What is the role of the insurance industry in this new era?

People who have been affected by the “drone chaos” are making claims to their insurance companies, but not all of them will be able to be paid by their insurance companies since some cheaper policies do not cover such incident. This incident can bring more customers to the companies which have the policies which cover such incident because people tend to overestimate small probabilities based on the prospect theory. When people are worrying about the consequences of new and coming technologies, it actually creates more opportunities for the insurance industry.

Providing insurance for unknown threats or risks can be a very profitable business but with substantial risks. Of course, since the insurance industry has much more resources than others and they can hire more experienced and more skilled people to work for them to analyse the possible impacts of new and coming technologies. Therefore, just like other insurance businesses, insurance companies are able to create a system of information asymmetry to gain profits. However, there are risks. First, the predictions about technology innovation and invention cannot be always correct; once it is incorrect, then it will make insurance companies lose money depending on how different the reality is from the prediction. Secondly, how many people demand such insurance is another issue. Hiring very good people in the technology sector is very costly; however, if they cannot sell enough insurance and generate sufficient revenues, they will not be able to afford expensive costs for quality labour forces. Thirdly, there are merely too many technology sectors, even insurance companies do not have the resources to conduct effective research on all possible technology innovation and development.

Overall, designing insurance policies covering the risk caused by technology innovation seems like a fantastic idea; however, given its cost of conducting effective research and the risk of potential demand and prediction, this may not be a profitable business.

From the Gatwick Incident

The London airport, Gatwick, has been closed for more than a day because of the “drone chaos”. Several drones flew very close to the airport and created threats to airplane safety. A comment from the authority is that the technology is developing at a faster than the legal system is. This comment is very true indeed that the authority cannot create laws and regulations for something that does not exit yet as they do not have the ability to foresee the coming new technology, and it takes time for regulators and lawmakers to create appropriate laws while the technology is still advancing. I do not think that people would have thought drones could cause such trouble a decade ago.

In the future, other technologies will appear in our real life and some will cause problems like this one. There are several new technologies which are highly likely to cause this kind of problem. The first one is AI. When an AI does something wrong, who should take responsibility? Especially when the AI is unsurpervised, the designers should be blamed since they create the AI that misconducts; however, the users should also be blamed since they might know how the AI works and purposely train the AI to misconduct. Under such circumstance, who should take the responsibility? The second one is on the Internet. Who should take the responsibility to stop misleading information? The general public believe that social media should take the responsibility to stop misleading information from spreading; however, there are so many ways to spread misleading information, and social media is only one of many ways. Moreover, even social media is the main way to spread misleading information, it is impossible for social media to stop all misleading information. The third one is also on the Internet. Open information can benefit many of us, and since it is open, the cost of accessing to the information is extremely cheap. However, not all knowledge is good knowledge, when some knowledge falls in hands of some bad people, the knowledge itself would start to create negative impacts. For example, someone posted an open guidance about how to 3D print a pistol online; though the post was pulled off from the website, as it existed on the Internet, it is very hard to guarantee that there is absolutely no copy existing on the Internet right now.

Overall, when the technology world is developing rapidly, it is definitely a huge challenge for all regulators and lawmakers.

The Auto Industry

The competition in one of the most traditional industries is increasing over time, many new comers are joining this competition while the incumbents are also seeking ways to boost their competitiveness to prevent themselves from losing out in this tight race. The incumbents are those traditional carmakers, such as Ford, General Motors, Volkswagen and etc.; meanwhile, unlike the new comers in other sectors who are less financed, the new comers in the car industry are well financed, some even have greater market values than the incumbents, such as Alphabet (Google's parent company) and Apple (there is always some rumour saying Apple is inventing its own car). There are two fields where carmakers are competing against each other that one is electric vehicles and the other is driverless cars.

Electric vehicles are supported by many governments around the world, because they are much more environmentally friendly that they do not produce harmful air pollutants. Many governments provide electric vehicles with subsidies. Moreover, not only the sudsidies will benefit the carmakers, but the electric technology can improve people’s driving experience, as the acceleration speed can be faster and smoother. In addition, carmakers are bringing modern entertainment and control systems to new cars that some cars only have one big screen to control the entire cars, including the air conditioners, media players, car rada and etc. Many electric vehicles are already appearing in ordinary consumer markets for people to buy.

Meanwhile, driverless cars are not yet ready for ordinary consumers to buy. Tesla has some driverless systems available cars out there in the market; however, many countries and regions do not allow driverless cars to be operated without any human monitoring. There are several issues in driverless cars. First, when there is a car accident, who should take responsibility. Secondly, some driverless systems require network access; however, when cars are driving on roads, they do not always have access to the Internet. However, with the coming 5G, this issue might be able to be solved. Thirdly, the development in driverless systems is quite diverse, different companies have different thoughts about how to achieve driverlessness. There is one potential problem that when driverless systems are all different, would this increase the probability of car accidents because of the differences in the systems. Fourthly, the system that aims to work along with human drivers, when driverless cars are more, is this design still necessary?

Overall, the car industry may be like the smartphone industry that was transferred from the phone industry that it could be transferred into a smart car industry, the transformation will create much more opportunities for the carmakers like what we saw when the smartphone industry was rising.

Why is open economy inevitable?

China is celebrating the 40th anniversary of Deng Xiaoping’s “reform and opening up” policy. Deng’s reform is crucially important that it has changed the Chinese economic structure and improved a significant number of people’s living conditions and China’s world political status. Moreover, Deng’s reform should be appreciated by the world, as his policy successfully pulled a substantial proportion of the world population out of poverty.

Open economy is important that no country should close its economy and isolate itself from the outside world. Isolation is not rare to see throughout our human history that there were some governments which voluntarily decided to close their countries and isolate themselves from the rest of the world. Why were these countries able to isolate themselves from the rest of the world? Firstly, in the past, people did not have necessary level of technology to have sufficient access to the outside world. Secondly, people were living in a relatively self-sufficient environment. When people were self-sufficient, they did not have the need to get an access to the rest of the world. Thirdly, information asymmetry was another important reason of isolation. In the past, people did not know about the outside world, then it was too risk for them to access to the outside world.

