Stephen Laniel’s Unspecified Bunker

Attention conservation notice: 1500 words on Gary Miller’s Managerial Dilemmas. MD tries to figure out what works and what doesn’t in organization design, but along the way I wonder if Miller is just recapitulating a moral principle or two that we all ought to be feeling anyway.

Working together is a public-goods problem: if all of us on the team work except for me, then I get the advantages of the team’s production without doing any of the work. But all of us on the team have the same incentives, so we all have an incentive to avoid doing work. But if we all avoid doing work, the team produces less than it could, and we all suffer. In the jargon, “everyone shirks” is a Pareto-inefficient Nash equilibrium: it’s where the process would settle because no one has an incentive to change what he does (the “Nash equilibrium” part), but it’s worse for everyone (the “Pareto-inefficient” part) than if everyone worked hard.

One way for managers to address this public goods problem is called “Taylorism“: study very carefully how much time and effort it takes people to accomplish a specific task, then insist that they accomplish that task in that much time. If the time-and-motion guys tell you that you can produce ten automobile hoods per day, you’d better produce ten per day or they dock you. This gets rid of one information problem: under the assumption that the workers want to shirk, take away their power to shirk by rigorously defining what their job is.

This “piece rate” system has obvious flaws. The time-and-motion guys need to measure actual workers doing actual work. The workers know this. So when the time-and-motion guys come around to measure, the workers will work slowly. And if a worker produces more than the piece-rate system says he can, his coworkers will not take kindly to it: they know that any consistently higher rate of production will only make them work faster, or it will lose them a job when the company realizes that it can do more with fewer workers. Some companies are real scoundrels about it and adjust the per-piece rate downward, so that the per-day rate that they pay workers stays constant.

So a piece-rate system, unless accompanied by a promise that you won’t be a scoundrel, appears to be a non-starter. And the company has every incentive to be scoundrels, if it will make them more money to do so. Or at least they have “every incentive” to do so if they look at the short term only. In the longer term, worker enmity may well offset these incentives. Workers may quit and go to other companies that aren’t as exploitative. They may institute a work-to-rule strike. There are lots of ways workers can get back at draconian management.

If I’m reading Managerial Dilemmas right, these sort of utilitarian calculi have never worked because economists have taken the short-term static view: we should do X to prevent Y, because that maximizes our income in the short term. The better approach is to take a long-term dynamic view. One way to model these sorts of problems is as an iterated Prisoner’s Dilemma: you (as my boss) and I (as the worker) are going to have to interact over and over again, so we can’t always act selfishly. If you always act selfishly, it’s in my interest to do the same. So then we both act selfishly, and we both lose.

Here’s the point where every exposition of the iterated prisoner’s dilema has to mention Robert Axelrod, specifically The Evolution of Cooperation. Gary Miller does not disappoint. Here’s the big message that I’ve now had beaten into my brain approximately 100 times: The Tit-For-Tat Strategy Does Really Well. That is, if you start your repeated game by not shirking and only shirk if your boss is a scoundrel, you’ll do all right. When he’s a scoundrel, retaliate. When he treats you well, quickly forgive his earlier trespasses. Everyone and his brother has made something huge out of Tit-For-Tat’s success. Bowles and Gintis even turn it into a moral about the politics of fairness.

The message for managers seems to be that they should learn from iterated game theory and apply what they learn to the structure of their workplace. Chief among these is that they need to find some way to make employees cooperate rather than defect. The only way to do this, in the long term, is to solve a commitment problem — in other words, for the employees to promise that they’ll go against their short-term self-interest and not shirk, and for the managers to promise that they’ll go against their short-term self-interest and treat the employees as valuable people. There are various ways to do this; Miller goes through several in the final third of the book. One is to convey a culture of openness: Hewlett-Packard apparently left doors to its labs unlocked, and encouraged employees to take equipment home. During economic downturns, some companies convince employees of their good faith by refusing to lay anyone off; they may impose pay cuts, but no one loses his job. The general way to describe these commitment strategies is that they are costly and difficult to fake. “Irreversible” might fit in there too: restructuring a factory to accommodate team-focused production is hard to reverse; the employees know you’re in it for the long haul.

