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The Winner’s Curse: An Economic Anomaly

May 27, 2013 Leave a comment

My grandfather, William Campbell (1927-2013), played a large roll in theorizing the Winner’s Curse by applying physics equations to economics. The winner’s curse, in simplest terms, is the idea that the winner of a common value auction tends to overpay. Within competitive bidding, the winner’s chances of overbidding increase as the number of bidders, or consumers demanding the item, increases (Investor words).  Each bidder estimates a certain price; some overestimate and others underestimate. The one who overestimates usually wins, and therefore is “cursed” with an item that is not truly worth what he or she estimated for. Such a curse can occur in two similar, yet slightly different ways: the winning bid exceeds the value of the tract, so the firm loses money; or the value of the tract is less than the expert’s estimate so the winning firm is disappointed (Anomalies: The Winner’s Curse).

ImageWhile working for the Atlantic Richfield Company, otherwise known as Arco, my grandfather was summoned to his boss’s office and asked a simple question with a complex answer: how can we save money? After strenuous research and collaboration, the team of engineers and physicists discovered that competition within bidding creates an atmosphere that does not usually allow the winner to truly win. In order to understand such a concept, consider an auction of a piece of land that has five million barrels of oil beneath it. No one actually knows the value of the land; so, some engineers will overestimate the value of the property and others will undervalue it. Most likely, the company that overrated the property will be willing to pay more and thus win the auction. So, we can conclude that within “competitive bidding, the winner tends to be the player who most overestimates the true tract value” (Competitive Bidding in High-Risk Situations). The variable cost of oil does fluctuate as supply and demand increase and decrease, which creates even more risk in an already dicey oil business.

At the same time, the winner’s curse does not necessarily apply to an auction marketplace like eBay. The winner’s curse only applies to competitive lease sales, or an auction with limited supply and excess demand. Marketplaces like eBay and Craig’s List have more supply than demand, allowing consumers to search for the lowest possible price before purchasing an item; thus, producers compete and lower prices. The prices approach equilibrium. Within competitive bidding for a single item, the price cannot approach equilibrium because excess demand disallows such a balance.

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Not so fast

By no means is the winner’s curse a bid strategy; it is a mere analysis on what not to do. However, three simple rules can be followed to avoid being that guy who enthusiastically wins an auction only to watch his property slowly diminish in value: the less information one has compared with what his opponents have, the lower he ought to bid; the more uncertain one is about his value estimate, the lower he ought to bid; and the more bidders (above three) that show up on a given parcel, the lower one should bid.

It’s all About the Money- Citizens United and its Impact on Elections

February 28, 2013 1 comment

The Citizens United decision broke new ground in the realm of campaign finance. Gone were the restrictions on corporate political speech (as long as they didn’t donate funds directly) and vague disclosure laws.

The landmark 5-4 decision opened up the election process to an influx of funds the likes of which the political world has never seen. The question becomes whether or not that flood of money negatively impacts the election process.

In class we were asked to not only consider that central question, but dig a little deeper into the history of campaign finance.

Before Citizens United, campaign finance reform underwent a few drastic and landmark changes. Daniel M. Shea explains that the most significant judicial decision impacting campaign finance in the modern era is Buckley v. Valeo, in which the court ruled that money is akin to speech and is protected but the amount of money that can be directly given to a candidate is limited. The Bipartisan Campaign Reform Act (or BCRA) went further and forced candidates to gather funds from an increased number of small donors by banning “soft money” contributions.

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McCain (R-AZ), key proponent of BCRA (NYSIAF)

Citizens United took things a step further after the huge uptick in campaign spending during the 2008 election cycle. The case dealt with a specific clause of BCRA that “outlawed explicit campaigning by nonpartisan groups within 30 days of a general election and 60 days prior to a primary” and was elevated to the supreme court after Citizens United, a non-profit organization, tried to air a movie that was highly critical of Hillary Clinton.The result changed the nature of elections forever. By uprooting the precedent set for campaign finance restrictions, Citizens United v. FEC effectively injected more money into politics.

Allegations that said funding is harmful have been prominent. The preponderance of negative ads funded by Super PAC’s are disparaged and have left many worrying about the effect that money can have on the campaign system. Fortunately, I strongly believe that the potential benefits of increased funding far outweigh the pitfalls.

Perhaps the largest benefit of an increase in funding due to citizens united is the greater competition we see in the election process.

Before Citizens United, incumbents had a huge advantage in the election process. James Campbell, in a study from the State University of New York at Buffalo, analyzed 100 years of elections and came to the conclusion that incumbents have an edge for a couple of reasons.