However, things have changed. The inventions of new technology, especially the Internet and transportation, have corrected the factors mentioned above. People are no longer able to be self-sufficient, as people are needing much more than they were in the past. Overall, isolating oneself from the rest of the world is no longer an option.

The African proxy game

John Bolton, the US national security adviser, suggested tha the Chinese and Russian “predatory practice” in Africa have threatened the US’s strategic, military and economic interests on Africa. His claims have in some ways given up the moral ground for the American intervention and actions in Africa that the US spent on development, security and food aid was pointed out by him to advance the American interests in Africa, instead of actually providing humanitarian support. The strategy suggested by Bolton sounds quite “ancient”, it is basically what was used by the US and the USSR during the Cold War, a proxy war.

Bolton wants to make African countries choose their sides between China or Russia and the US, and they cannot choose both. All countries care about their own interests, there is nothing wrong about this. However, as Grant Harris, Mr Obama’s former adviser on African policy pointed out, “it is unnecessary to cast everything was some scramble for resources or great-power game”; Bolton’s words are also heard by African countries as well, and likely to cause some degree of opposition. Based on some studies, China is ahead of the US in terms of influence over Africa that there are more African students now studying in China than in the US or the UK and China is also leading on infrastructure programmes in Africa.

Bolton has made the US strategy and goal too bold which can cause some opposition from Africa. The game between China, Russia and the US can have different outcomes, but these outcomes have one common thing that African countries are highly likely to be the victims of the super-power game.

The battle in Westminster

Theresa May is definitely facing her end period of her political career after she successful survived the no confidence vote that she made a promise that he would not lead the Tory party into the next election in order to win the support within her Conservative Party. This implies that May is highly likely t leave the office after she makes an agreement with the European Union.

I previously said that May and her Brexit rebels are playing a game of chicken and I expected that her Brexit rebels would turn to support May before the deadline of Brexit. However, her Brexit rebels are much smarter. They forced May to enter another game before the deadline and offered something that May could not resist. May was forced to the no confidence vote that she was likely to be overthrown by her own party if her rebels got enough votes. Her rebels knew that they would not have many choices in terms of the Brexit negotiation because what May offered was almost the best that they would be able to get; therefore, in this game they were very likely to lose. However, the no confidence vote was a totally different game that this time May would not have many choices but accept what her party requested in order to win their support on her Brexit plan, because May cannot afford losing her Prime Minster position at this crucial time point.

Overall, my previous expectation about May’s rebels would eventually accept May’s Brexit plan becomes true but I underestimated her rebels’ intelligence.

How are people's incomes determined?

When people leave school and enter the labour markets, they can choose various jobs, some have higher incomes than others. What makes different jobs have different income levels on average? There are many factors determining a job's income level.

Firstly, the jobs which require long period of training and practice (including education) usually have higher incomes than those which do not require much experience. This is very obvious and intuitive as the supply of such labours is relatively limited. Doctor is a classical example of such that being doctors requires years of learning and practice. Secondly, the jobs which potentially experience moral hazards are likely to be paid higher incomes in order to make them moral in practice. For example, bankers are paid higher because they have access to enormous amount of money and high incomes can reduce the risk of moral hazard (as the expected returns from financial frauds are reduced). Thirdly, the jobs which have influence also tend to be paid higher. For example, pop stars have influence over their fans, which create values for other parties, such as advertise firms. However, technically speaking civil servants and politicians also have enormous influence over others, but they receive relatively lower incomes, given their experience of training and practice (civil servants and politicians are usually social elites in the society). This is because of social value. In most societies, civil servants and politicians are treated as jobs where people voluntarily contribute themselves into national services. Moreover, respect and future higher incomes are given to these jobs as some form of compensation to their current relatively low incomes that many civil servants and politicians gain positions in the private sector after their political career, for example, the former Chancellor George Osborne was given a position in BlackRock which is the world's largest asset management firm.

A job's wage level is determined by the supply and demand of a job.  A movie star earns a lot of money; however, the supply of actors and actress does not seem low, but actors and actresses are often required to have specific skills and looking, which strictly limit the supply.

Is Trump playing a chicken game with the Democratic Party?

Yesterday I discussed an article about May's playing a game of chicken with her Brexit rebels and I want to talk about another possible chicken game played by the US president Trump. Trump had a meeting with the Democratic leaders, Nancy Pelosi and Chuck Schumer, in the Oval Office; Trump threatened to shut down the government if the Democratic party does not allow him to build his border wall, while the Democratic party definitely does not want the wall at all.

If both Trump and the Democratic party do not like a government shutdown, then the game which is being played between Trump and the Democratic party is a game of chicken. However, if one side does not care about if the government is shut down, then the game is not a game of chicken. I do not think that Trump does not firm stand with his idea of building the border wall, I think that Trump wants to fight against the people who disagree with him; if my belief is true, then this is not a game of chicken that Trump will continue to fight the Democratic party until the Democratic party offers the wall and the probability for the Democratic party to offer the wall in order to avoid a government shutdown is relatively higher than what we expect if having a game of chicken.

Overall, I think that the US government is quite likely to be shut down due the disagreement between Trump and the Democratic party which will control the House next year.

May's strategy in her Brexit act

There is an article on Financial Times written by George Parker and Laura Hughes pointing out that the Prime Minister "May plays a game of chicken with her Brexit critics" (https://www.ft.com/content/c14c8f1c-fd63-11e8-ac00-57a2a826423e). May is facing opposition from both wings of her own party. It seems that no one likes May's proposed Brexit Act; however, no one likes chaos either and the current UK politics is chaos. Either May or her opponents has to stop battling for their own ideology at one point before the deadline set by the European Union, which is a classical case of chicken game.

May delayed the vote on her deal on Monday and the leader of Labour Party, Jeremy Corbyn, accused May of "demeaning her office" by her delaying the vote. May is definitely trying to buy her more time to win more support within and outside her Tory party; it is not entirely impossible for her to win more support within the Parliament, that some MPs may be scared of a "no-deal Brexit" and choose to support May and her Brexit Act. Of course, some MPs are likely to stand firmly on their own bases and try to force May to compromise (which is highly unlikely because even if May wants to compromise, the European Union will not accept to give more to Britain on the matter of Brexit as the EU needs to show other member countries that there is a cost to exit the Union).

