Some Links And A Simple Model Of Labor Productivity - For Class Session October 24

A Mature View of Uncertainty (Ten years ago I got about halfway in writing a book on teaching and learning.  The book title was Guessing Games.  The underlying idea was that we should mainly teach students to hone their own intuition - making good guesses.  But then we need to also teach the accompanying skill of verification and follow up on the intuition.  This is the last chapter that I wrote.  I think it's not badly written, but on reading some earlier chapters, they were too pedantic.  I was lecturing to the reader, not a good approach to sustain interest.  So I stopped writing this.)

This is long read, maybe 45 minutes or so - but there is no blog post due this weekend. It talks about uncertainty in many dimensions, beyond how economists thinking about it.  Ultimately the focus is on the choice (or not) to quit the current job and take on something else.  What are the factors too consider?  Here I'll mention do - the emotional side, how nervous are you about making the change? how miserable are you with the current situation?  and that we don't really decided things by data, but rather by a good narrative - what story can you tell to convince yourself about the choice?

Moneyball (the book, not the movie)
The interesting part for us is that scouts for major league baseball teams make errors in evaluating talent.  The errors are systematic.  (Or at least they used to be before the book came out.)   We should attribute such errors to cognitive bias.  This suggests, more generally, that in the labor market recruiters may make errors in evaluation talent because of cognitive bias. 

The Financial Perks of Being Tall
A well studied consequence of cognitive bias.

Randy Newman song - Short People
An ironical lyric that plays into the cognitive bias and implicitly criticizes our many other prejudices.

Favorites versus Underdogs
For the mathematically inclined.  If the objective is to maximize the chance of winning, then the favorite should risk averse while the underdog should be risk seeking.

Simple Model of Labor Productivity

Q = F(a,h,e)

where Q is the individual's output, a is the individual's ability, h is the individual's human capital, and e is the individual's effort.    Note that each of these variables may themselves be multi-dimensional.  For example, we've already spoken of general human capital (which is valuable with any employer) and specific human capital (which is valuable only to the current employer). 

How does moral hazard manifest in each of these job types?

• Real Estate Agent
• Bank Manager  (In a few weeks we'll look at the example from M&R on this during the S&L crisis of the 1980s
• Tenured Professor Teaching Undergraduates
• Scientist Doing Cancer Research
• Educational Technologists

Is procrastination moral hazard?