  1. Incumbents have access to more funds, usually outspending their opponents by 3:1
  2. They have name-brand recognition after having held office

Now, after the Citizens United ruling, competition can come to the forefront because the incumbent advantages are significantly degraded nullified. Bradley Smith of US News explains that “In 2010 Democratic candidates and party committees outspent Republicans by approximately $200 million, but super PACs offset approximately $100 million of that.” Super PAC’s disproportionately support challengers and at the very least force incumbents to campaign hard to retain their spot.

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Herman Cain- chairman of Godfather’s Pizza and primary candidate (CSM)

The Republican presidential primary is a great example of this increase in competition. Usually, even the most competitive primary elections don’t have multiple candidates receive large amounts of media attention. The 2008 democratic primary was the most publicized in the pre-Citizens United era, and even there, the candidates were whittled down to two almost immediately. However, this election cycle, it seemed as though a new candidate was leading the Republican primary race each week. The only reason we knew who Herman Cain was, or the reason that Gingrich was able to break in late and challenge Romney is because inflows of funding made the process more competitive than it would have been otherwise.Ultimately, the passage of Citizens United has added money into elections. Although that addition is hotly debated, its ability to raise the competitive nature of elections creates a net increase in the information for American voters and stimulates interest to get people involved in elections.

Time for Boy Scouts to Reconsider Ban on Gays

February 24, 2013 1 comment
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Source: NY Times

The Boy Scouts of America (BSA) is an Irving-based private organization that was founded over a hundred years ago. While the organization has been praised for its focus on training youth to be responsible and self-sufficient Americans, it has also endured scrutiny for its strict membership policies. The BSA has recently been under fire for its ban on gay troop leaders and members, a policy that in today’s world seems relatively outdated. The proposal to drop the ban would not require every troop to welcome gay members and leaders, but simply allow troop leaders to “determine how to address this issue” according to group officials. (Dallas Morning News) Furthermore, the BSA’s official policy does not inquire about the sexual orientation of its members or leaders but prohibits the participation of openly gay individuals. With Barack Obama being the first president to publicly support gay marriage, the BSA’s received more pressure than ever to reverse their policy.

In our post civil rights era world, the BSA’s exclusion of gays seems, in my opinion, obsolete. In a society where the president has voiced support for same sex marriage, it is almost inevitable that people will take action against a policy as discriminatory as this one. While people have the right to voice their opposition to the BSA’s ban on gays, the fact of the matter remains: the BSA is a private organization and therefore has the right to form its own regulations. The case of Boy Scouts of America v. Dale established the BSA’s constitutional right to exclude an individual, in this case homosexuals, when “the presence of that person affects in a significant way the group’s ability to advocate public or private viewpoints.” In the BSA’s case, it declares that homosexuality conflicts with the organization’s ideals. This claim is protected by freedom of association, which is outlined in the First Amendment, and allows for private organizations such as the BSA to choose who they allow to become members.

Grassroots mobilization has played a significant part in civil rights activism and this situation seems no different. The pressure being put on the BSA to change their policy is coming in large part from individuals who have been rejected by the organization, including Ryan Anderson, who was stripped of his Eagle Scout title for being openly gay. (Forbes) Another former boy scout named Eddie Kurtz has started a petition “urging California lawmakers to pass SB 323, which would end tax breaks for youth groups which discriminate against members based on their sexual orientation.” (Huffington Post) If passed, this bill would serve as a precedent and an example of the power legislators have over private organizations. By threatening to remove the BSA’s tax exemption, the California government has placed further pressure on the organization to reconsider its policy on gay members.

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Source: LA Times

I think that what I have learned about the constitution in class has allowed for me to see this situation in a broader light. Without an understanding of the constitution, I think it would be easy to assert that the BSA’s policy should be illegal. Although I think the exclusion of gays is unjust, I realize that as a private organization the BSA has the right to establish its own policies based on the ideals of the group. On the other hand, a look at the big picture seems to suggest that the BSA should reconsider its policy. With more and more states passing legislation to allow same sex marriage, the nation seems to be moving away from more conservative thinking about homosexuality. Apart from the nation as a whole, two troops in Minnesota have already rejected the policy banning gay individuals according to the Dallas Morning News. While the BSA has the constitutional right to uphold whichever policies it sees fit, I think that the organization should give in to some of the pressure it is being placed under and reevaluate its stance on openly gay members and troop leaders.

Categories: B1, Learning, Mr. O. Recommends

Congressional Grappling- Gridlock Surrounding Immigration Reform

February 22, 2013 1 comment

Immigration reform in the United States is quickly coming to a head. As the dust from the Presidential election settles and the nation collectively exhales after our near miss with the fiscal cliff, legislators have refocused on issues that drastically impact constituents of certain key demographics.

