Thursday, December 29, 2011

FELIZ AÑO ANUEVO A NUESTROS MILES DE LECTORES UN ABRAZO

A LOS MILES DE NUESTROS QUERIDOS LECTORES Y AMIGOS, LES DESEAMOS UN FELIZ 2012
Estamos a punto de despedir el  año, y en  nuestra red de110  Blogs temáticos    queremos aprovechar  la  ocasión para desear a todos Feliz Año Nuevo. Que el 2012  que entra nos de  mucha felicidad, ilusión y motivación para afrontar los retos que nos  depara  el mundo global

Dar las gracias a todos, a los miles de miles   que  han apoyado  y leído  nuestro trabajo en las Redes sociales  Facebook, Twitter   en las que estamos presentes todos los días . A todos:UN  FELIZ  Y PROSPERO   AÑO NUEVO.

Rodrigo González Fernández

http://consultajuridica.blogspot.com

Santiago-chile.


Fuente:

Saludos
Rodrigo González Fernández
Diplomado en "Responsabilidad Social Empresarial" de la ONU
Diplomado en "Gestión del Conocimiento" de la ONU
Diplomado en Gerencia en Administracion Publica ONU
Diplomado en Coaching Ejecutivo ONU( 
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 CEL: 93934521
Santiago- Chile
Soliciten nuestros cursos de capacitación  y consultoría en GERENCIA ADMINISTRACION PUBLICA -LIDERAZGO -  GESTION DEL CONOCIMIENTO - RESPONSABILIDAD SOCIAL EMPRESARIAL – LOBBY – COACHING EMPRESARIAL-ENERGIAS RENOVABLES   ,  asesorías a nivel nacional e  internacional y están disponibles  para OTEC Y OTIC en Chile

Wednesday, December 28, 2011

The "Mystery" of the Endowment Effect

FROM MISSES ORG.

The "Mystery" of the Endowment Effect

Mises Daily: Wednesday, December 28, 2011 by

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The development of modern neoclassical economics is the story of how a discipline lost its way. Before the mathematization of economics, economists tried to explain prices and macro patterns in the market place from individual human action. But modern "mathonomics" has evolved into a subfield of mathematics with no obvious ties to the real economy. Assuming "perfect" conditions and general equilibrium, the conclusions of economic analysis follow directly from the premises — as one would expect from solving mathematical equations — and are hence of little scientific interest. It follows that phenomena in the real economy that do not seem to fit the "perfect" models should be dismissed as imperfections; what remains to explain is the causes of action rather than its effect. The task of economics has therefore shifted from explaining the effect of human action to tracking the causes of it.

This radical shift suggests that we already know all there is to know about markets (at least to the limited extent predicted by mathematical models), while it provides a breeding ground for analysis of behavior instead of action. In other words, in order to track the ultimate causes of our mathematically precise economic models, economists shift focus toward psychology and the identifying building blocks of actors' perception of self. Economists have moved from being experts at explaining economic phenomena and the market process to being at best run-of-the-mill mathematicians and second-rate psychologists.

Considering this development, it is no wonder that economists are puzzled by phenomena like the "endowment effect." Indeed, I have myself experienced statements by established economist scholars about this psychological effect that is assumed to be a mystery. In layman terms, the endowment effect is

a hypothesis that people value a good or service more once their property right to it has been established. In other words, people place a higher value on objects they own than objects that they do not. In one experiment, people demanded a higher price for a coffee mug that had been given to them but put a lower price on one they did not yet own. (from Wikipedia)

From a mathematical-economic point view, the endowment effect demonstrates the inability of formal economics to explain what drives human action. Indeed, the endowment effect seems to shift an actor's indifference curves, and thus his subjective valuation of goods and services, depending not on qualities in the good itself or its price but on the contextual, circumstantial characteristics and psychological state of the instant and situation. The economic explanation to market valuation is therefore at odds with real valuation and the models need to be expanded to include psychological drivers of subjective valuation. And therefore economics must embrace behavioral studies and neuroscience.

