EconAir

Janet in Wonderland Anyone who believes that financial markets are rational is not looking at the current government bond markets.    The U.S. 10-year government bond is paying around 2.5%.    Believe it or not, the 10-year Spanish government bond is paying less.   The German 10-year government bond is paying a little over 1%, less than a 2-year U.S. bond. If you were not a finance major, skip this paragraph.   The yield curve is incredibly flat.   It is only this way because the Fed hasn’t realized yet the Great Recession has been over for five years.   More sinister explanations rely on conspiracy theories.   When given the choice, I always go with stupidity. According to CNBC (yes, I’m still addicted to my financial soap opera), the interest rates on German and Spanish 10-year bonds are at a 200-year low.   I don’t know how they know that.   Germany didn’t exist 200 years ago but Prussian war bonds probably did. ...

  Strategic and Tactical Planning For thirteen years, I was a corporate economist and a corporate planner manager for three Fortune 500 companies.   I discovered that I could do my job as a corporate economist while ignoring all but the simplest of economic concepts.   As a corporate planner, I learned that the planning processes of large corporations were, at best, mostly a waste of time and resources, and at worst, contributed to the relative demise of the companies.   Of the three companies I worked for, one has been sold three times, one has gone through a bankruptcy, and the other merged with (actually sold to) A Brazilian company.   This is becoming typical; the failure rate of large corporations is accelerating. Other disciplines in business are no better.   Marketing is still based on ideas, usually summarized by the four P’s, that are a formula for stagnation at best and decline at worst.   Mass-media advertising, born at the beginn...

INTRODUCTION For background, see prior post on The Limits of Negotiation . ECONOMIC NEGOTIATIONS Basic game theory works best in economic negotiations.    The players have the same assumptions (act rationally, make money), enter into the negotiations voluntarily and negotiate which positive payoff matrix they will agree on.   Economists usually assume that people are playing a positive sum (win – win) game.   That is, how to divide up the monetary or utility gains. Game theory indicates there is a better chance at cooperation or reaching good faith agreements if the players know they will be playing the game repeatedly or if both players see an advantage to a long-term agreement. Economic rationality implies that an agent will not agree to an outcome if the individual will be worse off than not negotiating.   The alternatives are not to negotiate or find another party with whom to reach a positive or better agreement.   A co...

INTRODUCTION Much of the political news is about negotiations.   American politicians, in both domestic and foreign disputes, don’t seem to know much about negotiation strategy.   Maybe a little applied game theory would help. IS NEGOTIATION POSSIBLE?   The first question is whether or not negotiation is possible or just a waste of time and effort. Negotiations will be fruitless if at least one party believes there are no possible outcomes that are better than not negotiating.   Compromise is impossible.   Fanatics, true believers, proponents of “Victory at any cost” or “Give me victory or give me death” or parties who believe their opponents are evil are not likely to negotiate. Sometimes leaders act to limit their options or those of their followers.   The famous historical example is when Cortes burned his boats that brought him and his men to Mexico.   Returning to Cuba was no longer an option.   Cortes forced his men to...