All of this sounds to me like fancy game-theoretic garb for a not-very-complicated idea: be good to your employees, and they will be good to you in return. I’m not convinced that these economic arguments will actually make anyone be nice to his employees or his superior. If you were already morally committed to the golden rule, you will still be morally committed to the golden rule. If you weren’t, it’s unlikely that this economic argument will suddenly swing you over. If game theory doesn’t already support the golden rule, so much the worse for game theory. On the one side we have sensible, deeply-felt moral principles; on the other we have an economic model that’s highly sensitive to assumptions about human behavior that we’re only just coming to understand. The moral principles win in a rout.

I felt the same way about Bowles and Gintis’s Recasting Egalitarianism. It might sway some people at the margins — people who believe in helping out the less fortunate but worry about the economic pitfalls of doing so. I wonder how many people are in that margin, though. I suspect that a great many people are morally committed to asset redistribution; Recasting Egalitarianism will not change their minds, though it will give them more reasons to advance at those asset-redistribution cocktail parties you hear so much about. On the other side from the egalitarians are those folks who are rightly suspicious of grand plans to put wealth where wealth wouldn’t go of its own accord; RE will do little to allay their fears of heavy-handedness.

For that matter I feel the same way about John Rawls: if you need to travel to a notional world in which you could be less fortunate than you are, in order to justify helping out the impoverished, will reading a few hundred dry academic pages really sway you? Isn’t this part of Rawls just a restatement of Matthew 25:35-40?

For I was an hungred, and ye gave me meat: I was thirsty, and ye gave me drink: I was a stranger, and ye took me in:
Naked, and ye clothed me: I was sick, and ye visited me: I was in prison, and ye came unto me.
Then shall the righteous answer him, saying, Lord, when saw we thee an hungred, and fed thee? or thirsty, and gave thee drink?
When saw we thee a stranger, and took thee in? or naked, and clothed thee?
Or when saw we thee sick, or in prison, and came unto thee?
And the King shall answer and say unto them, Verily I say unto you, Inasmuch as ye have done it unto one of the least of these my brethren, ye have done it unto me.

The first 2/3 of Managerial Dilemmas is quite useful and thought-provoking. It’s an analysis of exactly why designing hierarchies that work is difficult. The analysis of what’s wrong with piece-rate systems is a good example: few other authors go into much detail about exactly which organizational structures have been tried, which have failed, and what’s worked.

One result, which recapitulates Miller and Hammond’s paper “Why Politics is More Fundamental Than Economics: Incentive-Compatible Mechanisms Are Not Credible, is particularly captivating. It argues that in any hierarchy, it will always be necessary to “bind the king’s hands,” because the king (or the CEO) will always have an incentive to amass more wealth rather than do what’s efficient for his kingdom (or his company). No self-guiding economic mechanism will get you out of the fundamental political problem.

I’d recommend reading the first 2/3, then politely returning Managerial Dilemmas to the library.

I do worry that The New Yorker’s absolutely delicious writing blinds me to the fact that they suffer from journalistic deficits like any other magazine or newspaper. For one thing, their specialists can’t normally hope to approach the expertise of the philosophers and political scientists on Crooked Timber, the legal scholars on Balkinization, etc., etc.

The New Yorker’s interview last month with Mitch McConnell was one instance of the problem. Today Matt Blaze takes them to task for that article’s statements about the Clipper Chip.

Clipper, for those of you who don’t know, was an NSA proposal in the 90’s to let every American have encrypted voice communications, so long as law enforcement always had a way in (a “backdoor,” in the jargon). There are lots of problems with that proposal, even as stated. Add more details and the thing becomes awful — and we’re still barely out of an in-principle discussion of how it would work. Matt Blaze actually got his hands on a Clipper device, and showed conclusively that it was a failure in practice. Clipper would be implemented in hardware, so Blaze’s paper left open the lovely possibility that millions of Clipper phones would have to be reprogrammed from a distance, or replaced altogether, should we find this kind of bug in the field. NSA allowed only a select group of people (including Dorothy Denning, if memory serves) to look at it. This was a nice, tidy demonstration of why openness matters: you can’t pick a few people out of a hat — even if they seem like The Right People — and hope that they’ll fix all your problems for you.