Overall, I do not expect May's proposed Brexit act will change a lot in terms of its content because any content that can further favour Britain will be beyond the European Union's acceptance. The best strategy for the UK at the moment seems to use May's proposed act which is probably the best deal Britain can get from the European Union; however, if no one compromises, a no-deal Brexit will inevitably occur.

To what extent will companies move production out of China?

GoPro is reported to start shifting its manufacturing of its action cameras out of China in order to mitigate the impacts of the US-China trade war. GoPro is the first brand-name device maker to pull production out of China after Trump began to impose tariffs on US import from China. China has been the world’s largest electronics manufacturer, and China is also a critical market for electronics as well.

The US and China are both so important markets for all multinational corporations that no large companies afford losing either country’s market. They have to find a way to operate in both countries with a minimum impact from the tension between these two countries. GoPro is moving most of its US bound camera production out of China. This strategy is very likely to be copied by other companies. Since China has comparative advantages of production costs and technology, most export production when exports are not exported to the US will remain in China. China has more skilled and experienced labours and better equipments because China has been the world manaufactory for a significant period of time. Moreover, only when the global economy, including the Chinese economy,  is performing very well, companies will consider to move their production to other places, because opening new plants will cost a lot of money and when the economy is not performing well, the labour cost will not be a big concern since the wage level can be set lower when the economic performance is poor.

Overall, companies are likely to move US bound production out of China, but other production is highly likely to remain in China, unless there are other trade policy changes.

To what extent is a surprise good?

When two parties are fighting against each other, there are some underlying rules between the two parties and both parties are following the rules to fight against each other. Sometimes these rules are unspoken rules which are not made public or written down. For example, during the Cold War, the usage of nuclear weapons was an unspoken rule and the two superpowers (the USSR and the US) not fighting directly on combats was an unspoken rule. However, sometimes one party might want to win some advantages by playing some surprising strategies, and often the first that comes to one's mind is to break the unspoken rules. Because the rules are unspoken, the parties do not take as much blame as they do if they break a rule that is known to the public. 

However, breaking an unspoken rule can have very serious impacts on both parties, as it fundamentally changes the system of the game since the rule is changed. Once one party breaks an unspoken rule, then either party becomes unconstrained to all the unspoken rules, as the party which breaks a rule is likely to break more, and the other which suffers the consequence of breaking the unspoken rule then is also likely to take a revengenous action and break unspoken rules. Under such circumstance, the unspoken rules become invalid and the two parties continue the game without any constrain to the unspoken rules. 

Moreover, breaking an unspoken rule can be seen as a 'cheat' in a dynamic game, and the best response to a cheat play is to cheat as well. Therefore, the players in such design theoretically will always break unspoken rules and continue this manner. So it is fair to conclude that playing a surprise (to break an unspoken rule) is not really a wise strategy when cheat creates an outcome that only one party benefits and cooperation makes both parties mutually benefit but just a bit less and fight makes both parties gain much less (or suffer losses).

What stock is recession-proof?

The global stock market is not performing very well and investors may start to think about picking recession-proof stocks to reduce their risk and generate some returns from their investment even during bad time. What characteristics might a stock have to make it recession-proof.

A stock should be able to generate constant returns despite the environment or have a negative correlation between its performance and the environmental performance.If we think carefully, we can find some companies which can actually perform better when the economy is generally not performing very well. One example is fast food chains. When an economy is performing well, people are generally earning higher incomes, so they can afford more expensive choices, such as fancy restaurants; however, when the economy is not performing well, people do not earn as much as they do during good time, sometimes they may still need to have meals outside because of various reasons, when fancy restaurants are too expensive, they may go to fast food chains. In addition, mobile network providers may not be affected by the economic performance, since people are now much more dependent of smartphones and they will not give up their smartphones even when the economy is not doing well. Moreover, they may even use smartphones more often. First, they may start to pay more attention to news. Secondly, they may choose their smartphones as their primary entertainment choices, since other choices may become less afordable. Thirdly, many users are on contracts, even if they want to lower their spending on mobile network, they are not able to do so.

Overall, there are recession-proof stocks definitely out there.

Matching

Matching is a very important concept in the real world as well as economics. When a product is assigned to a consumer, we can call this as a matching. In most markets, matching is done via a pricing mechanism that suppliers and consumers come to an agreement which in the form of prices. However, there are some markets where there is no price or traditional product. For example, in the marriage market, there is no clear price; in addition, in the education market, people cannot just pay the prices and go to universities (though in some cases this does exist to some extent).

There is a matching method which was proposed by Economics Nobel Prize winners, Sharpley and Gale. First, one party (proposers) proposes first and the other party (receivers) accept the candidates which they favour first if they are approached by multiple candidates; the left people then proposes again and the receivers then select their most preferred candidates; this process will be repeated till the last receiver chooses the candidate. The receivers and proposers can be switched but this will deliver a different outcome and the proposers generally benefit from this process comparing with the receivers; this is why students are given the choices to pick up their universities, students can benefit from this process. This process encourages proposers to reveal their true preferences; however, in the real world, people often tend to hide their true preferences and make their second or third preferred options their first options since they are afraid that they can easily lose out competitions if they all go for their first choices. Such deviation from true preference could be explained by people having limited proposing opportunities.

Overall, matching is very important in terms of resource allocation and efficiency, and there is great challenge in matching mechanism design as well.

What a mess

Yesterday I talked about the US-China agreement on relieving the trade tension between these two countries; however, today it is found that the trade deal between the US and China is a misleading message sent by the US President Trump. The American politics has been a mess since Trump took the office. The potential impeachment now just seems much more likely after Trump’s former lawyer Micheal Cohen’s plea and review of Trump’s business plan in Russia during Trump was running for the office. The misleading message sent by Trump just shows the mess in his administration. When G. W Bush passed away and people compare him with Trump, many American people realise what a great president they used to have. The Democratic Party will control the House starting from the next year and many Democratic politicians are ready to impeach Trump; however, is it really a wise idea to impeach Trump merely two years before the next presidential election.