From an Austrian point of view, however, there is no problem and never was one. The "endowment effect" is but an illusory problem that arises due to the confusion of means and ends in modern economics. The only reason economists today find bewilderment in such an "effect" is that they have adopted precise mathematics as the end of economic analyses rather than seeing it as one of its possible means. In fact, the endowment effect, while literally impossible in mathematical analysis and assumed away in indifference-curve analysis, is necessary in any type of exchange. Both Menger and Böhm-Bawerk were well aware of this, and neither they nor any later Austrians ever recanted — and for good reason.

Let us borrow an illustration from Böhm-Bawerk's Positive Theory of Capital (pp. 143–47), in which a farmer "has just harvested five sacks of corn." These sacks are to keep him alive until the next harvest and therefore he makes plans for how to use them. Böhm-Bawerk writes,

One sack he absolutely requires for the sustenance of his life till the next harvest. A second he requires to supplement this bare living to the extent of keeping himself hale and vigorous. More corn than this, in the shape of bread and farinaceous food generally, he has no desire for. On the other hand, it would be very desirable to have some animal food, and he sets aside, therefore, a third sack to feed poultry. A fourth sack he destines for the making of coarse spirits. Suppose, now, that his various personal wants have been fully provided for by this apportionment of the four sacks, and that he cannot think of anything better to do with the fifth sack than feed a number of parrots, whose antics amuse him. (p. 150)

The farmer therefore dedicates each sack to a certain use intended to give him the most possible satisfaction. The sacks are substitutes, which means that it does not matter to this farmer which particular sack is used to distill brandy or feed the parrots. Indeed, to this farmer the sacks can be used interchangeably, and the loss of one sack of grain (no matter which one) will always mean (assuming the farmer's preferences do not change) the parrots will have to find food on their own or find another benevolent farmer with grain in excess of his personal needs. At any loss of grain, the farmer will readily reorganize the stock at hand so that he maximizes his utility.

Imagine if this farmer somehow loses two of his sacks so that he has only three sacks left. Obviously, he will use the three sacks for food but will have no grain to distill brandy or feed parrots. And if he were to increase his stock by one sack, he would distill brandy — the parrots would always (under the aforementioned preferences) have to wait until the farmer has a total of at least five sacks on hand.

Let us assume this farmer has some money under his mattress and the opportunity to purchase a fourth sack of grain. The economic problem is what the price of that fourth sack would be. From the farmer's perspective, it is obvious that he could give up some value to get his hands on the extra grain. How much? He would only purchase the sack of grain if it makes him better off, that is to say that he will not give up a higher value for the sack of grain than the value he would receive in using it. In fact, since he intends to use this fourth sack of grain to distill brandy, he would be willing (and, we have assumed, able) to pay anything less than the value he attributes to that brandy. Were he to pay more than this value, then he would be worse off; were he to pay an equal value, then going through with the exchange means nothing to him — so why would he do it? The only way this farmer would go through with the exchange is if he gives up less value than he receives. And the same goes for the seller — he or she will sell a sack of grain to the farmer only if the value of it is perceived as lower than the value of the payment for it.

This means both the buyer and seller gain from trade, which is an age-old economic truth. But it also means that the price, in terms of the actors' subjective valuation, is necessarily (a) lower than the value of the good purchased for the buyer, and (b) higher than the value of the good sold for the seller.

Let us assume the farmer (we'll call him A) has already purchased the fourth sack of grain and that he paid eight silver coins for it. Another farmer (let's call him B) visits and wishes to purchase a sack of grain. What price would A require in order to sell the sack to B? Neoclassical economics assumes indifference and therefore that the price of this fourth sack of grains is eight silver coins. But this is not true — we have already shown that A was willing to pay eight silver coins for the sack of grains because he valued the sack of grains at more than eight silver coins. He would not have chosen to give up those coins if he did not place a lesser value on them than the grain. Farmer B would have to pay farmer A a price that exceeds the value A sees in using the grain to distill brandy, perhaps ten silver coins (and, for the sake of simplicity, we can say that he values the brandy at nine silver coins).

