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C Ow Les Q U Ar Ter Ly 2017 / Volume 1 / Issue 1 Cowles Q uarterly N ew sl e t t e r PREDICTING THE NEXT PRESIDENT THE RAY FAIR FORMULA Features JOHANNES HÖRNER Faculty Profile MARK ROSENZWEIG Q & A Cow les Quarterly Volume 1, Number 1 CONTENTS A NOTE FROM THE EDITOR .................................................................................... 3 FA CULTY FOCUS JOHANNES HÖRNER .................................................................................................. 4 FROM THE A RCHIVES COWLES COMES TO YALE ....................................................................................... 5 FEA TURE PREDICTING THE NEXT PRESIDENT THE RAY FAIR MODEL .............................................................................................. 6 ECONOMICS FALL RECEPTION ............................................................................. 7 Q&A MARK ROSENZWEIG STUDYING GROWTH IN LOW-INCOME NATIONS Q& A ................................... 8 COWLES FOUNDA TION DISCUSSION PA PERS 2016 FOURTH QUARTER ........................................................................................... 10 On the cover: 30 Hillhouse Ave. Table of contents: Faculty Lounge, 30 Hillhouse Ave. 2 Cowles Quarterly A NOTE FROM THE EDITOR Welcome to our first quarterly newsletter When I was first tasked to produce a quarterly newsletter for the Cowles Foundation, I was honored. My flattery, however, soon turned to optimistic angst as I began to think of all the things that go into the publication. How will I format the pages? Will the pieces interest readers? Will I have enough content? And, of course, will I catch all those dreaded typos. Low and behold, the issue came together; I have a format, content, and pictures. For now, I can breath a sigh of relief (at least until the next issue). I would like to thank Cowles research staff members, Professor Ray Fair and Johannes Horner, who volunteered their time to answers questions for the pieces on the following pages. I would also like to thank Mike Cummings for his contributing article on Mark Rosenzweig. It is my hope that this inaugural issue will be the first of many to bring insight about the Cowles Foundation and its Research Staff to our readers. Please enjoy the next few pages and stay tuned for future issues. And remember to visit the Cowles website regularly for updates and new discussion paper postings, Follow us on Twitter, and like us on Facebook. Matthew Regan Communications Manager, Cowles Foundation Website: http://cowles.yale.edu Editing/Writing: Matthew Regan and Michael Cummings Online newsletter: http://cowles.yale.edu/newsletter Design: Matthew Regan Email: [email protected] 3 Cowles Quarterly JOHANNES HÖRNER Faculty Focus By Matthew Regan T o kick off its inaugural issue, CQ catches up with Alfred Cowles Professor of Economics Johannes Hörner for a meet and greet, Q&A faculty focus session. Hörner came to Yale in 2008 and has been a member of the Cowles Research Staff since the same year. He received his Ph.D. in economics from the University of Pennsylvania in 2000, and went on to teach at the Kellogg School of Management at Northwestern University before starting at Yale. His academic interests range from game theory to the theory of industrial organization, with his research focusing on repeated games, dynamic games and auctions. Last fall, he was appointed editor for the American Economic Journal - Microeconomics, and is currently on leave for the 2016-17 academic year visiting Toulouse School of Economics. WHAT ARE YOU CURRENTLY attention to, and, as a strategic importantly, it's an opportunity to try RESEARCHING? person, how sophisticated lying my hand at contributing to a young strategies have to be. These but already established journal. With Nicolas Vieille, and Xiaosheng questions are important for the Running a journal is a very special Mu (a former Yale undergrad!), I am economics of information, where we business: you have to attract as currently working on truthtelling try to understand how to best elicit many submissions as possible, yet and liespotting. Mark Twain once the private information of agents. the more you attract, the more you said that if you tell the truth, you end up rejecting. To meet this don't have to remember anything. If CONGRATULATIONS ON BEING challenge, you have to be fair to the you lie, however, you must have a NAMED EDITOR OF THE authors, and add value to the papers, good memory, because you are AMERICAN ECONOMIC JOURNAL: even those that are rejected. This is bound by your past claims, and MICROECONOMICS! WHAT DOES a job done by the referees and the consistency in consecutive claims is THE POSITION MEAN TO YOU, editorial board, and the editor important for the lie to remain AND WHAT DO YOU LOOK FOR IN merely tries to coordinate their undetected. For instance, you might A PAPER FOR PUBLICATION? efforts. have thought that it was clever of you to pretend you liked ballet when Being an editor is an honor, a duty CAN WE EXPECT TO SEE ONE you first met that young and and an opportunity. It's an