The Washington Post explains that the driving factor that has brought the GOP to the negotiating table has been the inability of the party to capture the Latino vote. Politico argues that the concerted interest by the Republicans combined with a push by the Democrats has made reform of American Immigration policy a top legislative priority on capitol hill this year. Minorities have successfully utilized the voting pathway of political action to force some measured level of political reform.

That theme of that reform has boiled down to one word: compromise.

Schumer, key Democratic player in 'Gang of 8'

Schumer (D-NY), key player in ‘Gang of 8’ (CNN)

Individuals on both sides of the aisle have realized that passing any comprehensive immigration reform package will require bipartisan support. CNN argues that  the realization of a need for bipartisan cooperation (specifically by key congressional powers such as Democratic Senator Schumer) has given way to the formation of what political pundits are calling the ‘gang of 8.’ The Washington post explains that the committee, consisting of 8 key senators (4 Democrats and 4 Republicans) have hammered out a package (of which a preliminary transcript is posted here) that rests on a couple of key planks. The first is increased border control, a non-negotiable issue for members of the GOP. The second is slightly more unconventional. In an effort to reach a true compromise, GOP members allowed for the inclusion of a path to citizenship in their reform package. The path, though long and arduous (it contains a number of key steps, the most notable of which is a requirement to pay fines and back taxes), is a key plank of the package that gives the Democratic senators on the committee something to back.

In addition to those key overarching planks, the National Review explains that the plan also demonstrates a concerted effort to improve the system of legal immigration to attract high skilled workers as well to improve employment verification and secure working rights for potential immigrants and existing illegal aliens already in the nation.

The president, in an effort to assume the role of chief legislator, has waded in and out of the immigration debate. The Washington Post explains that he most recently proposed a solution in Las Vegas as he “put the weight of his administration behind efforts to pass legislation” on Immigration Reform. Although his plan has been deemed unfeasible by Rubio (a key republican senator who is part of the ‘gang of 8’) he has brought immigration reform to the forefront. The National Journal explains that Obama’s proposal was repeatedly been blasted as “dead on arrival,” but it sends a clear message: that immigration reform will become (and already is) a key legislative issue in the foreseeable future.

Obama lays out his plan in Vegas (Wash Post)

Obama lays out his plan in Vegas (Wash Post)

Ultimately, I am of the opinion that we will soon see some sort of deal on the issue of illegal immigration. With 11 million undocumented individuals already in our country’s borders and the immense political might of the Latino community, the stakes are simply too high for the issue to remain unresolved. Though the two groups may seem resolute, with the democrats refusing to budge on a path to citizenship and the republicans intent on blocking that very path without significant border control, progress on immigration reform is inevitable. The issue is simply far too important economically, socially, and politically for gridlock to continue.

Women in Combat: What gives them the right?

February 21, 2013 Leave a comment

ibtimes.com

The recent decision to initiate the end of restrictions and limitations of female duties in the military has sparked controversy and conversation over the difference between men and women and what makes women have the same eligibility to perform the same duties men can. The Pentagon recently announced that they have lifted, “a 1994 Defense Department ruling that restricted service opportunities for women in the military, particularly “physically demanding tasks that would exclude the vast majority of women.” (Waltonian) The idea that women are less capable of performing the same tasks as men comes from this speculation that females are less physically and mentally capable then men. Researchers have indicated that women are reportedly more susceptible to pain than men, which may be the cause of such controversy over what women are capable of doing physically. Men’s Fitness says, “The differences found between men and women may result from a variety of causes, such as hormones, psychological factors, genetics, or even the simple fact that men feel more cultural pressure to report less pain.” (Men’s Fitness). Studies like these may prove a point that women are different than men but I believe it does not give the government a right to ban all women from performing military duties. If a woman enlists into the military for a specific duty, and they perform up the same standard as men do, then shouldn’t that woman be eligible for the job? I believe it should be up to the person, female or male, to decide whether they are willing and capable to execute certain military obligations. Isn’t this one of the values this country was founded on? The freedom to choose your path and future applies to all citizens of the United States. My studies of the Constitution in my government class have taught me that the dilemma with women in the military should not be debated over.

