Is Google doing evil in China?


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Google’s motivations to move back into the Chinese cyberspace–as first reported by The Intercept–with its censoring Mandarin search engine, internally called project “Dragonfly,” are clearly motivated by business considerations. The number of Chinese internet users has been growing by about 70% since 2010 while the growth rate over the same time period in the US did not exceed 20%. As a result, a fifth of today’s daily worldwide four billion internet users call China their home.

In a world where a company’s success and even more so its leaders is frequently measured in growth rates rather than volume, to forfeit a share of the pie in the single most important market by size seems an insurmountable challenge for a profit-driven company. Since the news broke, Google has been heavily criticized for “supporting” and “legitimizing” the Censorship of the ruling Communist party.

Read my opinion in the Washington Post to get a glimpse of an angle how democracy could perhaps benefit from Google’s re-entry into China.

What are the consequences of Google’s $5bn fine?


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The European commission dishing out a record fine to Google for anti-competitive behavior appears among other t

hings to be a sign that the EU plans to crack down hard on anti-competitive behavior in the digital economy, an area that historically has been hard to govern due to its fast-paced nature. One deeper question arising from the ruling than the direct impact on Google is how will the EU treat bundling of digital services in the future. If forced bundling itself is interpreted as anti-competitive, then companies like Facebook, Intel and even Apple could be under threat. As of now, the EC fined Google for forcing handheld manufacturers into contracts via their market power that limit competition. While the same cannot be said Apple because of its closed ecosystem, if the EU’s claim would carry over from contracts to forced bundling in general, even Apple would be under threat.

The recent history would suggest that neither the DOJ nor the FTC will follow suit. The US, however, faces a problem or the danger to lose face in this particular case due to its reminiscence of the DOJ against Microsoft case in 1999, where Microsoft was fined heavily for forced bundling of the internet explorer with Windows. Also political forces could see Google as an easier target after the EU’s ruling to boost their reputation in the light of the DOJ’s failed case against the AT&T/Time Warner merger.

The stock market presumably did not react strongly since, even if Google were to change its business plan slightly, the lack of competition in search does not seem to be a major threat to Google. Furthermore, Google is well-positioned also with their own handheld device, the Pixel to respond. Also, I assume that most analysts share my sentiment that the US is unlikely to follow suit. See parts of my AP interview above.

Poets & Quants 2018 Best 40 Under 40 Professors


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Dear students, dear colleagues,

a big thank thanks to all of you for the overwhelming appreciation. I was truly surprised to see myself listed under POETS & QUANTS’ 2018 Best 40 Under 40 Professors.

Full time 2-yr MBAs in the fall as well AMBAs & NYC-Tech MBAs in the summer, it was truly a fun and exciting year of teaching!!!

Fake news in sports and how to filter real-world information


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When obtaining a post-secondary education in Economics and/or Business related fields, one typically spends a considerable amount of time studying various models of decision-making. Arguably two prominent reasons for teaching those models to students not targeting an academic career—most notably the majority of undergraduate students as well budding MBAs—are a) to provide them with frameworks to forecast and foresee the decisions of others and b) to sharpen their ability in making decisions themselves (which, in turn, is closely related to a)).

For their lack of opportunities to make significant decisions themselves while still in training, we typically resort to (real-world) examples featured in the business press or to (fictitious) business cases. In order to provide them with practice, we jointly tackle questions as in “how would you decide in this situation” or “what do you predict as the likely outcome of that scenario” in class. To put it bluntly, we teach them how to read, analyze and understand subject-specific articles. In the age of “fake news” and ubiquitous news coverage, I truly hope we also teach them how not to.

I typically challenge the class to feed each other with interesting and currently published information related to course content. Recently, a student of mine sent me this article published in the Economist linking the National Football League (NFL) with game theory. This student conceivably made a brilliant choice. The major sports leagues in the United States constitute an arena of decision-making commonly beloved by students, game theory is exciting as it adds the strategic component and The Economist is a highly reputable media outlet of business and politics. On the surface, I could not have chosen better myself.