The endowment effect is the price difference between eight and ten silver coins. To neoclassical economists, it is supposedly a mystery that farmer A, when having only three sacks of grain, is willing to pay the price of eight silver coins for an additional sack of grain, but when he has acquired it, he is not willing to sell it for less than ten silver coins!

But there is no mystery to the endowment effect — and there is no effect. Indeed, farmer A does not value the fourth sack of grain differently depending on whether he wishes to acquire it or if he considers selling it — he values the sack of grain exactly the same. Throughout this example, the value of the fourth sack to the farmer is his use of it to distill brandy. The value is not the price he is willing to pay to acquire it, and it is not the price he is willing to accept to give it up. Exchange is not the result of an equality in valuation, as indifference-curve analysis assumes, but a result of inequality in the parties' valuation. The seller must value that which he gains through the exchange more than what he gives up, just as the buyer must value that which he gains more than that which he gives up. Only when this is the case is exchange possible and expected.

The bewilderment due to the endowment effect is only because neoclassical economics has sacrificed economic truth for the sake of the mathematical means in economic analysis. In a strictly mathematical analysis the conclusions follow directly from the assumptions. Those using such frameworks in economic analyses need to look somewhere outside the framework to find causes and explanations, because math is tautological and does not identify causes or provide explanations — only illustrations.

The obvious solution to this shortcoming in the framework is to replace it with something better and more realistic, not persist in seeking explanations elsewhere.

 

Saludos
Rodrigo González Fernández
Diplomado en "Responsabilidad Social Empresarial" de la ONU
Diplomado en "Gestión del Conocimiento" de la ONU
Diplomado en Gerencia en Administracion Publica ONU
Diplomado en Coaching Ejecutivo ONU( 
  • PUEDES LEERNOS EN FACEBOOK
 
 
 
 CEL: 93934521
Santiago- Chile
Soliciten nuestros cursos de capacitación  y consultoría en GERENCIA ADMINISTRACION PUBLICA -LIDERAZGO -  GESTION DEL CONOCIMIENTO - RESPONSABILIDAD SOCIAL EMPRESARIAL – LOBBY – COACHING EMPRESARIAL-ENERGIAS RENOVABLES   ,  asesorías a nivel nacional e  internacional y están disponibles  para OTEC Y OTIC en Chile

Tuesday, December 27, 2011

The Competitiveness Distraction

The Competitiveness Distraction

Mises Daily: Tuesday, December 27, 2011 by 

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Albert Pujols and lawn mower.jpg

Does the ongoing failure of US elementary and secondary education bode ill for US international competitiveness? What about government regulation run amok along with a host of other maladies? Business and economic commentators uniformly answer yes without ever getting specific about the meaning of competitiveness. They apparently view competitiveness and the national maladies as one and the same. Evidence about the maladies is prima facie evidence about competitiveness, at least for the commentators.

To be sure, things like failing public education sap overall US production potential. However, overall production potential does not determine competitiveness, at least as economists have defined the term for close to 200 years tracing back to David Ricardo in 1821. For economists, competitiveness traces to the apportionment of production capabilities across goods and services, not overall capabilities. Apportionment of capabilities determines producers' alternative earning opportunities — their opportunity costs, the final arbiter of competitiveness. When it comes to competitiveness, living standards are a distraction.

Take the case of a professional athlete like Albert Pujols, long-time slugging first baseman for the St. Louis Cardinals who will be playing for the Los Angeles Angels next year. The skills that make him such a tremendous baseball player — upper and lower body strength, eye-hand coordination, and quickness — would undoubtedly make him a phenomenal mower of lawns. Indeed, it is no exaggeration to say that Mr. Pujols could probably cut more lawns per day than anyone in St. Louis, Los Angeles, or anywhere else for that matter.