That’s all beside the point here, which is that even a great institution like The New Yorker is staffed with journalists. They have their specialties, but their job is to convey various complicated ideas to a lay audience, subject to a deadline. One week they might be writing about the Clipper Chip, the next week about global warming. We shouldn’t expect them always to get their facts straight. They have editors, which helps, and good journalists will pass their articles by specialists to avoid any major gaffes. But still: badness slips through, and I’m finding that in any of the things I know a little about, there’s always something to dispute in The New Yorker’s coverage.

Take Elizabeth Kolbert’s piece on Richard Thaler and Cass Sunstein’s forthcoming book Nudge. Like Thaler’s other work that I’ve read, Nudge seems to fit into the behavioral-economics tradition. Gerd Gigerenzer is in there, as is Daniel Kahneman. From what I can tell, Kolbert hasn’t read much else in the field. She had a deadline, she read a book, and she wrote about it. That piece makes me question a lot of her other writing, among which is her piece on global warming from 2006. The latter was a truly excellent piece; now I wonder how excellent it would be if I were a global-warming specialist.

I periodically see Mark A.R. Kleiman cite the price of heroin or cocaine, so it occurred to me that I should try to find historical statistics about those prices. If the drug war were succeeding, the price would have increased.

So I emailed Professor Kleiman, who very graciously pointed me to Jon Caulkins, who in turn suggested that I look at a White House report on drug price and purity (cached). Skip right ahead to Figure 1 (expected price of cocaine, 1981 to 2003), Figure 4 (cocaine purity, same time interval), Figure 8 (prices of one gram of cocaine in various U.S. cities), Figure 10 (price of crack), and perhaps most astonishingly Figure 17 (price of heroin; thumbnail of the chart at right — click to expand). I’ll give you the executive summary of that last chart, since it’s the most jaw-dropping: the real (inflation-adjusted) price of one gram of heroin has fallen 82% since 1981, and the trend has been continuous. Any betting person would look at that trend and expect another 82% drop in the next 20 years.

Meanwhile the DEA budget has risen fivefold over the same interval (tenfold in nominal dollars, deflated 2x for inflation). That doesn’t count military operations in South America, the costs of trying and imprisoning nonviolent offenders, the decimation of African-American communities, and on and on.

If there has been a war that’s been demonstrably less successful over the same span of time, I’d love to hear it.

None of this is to say, necessarily, that complete decriminalization is the answer. In fact Kleiman himself very patiently made the point in Against Excess that not all drugs are created equal: there is a cocaine problem, and there is a crack problem, and there is a heroin problem and an alcohol problem, but they are not all the same problem. Different drugs require different solutions. Like most sensible Americans, Kleiman advocates softer policies toward marijuana users.

Unfortunately, it doesn’t look like any of the presidential candidates will move to decriminalize what 1/3 of us have used.

P.S.: Stephanie mentioned that maybe it’s a good thing that heroin prices have gone down, because now people don’t need to steal in order to buy it. Whether that’s true depends on the price elasticity of heroin demand. It’s a point that Kleiman addresses somewhere in Against Excess. I believe he says in there that heroin is dangerous for a different reason than crack is dangerous, which is why the drug-control regimes for the one will have to be different from the other. Crack cocaine is dangerous because it will kill you quickly. Heroin is dangerous because it will cause you to commit crime.

Before I knew anyone who worked at Microsoft, I said ignorant things about the company. Before I knew anyone who worked as an intellectual-property lawyer, I basically spouted the Lessig line about patents. Now whenever I’m considering saying something about Microsoft or IP law, I check with my friends. Normally I find that the story is more complicated than what makes its way into the news. And I have even formulated a Life Lesson as a result: it is good, in life, to not say things that make you look like an ass in front of those who know more than you. I’m sure I still do sound like an ass around a lot of folks, but I’m working on it.

All of this is apropos of the Microsoft interoperability announcement. I’ve not even read Slashdot’s take on it (323 comments — snicker), but it is bound to be idiotic. Maybe one day when I feel bad about my intellectual station, I will return to that page and bestow upon it a generous, patient smile.

