Social Econ Blog

James Surowiecki highlights some interesting research on social networks and CEO pay in this week's New Yorker:

A study of S. & P. 500 companies, by Amir Barnea and Ilan Guedj, finance professors at the University of Texas, found that, even after other factors were accounted for, C.E.O.s at companies whose directors sat on a number of other boards were paid thirteen per cent more than C.E.O.s at companies whose directors were not.

Why? One reason is that the more connections board members have, the more likely they are to end up with what you could call “friend of a friend” links to the company’s C.E.O. A recent study by a team of business-school professors mapped the social networks of twenty-two thousand directors at more than three thousand companies, charting the degrees of separation between directors and C.E.O.s, and found that at companies where there are what the study’s authors termed “short, friendly” links between directors and executives C.E.O.s are paid significantly more. But even in the absence of this kind of explicit back-scratching the tight connections between board members insure that, once an idea takes hold at a few companies, it’s easier for it to spread, in a viral fashion. A host of studies have found that network ties affect how likely companies are to adopt anti-takeover strategies, to embark on specific types of acquisitions, and even to change their organizational structures. The same effect is observable in the matter of C.E.O. pay: Barnea and Guedj found that board members at companies where C.E.O. pay was high were more likely to support high pay when they sat on other companies’ boards as well. And, as with any virus, some people are more potent transmitters: Kenneth Langone, the board member who engineered Nardelli’s hiring at Home Depot, was also the head of the compensation committee that approved Dick Grasso’s extravagant payday at the New York Stock Exchange, and was on the G.E. board’s compensation committee that approved Jack Welch’s luxurious retirement package. Langone is what an epidemiologist might call a supercarrier of the executive-pay virus.

This is sad.

For the record:

.002 dollars = .2 cents

.oo2 cents = .00002 dollars

This guy really should get paid by Verizon. Hopefully, recording this and posting it on the internet is producing enough to compensate for his time, pain, and suffering.

Even better: the guy started his own weblog.

Worse: Verizon CSRs still don't seem to understand this. I was prompted by this to call Verizon and cancel my internet plan because I never use it. I asked the rep what the price per kilobyte was if I wanted to access the internet from my phone without a plan and she quoted by .015 CENTS. Unless I am mistaken, I believe it is actually 1.5 cents. Sheeesh.

• Jargon watch: "book" as a synonym for "cool". Sample usage: "That YouTube video is so book." As books are decidedly uncool, you might wonder how this usage came about. Book is a T9onym of cool...both words require pressing 2665 on the keypad of a mobile phone but book comes up before cool in the T9 dictionary, leading to inadvertent uses of the former for the latter. (thx, david) #

(from kottke.org)

Nicholas Feltron keeps data about his life and produces (quite impressive visually) annual reports on what he did that year. E.g., he played 26,059 itunes tracks and Sufjan Stephens was his most played artist, or 29% of his NYC restaurant visits were to Japanese restaurants and the ratio of social to solo dinners was 1.15:1. I think this is pretty funny. Further, on the topic of social economics, this has got to be a great source of conversation.

(h/t kottke.org)

I spent the morning adding to the deafening noise at the nation's oldest (and best) college basketball arena, 80-year old McArthur Court, as the University of Oregon topped No. 1 UCLA 68-66.

I found this quote from Bruin Aaron Affalo particularly enjoyable:

“I never thought I’d feel like this again in my entire career here,” Afflalo said. “I truly thought this team couldn’t be beat. The way we played and the type of heart we play with, and the type of leadership we have on this team — I wouldn’t say we’re invincible (but) I didn’t think we could be beat.

“This is probably my worst loss ever.”

In late November, a friend of mine had his second child. Had little GKE clung to the womb for a couple more days, he would have improved his expected school performance dramatically. California, where his parents currently live, has a December 1 cut off date for school eligibility. Thus, little GKE (should his parents enroll him when he's eligible) will be the youngest member of his school cohort, and when it comes to childhood human capital acquisition, older is better.