To impeach a president is never an easy thing to do; and even with the evidence the Democratic Party has from the Muller’s investigation, it is entirely certain for the Democratic Party to successfully impeach the president, because the Republican party still controls the Senate. In addition, the question that if a president can pardon himself or herself will cause a constitutional crisis, especially I do not think that Trump is afraid of pardoning himself. In addition, the effort that people have to put is enormous. People do not have unconstrained capacity, so if all politicians focus their attention on impeaching the president or protecting the president, and the president and his administration are focusing on saving himself, then I do not think that any other thing could be done under such chaotic and hostile political environment. This could potentially go either way. It could be good for the economy since the government leaves the market alone, or this could make the market panic and cause the bubble bursts at a much earlier stage.

Overall, the political chao in Washington leads to more and more uncertainty in the future to the American economy as well as the world economy. 

What a Relief

The global financial market rallies on the US-China agreement at the G20 meeting in Argentina. The tension between the US and China, these two powerful countries, dragged down the global financial market as well as the entire global economy. China and the US have been many countries' major trade partners , and some countries were forced to choose their positions between these two global power which would be harmful despite their choices. Though the two countries' agreement does not mean that there will be no more tension between these countries, it is definitely a relief for the global economy.

Since the US launched the trade war on China, the financial markets became much more volatile, especially the Chinese stock markets including the HK stock market, dropped sharply. The US stock had been performing relatively well but in November the entire gains throughout 2018 were wiped out, and we could not say that the tension between the US and China had no impact on this wipe-out. In addition, though the market did perform relatively well, the American companies have changed many of their strategies to adapt the changes in the US foreign policy; therefore, it is completely fair to say that this agreement provides some degree of future insurance (lowers the corporate risk for the near future). The US stock market might not have dropped as much as other financial markets did, but it rallies just like any other financial market on this agreement between China and the US, implying that investors in the US also think that this is a piece of great news for the US companies as well as the US economy.

Overall, almost everyone should be willing to see the US and China has come to this agreement.  Even the agreement will not affect the US jobs, actually the tension between China and the US can hurt jobs; because the multiple effects caused by more trades and more businesses and greater revenues can bring more jobs to the labour market and vice versa.

Research and Ethics of Research

Many people from academic background and non academic background are arguing about the story of the world's first gene-edited babies, and it is normal to see that people disagree with each other and have different views over this issue. Even some scholars in the field have contradicted opinions about this 'experiment' (it is an experiment for He Jiankui and his colleagues, but I can‘t see it purely as an experiment since it will affect two lively human beings).

Scientists and scholars from other fields are conducting experiments which involve human participants to find out the answers to their valuable questions; however, when conducting experiments, scholars are supposed to follow ethic codes. I am not a researcher in natural science; however, I still need to follow certain ethic codes if I want to conduct experiments in my field. I am currently researching about networking, which seems a very harmless topic; however, according to the codes, I need to let participants know the experiments (including potential risks and harm, even some very minor risk), and I also need to appreciate the time they spend on my study (in some cases, I should pay for their participation). The most difficult part is to let participants know the experiment. It involves two main issues. The issue is the impact of providing information on experiment results, the other issue is unknown information asymmetry and unknown knowledge.

If I conduct an experiment to study humans' behaviour (irrationality), and I tell my experiment's purpose to my participants, because people tend to be rational, they will try to guess how they should react to the experiment in order to make themselves look rational; under such circumstance, the outcome of the experiment will not reflect people's true behaviour. Secondly, of course, we need to inform our participants about all the potential risk and harm; however, we do not necessarily know all information, and the impacts on different people can be different, but we may not know that.

Despite the existing difficulties, researches should always follow the ethic codes.

Technology makes things possible

If one day we could travel back to the past, unless we brought all modern technologies with us, otherwise we would gain many advantages comparing with the people living in the past. Some things are not possible without the support of modern technologies. For example, delivery was not possible in the past, because it was too risky for anyone to run a delivery business like UPS. Delivery men could just run away with goods because information transformation was very slow in the past, the risk for delivery men to run away with parcels was very low. Moreover, many jobs just could be done in the past. People were well educated not because of their lack of incentive, it was caused by the lack of technology. The invention of printers lowers the cost of publishing significantly and makes education cheaper in general, so technology makes more people be able to read.

The key in technological development is information. Almost all technological development relates to information. Trains, ships and planes make people easier to travel, so people are easier to exchange information or see information (sight viewing can be a way of seeing information). The inventions of radar, stealth jets aim to create information asymmetry to benefit oneself. Furthermore, people like sharing information with each other, especially with those who are close to them, that is why Facebook has such an enormous number of active users. The information that users upload online also helps companies like Facebook to earn significant amounts of profits. Therefore, it seems that to determine whether an invention is a significant and meaningful one or not is to see its impact on information, if it can improve information symmetry or create information asymmetry, it is a very good invention.

Trump's influence

Trump is definitely not a popular president that he did not win the popular vote in the 2016 presidential election and his party lost the midterm election this year; however, his influence over the entire country is enormous. Furthermore, though the US Federal Reserve should operate independently, Trump can still influence the Fed. Trump has criticised the rate hike decision made by the Fed chairman who was picked by himself several times, and today Powell, the Federal Reserve chairman declared US interest rates are closing in on "neutral" level, implying the rate hike will be less likely in the future, at least, it is highly unlikely to see a significant increase in rates. Trump definitely played an important role in his Powell's annoucement.

Over the recent two years, Trump has House and Senate, so he can almost get anything done. During these two years, Trump has cut taxes for individuals, especially wealthy individuals, and businesses significantly. In addition, Trump has launched a trade war with China and the relationship between the US and its allies has been damaged by Trump's outrageous claims and behaviour. Therefore, Trump does not influence America domestically but also internationally. Of course, this is the case as all American presidents have such influence. However, Trump is trying to extend his influence to a greater extend. He is trying to influence the judge system and the Fed, those independent government branches.

Some commenters argue that Trump is using his presidency to benefit his family and himself, all he cares is how much he can benefit. However, the wealth is not actually his first priority, his priority is to make him look correct. He never commits any mistake he ever makes and he always looks for someone else to be blamed. However, Trump’s comfortable era will come to an end that Republican lost the control of the House and Democratic Party will control the House starting from 2019. This will make Trump much more uncomfortable as he will be questioned much more frequently and more harshly. Trump is not very good at handling pressure and oppositions; therefore, his behaviour under a Democratic House will become more unpredictable, unstable and outrageous.