See also Joel Spolsky. While I’m at it, I want to give a strong recommendation to two other Joel On Software pieces. One is from a few days ago, on the complexity of the Office binary file formats. Its major point is that the file format is Byzantine because it has to be: a format has to encode all the features of the software that produces it; hence the Office binary formats are just Office itself in miniature. The binary format has to be backwards compatible with all earlier Office formats. And it’s a binary format — not something like XML. That’s because it’s orders of magnitude faster to load a binary file than to parse a tree-structured file like XML: earlier versions of Office had to work on incredibly slow hardware. Spolsky explains exactly why binary formats are faster than something like XML in the second piece. It makes for excellent reading. Spolsky should issue a new edition of K&R.

(Attention conservation notice: 1300 words starting with historical shocks in the price of coffee, and veering over into some thoughts on protecting ourselves from uncontrollable risk.)

There’s an interesting little article in the New Statesman, critically reviewing a book entitled Starbucked. Starbucked seems mostly unconcerned about poor coffee farmers, says the review, even though they’ve historically suffered through price collapses that left them desolate. The U.S. government instituted coffee price supports during the Cold War to keep the poor folks on our side, but the end of the Soviet Union said goodbye to all that.

One might reasonably ask how price booms and busts of this sort can happen in a free market, but it occurs to me that maybe it’s built into the process. Suppose coffee prices rise to some tantalizingly high level — because bad weather killed a lot of coffee trees, say. I, as a coffee farmer, expand my plantation: I plant more trees, maybe buy more land, hire more help, and so forth. Workers take time to train and trees take time to grow. By the time they’ve borne fruit, J. Random Webpage suggests that six years will have passed.

Unfortunately, over those intervening six years, lots of other coffee farms have planted more trees. There is now a glut. Prices plummet. Farms go out of business. Other farmers decide to plant their crop of choice (coca, maybe) on the new land that they’ve acquired. So now a lot of coffee trees have disappeared. Hence supply goes down. Demand is as high as it’s even been, so we’re back out of equilibrium. Prices rise, and we’re back to where we started.

This is all nicely self-correcting, but in the meantime a lot of people have lost their shirts and a lot of families have gone without food. A basic respect for one’s fellow-man would make one howl in outrage. No one has misbehaved here: the market is not punishing those who’ve taken unnecessary risks. Rather, the market has punished people for doing what the market tells them they ought to do — namely plant when prices are high and pick another line of work when prices are low. Microeconomic actors have been subjected to macroeconomic forces over which they have no control. I think Michael Pollan says somewhere in The Omnivore’s Dilemma that all agricultural products are inherently ripe for price supports, and that pure free-market allocation for agricultural products just doesn’t work; this may be why.

In the longer term, you’d hope for people to realize the pattern they’re in: don’t invest too much capital ahead of time, knowing as they do that it’ll take six years to reap the reward. Larger institutions surely get the message here: banks are probably all too aware of the risks in coffee planting; they may well deny startup capital to small farmers. Conglomerates that can pool their risk — by planting coffee when it’s dear and other crops when it’s cheap — will probably pull ahead here.

The booms and busts of coffee prices, though (right, courtesy of the International Coffee Association), suggest that a great quantity of the world’s coffee may well be produced by smallholders. If it were an oligopoly, I’d expect less variability.

With that much risk involved in planting coffee, I suspect that a lot of people who would be great coffee farmers forego it and do something else altogether. When you have to keep your family in food, you’ll avoid high-risk, high-reward options in favor of low-risk, moderate-reward ones. If the poor were more risk-tolerant, they might be able to bootstrap themselves out of poverty. If they were protected from certain kinds of unavoidable risk — crop failure, macroeconomic collapse — people might stay in the jobs for which they’re best suited, rather than having to take second-best jobs that are safe bets.

This is essentially the guiding insight behind Samuel Bowles’s and Herbert Gintis’s essay “Efficient Redistribution: New Rules for Markets, States and Communities,” in Recasting Egalitarianism. Poor workers are risk-averse for the reasons mentioned, whereas wealthier people are assumed to be more risk-tolerant. With some economic protection beneath them against uncontrollable risks, poor workers may take the first step up out of poverty.