 Based on the freedom this country provides and emphasizes, women should, without a doubt, be able to enlist and apply for any military function. Although the Constitution does give Congress the right to “make Rules for the Government and Regulation

of the land and naval Forces” (Article 1 Section 7 of the U.S. Constitution) the decision to ban women from performing certain combat duties does not support the ideals this country embraces. To me this discrimination against women is not different then discrimination against a certain religion or race. This issue has given me a better understanding of the national thought on

what policies regarding different sexes should be. I believe that all people should have the chance to pursue their desires and not be restricted in any way. This event has given me a more vivid perspective on what we have studied in class. The answer to the question of whether women should be allowed to enlist for certain jobs in the military is given better thought and comprehension by me after my studies in government class of the Constitution and Bill of Rights. Congress’ decision in 1994 to ban all women from certain military duties is not supported by anything other than studies indicating the differences between men and women. Ellen Lainez, the DOD Spokeswoman says that the reason for these restrictions is that “there are practical barriers”. (News.Discovery)

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Women Vs. Men

These ‘practical barriers’ defy the rights given to men (and women) by God! This so-called “glass ceiling” preventing women to excel in military duties is without a doubt labeling our country hypocritical in a sense that we hinder the potential of women to excel and make great accomplishments for themselves and their country. My opinion is that lifting this ban is the ethical and right thing to do based on the freedom to pursue certain paths that our country emphasizes and endorses.

What the Gun Control Debate Teaches Us About Government

February 21, 2013 1 comment

President Obama speaks after the Sandy Hook shooting

On December 14, 2012, a shooting occurred at an elementary school in Newtown, Connecticut, claiming the lives of twenty young children. Soon after the tragedy, the United States became captivated with one question: What can be done to reduce gun-related violence? The ensuing debate about gun control has helped display many of the concepts that we have learned about in our government class. The Constitution, the pathways of action, and the powers of the Presidency have all come into play during the last few months. The current gun control discussion is an excellent real-life demonstration of how the government works together to deal with issues.

The first, and most basic, way that the gun control debate intersects with our government class is through the Constitution. During our learning, we have been asked to take on several case studies of the Constitution. We must interpret a Supreme Court case (real or fictional) and decide whether the events that transpire are constitutional or unconstitutional. In terms of the gun control debate, the second Amendment to the Constitution reads that“[a] well regulated Militia, being necessary to the security of a free State, the right of the people to keep and bear Arms, shall not be infringed” (Amendment II). Obviously, this brings just as many questions as answers, but the interpretation that the law has used for most of American history until now is that American, adult citizens have the right to purchase and keep guns. However, in a government heavily influenced by John Locke, a major duty of government is to protect both its citizens’ lives and liberty. Thus, when certain firearms go well beyond the necessary stopping-power needed for protection, many believe that the government must implement gun control in order to keep Americans safe. On the other hand, there are great deals of people who argue that the government attempting to regulate guns violates the Second Amendment and interferes with the liberty that the government is meant to preserve. Because of the dichotomy of views on gun control, any potential legislation will likely have to be a compromise, that both ensures the safety of American citizens while not infringing too greatly on the rights of gun owners.

NRA Vice President Wayne LaPierre gives a statement on gun control in the midst of protest

Another area in which our class and the real world have overlapped is the pathways of action. In the wake of Sandy Hook, the largest pro-gun lobby group, the National Rifle Association (NRA) made their official statement regarding gun control. Instead of conceding stricter gun laws, the NRA argued for increased protection, including armed guards within every school. Pro-gun control groups like the Coalition to Stop Gun Violence have also had their say. Additionally, individual Americans have attempted to create change through grassroots mobilization. Through the Internet and social media, getting the attention of many people has never been easier. Facebook posts, a variety of Twitter hashtags, YouTube videos, and whitehouse.gov petitions have all been used to try to create momentum for both pro and anti-gun control sentiments. Finally, a few politicians and leaders have attempted (albeit with little success so far) to enact cultural change. Many believe that American culture is too overtly violent, and some legislators have attempted to change that by adding potential restrictions on the depiction of violence in movies, television, and video games.

Finally, both the formal and informal powers of the President have been prominent throughout the last few months in the gun control debate. President Obama has strongly navigated the roles of Chief Legislator and Voice of the People. As Chief Legislator, Obama created a task force to explore all options available in the fight to reduce gun violence, and to make propositions about what needed to be done. During the State of the Union, Obama became the Voice of the People, concluding his address with a moving segment meant to stir up the American people and demand change. The President made use of Executive Orders after his initial proposal, and continues to play a key role in the discussion of the topic between Republicans and Democrats.

In the end, our government class has trained me to not just see the end product of a passed bill, but to also see all the work and effort in both directions that goes a nationwide policy debate such as the current argument about gun control. While the way in which our government works as a whole can be quite complicated, having knowledge of civics and government allows me to break down each component of change and progress. I believe in gun control policy that both keeps the public safe while respecting our freedoms and rights; government class has allowed me to make an informed opinion and analyze the situation.