The Freakonomics guys highlighted the link between age cutoffs and sports last summer. They pointed out that after FIFA introduced a Jan 1 age cutoff the birth month distribution shifted from pretty uniform to heavily weighted in the early months of the year. Allan and Barnsley (1993) show a similar effect among Canadian hockey players. Both sets of authors argue that because they are nearly a full year more developed than their younger counterparts, older children receive favorable treatment from coaches (e.g., being selected for teams). These small boosts in their early skill acquistion are compounded over time.

Further, as discussed previously, Elizabeth Dhuey and Stephen Lipscomb argue that school age cutoffs affect individuals propensity to assume high school leadership positions. Ms. Dhuey (working with Kelly Bedard) also finds evidence for this phenomenon in academics. In an article published in the November QJE, they:

provide substantial evidence that these initial maturity differences have long-lasting effects on student performance across OECD countries. In particular, the youngest members of each cohort score 4-12 percentiles lower than the oldest members in grade four and 2-9 percentiles lower in grade eight. In fact, data from Canada and the United States show that the youngest members of each cohort are even less likely to attend university.

Thus, while little GKE certainly has good genetic material and parents who I am certain will invest extensively in his human capital, they may need to make some specific adjustments to account for these age effects. For instance, they can abandon the beach and move north to Oregon where the school cutoff is November 15.

Ok, this is sweet. Giant Magazine put together a list (including YouTube clips) of the 50 Greatest Commercials from the 1980s and then added a list of 50 more. Here's a taste:

"From you alright. I learned it by watching you!"


"I've fallen and I can't get up!"


"My Buddy"



In 9th grade, my teammate Curt and I spent much of the basketball season at the end of the bench, so we started to refer to each other a bench buddies. At some point, I think we even rewrote the words to this commercial so we even had the "bench buddy" theme song.

Ok, since I am on the topic of 9th grade basketball and changing song lyrics, much more entertaining than the bench buddy song, was my teammate Greg spending a bus ride home from an away game creating a song about my basketball skills by changing the lyrics and inserting my name into this popular song from the time (Sadly, the only lyric I can remember -- besides the chorus -- is "stop, grab the ball and shoot it"):



(h/t kottke.org)

Danial Kahneman and Jonathan Renshon have written a nice article in Foreign Policy outlining how psychological biases lead us to favor hawkish positions over dovish ones. Specifically, they argue:

we constructed a list of the biases uncovered in 40 years of psychological research, we were startled by what we found: All the biases in our list favor hawks. These psychological impulses—only a few of which we discuss here—incline national leaders to exaggerate the evil intentions of adversaries, to misjudge how adversaries perceive them, to be overly sanguine when hostilities start, and overly reluctant to make necessary concessions in negotiations. In short, these biases have the effect of making wars more likely to begin and more difficult to end.

I recommend reading the whole thing if only to heighten your awareness of several interesting types of bias in our decision making.

Given its relevance for current discussion, let me highlight just one of their examples here -- aversion to cutting one's losses:

Imagine, for example, the choice between:

Option A: A sure loss of $890

Option B: A 90 percent chance to lose $1,000 and a 10 percent chance to lose nothing.

In this situation, a large majority of decision makers will prefer the gamble in Option B, even though the other choice is statistically superior. People prefer to avoid a certain loss in favor of a potential loss, even if they risk losing significantly more. When things are going badly in a conflict, the aversion to cutting one’s losses, often compounded by wishful thinking, is likely to dominate the calculus of the losing side. This brew of psychological factors tends to cause conflicts to endure long beyond the point where a reasonable observer would see the outcome as a near certainty. Many other factors pull in the same direction, notably the fact that for the leaders who have led their nation to the brink of defeat, the consequences of giving up will usually not be worse if the conflict is prolonged, even if they are worse for the citizens they lead.

U.S. policymakers faced this dilemma at many points in Vietnam and today in Iraq. To withdraw now is to accept a sure loss, and that option is deeply unattractive. The option of hanging on will therefore be relatively attractive, even if the chances of success are small and the cost of delaying failure is high.

While they offer different rationaliations, this sounds to me like what is really driving the supporters of the McCain Doctrine.