Bowles and Gintis’s novel contribution is to suggest that this risk-protection happen via asset redistribution rather than income redistribution — giving them houses and machinery rather than a guaranteed income, for instance. The great virtue of private property is that it connects costs and benefits with actions: if I own a house, it’s now in my financial interest to help keep my community safe; that same feeling of responsibility does not attach to renters. Likewise: workers in employee-owned firms may have more of an incentive to work hard and catch their coworkers slacking than do workers in traditional hierarchies. (Neither Bowles and Gintis, nor any of their 15 respondents, checked whether firms granting stock options performed better than those that didn’t. Not sure why, other than that poor people tend not to get stock options.) Asset redistribution, in a word, is more economically efficient than income redistribution. Hence it’s more likely to be politically palatable than is income redistribution via taxation. (A whole host of questions will naturally arise for you here, among them: isn’t there a cost associated with taking assets from one group and giving them to another? I’m skipping over these in the interest of brevity, but you can be sure that Recasting Egalitarianism addresses them.)

After Bowles and Gintis’s leadoff essay, we find any number of responses from any number of angles — though, sadly, nearly all of those angles are from the left. One would have enjoyed seeing someone like Greg Mankiw throwing in a more conservative position. As it stands, the essay collection sometimes sounds like 5-year-olds arguing over whether they’d rather have a pony ridden by a magical fairy princess, or a unicorn with a chocolate fountain spilling forth from her horn. Only with more jargon. And with endless academic tones. In all honesty I couldn’t stand most of the book.

I did love the two Bowles and Gintis essays, however: the opening one, and the wrapping-up response to their critics. The latter is in many ways just a restatement (or possibly prestatement — I’ve not checked the dates) of their essay “Is Equality Passé? Homo Reciprocans and the Future of Egalitarian Politics.” Humans, says Bowles and Gintis, may well be wired to give certain kinds of help to their fellow-men and not give other kinds. We want to insulate people from uncontrollable risks, but we don’t want to insure their bad behavior. We want to punish people if they abuse our generosity. And we want to forgive them fairly quickly if they correct their errors. This is the recipe for a just society. More to the point, it may be the only recipe that’s consistent with some innate ethical norms that we all carry.

The message from Recasting Egalitarianism is that asset equality makes good economic sense. The message from The Conscience of a Liberal is that economic equality reduces political extremism. And the message from The Great Risk Shift is that without a radically amplified “insurance society,” we’re going to return to the bad old days before the New Deal. Equality, for lack of a better word, is good. Equality is right; equality works.

Hopefully liberals are back in the business of taming the market’s outrages.

([mag: New Statesman] article on coffee via Crooked Timber. Pointer to Recasting Egalitarianism via Cosma Shalizi’s del.icio.us feed.)

I’ve been ordering cheap used books off Amazon recently — mostly books I’ve read before and loved, and which really ought to be on my bookshelf. That’s how I came to buy a copy of Joan Didion’s Political Fictions and After Henry. Recall that Didion started her writing career as an acerbic depressive watching the spirit of the 1960’s decay into Altamont. Over the next 20 years, she evolved into writing about the political “process,” using that word as icily as she could: the “process” is the fake little dance that the power brokers go through, mostly for each other, ostensibly with us in mind. Clearly, though, they’ve failed at bringing the rest of us into line: most of us don’t vote, and many of us think that we’re asked every four years to vote for the lesser of two evils. This is because they’ve choreographed the dance for themselves, not for us. Political coverage is orchestrated entirely by the politicians, using the media as their willing tool. As Didion puts it in “Eyes on the Prize”:

Such reduction of political language to coded messages, to “middle class” and “reward for work,” to safe children and Sister Souljah, has much to do with why large numbers of Americans report finding politics deeply silly.

(hyperlink mine, obviously)

It’s really valuable to read “Eyes on the Prize” soon after Krugman’s The Conscience of a Liberal. Krugman has been fighting hard since at least the 2000 campaign to convince us that there really is a difference between the Republicans and the Democrats: contra Nader, they are not an indistinguishable blob called “The Republicrats.” Krugman argues this very persuasively, and I think he’s right: the essence of the Republican party, at least since the 1930’s, has been racism, jingoism, and defense of big business at the expense of labor. The fight against unions at times has found protective cover under Red-baiting.