Trump's intervention

The US economy has been performing relatively well over the last decades; however, General Motors recently announced it would shut two of its Michigan plants, along with others elsewhere. Trump has always been promising American people that he is the man to bring more jobs for American people and these closures will definitely affect his promise. And what is his action? He sends people to talk to the executive of GM and openly expresses his disappointment and wishes. It is clear that Trump wants to use his power and influence to overturn GM's decision; however, does it work?

It will not work. GM's move aims to catch up with other car makers. GM is already behind the new competition in the new era of vehicles. Although Tesla does not produce as many vehicles as GM does, its market value is much higher than GM's value showing investors seeing electric vehicles are the future of vehicles This can be shown that, in many countries, there are more and more electric vehicle chargers and subsidieis for buying electric vehicles. It is sensible for GM to switch to electric vehicles from its previous plan of betting on low oil prices. Currently, low prices are low , but the demand for traditional petrol vehicles is still weak. Under such circumstance, all vehicle companies should invest in electric vehicles and even driverless vehicles.

Trump wants to stop GM from closing those plants and continue to provide jobs; however, this will stop GM from swtiching its current strategic change. Trump can cut taxes or provide subsidies for GM in order to keep GM opening those plants; if GM chooses to go this path, then it is sacrificing long term gains for short term benefits, which is not wise. Of course, Trump may be able topunish GM to force it to keep the plants open; but this is not benefiical for the American economy.

Overall, Trump's intended intervention in GM's plant closure is not a wise move as here is an example that a government tries to intervene when there is no market failure; under such circumstance, the best move is to leave it to the free market.

Cyber currency

Cyber currrency was a very hot topic but now the heat has cooled down. Cyber currency's prices are positively correlated with cyber currency's public attention, when the cyber currency draws more public attention, the prices increase; and vice versa. From such phenomenon, cyber currency seems not like a proper asset that delivers reasonable returns,its innovative and hard-to-understand foundation becomes its selling point that attracts lots of people to buy cyber coins and pushes up the price. Now when people realize that cyber currency is not like the traditional fiat money and find they have some difficulty to use the cyber currency as proper money, the price landslides and the price now is below $4000..

I am never a fan of cyber currency. However, we cannot deny the impacts of cyber currency. The technology behind cyber currency, blockchain, has raisen many people's interests because of its security; many banks and financial institutions have invested in developing blockchain technology. In addition, the appearance of cyber currency has replace some functions of gold. Gold has been seen an alternative to fiat money, so when there is some political or economic uncertainty appearing in the world, the gold price increases as people see gold as the money that will not be affected by politics or economics; however, when cyber currency appeared, people see cyber currency can become an alternative to gold to be another type of safe reserve. Furthermore, many other types of cyber currency have been invented and even the most popular cyber currency, Bitcoin, has been split into two, Bitcoin and Bitcoin cash. These changes are brought by the heat of cyber currency.

Overall, because of the political stability in the world, there is no need for having many options of safe reserves as alternatives to fiat money, and people are not used to using cyber currency; however, the impacts of cyber currency are unerasable.

Shopping events

Today is Black Friday, and next Monday is Cyber Monday; both are shopping events which customers can enjoy some attractive discount rates when shopping. In China, the biggest shopping is on November 11th, almost every year broke its previous revenue record. Why do companies collaborate with each other and create these large scaled shopping events? (Not only companies within the same sector collaborate with each other, but companies across countries and sectors also collaborate with each other)

A massive shopping event can affect customers’ decision making. During a massive shopping event, customers are suddenly offered a lot more options; customers have constrained abilities to make perfect judgment when receiving too much information. In addition, companies can sell off their outdated products and start to sell new products after shopping events, this can boost companies’ sales and reduce the costs of holding old products. Furthermore, because people are paying too much attention to shopping events, they do not pay attention to the pre-event prices carefully, so they may not actually enjoy the discounts they deserve (since some retailers may increase prices before events and then put discounts on the increased prices). Furthermore, when others are buying, an individual is likely to follow others and also buy things that he or she may not actually need. This could be explained by the herding effect.

Overall, because of the incapacity of individuals, when a shopping event is becoming larger and creates more information and draw more attention, then it is actually easier for retailers to make more profits.

Merchants and consumers both need labels

People’s tastes have been changing over time. Some of the changes were made by merchants’ efforts of selling their products. Merchants tend to give labels to their products, they advertise that their products are made for some particular groups of consumers, who are often considered to be the model of the society or at least admired by many other people. For example, having an iPhone signals this owner is a youth who is living comfortably or a tech enthusiasm. Moreover, when talking about afternoon tea, it sounds posh and makes people think about upper class ladies gathering and enjoying their afternoon. These are all labels. Once a company can successfully create its products’ label, then it can gain some monopoly-like power in this specific market that contains the consumer group with this label. Moreover, if this label is very desirable within the culture, then it can attract potentially more consumers who do not belong to this category yet but have very strong incentives to join the category. Under such circumstance, merchants can earn enormous profits from the labels they create.

Not only merchants need labels, customers also need labels. Customers do not want to differentiate themselves from others and give themselves some desirable and specific labels. When we live in a community, we do not know everyone around us, having labels is an efficient way to reduce the cost of forming new networks and ease the issue of information asymmetry. Having labels help people to notice or attract others with similar or desirable types.

Why are people buying lotteries?

Selling lotteries is a very profitable business and has been income sources of some governments’ welfare benefits. The potential gain of buying a lottery ticket is enormous that people can potentially earn millions of pounds from buying a single lottery ticket; however, meanwhile the chance of earning such enormous money is so tiny that it could almost be seen as zero. The expected return of buying a lottery ticket is negative, and more tickets one buys, more negative the expected return becomes; therefore, buying lotteries does not make sense if a person is rational (a rational person should be risk averse as well). However, many people still buy lottery tickets and why?

The main reason is people overestimate their winning probabilities. When they overestimate their winning probabilities, then their behaviour of buying lotteries is completely understandable, sensible and rational (if we ignore the irrationality in overestimating the probability). Because under such circumstance, even with risk averse risk preference, it is still possible to see that the utility of buying a lottery ticket is greater than the utility of not buying one.

