Christmas tree transformation

The day after Three Kings Day (6 Jan.), our family Christmas tree transforms into an “North American football tree” and stays up until the Super Bowl. Division champions and wild card contenders go on top; bad teams go on the bottom.

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How it started; how it’s going (Zoom edition)

New Zoom update brings more emojis, Vanishing Pen tool and other features |  Technology News,The Indian Express
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Hug your loved ones tight today

In Memoriam: Bella Benvenutti

Our hearts are broken, yet again. My wife and I are mourning another tragic and untimely loss. My former student and dear friend Jan Rene Benvenutti lost the love of his life — his beloved daughter Bella, who was only seven years old.

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Ray Sturm’s most cited paper

In honor of my late colleague and dear friend Ray Sturm (pictured below), today I am posting a link to his most-cited work, his 2003 paper “Investor Confidence and Returns Following Large One-Day Price Changes” in which Ray identified an asymmetry in investor reaction to stock market price shocks. In Ray’s own words, “my findings indicate that investors respond differently to negative price shocks than to positive price shocks. In particular, large price decreases generally drive positive post-event abnormal returns, while large price increases do not drive positive or negative abnormal returns.” According to Google Scholar, Ray’s 2003 price-shock paper has been cited at least 50 times, a remarkable and noteworthy feat in the world of academia.

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Measuring the value of time

As a follow-up to my previous post in honor of my late colleague and friend Ray Sturm (pictured below), who died recently at the too-early age of 58, today I am a posting a link to his beautiful 2008 paper “Does time have value? An empirical examination of the put option embedded in refundable U.S. air fares,” a research article that Ray co-authored with Drew Winters, a respected professor of finance at Texas Tech.

To the point of this post, of the two dozen or so scholarly papers that Ray published during his academic career, his 2008 time-value paper is one my favorites because of its “Coasean spirit” — i.e. the way in which Ray and Drew combine economic theory and actual practice. Below is an excerpt (footnote omitted):

“The time value of money is a fundamental tenet of finance. Specifically, under any positive discount rate, a dollar today is unambiguously worth more than a dollar tomorrow. Equally unambiguous is the value of time in the price of an option. Specifically, all standard put and call options increase in value as the time to expiration increases. In this paper, we examine ticket pricing in the airline industry and argue that the price of a refundable airline ticket consists of two components—the price of a nonrefundable ticket plus the price of a put option. The refundable ticket is obviously more valuable than the nonrefundable because the put option component gives the owner the right to sell the ticket back to the airline at its original cost. Accordingly, we apply the standard relationship between time to expiration and the value of an option developed in option pricing theory to determine whether airlines price the value of time to expiration in the put option embedded in refundable ticket prices in a manner consistent with theory.”

Ray Sturm, Ph.D. Obituario - Winter Park, FL
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In memoriam: Ray Sturm

How many faculty have you ever seen ride to class on a skateboard, compete in surf championships, or play in a rock band? My dear colleague and friend Dr Ray Sturm (pictured below, far right) was a one-of-a-kind scholar, bon vivant, and original researcher (see here and here) who did all these things. Our paths had crossed many times — he was a fellow “lecture capture” professor and kindred spirit at my home institution, one of the few souls who made my little corner of the world a better place. I will be devoting my Spring and Summer 2022 classes to his memory.

Ray Sturm, Ph.D. Obituary - Winter Park, FL
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Holiday readings

I stumbled upon some additional reading materials these days as I was cleaning out some old files, so I am updating my 12/23 holiday reading list to include the ones I enjoyed reading (or in two cases, re-reading) the most:

8. “Accounting and the theory of the firm” by the late Ronald H. Coase. This little-known 1989 paper explores the relationship between cost accounting and economic theory.

9. “On the origins of property rights” by yours truly. This theoretical paper, one of the first I ever published — and part of a failed NEH grant application of mine — locates the origins of property in mating strategies; alas, it is not available online.

10. “Colombo: the grassy knoll” by William Harrington. What if there were a second assassin? I picked up a copy of this 1993 JFK-murder mystery at the Free Little Library located in Sunset Beach in Tarpon Springs, Florida.

11. “Why not more States?” by Jennifer Kindred Mitchell. Among other things, this scholarly paper explores the history of US statehood, starting with the admittance of Tennessee in 1796, and makes the case for dividing California into three separate States.

12. “Forget morality” by Ronnie de Sousa — a persuasive and devastating critique take-down of moral philosophy.

prior probability

Among other things, the holidays are a time when I finally get to catch up on my scholarly readings. Below, for example, is a listing of some of the sundry papers and books I am studying this season:

  1. Gametek: the math and science of gaming” by Geoffrey Engelstein.
  2. Where is my flying car?” by Josh Hall (cover pictured below).
  3. Games: agency as art” by C. Thi Nguyen.
  4. Do you have to reply to this paper?” by Saul Smilansky.
  5. Moral theory and anomaly” by Tom Sorrell.
  6. Measuring the accuracy of diagnostic systems” by John A. Swets.
  7. Extreme entrepreneurship” by Adam J. Sulkowski. Where Is My Flying Car?: 9781953953186: J. Storrs Hall: Books

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The Economics of Narcos

Alternate Title: A Simple Model of Drug Smuggling

Happy New Year! Having re-binged Narcos Colombia and Narcos Mexico during the holidays, I was inspired to develop a simple model of drug smuggling.

First off, assume that p is the probability of interdiction on any cross-border smuggling operation; as a result, the expected number of trips across the border until a drug shipment is captured is 1/p.

Next, assume that the profits are $X for each successful smuggling trip, and further assume that the value of the drugs and the value of the truck, airplane, or other vessel transporting the drugs totals $Y. (In reality, the values of X and Y may vary per trip; I, however, am holding both values constant for simplicity.)

On the last trip, the transport vehicle is captured and no profits are made. Therefore, in expectation, we will have [(1/p) – 1] smuggling operations earning $X per trip and one trip losing $Y.

According to standard price theory in economics, the ex ante expected profit in equilibrium of a rational, risk-neutral smuggler should be zero. This logic can be stated formally as follows:

Y = [(1/p) – 1]X

which can be further simplified as follows:

Y = X(1 – p)/p

Given these super-simplifying assumptions, if p = ½ (i.e. a 50% probability of interdiction), then Y = X. In other words, the smuggler’s initial investment is recouped in just one smuggling operation! Put another way, if we want to combat smuggling, the probability of detection must be greater ½.

If, however, p is below ½, smuggling will always be profitable. For example, if p = 1/10, then Y = 9X. That is to say, the smuggler will recoup nine times his initial investment when the probability of interdiction is just 10%. More generally, this simple model shows that the lower the probability of detection, the more profitable smuggling will be.

So, what is the actual rate of detection? Your guess is as good as the feds’!

Bonus (1/2): I have included an acoustic version of the Narcos theme song “Tuyo” by Rodrigo Amarante below.

Narcos: Mexico Season 3 Cast, Characters & Who They're Based On
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Postcards from Outer Space!

r/wallpapers - Planes of Venus, Earth, The Moon, Mars and Titan.
From left to right: Venus, Earth, the Moon, Mars, and Titan (Saturn’s largest moon); hat tip: u/iMini
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