All of that is true, but it’s easy to forget while reading Krugman: what we’ve seen before our very eyes since Bush took office is a Democratic Party that has resolutely refused to stand up for anything. Reading Didion puts our milquetoast party in its proper historical context: since at least 1980, the Party has been trying as hard as it can to cater to Reagan Democrats. You grew disenchanted with the Democrats in the 70’s and 80’s when it looked like law and order were breaking down? Well, come back to us, because we’ll use all the right codewords to suggest that we feel your pain.

And yet this plainly loses the Party elections. Americans want a party that stands for something; the Democrats have shown them no spine. Clintonian “triangulation” and the Sister Souljah show were natural for a party that first fought off Jesse Jackson, then Jerry Brown. When you’re scared of standing for something, and you think the American people will be scared of forceful liberals, you’ll end up with a Dick Morris campaign.

The actual business of governing, says Didion, isn’t even what the major parties are after anymore. Rather, they’re in the business of running elections. Whatever they need to say to win, they’ll say; what they’ll do when they get into office is secondary, if not tertiary. (I believe Didion made the same point about film and music production: doing the deal is primary, the actual film or album much further down the list.) But clearly that hasn’t worked for them, as Mondale, Dukakis, and Kerry can attest. Somehow a series of loser strategists has both stripped them of novel ideas in an attempt to co-opt Republicans, and yet still lost them votes. Which is a brilliant trick.

This all does fit with Krugman, up to a point. He’s unwilling, though, in his columns or his books, to say much that attacks the Democrats. In The Conscience of a Liberal, he places much of the blame for the nation’s rightward shift on the decline of unions. They’ve lost power, he says, because of outright illegal firings and because the Republicans looked the other way. He doesn’t blame the Democrats for abandoning what used to be their core constituencies, namely the poor, minorities, and unionized labor. These should be their core constituencies, anyway, if it’s in fact true that a) the Republicans are the party of the Rich And Greedy, and b) that Democrats are light years away from the Republicans. Krugman points out all the times when Republicans use phrases like “states’ rights” that their audience knows are disguised racial slurs. He’s less willing to point out Clinton’s co-opting of Republican codewords. He’s perfectly silent on the Democrats’ running away from Jesse Jackson, for fear that Jackson would destroy the Democrats’ chances in the election. The Democrats destroyed their chances quite skillfully even without Jackson, thanks. Wouldn’t it be better to lose elections standing on our feet rather than on our knees?

Much of what Didion says about earlier elections carries over — spine-chillingly — to today. Everyone stands for “change,” for instance; everyone says he or she is looking to change a system that only works for the people inside of it. Democrats sought this “change” in earlier elections from a narrow subset of voters (Reagan Democrats) who do not represent the electorate as a whole, and surely don’t represent the Democrats’ erstwhile biggest supporters. To put it quickly: the Democrats have focus-grouped themselves to death. Focus groups may be fine, if they clue you in to how the population is feeling, but

1. Your focus group needs to be a random sample.
2. Wouldn’t it be better to decide what you stand for first, then bring those stands to the American public and let them decide whether you’re worth voting for?

Which brings me to Obama. I hope he’s not the bland paste that comes out of focus groups; I hope he really does have the power to bring out the best in Americans and motivate us to attain what Bill Clinton never could. To do this, he has to stand for something: “unity” is not enough if it’s unity around repackaged Republican talking points.

I’m fairly certain of the following: if Obama is elected and turns out to do nothing, or Clinton is elected and gives us more of the same, or for that matter if McCain is elected and brings us Bush v. 2, a lot of Americans who thought they saw hope in politics will realize that the whole ugly edifice just needs to disappear. A lot of us will tune out: we’ll realize that all the talk of “change” is just that: talk.

I hope I’m wrong. I donated $125 to Obama the other day. I hope he makes us proud.

(Apologies for the title.)

