Stilltitled

Political Expertise – Krosnick

The Nature of Expertise – Robert Glaser

•   AI + Expertise and Expert Systems – Luc Steels
  • Inference Structures – Heuristics, screening for necessary information
  • deep vs surface knowledge – surface knowledge and the advantage of screening but the disadvantage of brittleness and weak explanation and unclear boundaries
  • problem solving methods – knowledge-use-level characterization
  • generic tasks

A Model of Expertise – Vijay Krishna, John Morgan

• If experts have problems
  • Experts are interested and have objectives
  • Experts are prevalent and often conflicting
• Then how does one choose a cabinet?
  • Incongruent incentives always leads to a withholding of information on the part of the experts
  • Advice does not have any direct economic effect; at best it only influences economically relevant decisions. Thus experts’ advice has the nature of cheap talk
• Crawford & Sobel (1982) and strategic information transmission
• Ottaviani and Sorensen (1997) – “being on the mark.”
  • experts may well neglect their own information in order to appear correct
• Bannerjee & Somanthan (1997) Friedman (1998) – continuum of potential experts

The art of conversation: eliciting information from experts – Vijay Krishna

Two kinds of games

• “Cheap talk games” in which communication is costless and non binding;
• and “persuasion games,” in which information becomes certifiable
• We can find these in lobbying, delegation, buyer-seller relationships, oligopolies

Cheap Talk – Joseph Farrell; Matthew Rabin

Cheap Talk Reputation and Coordination of Differentiated Experts – In-Uck Park

• Fully Honest advice may not be sustained if the profitability of service provision varies widely across problems
• As the number of experts increases due to a higher degree of specialization, the maximum equilibrium honesty level deteriorates
• Nonetheless, the equilibiria that pass a certain credibilitiy check on their punishment phases, implement the same (unique) honesty level regardless of the number of experts
  • the customer can extract this honesty level by appointing a panel of only one or two (but no more) experts and “trusting” them all the time.
• ‘ Cheap Talk Referrals of Differentiated Experts in Repeated Relationship’, RAND Journal of Economics, 36, 391-411 (2005)

• Hedge fund performance: down 18.3% percent in 2008, their worst year on record.
• Fund closures
  • 693 funds closed in the first nine months of 2008, 6.9% of the industry
  • 920 funds may have been shut, through all of 2008, exceeding the all-time high of 848 in 2005 

—Hedge Fund Research

shake hands with the government; make them your partner by acknowledging that their checkbook represents the largest and most potent source of buying power in 2009 and beyond. Anticipate, then buy what they buy, only do it first: agency-backed mortgages, bank preferred stocks, and senior bank debt; Aaa asset-backed securities such as credit card, student loan, and auto receivables.

—Bill Gross, PIMCO

You don’t have it in strong hands, you have flippers. These speculators are preventing the market from crashing now, and when they get out it could fall again.

—Robert Shiller

We’re creating a shadow inventory of homes that will be right back on the market as soon as the economy and the housing market begin to improve. We could see a double-dip in the housing recession if that happens. Assuming we don’t overshoot, we could be back at equilibrium in 12 to 18 months, but there are reasons to believe we might overshoot. In past housing recessions, we didn’t see as many mortgages under water, so it didn’t matter if the focus was on speed and not on maximizing value. Now, the same banks that created the problems by mismanaging their risk are mismanaging the disposal of their assets.

—Joseph Stiglitz

PennyMac buys $558mm in home loans at 30-50 cents on the dollar from the FDIC that were acquired when First National Bank of Nevada collapsed.

Recovery rate of Tribue Co. is 1.5 cents on the dollar.

Reinhart + Rogoff – Aftermath

Wow…emerging and developed economies share common features following a banking crisis:

1. Asset market collapses: real housing pricing decline 35% over six years; equity price collapses average 55% over three and a half years
2. Profound declines in output and employment: unemployment goes up 7% on average over four years; and output falls (from peak to trough) an average of 9% over two years.
3. Real value of government debt explodes: up an average of 86% in major post WW-II episodes. This is typicall associated with a collapse in tax revenues.

The end as we know it

and how to save it