In short, the article describes the contract situation between the (in recent decades) chronically unsuccessful Buffalo Bills and Tyrod Taylor, their current starting quarterback (the one who throws the ball), in early 2017. The Buffalo Bills benched Taylor for their last regular season game on New Year’s eve. At this point, Buffalo had no chance of reaching the playoffs anymore, i.e. it was de facto the last game of their season. After Taylor had played through a groin injury for several weeks, he opted for surgery at the very beginning of the offseason, i.e. 3 days after the last game (in which he did not feature).

The Economist argues that both actions, the Bills benching Taylor for their last game as well as Tyrod opting for surgery were direct consequences of the incentive structure inherent to their contractual situation. While, as claimed in the article, Taylor was an above average (top third) quarterback at an average quarterback salary, the Bills had the option to cut Taylor for negligible expenses until the beginning of March. However, if Mr. Taylor was rendered not fit to perform football services, the Bills would owe him close to $30M if they fired him.

This, for the Economist, constituted a so-called prisoner’s dilemma, a strategic stand-off between multiple parties in which each party has an unequivocally optimal action, which, if employed by everyone relevant to the game results in the socially worst scenario. In other words, the Bills had an incentive to bench Taylor for the last game whereas he should try everything possible not to be fit to play during the offseason (at least until March). What is more, it was stipulated that the Bills overlooked that they were in fact caught in a repeated prisoner’s dilemma with varying actors, that is other players with who they would have to deal in the future.

The main predictions based on their analysis were that, while not explicitly claimed, it was likely that the Bills were either going to fire Tyrod Taylor while injured (a costly endeavor) or opt not to due to the financial penalty of doing so although they would prefer to part ways. In any case, acting according to their best option would somehow sever the bond between the Bills and their quarterback. Moreover, by not realizing the more general implications of crossing a star player, the Bills would significantly reduce their chances of hiring popular players in the future. All of these implications taken together would even prolong and worsen the Buffalo Bills drought and their absence from the playoffs (17 years and counting). Lastly, it was argued that Rex Ryan, the coach of the Bills until their last season game was fired by the club’s owners since he disagreed with benching Taylor for the last season game.

In fact, the Buffalo Bills and Tyrod Taylor did not part way in the offseason of 2017. Instead, they renegotiated Taylor’s contract to keep him as a quarterback on a significantly lower salary. During the season the Bills took Kelvin Benjamin, a highly rated wide receiver (the one who catches the ball) from the Carolina Panthers, under contract. While the Bills traded assets (future draft picks) for the receiver and the trade was not directly Benjamin’s decision, it seems unlikely that the Bills would part with valuable options for today’s college players for an athlete who was not eager to play for the franchise. As of week 15 of the current season (two more games to follow), the Bills show a record of 8 wins and 6 losses and are at the brink of qualifying for the playoffs for the first time in 18 years.

While one time negative results do most certainly not refute the validity of predictions in the first place, a strategic analysis delivers similar results. A football player who opts for surgery only 3 days after the end of the season, a surgery which has an average recovery time of 7 weeks for non-athletes, does not seem to try everything possible to be deemed unfit when March comes around. If Taylor was above average in quality but paid below peers of his level, would it not be optimal for the team if he took care of his injuries as quickly as possible (to ensure his availability for team as long as possible before the start of the next season)? Many teams in various sports bench their star players in games that are inessential to their season goals. Why was this such a particular move in the case of the Buffalo Bills and Tyrod Taylor and why does this move necessarily carry negative consequences for an already injured player? Why, if Tyrod Taylor was overpaid against the league’s standards, did he agree to continue on the team for a substantially lower salary? Is it more likely that the Bills fired their head coach over a singular disagreement regarding the line-up or due the fact that Mr. Ryan did repeatedly not manage to lead a talented team to the playoffs and that he had an abysmal record in close games?

