[nige1]

hrothgar, on 2013-April-13, 22:00, said:

The problem with this theory is that economics and history both clearly demonstrate that humans are risk adverse.
If I offer someone a choice between
A. One dollar
B. A 50% chance of two dollars and a 50% chance of zeros dollars
the vast majority of people will choose option A
Indeed, if I offer someone a choice between
A. 98 cents
B. A 50% chance of two dollars and a 50% chance of zeros dollars
An awful lot of them will choose option A. This has a lower expected value, but people are willing to sacrifice $$ to decrease their risk.
If you don't believe these types of experiments, consider insurance.
Buying insurance is sacrificing expected value for risk and its one of the biggest market out there.

Gambling (e.g on the stock-market) is the converse, which some others choose.

[hrothgar]

nige1, on 2013-April-15, 07:47, said:

Gambling (e.g on the stock-market) is the converse, which some others choose.

Economists typically explain away gambling by assuming that the act of playing cards or pulling a slot machine lever generates utility in and of itself.
(Of course, some people are also delusional enough to think that gambling offers a positive expected value and a small number of people are sufficiently skilled that gambling really does offer positive expected value)

In addition, few people gamble away more than a small percentage of their assets.
They insure much more.

The most obvious counter example to this are low income individuals who pay the stupidity tax play the lottery.

[nige1]

hrothgar, on 2013-April-15, 08:00, said:

Economists typically explain away gambling by assuming that the act of playing cards or pulling a slot machine lever generates utility in and of itself.(Of course, some people are also delusional enough to think that gambling offers a positive expected value and a small number of people are sufficiently skilled that gambling really does offer positive expected value)
In addition, few people gamble away more than a small percentage of their assets.They insure much more.
The most obvious counter example to this are low income individuals who pay the stupidity tax play the lottery.

Few people spend more than a small percentage of their assets on insurance or gambling.
Insurance is a small outlay to counter an unlikely calamity.
Gambling is a small outlay to gain an unlikely but life-changing windfall.
They are converses. To an observer, both are mug's bets, in terms of expectation.
But we stupid paupers may regard the lottery as our only hope of escape

[kenberg]

I now have car insurance beyond liability. Getting simple minded in my old age. From 1954 (first car) until now (new car) I had liability only. Seemed right. Still does, actually, but Becky will sleep better. I did hit a deer some years back but otherwise not having had collision insurance has been pure gain. And it avoids silliness. After I hit the deer I was advised by people who carried insurance and knew about such things that it was very important that I assert that the deer ran into my car instead of saying that I hit the deer. I prefer to go through life w/o making such distinctions.

There have been a couple of scares. In 1980 I bought an Isuzu diesel and not long after I went into a wild back and forth skid on a road that was surprisingly slippery. Crazy, but my mind focused on the damage I would do to the car. I managed to get it back on track after a bit. In 1990 I bought a Honda and a little bit later someone stole it. Oops. But I got it back a few hours later. As near as I could tell, some kids wanted to get from here to there and so they did. The key bolt was destroyed, but that was all.

I do carry house insurance.

I have mixed feelings about the lottery and other state run gambling enterprises. The way to win is, of course, to let someone else play and that's what I do. Maryland is in the process of greatly expanding its gambling operations. When it first was put to referendum it was as a small scale operation and, it was said, it would stay small. Anyone who believed that probably buys gold watches for a buck. Gambling brings in money, sure, at least in some way. But ultimately it siphons off a lot, and it puts the state in the at best amoral position of encouraging its citizens to do something stupid. I don't much like it, but the world is as it is.

[mike777]

kenberg, on 2013-April-14, 06:25, said:

If you mean to be insulting, you are succeeding. If you mean to be making a clear point, you are failing. What skin in what game? What is the difference between skin and real skin? An do you really want to get into a public discussion of who has more skin in some game or another? I really have no idea what you are talking about here, and I doubt I would much like it if I could figure it out. I guess your basic point, since you seem to think I understand your points and in some sense I think that I do, is that you are the one with real skin in the game, whatever this cliche means, and the rest of us are just posers out here babbling.
Message received, over and out.

wow I certainly did not mean to be insulting in any way and in no way am I talking about myself. I do appreciate reading your thoughtful posts.

Not sure how to make my main point any clearer than I have tried in my previous posts on how to attack inequality by other methods than focusing on the vast middle. To try and focus on the tail rather than the average.

yes skin in the game means having money at risk in the company being discusssed. For example you are the owner of a local rest. you are a hard worker and productive but you can still fail and lose money you have at risk. But failing rest. makes room for a new and improving rest on an industry scale. Thus failure can improve an industry. An example of not having skin in the game would be nonowners telling all the rest. they have to raise wages to fight inequality.
Another example is airlines....when a plane crashes the industry learns and makes flying much safer over the long term..These are 2 example of industries that gain from uncertainity, failure and volatility, trial and error. btw giant airline companies go bust all the time.