Would Mr. Pujols's lawn-cutting prowess translate into competitiveness in lawn-cutting circles? Nope. Just the opposite. He is surely among the highest-cost lawn cutters wherever he lives. That's because his cost for cutting grass depends on what he can earn were he not cutting grass — in this case, playing baseball. He will reportedly earn about $155,000 per game next year. Assuming he could cut, say, 40 lawns per day, that translates into an opportunity cost of close to $4,000 per lawn. So is the fastest mower of lawns in the country serious competition for other lawn cutters? Duh.

Can Mr. Pujols's lawn-care competitiveness ever change? Sure, but it takes a change in his baseball earnings relative to his lawn-cutting abilities. Looking at only one activity tells us nothing. Likewise, positing that both abilities fall (or rise) tells us nothing absent knowledge about how his abilities are changing relative to each other.

It is the latter error writ large to a whole country that ensnares commentators. Unless changes in a country's overall production abilities are skewed, its competitiveness — that is, opportunity cost — doesn't change.

Am I am overstating the commentators' position? No. Consider World Economic Forum's (WEF) "Global Competitiveness Report," issued annually for over 30 consecutive years, usually to much media acclaim. Its most recent report (more than 500 pages!) claimed to rank the competitiveness of 142 countries, defining competitiveness as "the set of institutions, policies, and factors that determine the level of productivity of a country." In econospeak, productivity is merely another term for overall production potential or living standards. The WEF offered no hint of opportunity-cost thinking when discussing competitiveness.

Some might think that the fact that people in wealthier countries sell lots of things to people in other countries supports the idea that international competitiveness traces to living-standard differentials. Not true. After all, the same people that sell a lot abroad also buy lots of things from people in other countries. Do we want to say that higher living standards simultaneouslyundermine competitiveness? That would be silly. In the final analysis, wealthier nations buy lots of things from the rest of the world because they're wealthier. These purchases provide foreigners the wherewithal to buy things from them. So people from wealthy nations sell and buy a lot abroad because they're wealthier. The composition of what is sold and bought turns on the arbiter of competitiveness: opportunity costs, not wealth.

The competitiveness gurus' lack of attention to economic fundamentals leads them to polar opposite competitiveness "stories" in other venues. For example, it is common to hear pundits intone about people in poor economies having a competitive advantage when they sell in the United States. Say the pundits, lower foreign living standards mean foreigners work for less, dooming any Americans who try to compete with them.

This story is completely at odds with the commentators' maladies story. To wit, how can Americans becoming poorer make Americans less competitive, but foreigners being poorer make foreigners competitive? Hint: it can't. Being poorer can't reduce competitiveness for some and increase it for others. That's because competitiveness doesn't turn on overall production capabilities. Think Albert Pujols and lawn cutting.

So does this mean that levels and changes in living standards are unimportant? Not at all! Living standards obviously matter. They measure the effectiveness of economic systems and policies. However, positing a link between living standards and competitiveness is asking living standards to answer a question they can't answer. If systems and policies cause a nation's residents to be poorer, just say so. Competitiveness rhetoric is a distraction.


Saludos
Rodrigo González Fernández
Diplomado en "Responsabilidad Social Empresarial" de la ONU
Diplomado en "Gestión del Conocimiento" de la ONU
Diplomado en Gerencia en Administracion Publica ONU
Diplomado en Coaching Ejecutivo ONU( 
  • PUEDES LEERNOS EN FACEBOOK
 
 
 
 CEL: 93934521
Santiago- Chile
Soliciten nuestros cursos de capacitación  y consultoría en GERENCIA ADMINISTRACION PUBLICA -LIDERAZGO -  GESTION DEL CONOCIMIENTO - RESPONSABILIDAD SOCIAL EMPRESARIAL – LOBBY – COACHING EMPRESARIAL-ENERGIAS RENOVABLES   ,  asesorías a nivel nacional e  internacional y están disponibles  para OTEC Y OTIC en Chile