The model-theoretic analysis of the quoted article is as little capable of answering those questions as its predictions coincide with what unraveled after its publication. Bar a very few superstars, the National Football League (NFL) and its teams have tremendous power over their players as most NFL players would be expected to earn only a tiny fraction of their actual salaries if they were not to make it into or would have to exit the league. This fact paired with a salary cap, which ensures talent to the distributed across teams, guarantees teams significant bargaining power.

Dazzled by the institution of a reputable magazine and by the connection of buzz words and sports, I initially forwarded the article to the remainder of my students without any specific comments. After thoroughly reading and reflecting, however, I decided to scrutinize the article in class. In addition to teaching students how to filter business press articles and other relevant outlets for information and conducting an analysis based on these premises, I believe we ought to realize that, in a world characterized by the ubiquity of unfiltered content, teaching them to challenge this very information is the first crucial step towards a successful analytical contribution. While this sounds trivial, it clearly has to begin with questioning the intentions of author and publisher when reading an article. Whether the creators of an article intend to push a dogma, support a particular political view or simply myopically attempt to maximize readership, abstracting from those intentions should be the very first step in the process of filtering information.

Farewell to the greatest economist of all


Kenneth J. Arrow, the youngest economist ever to be awarded a Nobel (jointly with John R. Hicks) for “for their pioneering contributions to general economic equilibrium theory and welfare theory”, died aged 95. Arrow, undoubtedly one of the most brilliant minds of recent times, is considered a founding influence of several sub-fields of Economics and among the architects of the advancement of Economics as a science in the twentieth century.

Many share the opinion that his ground-breaking contributions to social choice, innovation, health economics and the economics of risk have been even more ground-breaking for the Economics community than his work on general equilibrium theory for which he was awarded the Nobel Memorial Prize in 1972. Arrow is among a selected very few who consistently made it on the bookies’ list to win another Nobel.

I have briefly pondered about writing a piece on his research contributions to make the unbelievable wealth of his ideas accessible to a broader audience. There is, however, no need to reinvent the wheel. My former classmate Kevin Bryan (who btw considers Arrow to only be the second greatest economist of all time), professor at the University of Toronto, and among other things an expert in the history of Economic Thought, started a brilliant mini series of four posts on Ken Arrow today on his blog A Fine Theorem.

UBER and its curious case of corporate social responsibility!


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Companies in today’s economy compete not only via prices, quantities, marketing or product characteristics but also on a very different level, showings of corporate social responsibility. While it is impossible to disentangle the motivations behind these actions—may it be to achieve a competitive advantage or due to true societal concern— UBER’s strategy is certain to set new standards.

A French businessman once had the brilliant idea to log in to his wife’s UBER app with his credentials to order a ride for the both of them. While he insists to have logged out after doing so, due to an alleged software glitch, the UBER app continued to send reports of all his rides thereafter to his wife’s cell phone. Comparing a real-time record of her husband’s whereabouts with his accounts led her to realize that he was having an affair and ultimately to divorce from the adulterer.

Now, apparently, the left alone Frenchman sued UBER for €45m in damages. It is to be expected that the trial outcome will decisively influence UBER’s future CSR efforts to protect the family as an institution.

Read here about the hilarious events in The Guardian.

Good times at Cornell Business!


The recently established Cornell College of Business, umbrella to the Charles H. Dyson School of Applied Economics and Management, the School of Hotel Administration, and Samuel Curtis Johnson Graduate School of Management, has been renamed Cornell SC Johnson College of Business after a $150 million gift from SC Johnson and its CEO H. Fisk Johnson who holds five Cornell degrees. Due to parts being dedicated as a challenge grant the potential impact of the gift amounts to $300 million.

Read the Wall Street Journal’s account here.

The Trump effect and European populism


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The NY Times connected, if only loosely, surging populist movements in Western Europe to the election of Donald Trump in this article yesterday. While not explicitly stated, I would argue it creates the impression Trumps’s election acts as a catalyst for their cause. In my opinion, Austria’s presidential election from Sunday suggests quite the contrary may be true as well. The idiosyncratic social environment of (in particular Western) European countries and the political positioning of the political parties in questions seem to be factors substantially contributing to whether the outcome of the US presidential election supports or weakens the populist movement’s chances for success.