Now note will all the new bank laws with the purpose of making them more stable..they are in fact bigger and risker than before 2008. Risk to the system has increased.



---


as for the size issue, I think the perceived safety for large companies is an illusion as I have stated before. Even crony capitalism and govt stepping in seems only a stop gap for owners taking losses. For example in retail....think sears, kmart, kreesge...etc....walmart is huge but not unbeatable. Size does give walmart some advantages such as purchasing power but it can also make the hidden risks harder to find and attack. Sears was much much bigger than Walmart for many years.

Size risk can also apply to countries as to compare say Russia to a citystate such as Monaco.

[onoway]

hrothgar, on 2013-April-15, 05:16, said:

One major difference that I've noticed between the US and Asia is the lack of good street food.

If you travel in Thailand, China, Singapore, etc. you run across large numbers of vendors selling food on the street.
They'll have portable braziers, a wok, an ice chest, maybe even a table and a few chairs.
In many cases, the best meals that I encountered in these countries were a quick lunch from a street food vendor.
The food was cheap, quick, and often phenomenal. (I also got nailed by some nasty cases of food poisoning a couple times, so you take your chances)

Their really isn't anything like this in the US.
Even the food trucks are a weak approximation...

That's because regulations won't allow them. Even the food trucks have faced an uphill battle in lots of places. Which was my point in responding to JDeegan about government regulations opening up new opportunity...doesn't appear to work that way.The government isn't prepared to let citizens take the risk of food poisoning (even though it still happens anyway in spite of all the regulations).

[mike777]

fwiw I think you last sentence is your main point. try and stablize and the result is?

fwiw prefer a trial and error process where winners ...win... and losers fail....


on average you...

the point being to attack inequality.....

[hrothgar]

onoway, on 2013-April-15, 23:37, said:

That's because regulations won't allow them. Even the food trucks have faced an uphill battle in lots of places. Which was my point in responding to JDeegan about government regulations opening up new opportunity...doesn't appear to work that way.The government isn't prepared to let citizens take the risk of food poisoning (even though it still happens anyway in spite of all the regulations).

I don't think that regulation is the only reason that you don't find the same sort of street food here in the US.
Look back 100 years where the regulatory difference where much less.

You'd still find precisely the same type of street food vendors in China.
You wouldn't find anything at the same scale here in the United States.
(The closest thing that I am aware of is the tamale vendors that you used to find in the South West)

[barmar]

hrothgar, on 2013-April-16, 04:24, said:

I don't think that regulation is the only reason that you don't find the same sort of street food here in the US.
Look back 100 years where the regulatory difference where much less.

You'd still find precisely the same type of street food vendors in China.
You wouldn't find anything at the same scale here in the United States.
(The closest thing that I am aware of is the tamale vendors that you used to find in the South West)

I think it's just a cultural thing, similar to open-air bazaars that are common in some countries, but not others.

For some reason, I also associate cultures with bazaars and street food with barter economies. Is there a correlation?

[barmar]

mike777, on 2013-April-15, 17:41, said:

btw giant airline companies go bust all the time.

But when they do, they usually get acquired by some other giant airline.

That's another difference between big and small businesses. When a small business goes broke, it usually just closes up shop. Big companies go through bankruptcy restructuring, or they look for a way to get acquired (there are usually some valuable pieces of the company, or contracts that someone wants to take over).

[kenberg]

Looking at food, culture and regulations.


Growing up, I don't recall ever seeing street food regularly available on a daily basis but we did have our booyas. I would ride my bike out to Highland Park where I saw very little regulation.


Apparently such things still exist.
http://www.twincitie...-it-around-east

Very reassuring.

[Winstonm]

barmar, on 2013-April-16, 04:58, said:

But when they do, they usually get acquired by some other giant airline.

That's another difference between big and small businesses. When a small business goes broke, it usually just closes up shop. Big companies go through bankruptcy restructuring, or they look for a way to get acquired (there are usually some valuable pieces of the company, or contracts that someone wants to take over).

It is also convenient to ignore the gigantic "golden parachutes" of the supposed "risk takers".

[dwar0123]

Winstonm, on 2013-April-16, 10:14, said:

It is also convenient to ignore the gigantic "golden parachutes" of the supposed "risk takers".

The risk takers are the owners/stock holders, who hire and setup the conditions by which the CEO is paid. The ceo isn't a risk taker, he is just hired help.

[Winstonm]

dwar0123, on 2013-April-16, 10:27, said:

The risk takers are the owners/stock holders, who hire and setup the conditions by which the CEO is paid. The ceo isn't a risk taker, he is just hired help.

Yes, I know that - but when you spread the risk among thousands of shareholders the idea of "risk taker" gets pretty preposterous. John Galt is fictional.

