Strategies on the negotiation table

Some media point out that the UK Prime Minister, Theresa May, is ready to increase Britain’s offer to the EU over the Brexit divorce bill. The maximum amount that the UK is willing to pay is the difference between the economic gains from joining the European single market and the economic gains after leaving the European single market. However, the UK itself may not know the actual difference exactly, even if the UK government knows, it will not make it public, otherwise, Britain may have to pay the full price. Of course, Britain will not be the only one who will lose after Brexit; other EU countries may also lose after Britain leaves the EU, since Britain is one of the three major economies in the EU. Therefore, Britain technically only needs to pay the gap between what Britain would lose after it leaves the EU and what the rest of the EU would lose after Brexit.

Negotiation strategy is basically strategies that build on information set and expectation. Information set means the parties on the table do not know each other's information for certain; therefore, the parties make their decisions based on their own expectations about the outcomes of their opponents according to their estimated probabilities. However, in addition to the traditional game theory model, in the real world, bluffing is a common strategy that tends to mislead their opponents' estimation. Though people tend to know their opponents are likely to use bluffing strategy, it increases the difficulties of making precise estimations about their opponents. Moreover, in the real world, the money is not the only bet that can be put on the table. The valuation of other bets makes the negotiation much more difficult. 

To conclude, there is not a perfect negotiation strategy, as information is unknown and bluffing is very common, the estimation is very likely to be distant from the correct answer. Therefore, there is no perfect negotiation strategy but there are definitely bad strategies.

The gender pay gap

In almost all countries, there is a culture of differentiating women from men; and based on the culture, women are considered to have different social responsibilities from men, and this has been critiqued by feminists. However, there is a gender discrimination in the labour market that even when doing the same job, men usually get paid higher than women, such gap is very significant in the developed world as well. Recent years, this issue has attracted much attention. One of the reasons that this problem has started to be mitigated is that the communication is faster. When people talk with each other more frequently, they are more likely to realise the pay gaps between them and their male coallegues. Moreover, when they are changing their jobs more frequently, they can feel different companies have different attitudes towards the existing gender gap. With more comparisons, the issue of the gender differentiation can be realised by more people. Secondly, the types of jobs have been changing over the past years. More and more jobs do not require labours to have physical strength to complete their jobs, this makes men and women equally productive when they have similar levels of experience and knowledge. Since the men and women are similarly productive, there is no reason that men and women should be paid differently. Thirdly, when more and more women become the leading groups of the society, they have more incentives to change the situation and close down the gender gap. Fourthly, the market force may close down the gender pay gap as well. In the labour market, as women are paid less even when they are as productive as men, women are more preferred by employers, so the demand for female workers will increase till the wage level for women is equal to the wage level for men. Of course, people can argue that women need pregnancy holidays and need to take care of their families; however, recent years, in some countries, men also take pregnancy holidays to be with their families, and some men have left their jobs to take care of their families.

To conclude, the gender gap in the labour market will be closed automatically by the market force as well as the social force, it is just a matter of time.

global warming could be more harmful than what we think

Many individuals and countries have realised the importance of environment and the danger of global warming. However, some of the side effects of the global warming have not been discussed frequently though they could cause serious impacts on our economy as well as our society. 

The temperature change caused by the global warming could cause serious and immediate impacts on us. There is a study that finds that increasing the temperature by 1 degree could increase the probability of a civil war in a African region by 1 percent and also have a lagged effect of 0.9 percent in the coming year. As we know that the political stability has a very close relationship with the economic development. When a country’s economy is largely dependent of its agricultural industry, the impact of the temperature on its economy could be very significant, a lower production in the agricultural sector due to the climate change could lead to a political instability due to the poor economic environment. In addition, the temperature change could have a multiplier effect as well. When the temperature is higher, we do not feel very comfortable, so we need to use industrial tools, such as air conditioners, to help us to live under a comfortable environment, while the industrial tools potentially could increase the temperature further more. This means the temperature increase rate could be accelerating when the temperature is higher. Moreover, as we all can feel that temperature can easily affect our mood, when it is hot, we are more likely to be impatient; when we become impatient, our attitudes in our daily activities including consumption and investment change (many economic theories have pointed out the consumption and investment behaviour differences between patient and impatient people), so our society and economy would also change systematically. 

Oil price and its future trend

Today the oil price climbs above 64 dollars a barrel after Saudi Arabia’s domestic political changes. Saudi Arabia recently arrested dozens of princes and business tycoons under its anti-corruption crackdown, it has raised the financial market’s concerns about the political stability of Saudi Arabia, the world’s largest crude oil exporter. The future oil export policy and its political continuity closely rely on its domestic political stability.