Critics denounce the Austrian presidential election as irrelevant and of no importance, since the president of Austria is not a “head of government” comparable to the United States or France. On the other hand, however, he is responsible to uphold the balance between the executive, legislative and judicial powers and is enabled to do so by a number of constitutional rights. Once elected, the Austrian president temporarily suspends his party membership to serve as an independent bridge builder. In other words, the Austrian president is definitely more than a figurehead or welcoming clown (the German “Gruss-August” is a frequently seen defamation of the German president who is not equipped with similar constitutional powers).

The recent Austrian presidential election last Sunday was initially supposed to take place at the beginning of  May of this year. And it did. Since none of the candidates achieved the necessary absolute majority on the fist ballot, a run-off two weeks later saw the former university professor and political representative of the Green Alternative party (according to their charter driven by direct democracy, nonviolence, ecology, solidarity, feminism and self-determination),  Alexander Van der Bellen, come out on the top against Norbert Hofer, candidate for the Freedom party of Austria, a national conservative, anti-immigration and Eurosceptic party.

A novelty in Austrian history, the run-off did not feature a candidate from either of the two (former) major parties, the social democratic and the people’s party, who basically led the Austrian government since the country’s inception as a republic (and do so currently). While Hofer won 50% more votes than Van der Bellen on the first ballot, the latter won the run-off by the thinnest of margins (50.35% to 49.65%) as many moderates and traditional voters of the major parties united behind the former university professor to oppose a major right shift in Austrian politics.

The results of this run-off, however, were annulled after the constitutional court of Austria found that Austrian electoral law had been disregarded by counting over 77,900 votes improperly too early, however without any indication of votes having been fraudulently manipulated. The second round re-vote was planned for October, but embarrassingly had to be postponed to December 4th 2016 due to faulty glue on the voting envelopes.

Although neither candidate was a member of either of the two reigning parties, Norbert Hofer was much more perceived as an anti-establishment candidate, in particular after Van der Bellen received endorsements by member of of both major parties. This fact, coupled with infrequent but persistent accusations of fraud had more than a few experts and many Austrians contemplate that Hofer was going to win the re-vote quite comfortably. Polls conducted after the annulling supported this stance. Then, however, things turned out quite differently from what was expected. Alexander Van der Bellen also won the second run-off and, this time around, with a margin as significant as unexpected 53.79% to 46.21%, i.e. by more than 7%.

Donald Trump did not win the US presidential election because he and his supporters mobilized voter types he was not supposed to attract. The forecasts rather got the numbers of people showing up at the urn horribly wrong. The turnout among Trump supporters was significantly underestimated whereas the opposite held true for Clinton supporters. Austrian voters, many of whom closely followed the US election, learned their lesson from the events in the US. Overall voter turnout was about 75%, a very decent outcome when compared to recent trends. In particular, better educated Austrians, the majority of which tends to vote more around and even left from the political middle are more likely to follow international news. The other force which potentially made a difference were anti-establishment protest voters getting cold feet the second time around. Without knowing the exact numbers, this could explain why the absolute number of votes Norbert Hofer received decreased, although overall voter turnout rose by 2%. These voters may haven been discouraged by the uncertainty and the controversial choices for public office in the aftermath of the Trump election.

The above mentioned NYT article lists European populists and does not differentiate between those positioned on the left from those on the right side of the political spectrum. An interesting (untested) hypothesis is that the outcome of the recent US presidential election may, however, influence populist movements in Europe differently, depending on their political position. Trump’s election may well act as a catalyst for anti-establishment movements in general. On the other hand it might induce hesitation of anti-establishment protesters to vote for the right and a higher voter turnout among liberals. As a consequence, Trump’s triumph ironically may well halt or at least slow down some of the nationalist tendencies observed in recent elections across Europe and potentially swing the pendulum towards liberals in particularly hard fought and tight elections.

Lastly, dedicated to my economist friends: To the best of my knowledge, Austria is now the first and only country ever, whose president published an article in Econometrica.