I’ve been stressed and sleep-deprived for some weeks now. For whatever reason, I feel like I’ve not had a good long chunk of time to myself in forever.

Well, here it is Saturday morning, and all is right with the world. I slept 9+ hours last night, and will be spending the next few hours in bed reading One Hundred Years of Solitude (which is extraordinary), coffeecup at my side and empty bowl of oatmeal … at my other side, I guess.

It’s a good day. Tonight The Babe and I are going to the wedding of a couple wonderful people. Tomorrow’s still up in the air. Monday (O joyous long weekend!) I’ll be heading up to New Hampshire to help bake a cake for The Babe’s kids, in celebration of their great work at school (Miles was named Student of the Month at his school; both he and Eli got excellent grades).

This kind of relaxation is just vital.

I’ve meant to write for a while about the hilarious and predictable Slashdot response to Microsoft’s offer to buy Yahoo!. (“lol you guys now Yahoo! can suck as much as Micro$uck Winblows: 5, Insightful) That’ll have to wait. My little observation of the moment, though, is that if the efficient market hypothesis is true, and if Yahoo! succeeds in getting more money out of MSFT, then Microsoft is likely to overpay. That is, if the EMH is true, then the market has already priced Yahoo! stock at exactly what it’s worth. And that stock has been stuck below $30 for most of the last five years. So why would Microsoft agree to pay more than $31 per share? In all likelihood they’ll not get their money’s worth. The reason companies make these sorts of offers, of course, is that they believe they see value in the stock that the market as a whole does not. The market has had a long time to price Yahoo! shares up to $31, and it has not done so. What does that say about the wisdom of the buyout offer?

Of course the EMH is probably not true, and the market has priced stocks in decidedly irrational ways for long periods. At the same time, winners really do systematically overpay. I seem to recall a part of Thaler’s book that suggests designing auctions that grant the resource to the second-highest bidder. In this particular case, I’m not sure that would work: Microsoft has made the first bid, and any winning bid would be even higher. So then Microsoft would win, still by paying more than the stock is probably work. It’s interesting to ask how we might avoid the waste in such a process. Microsoft’s own stockholders could, presumably, avoid this waste by nixing the deal altogether.

Maybe the best argument for the buyout is just that Microsoft needs a presence on the web which it currently lacks. And with an infusion of capital that only Microsoft could provide, Yahoo! could become something much more than it would ever be on its own. So maybe there’s reason to believe that this is a good buyout offer. The pure finances of it, though, seem questionable to me.

I’m with Ken on the ethics of this whole market, by the way.

I don’t know why I was so late in cheering them on here, but now I have a blog post to back up my assertion [*]: on Thursday, January 31, my friends Alisa and Chris welcomed their little baby girl Jocelyn (”Jocie”) into the world. By all accounts and all photos, she is adorable. I wish all of them the very best. And I miss them even more now than I did before. The little one brings tears to my eyes.

[*] — See, mom? She does so exist.

My roommates and I have a 2008 tradition, wherein we cook dinner for each other once a week. With three roommates, that’s a couple weeks of getting spoiled for every week of spoiling the others. So that’s not bad.

Today was my week. On the menu:

• Carrot soup from the original Moosewood. I took the boil-everything approach listed therein, because I was rushing, but I think the sauté-first approach would preserve more of the garlic’s flavor.
• Blackened tuna. Rather than “Cajun spice,” I added some cayenne pepper, ground black pepper, and red pepper to a bowl, stirred it around with my fingers, and rubbed it on the fish.
• Asparagus
• The Bourbon Smash, a concoction of bourbon (I used Maker’s Mark, because I’m worth it and because that’s what I’d choose to drink on its own), mashed raspberries and limes, cranberry juice and bitters. I need to do some experimenting to get the proportions right. What I had at the Highland Kitchen was called a Bourbon Smash, but seemed closer to a mojito. In fact, I imagined that what I was drinking was a mojito with bourbon substituted for the rum. Experimentation will be necessary … which doesn’t bother me in the least; my roommate and I (Paul was gone) were planning our second pitcher before we were done with the first. It’s one of those drinks.

This worked out very well for everyone. Make it, eat it, sit back and enjoy.