Also people sometimes actually love risk and enjoy risk for fun, as long as the risk is minor, that is why people love Bungee and parachuting. Buying a lottery probability has the smallest cost among the risk that people are willing to take, so buying a lottery can give people fun of taking risk. Therefore, the fun gained from buying a lottery ticket and the potential money award makes buying lottery tickets very appealing even without overestimating the winning probability.

The game between Britain and the EU

France and Spain are pushing for extra EU demands on Brexit, which will further complicate Theresa May's efforts to win the Parliament support for her proposed withdrawal agreement. Yesterday I suggested that Theresa May will eventually gain the support from the pro-Brexit politicians and some anti-Brexit politicians. The negotiation with the EU is a finite horizon bargaining game with discrete choices. The outcome of a finite horizon bargaining game depends on who makes the last move.

The EU is at an advantageous position of this negotiation, because the EU has a final say about whether it will accept or decline Britain's proposed plan. The EU can offer a counter offer; the EU can offer any counter offer which can just make Britain a tiny little bit better off comparing with the no-deal scenario, and Britain will accept the offer if the British politicians are completely rational and do not react revengously, because they do not have the chance to offer any counter offer.

However, we should not expect politicians act completely rationally, it is very likely to see politicians behaving revengously, since such behaviour will win more public support for them, especially when they do not need to take full responsibility of the national fate as the Prime Minister does.

Therefore, the probability of a no deal Brexit is very high, especially when the EU is taking this path.

Brexit: a mess that will be resolved

The UK's plan for Brexit seems like a mess that the UK Prime Minister is facing coup from her party as well as her cabinet. Around 23 MPs have submitted letters to the backbench 1922 Committee, and a leadership contest requires at least 48 MPs' letters. The reason for the chaos in the UK is the pro-Brexit politicians made some unrealistic promises about the Brexit plan and the negotiation with the European Union before the referendum. Now their promises cannot be delivered by May's proposed Brexit plan which is more realistic than their promises; in order to make their voters satisfied, these pro-Brexit politicians have to fight against May's proposed plan and make her plan look like a much more compromised version. The anti-Brexit politicians will also fight against May's proposed plan and make Britain impossible to negotiate reasonable terms with the European Union and force the Parliament to start another referendum and hope the British people will vote for staying in the EU this time. Therefore, all politicians do not like May's proposed Brexit plan, leading to the chaos in today's UK politics.

However, such mess will not last very long because the European Union has a deadline for Britain to make its final decision; therefore, this is not an infinite horizon bargaining game. This bargaining game has a smallest unit and the terms are discrete not continuous; so any allocation is possible in the game, which means any outcome is possible in the Brexit negotiation. I think that May would eventually gain the support from the pro-Brexit politicians, as the pro-Brexit politicians cannot allow another Brexit referendum which would be a disaster for their political career, especially if the British population changes their mind. On the other hand, the anti-Brexit politicians will not support May's proposed Brexit plan under all circumstances if they are consistent with their political belief; however, if Brexit is inevitable, then for the good of Britain, they also have to support May's proposed plan to avoid a divided nation.

Overall, at the current stage, May could only receive very little support within the Parliament; however, once the time is approaching the EU's deadline, May will receive more and more support from the pro-Brexit politicians and potentially some of the anti-Brexit politicians.

Brexit’s impact on the UK health system

People may remember from the 2016 Brexit referendum that a red bus with a famous slogan, “We send the EU £350 million a week, let’s fund our NHS instead”, played a crucial role of affecting the outcome of the referendum. However, when Britain leaves the EU, will there be any improvement in the UK health system?

Three leading health-think tanks have warned that the National Health Service (NHS) is likely to face a shortage of around 350000 staff in a decade due in part to “restrictive immigration policies exacerbated by Brexit”. I want to say that not only the staffs will find it harder to get work permits in the UK, the supply of junior doctors will also shrink as well.

Currently the EU students are enjoying local tuition fees when studying in UK universities. However, after Britain leaves the EU, these students may have to pay international student fees which are much higher than the current rate. In addition, international student fees for attending different courses are different, and the international medical student’s tuition fee rate is one of the most expensive ones. When the tuition fees for studying medicine and becoming doctors become much more expensive, it will certainly prevent some European students from studying medicine in the UK. And the number of medical students determine the supply of doctors, especially junior doctors.

Therefore, it is likely to see the supply of doctors in the UK labour market will shrink over time after Brexit.

Why are people so divided?

It has been a tough period for the UK Prime Minister May since the Brexit referendum. It is just not possible for May to make everyone happy; even it seems that no one is happy about May’s Brexit plan.  A number of ministers resigned over the matter of Brexit. British people are famous for the rationality and moderatism of its democratic politics that Winston Churchill failed to win the election just after he won a world war for Britain. However, in this time, we see a completely different story. Moreover, we do not only see this in Britain, but we also see a similar story elsewhere in the world. Why are people becoming so divided?

This is a very difficult question to provide an accurate answer, but I would like to share my thoughts on this issue. Firstly, when one person is becoming more extreme, then his or her opponent has to be more aggressive and more extreme to counter the extreme behaviour. This will pull two opposite parties further apart from each other. Secondly,  the current political questions seem like one dimensional but are actually multidimensional. For example, Brexit seems to only have two possible answers, one is “to leave the EU”, and the other is “to stay in the EU”; however, this is a multinational issue that involves migration policies, trade policies and even attitudes towards other European countries. Therefore, although people are put into two categories over the Brexit issue, they are even fighting with each other on more specific issues inside and outside their categories. Thirdly, it is easier for people to hear negative or opposite opinions nowadays. Because of the social networks (including social media) and the media, people are easier to get information, and what attracts people’s eyes the most is fight. People see that fighting over different opinions, and feel excited about it and has more incentives to join the fight, especially when they feel the side they support is losing the fight.

Overall, we are in a very divided world and we should accept different opinions, at least accept the existence of different opinions. 

Can India become the next leader of the emerging markets?

India has the second largest population in the world and since its population is still increasing at a very fast rate, we can expect India will soon take over China to become the largest population. The Indian economy is the 6th largest economy in the world and is still growing at 8.2\% (almost a double digit rate). Many people believe that India will take over China to be the next leader of the emerging markets, especially when people see that the Chinese economic growth rate has fallen below a double digit rate. However, is it really possible for India to take over China to be the next leader of the emerging markets?