Monday, December 26, 2011

Lew's Big Idea

Lew's Big Idea

Mises Daily: Monday, December 26, 2011 by 

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Promoting liberty for 30 years! Mises 2012

Going on 30 years ago Lew Rockwell had an idea. The idea was to form an institute to celebrate the works of a forgotten scholar — Ludwig von Mises — and promote the study of Austrian economics, a school of economic thought that recognized freedom as paramount if society is to be prosperous, a school of thought that had been long forgotten, a school of thought that recognized the damage that government intervention causes.

For three decades Lew's big idea has carried on with the help of donors like you. Ideas may be free; however, teaching those ideas and implementing them are not. In 2011, Mises.org has enjoyed 1.2 million unique visitors each month. Lives and minds are changed by the thousands each and every day by Mises.org. And while the vast resources contained online at Mises.org are free to its users, the cost to keep it running 24 hours a day, 365 days a year is far from free.

The 800 articles, the 100 audio dailies, the 337 lectures and interviews in media, the 80 live video webcasts that were added just this year could not be created out of thin air the way the Fed creates money. Donors must forgo consumption and care enough about liberty and freedom to make all of this possible — and they have done so for three decades.

Many in the mainstream must believe that Austrian economics — Rothbard, Mises, Hazlitt, and Ron Paul — appeared from nowhere. Of course they haven't. It's taken 30 years of hard work by the Mises staff and sacrifice from our donors to elevate the ideas of liberty to the national stage.

Now is our time. Now is the time for the ideas of liberty to take hold. There is more interest in our ideas than ever before. The Institute held 16 conferences in 2011, attended not just by enthusiastic followers and students but those curious about ideas they hadn't heard about before: something other than the same old government prescriptions to solve the same old problems caused by government itself.

Book sales are a good indication of the interest level, and books sales continue to be strong. However, the Institute must work hard to keep up with consumer tastes. The world has changed. Not everyone prefers big, hardcover books. With the help of donors we've created new audiobooks, including editions of Human Action and Man, Economy and State. We've published over 150 ebooks and a number of new (and old) titles have been introduced or reintroduced in cheaper pocket formats to educate a new generation.

Promoting liberty for 30 years! Mises 2012

The Institute's newest program, the Mises Academy, has been a smashing success with over 30 classes offered, many with enrolments of over 200 students tuning in for lectures from all over the world.

None of this can occur for free. Although the message of free markets can be spread more efficiently and effectively than ever before, resources are required. Now is not the time to rest on our laurels. The ideas of Mises and Rothbard have captured the world's attention, and we must seize this moment.

Please help us make 2012, the Mises Institute's 30th anniversary, our most successful and productive year yet, leaving no stone unturned to advance the cause of free markets and liberty. With your help we can move mountains for freedom; and now is the time!

Please give generously.


Fuente:

Saludos
Rodrigo González Fernández
Diplomado en "Responsabilidad Social Empresarial" de la ONU
Diplomado en "Gestión del Conocimiento" de la ONU
Diplomado en Gerencia en Administracion Publica ONU
Diplomado en Coaching Ejecutivo ONU( 
  • PUEDES LEERNOS EN FACEBOOK
 
 
 
 CEL: 93934521
Santiago- Chile
Soliciten nuestros cursos de capacitación  y consultoría en GERENCIA ADMINISTRACION PUBLICA -LIDERAZGO -  GESTION DEL CONOCIMIENTO - RESPONSABILIDAD SOCIAL EMPRESARIAL – LOBBY – COACHING EMPRESARIAL-ENERGIAS RENOVABLES   ,  asesorías a nivel nacional e  internacional y están disponibles  para OTEC Y OTIC en Chile