honor, to OF YOUR PAPERS IN THE AEA attractive person, but keep in mind the extent that it means that my OR ANOTHER JOURNAL IN that you might end up having to go peers trust my judgment and my THE NEAR FUTURE? to ballet every week for the next dedication. It's a duty, because as an I sure hope so! But it is probably forty years, if you want your lie to author, I have benefited countless best to not submit to one's "own" remain unnoticed. times from the advice and help from editors and referees; taking such a We are exploring what kind of (continued on page 5) patterns in reports one should pay position is a way to pay back. Most 4 COWLES QUARTERLY Hörner continued from page 4 journal, and the decision ultimately belongs to other editors. I have worked with Yeon-Koo Che FROM THE (Columbia) on spamming that we hope to see published soon, perhaps at the Quarterly Journal of Economics. ARCHIVES WHAT IS YOUR FAVORITE CLASS TO TEACH AND WHY? Clearly, this has to be mathematical game theory, the undergraduate course in game theory that I teach at Yale. As every undergrad knows, this is a very hard course, but it is fun and challenging! WHAT ADVICE DO YOU HAVE FOR UNDERGRADUATES PURSUING A DEGREE IN ECONOMICS? Take courses that you enjoy and challenge you. It's not about memorizing facts and methods. It's about discovering what works for you, how you learn best and what gets you excited. But I guess that applies to lots of fields! Yale Daily News December 16, 1954 The announcement of the Cowles Commission move to Yale from the University of Chicago made the front page of the Yale Daily News on December 16, 1954, naming future Nobel Laureate Tjalling C. Koopmans and his colleague Jacob Marschak as accompanying members. The article states that James Tobin will become the director. Like Koopmans before him, Tobin also went on to receive a Nobel Prize in Economics. 5 COWLES QUARTERLY PREDICTING THE NEXT PRESIDENT The Ray Fair Formula By Matthew Regan With the 2016 presidential elections behind us (for better or worse), most media organizations and pundits predicted the outcome incorrectly. One economist, however, did make the correct call. In fact, Cowles Research Staff Member and John M. Musser Professor of Economics, Ray Fair, has quite the track record for predicting the presidential outcome with his voting formula. I t is human nature to speculate what Fair's method looks at fundamental forces And lastly, he looks at the state of the the future holds and many people like to driving people's voting behavior rather economy during the first three quarters of make predictions. What's more, there are than asking people who they plan to vote the election year to see where output about as many formulas arriving at a for, or how and why they came to make growth and inflation stand. prediction as there are predictions. Some their decisions. Simply stated, his As it turns out, the first three criteria were may be based on scientific and analytical approach, "tries to explain what not in Hilary Clinton's favor. As for the data, while some may be purely motivates people to vote the way they last condition, while inflation was low in speculation on other factors. do." He elaborates in his paper 2016, the GDP was historically weak "Econometrics and Presidential Take for example sporting events; people despite a slight up-tick in the last quarter. Elections" by writing, "The general are always trying to pick which team will Thus, the conditions pointed to a Trump theory behind the model is that a voter win the Super Bowl, World Series, or victory. evaluates the past economic World Cup. The same holds true of the performances of the competing parties Although Fair predicted the Democrats stock market: Will it be bearish or and votes for the party that provides the would receive less votes, his results were bullish? And elections are no exception highest expected future utility." not as close as anticipated. Since when it comes to predicting the outcome; November 2014, his model had favored people instinctively want to know who Rather than relying on typical exit poll the Republicans, predicting the will be their next leader. questioning, Fair uses four conditions to Democrats to receive 44 percent of the determine voter preferences: if a The 2016 presidential election results two-party vote. Clinton, however, ended president is seeking a second term; the proved to be surprising to many people, up receiving a lot more votes, which was duration a party has controlled the White however, particularly pundits. According actually closer to 51.1 percent. That's an House; a persistent bias (albeit slight) in to the Pew Research Center, pollsters error of 7.1 percentage points. More favor of the Republican Party; the state of predicted Hilary Clinton's chances of surprising, this was nearly twice the error the economy, particularly the rate of winning to be at a whopping 70-99%! As average Fair saw over the last 9 elections growth of output (GDP) and the inflation it turns out, the actual poll numbers which averaged 3.53 percent points.
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