[dwar0123]

Winstonm, on 2013-April-16, 11:06, said:

Yes, I know that - but when you spread the risk among thousands of shareholders the idea of "risk taker" gets pretty preposterous. John Galt is fictional.

Oh I agree with this, Mike's entire notion of 'risk takers' and his desire to glorify them is naïve and unsettling in how well Fox is getting at stamping their message into the consciousness of a large percentage of our population.

I just think its worth nailing down what they actually mean because really, this entire bs narrative depends on vagueness. It evaporates when you start nailing down details. And one of those details that Mike is parroting right now is that the risk takers are the investors, not the ceo's with golden parachutes.

And not only does it become preposterous, but Mike's claim that 'risk takers' are a tiny minority is objectively false. I don't know what percentage of the population owns investments, but I am sure it can't be quantified as a tiny minority.

[PassedOut]

dwar0123, on 2013-April-16, 11:23, said:

And not only does it become preposterous, but Mike's claim that 'risk takers' are a tiny minority is objectively false. I don't know what percentage of the population owns investments, but I am sure it can't be quantified as a tiny minority.

Yes. It's very hard for me to figure out what he's really saying, given the reality of the matter and his peculiar ways of expression. But, whatever it is, Mike seems to feel strongly about it...

[nige1]

Please correct me if I'm wrong but, FWIW, my impression is:

• Typically, small stock-holders have little power. Many large stock-holders are insurance companies and investment funds. Both sets of managers often sit on each others' remuneration committees, so enormous salaries and large bonuses (even for failure) are to be expected.
• Many CEOs are on short-term contracts. Also CEOs are often judged by short-term criteria. What is good for a company's next quarter's profits is often bad for its long-term prospects. That may not over-concern the CEOs, managers, and directors who have moved on by then.
• Big accountancy firms act both as consultants and as auditors to other companies. The Chinese-wall is transparent rice-paper. (For example consultants may suggest instruments for packaging toxic debt. The same accountancy firm then audits the company and overvalues their toxic debt packages. Accountants and managers are aware of the con but trusting investors are fooled. Much later, the bubble bursts)
• More contentiously, many owners and managers are reputed to be actual or borderline psychopaths, so the long-term welfare of stock-holders, customers, and employees may figure low on their list of priorities.
• "Out-sourcing", complex ownership structures, foreign tax-domicile, multi-nationals, and political corruption are other cans of worms.

[dwar0123]

nige1, on 2013-April-16, 13:17, said:

Please correct me if I'm wrong but, FWIW, my impression is:
More contentiously, many owners and managers are reputed to be actual or borderline psychopaths, so the long-term welfare of stock-holders, customers, and employees may figure low on their list of priorities.

I've seen some tv documentary on the subject and my understanding was that psychopaths were about 0.5% - 1.0% of the population and that the incidence among Ceo's was substantially higher than that of the general population; but that is still a far cry from 'many'. We could still be talking as few as 2-3% of Ceo's being psychopathic.

[barmar]

dwar0123, on 2013-April-16, 10:27, said:

The risk takers are the owners/stock holders, who hire and setup the conditions by which the CEO is paid. The ceo isn't a risk taker, he is just hired help.

But isn't the CEO (and other top executives) usually a big stockholder? A large part of his compensation is often in stock, stock options, and RSUs. Isn't the point of that to ensure that he has "skin in the game", and he'll take his fiduciary responsibility seriously?

Or do the golden parachutes weaken this, since he'll get a huge windfall if he's ousted?

[dwar0123]

barmar, on 2013-April-16, 15:20, said:

But isn't the CEO (and other top executives) usually a big stockholder? A large part of his compensation is often in stock, stock options, and RSUs. Isn't the point of that to ensure that he has "skin in the game", and he'll take his fiduciary responsibility seriously?

Or do the golden parachutes weaken this, since he'll get a huge windfall if he's ousted?

To some extent, it incentivizes success but really it just incentivizes short term success, which is often illusionary at that, such that the Ceo can cash out.

But more problematically it incentivizes very risky bets. Is it worth doing a 50-50 shot that will ruin the company or increase stock price by 10%. Believe it or not, the math works out such that it often is worth it. If you have 1 million stock options with a strike price of $10 dollars, increasing the value of stock to $11 means you earned a cool million. Doing a mediocre job and keeping the stock price static means you lost and gained nothing. Doing a poor job and dropping the price to $9 means you lost nothing, dropping the price to $5 means you lost nothing, dropping the price to $0 means you lost nothing.

Sure you would love to do a good responsible job and increase stock price by 10% but if your choices are between static price and 50/50 10% increase or wiping the company out....

Of course, the average employee will be ruined when the CEO ruins the company, but the CEO won't he has his golden parachute. And if it works, the average employee isn't ruined and the CEO makes a massive windfall.