Fischer Black’s festschrift


I received Fischer Black’s festschrift edited by Bruce Lehmann a couple of days ago. It includes a passage that does a good job of capturing Fischer’s view of finance, and perhaps why Nassim Taleb calls it “the softest of the soft sciences”, and which is worth quoting at length:

I have also stressed the sense in which this model does not produce falsifiable, testable hypotheses that can be compared with evidence. It is distressing to discover that it is a theorem that economics is vacuous but, viewed in isolation, the hypothesis that asset markets are in equilibrium is just so much empty rhetoric. But we do not view markets in isolation; we implicitly and explicitly bring a mixture of intuition, conjecture, and knowledge to our research. As Fischer put it:

I think more about a group of stylized facts that summarize the world as I see it. These are my observations, derived from everyday experience, from reading newspapers and magazines, and from studying technical publications . . .  I think we can explain all of these puzzles using sample models derive from the full general equilibrium model with general von Neumann–Morgenstern utility. What’s important, I think, is to explain the stylized facts in a deeper sense. We want to understand the underlying economics.

On this view, our enterprise involves the exploration of a region of model space centered around the stylized facts and economic intuitions that we find compelling. Students of financial markets differ in precisely what economics and evidence they find compelling. These differences arise largely because we do not have direct and credible measurements of the determinants of preferences, technology, beliefs, and the extent to which investors make choices and interact in markets according to our models. In the absence of such knowledge, the model constitutes a language for describing and organizing our thinking about financial market equilibrium, not for making predictions about it.

And at the end of Lehmann’s introductory essay, another quotation from Fischer:

No doubt the reader’s glasses differ from mine. But we are all looking at the same world, and the technology for making glasses is constantly improving. Someday it will all be clear.

Writers Strike


Apparently there are also writers in Cambridge. Some of them were striking in front of the Harvard Lampoon building:

What people at Harvard look like


Every single person here.

30 Rock

Flags on the Mall


Thomas Emil and I went to Washington last weekend. I am still in the process of uploading the photo, but here is one I took on the National Mall. What you see is a section of 12,000 flags that HRC planted in the grass to honor homosexual members of the military who have been discharged under the “Don’t ask, don’t tell” policy.

Ladies and gentlemen, the Kennedy School of Government


The latest issue of the KSG student newspaper, the Citizen, has an article with the title “KSG International Students Pay Changing Price for Education”. The subtitle is “Weak dollar sees cost of KSG degree fall for many, although picture not uniform”. The author, Sam Jeffers MPP2, claims, among other things:

Other international students have seen KSG become relatively more expensive over the past couple of years due to the weakness of their native currencies. For example, the 38 South Korean KSG students, who would have enjoyed an exchange rate of 956 Won to the dollar at the start of school year 2006, today find the rate nearer the 900 mark. As a result, their education is some six percent more expensive than it was a year ago.

Here’s a graph of USDKRW over the period discussed. Can you see what is wrong with the statement?


This is the sort of thing that says I should probably leave my year at Harvard out of my resume…

Update: Online version of the article.

Double taxation of dividends


Alan Viard writes (HT: Greg Mankiw):

Another bad provision: the bill would increase the tax on intercorporate dividends, where one corporation holds stock in another corporation [except] if it’s like a wholly owned subsidiary. That makes no sense. It says the tax burden on investment will depend on how many corporate layers there happens to be. There’s no rational distinction, no efficiency gain, no equity gain in taxing that more heavily.

I don’t think this is completely accurate, Double taxation of dividends in the United States is an important reason why public companies in the US are directly controlled by shareholders, not by minority shareholders through labyrinthine cross holdings. See Morck and Yeung (2005) (working paper version). We can discuss how much double taxation there should be, but I think Viard overstates his case when he writes that there is “no equity gain”.

Football game


Yesterday was the Harvard–Brown football game. (Harvard won, of course.) Before the game there’s the obligatory tailgating:

Kasey always carries two phones:

The stadium and game itself:

We left after the first quarter and caught some of the women’s volleyball game against NJIT. (Harvard won again, of course.)



Here are a bunch of photos that are already on my mblog, but which are trip-related. In chronological order.

Last farewell dinner


Parking outside MIT Media Lab

Assembling the bed

The Kennedy School of Government

Assembled bed

Copley Square, Boston Public Library

Complete works of Lu Xun, faux Chinese intellectualism

View of Dunster House tower from my window

Assembled desk

Drive to Boston and Castle Island

MPA dinner at the Barking Crab

ID card photos

Thomas Emil at Ikea

View from the T between Kendall and Charles/MGH stations

Massachusetts State House, seat of the Governor and the General Court of the Commonwealth

Downtown Boston from the Barking Crab

The Tavern on the Water

The JFK Jr. Forum at the Kennedy School

Tercentenary Theatre, Harvard Yard

JFK Memorial Park

Thomas Emil at Harvard Law School Library

Week two


It has been quite a busy week. Monday was Labor Day in the United States, so orientation formally started Tuesday. Thomas and I were sent to orientation with the Master of Public Administration (MPA) students. The MPA program is a two-year degree for people with some work experience. Many of the students are also taking an MBA from Harvard Business School or the Sloan school at MIT.

On the first day we went to a conference center south of Boston for outdoor activities, the most memorable of which was building and (in the case of my team successfully) sailing a raft made from wood boards and barrels.

I spent Wednesday at MIT, where the classes start earlier. Peter Diamond walked by the corridor as I waited for class to begin in 14.281 Contract Economics. The first month will be taught by Richard Holden, but Bengt Holmstrom, who will teach the rest, did appear for a few minutes.

My other MIT course will be 14.160 Experimental and Behavioral Economics, taught by Ernst Fehr, which seems promising and with a reasonable workload. After the lecture we participated in two experiments, an asset market where we developed a small bubble and a coordination game that made me very disappointed in the other students.

Thursday was more orientation, including a case with Kenneth Winston and lunch with a selection of faculty members. And this morning I made my third and probably final trip to Ikea.

Day Two


Yesterday morning I picked up my apartment keys and register with Harvard International Office. The afternoon, however, went a bit wrong.

I was supposed to kidnap Simon to make him help me get stuff from Ikea. Unfortunately there was something wrong with his phone (roaming is sometimes unreliable), so I couldn’t get hold of him. I was parked illegally outside the MIT Media Lab for almost an hour while frantically trying to contact him.

Then the crappy GPS receiver in the Nokia N95 started having trouble with Boston’s urban canyons (note to self: bring Holux next time), so it took us half an hour just to get on the I-93, and a further hour to get to Ikea. By then my Zipcar reservation was almost up, I got lost again on the way back, had to refill the car, rush back, and unload the stuff on the street with Simon watching it while I returned the car.

And I still don’t have a desk.

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