Marbury v. Madison – The Establishment of Judicial Review

August 10, 2012 2 comments

The concept of judicial review is an element of our judicial system that few would doubt or criticize in modern times. From the time we first start learning about American government, we are taught about the separations of powers and how each of the three branches of the government keeps the other two in check. We become familiar with stories on the news when Supreme Court opinions are published and an act of Congress either is nullified or confirmed. Why should there be any reason to doubt the role of the Supreme Court and the federal court system to rule whether acts of Congress abide by the Constitution or not?

While this may generally be accepted as one of the major jobs of the Supreme Court today, the Constitution does not explicitly give the Judicial Branch the power of judicial review.  Through the establishment of court precedent, however, the ability to declare laws unconstitutional is considered an implied power under Article III and Article VI of the Constitution of the United States.

Selected clauses from Article III state:

The judicial Power of the United States, shall be vested in one supreme Court, and in such inferior Courts as the Congress may from time to time ordain and establish. . . . The judicial Power shall extend to all Cases, in Law and Equity, arising under this Constitution, the Laws of the United States, and Treaties made, or which shall be made, under their Authority. . . . In all Cases affecting Ambassadors, other public Ministers and Consuls, and those in which a State shall be Party, the supreme Court shall have original Jurisdiction. In all the other Cases before mentioned, the supreme Court shall have appellate Jurisdiction, both as to Law and Fact, with such Exceptions, and under such Regulations as the Congress shall make.

The Supremacy Clause of Article VI states:

This Constitution, and the Laws of the United States which shall be made in Pursuance thereof; and all Treaties made, or which shall be made, under the Authority of the United States, shall be the supreme Law of the Land; and the Judges in every State shall be bound thereby, any Thing in the Constitution or Laws of any State to the Contrary notwithstanding. . . . [A]ll executive and judicial Officers, both of the United States and of the several States, shall be bound by Oath or Affirmation, to support this Constitution.

These excerpts of the Constitution have created enough convincing evidence for the landmark case Marbury v. Madison to establish the concept of judicial review that is such an integral part of judicial conduct.

Click here to view a Prezi that describes the setting and details of Marbury v. Madison.

There has been some concern about the powers of judicial review since Marbury v. Madison established a legal hierarchy in the United States with the Constitution reigning as the supreme law. Two Presidents of the time, Thomas Jefferson and Abraham Lincoln, were prominent in criticizing the principle of judicial review.  They believed that by making the judicial branch the guardians of the US Constitution, the court would be given a supreme position over the other two branches of government (legislative and execute).  In addition, they argued that the Justices were individuals not subject to the rigorous democratic process of election and re-election, and thus, life tenure through only the appointment and confirmation process put too much power in the hands of judges to determine the future of legislation without being fully vetted by the American people.  In 1820, Tomas Jefferson expressed his deep reservation concerning the doctrine of judicial review in a letter to William Jarvis where he stated:

“You seem . . . to consider the judges as the ultimate arbiters of all constitutional questions; a very dangerous doctrine indeed, and one which would place us under the despotism of an oligarchy.  Our judges are as honest as other men, and not more so.  They have, with others, the same passions for party, for power, and the privilege of their corps. . . . Their power [is] the more dangerous as they are in office for life, and not responsible, as the other functionaries are, to the elective control.  The Constitution has erected no such single tribunal, knowing that to whatever hands confided, with the corruptions of time and party, its members would become despots.  It has more wisely made all the departments co-equal and co-sovereign within themselves.”

Several years later, Lincoln cited as evidence that this power brought forth a low point in American democracy with Dred Scott v. Sandford Case in 1857.  This case was decided 7-2 against Scott, an African American slave who unsuccessfully sued for his freedom on the assertion that Scott could not bring suit in the federal court under diversity of citizenship rules.  The court also overturned the Missouri Compromise arguing that the Compromise deprived plantation owners of their human (legal) property and therefore violated the Fifth Amendment’s clause that states, “. . . nor shall private property be taken for public use, without just compensation.”

However, since the days of Lincoln and Jefferson, judicial review is now widely accepted in both the political and legal arenas.  Though interpreted differently in different jurisdictions, the idea has been exported and integrated into the constitutional fabric of numerous countries such as Brazil and Germany.  Today, in the United States, it is the cornerstone of constitutional law; however, for the Founding Fathers as they figured out and solidified the governmental system, it was the first major test of the US Constitution.  With Marbury came a whole new sense of direction and a new vision of how to shape both a growing America and an America in the 21st Century.

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