, which calculating the multiplier for cash for clunkers should take into account.

Sure there is a lot of other things to consider, but the money is being spent quickly, that's worth noting.