India has a huge of gender discrimination against females. There is intensive literature which finds that female politicians are more likely to generate higher economic growth in India. In addition, there is a high criminal rate among Indian political participants and people are shocked by how evil these politicians are. However, once a bill was proposed to forbid criminals from entering politics, all Indian political parties just voted against the bill, so this bill has never been passed. So the Indian politics is not impressive at all.

Moreover, India has many states, and different districts have different languages and cultures. When people are speaking different language, it is harder for people to cooperate. Although Indian people can learn English and many do know how to speak English, they still cooperate with higher costs.

Overall, it is not easy for India to take over China to be the next leader of the emerging markets. I do not think India can manage that in the next decade.

Is it sensible to see risk seeking people?

There are three categories of risk attitudes: risk aversion, risk seeking (or risk loving) and risk neutral. Risk attitude is determined by people's preferences between certain returns and uncertain lotteries which deliver the same expected return rate as the certain return assets. If a person prefers certain assets over uncertain lotteries which deliver the same expected returns, then this person is risk aversive; if a person is indifferent, then this person is risk neutral; if a person prefers the lottery which delivers uncertain returns, then this person is risk seeking. Based on the definition, it does not sound sensible that a person is risk seeking. Therefore, is it sensible for a person to be risk seeking?

For ordinary people, it is not sensible to be risk seeking. Because why does anyone want to take unnecessary risk but merely gain the same expected return? No one is likely to take unnecessary risk, unless people want to play for entertainment, like buying state lottery or going to casinos. If people just seek risk for entertainment, then it is not able to see these people are risk seeking, because they gain utility (fun) from falling to less preferred states, they are not doing for investment. However, it is possible for people to seek risk, which is criminals. Crimes are very risky but why do criminals want to take the risk? Because many of these criminals are not wealthy, they do not have much money to supporting their own life without crimes. Because they are already in the less preferred state, they are not afraid of taking the risk because for them, it is still better than certainty, as they do not have sufficient skills and experiments to have proper jobs.

Overall, for ordinary people, it is not sensible to be risk seeking; however, for the people in extreme poverty, seeking risk is not a bad choice.

Stock Market is never stable

On Monday, the stock market fell sharply that the S&P 500 index fell by 1.97\% and Nasdaq index fell by 2.78%. Apple's shares are traded below $200 per share because Apple's suppliers provided weak outlooks, which let investors believe Apple has reached its peak. Since Apple was the first company to reach one trillion dollar market value, Apple's share price affected the entire stock market, especially the technology companies' share prices. However, is there any actually event that negatively affects the outputs of the industries? The answer is 'no, maybe there is one coming'.

The stock market is built on expectation instead of actual outcomes. Actual outcomes may be important, but if the expectation about the future is perfect enough, investors will choose to ignore the awful output at the moment. Moreover, even if the actual output is brilliant, if the expectation falls, investors' confidence will still be damaged and the stock performance will not improve at all. Overall, actual outcomes at the moment is important because it is a factor that helps investors to make their expectations. Then any factor is important as long as it is relevant to investors' expectations.

Share price is not stable as investors hold different opinions and expectations. If investors were able to be consistent with their expectations, the market will be stable affect the adjustment. However, investors are not consistent, their expectations and opinions are influenced by the market price. Since investors are always changing their expectations and different people hold different opinions, there will not be a stable market price.

The new US political environment

The Democratic party won the House of Representatives and they now have the power to start impeach federal officers as well as the president. Donald Trump is not unhappy about a Democratic-controlled House, especially when it comes to his tax return and the possible impeachment. Trump twittered "If the Democrats think they are going to waste Taxpayer Money investigating us at the House level, then we will likewise be forced to consider investigating them for all of the leaks of Classified Information, and much else, at the Senate level. Two can play that game!" However, can Trump really play this game?

Both the US president and the House can choose to cooperate with the other or fight against the other. If both choose to cooperate with each other, the outcome for the country will be maximised, and it will be the most efficient outcome. However, it does not mean either the president or the House maximise his or the Democratic party's individual benefit, especially for the Democratic party. When everything goes very well, it will make Trump more likely to win his re-election in 2020; however, the Democratic party wants to win the 2020 presidential campaign. For Trump, it is going to be a hard time for him to be a president, as he cannot do whatever he wants. For the Democratic party, its best strategy is to fight against Trump. Firstly, the president is often considered to take the majority of responsibility. This means that people tend to blame the president more for any problem caused by the conflict between the president and the House. Secondly, the House stays relatively low profile, comparing with the President, especially this one. People are more likely to notice the mistake made by the president than that made by the House. Thirdly, fighting against Trump can win more public support, especially when the president is unpopular.

Although some people think that the Democratic party is good for the US, it is still a political party which tends to serve its party's interest, it will fight against the president and create a less efficient outcome.

Who is playing with you

I would like to start a question that if there are 25 people in a room, what the probability of two people sharing their birthday. What is your answer? The correct answer is above 0.5. Generally the people who ask this question expect that the answer they will get is lower than the correct answer. However, since this is a very famous question, if people ask the others who are familiar with the question, the answer they will get is going to be correct or very close to the correct answer; under such circumstance, people do not get the answers they expect. Therefore, to get what you want is dependent of who you are dealing with.

Sometimes people ask some questions to economists, they might feel economists act selfishly to some extend. However, this does not mean some economists are selfish, it is just about the way of how economists think questions, economists tend to think questions from the economics prospectives.

In the real world, sometimes people are thinking about who they are dealing with are the ordinary people or always the same group of people who share similar characteristics, especially when they are dealing with people who they are not familiar with; however, this is not true.

Overall, when people are dealing with the others who share some specific characteristics, they should expect that the outcome will drift away from the outcome they expect when dealing with randomly selected people whose characteristics are not special and match the mean of the entire population.

The market is up again

The US stock market rose sharply after the US midterm election, which was the largest surge since 1982. Both the Dow Jones Industrial Average and S&P 500 surged 4.3 percent and 3.9 percent. How is the US stock market related to the midterm election?

The Democratic party controls the House now, but still has not managed to take the control of the Senate. The US stock market seems to favour both political parties. Do people still remember what happened to the US stock market after Donald Trump won the 2016 presidential election? The US stock market dropped during the pre-market period but rose sharply once the market opened. The reason given to the market response after the US presidential election is that the market loved Trump's proposed tax policy. However, this time the Democratic party controls the House, it could mean that the Democratic party can block Trump's proposed aggressive stimulus fiscal policy. Based on the reason given to the market rise after the presidential election, today's market surge does not make much sense. The Democratic party is a left-wing party, comparing with the Republican party. The Democratic party prefers the ideology of social equality, and taxing wealthier people and companies; the ideology of the Democratic party should not be preferred by the US stock market.

Therefore, the stock market does not really love any particular political ideology, unless the ideology creates actual impacts on the financial market. The investors merely love news that could create some excitement in the financial market, and the news does not need to have any actual impact on the market, the market just loves the excitement.

Is Midterm that important?

The US midterm election has been under the spotlight for several weeks, the news media around the world has all been discussing about how important the US midterm election is. The US midterm election is definitely a great opportunity for both of the US political parties, especially for the Democratic Party. The importance of the midterm election is undoubted for the US domestic politics; however, is the midterm election similarly important for the global politics and the global economy?

If the prediction of the polls is correct, the Democratic party is likely to control the House and the Republican party is likely to defend its control over the Senate, and this is the most likely scenario. If the Democratic party controls the House, the investigation of Donald Trump's finances and Russian interference in the 2016 US presidential election; however, since the Democratic party does not control the Senate, the Democratic party cannot successfully impeach the current US president. However, this is not important for the global economy; what is really important for the global economy is how the US midterm determines the US future foreign policy. As long as Donald Trump is the US president and the Republican party controls the Senate, the US president will still have his influence over the US foreign policy and the US future foreign policy can hardly change, especially the US foreign policy against China. When the Democratic party can start to influence the US foreign policy, the US foreign policy regarding its policy in Europe, North America could return to its initial route before Trump became the US president. However, since Trump and the Republican party have convinced some of the US population about how Chinese take the US jobs, it would be unpopular for the US government to become friendly. Moreover, the political systems of the US and China are different, which can lead to further conflicts between the two countries; China has become the second most powerful country in the world, so China easily becomes the potential target of the US.

Overall, the midterm election is not very likely to have significant impacts on the US future foreign policy, so the importance of the midterm election may not be as important as many people expect in terms of its impact on the global economy and politics.

How should a person lie?

I think that all people lie to others to some degree, and some lies are considered to be 'good lies', which tend to benefit others instead of the lie tellers. However, I want to focus on the lies that solely serve the lie tellers' own interests, and discuss how people tell lies to benefit themselves the most from a game theory prospective.

A person cannot always lie to others under all circumstances, especially he or she cannot let others know he or she will definitely lie regardless whatever the circumstance is; because if he or she does so, the other participants or players can design their strategies accordingly and telling lies would not be very efficient of serving the lie teller's interest.

A lie teller is possible to create an unfair game and benefit himself or herself only if he or she has an advantage of information; otherwise, he or she will not be able to make his or her lies effective. Moreover, the lie maker needs to have some chances to offer the lie tellee to gain some benefits. Then if the lie tellee knows he or she may be told a lie, since the probability of being told a lie is not 100 per cent, he or she may randomly choose whether he or she choose to trust the liar or not.

Because the liar has information advantage, even if he or she does not always lie (always lying is the best strategy), once he or she forces others to play the game with him or her, the expected outcome will be positive, and the lie tellee's expected outcome will be negative. Therefore, this is not a fair game and the liar can benefit from randomly telling a lie.

Explanation of increasing wealth gap from microeconomics prospective

This explanation of increasing wealth gap from microeconomics prospective comes from the work of Marina Halac, Ilan Kremer and Eyal Winter, 'Raising Capital from Heterogeneous Investors'. Suppose a company requires a certain amount of money to start its project (assume as long as the money is sufficient, the project will succeed) and there are two investors available, one is a wealthier investor and the other is a less wealthy investor, but either can pay the project alone. Under such circumstance, the company has to get the money from both investors. To convince the two investors, a company has to ensure one investor's dominant strategy is to invest his or her money, then when having one investor secured, the other investor will follow as he or she knows the project will succeed. Here comes a question which investor the company should pay more in order to guarantee his or her investment. The answer is the wealthier investor, because once the wealthier investor invests, the probability of succeed increases more significantly, so the risk premium paid to the wealthier is actually proportionally lower and the less wealthy investor only gets an ordinary interest rate, since his or her investment is risk-free; overall, the company will pay less comparing with proposing to the less wealthy investor first

This answer is also true when it comes to a larger number of investors problem. The company always proposes to the wealthy investors first, so the wealthy investors get better deals than the less wealthy investors. Under such circumstance, the wealthy investors become wealthier after investment, and the less wealthy investors do not change as they are offered the risk-free interest rate. After several periods of investment, the wealth gap between the wealthier investors and the less wealthy investors will increase over time. This can at least partially explain the increasing wealth gap in the real world.

I find the result is rather brutal that their work could potentially imply investment, this kind of economic activities, naturally make the richer rich, if companies behave rationally.

Starting with information

People like communicating with each other to exchange information, sometimes they exchange information for their own serious purposes, or they exchange information (or gossip) merely for entertainment purposes. Both kinds of purposes are completely fine. Information is almost starts of everything. Technology is developed in labs or offices, the information has to be passed from labs or offices to factories in order to produce hi-tech products. The information has to be passed from traders to brokers in order to make stock exchange happen.

Information is a very important concept in the game theory. A game's outcome can be very different between a setup with communication and a setup without communication. Although people may not tell truth, as they may strategically lie to other players in order to get more profits, people can predict others' strategies, especially when we expect all people work for the best of their interests. Moreover, when people communicate with each other, they are exchanging very complex information including people's emotion and some unexplainable expression as well, these kinds of information are difficult to be modelled, and also important when people are making their decisions. People do express their emotional feelings; therefore, it is reasonable for people to receive emotional expression as part of information they receive, though it is not sensible in the eyes of economists.

Overall, people are exchanging information all the time in all different forms. Some form of information is very complex and almost impossible to be modelled, such as emotion, but plays important roles in our decision making.