Earlier the king of Saudi Arabia visited Russia and discussed the policy of crude oil exporting. It may imply that the two major crude oil exporters are likely to collude in terms of the future energy policy, especially when many countries have been putting lots of efforts on developing new alternative green energy. The development of new energy will lower the oil price in the long run; to slow down the speed of replacing crude oil by other alternative energy, the oil price has to be low in order to make the idea of replacing crude oil less attractive; however, at the same time, when the oil price is low, the profits these crude oil exporters can get are certainly low as well, though the sales may increase due to the lower price.

Therefore, there is a paradox here that exporters want to increase the oil price so they can get more profits but meanwhile they also want to lower the oil price in order to make oil more competitive when comparing with other alternative energy.

While the price of using other alternative energy is lower, the oil price will drop again significant. Once the oil price is low, there is not much room for it to increase any more unless there is an event that makes the oil production drop dramatically.

The US tax reform and the future US society

The new US tax reform has been released, and this could be seen the first major policy since Trump became the US president earlier this year. The tax reform focuses on the two parts, one is tax cuts, the other is simplifying the taxation system. Trump presented how the new tax form would look like, and from the photo posted, the new form would be much shorter and neater than the current one. The simplification of the taxation. This is very necessary as when the tax form becomes too complicated, the efficiency for taxpayers as well as the government would be poorer, it is more likely for taxpayers to pay miscalculated amounts of taxes.
However, the tax cuts need to be analysed more. The tax cuts could also be divided into two parts: one is the cuts in cooperation tax, the other is the cuts in income tax, especially for those who are very wealthy.Firstly, the cooperation tax is going to be cut, it means the profits gained by companies in the US are likely to increase. This encourages multinational companies to transfer their profits back to the US; however, considering there are some countries which have zero cooperation taxes, this effect may not be as great as the US government wants. However, this is definitely bullish for the stock market, as the costs for American companies will be lowered under the tax reform. Here comes with another issue that how the companies are going to do with the extra profits they get under the tax reform. Are they going to invest in production to boost the market supply? It depends on the individual incomes (which could be also influenced by the tax reform). If they do not find any investment opportunities in the economy, they may just use the cash they hold to conduct some buy back programmes, like what Apple did over the past several years. This could make their shareholders richer, but would not be necessarily helpful for the whole economy. Secondly, from individuals’ perspective, the tax reforms may benefit many middle and upper classes who are likely to save lots of money due to the tax cuts. Moreover, the minimum wage required for paying taxes is lifted, this is beneficial for many poor people. However, the issue of widening the wealth gap in the US society could not be ignored. Under the tax reform, the wealthiest people are benefited the most, the wealth gap between the wealthiest and the poorest would be larger and larger. This could increase the likelihood of social unrest when the gap is too wide.
To conclude, the cut in cooperation taxes would benefit the shareholders the most, and the cut in income taxes would benefit the wealthiest people the most; therefore, the wealthy people would become even richer under the new tax reform and the social wealth gap in the US would be widened.

How important is the chair of the US Fed?

In the US, the central bank is independent from the US government; however, just like the supreme court, the chair of the US Fed is named by the President, so the US government definitely has some influence over the central bank. Of course, though the US government cannot directly ask the US Fed to make certain monetary policies, the US government could send signals to the market about their wanted monetary policies or at least future policy directions. The naming of the nominee for the chair of the US Fed is a great tool to send signals to the market. The candidates for the chair of the US Fed are usually well respected in the financial sector; however, they hold different opinions about the future monetary policy decisions, some of them may love to loosen the policy and focus more on the economic growth, and some could focus more on limiting the inflation in the economy. Based on the candidates’ different opinions about the future monetary policy, the US president could name the one whose opinion matches the best; therefore, the policy opinion of the nominee pointed by the President also represents the opinion of the White House. Of course, once the nominee officially becomes the chair, he or she could adjust the policy plan, but the main direction of the future monetary policy is very likely to stay the same, because unlike a supreme court judge, the chair of the US Fed has a term, they are less likely to be fully neutral and independent.

In general, the chair of the US Fed can smoothly finish his or her job in his or her term, as he or she also present the opinion from the US government.

Why is iPhone X sold much better than iPhone 8?

The answer to the question that why iPhone X is sold much better than iPhone8 can be concluded by one simple answer, that iPhone X is much better than iPhone 8. However, I would like to answer this question from a different angle, consumption decision making (the demand side factor), rather than the quality differences of the products (could be seen as the supply side factor).

There are two main factors that consumers concern about when making their consumption decisions: one is the price, and the other is the utility. The prices between iPhone 8 and iPhone X are different; however, in my opinion, such price difference has not been significant enough to differentiate the two products’ target consumer groups. Once both phones target the same consumer group, the two phones compete with each other. Since the utility gained from an iPhone X is so much greater than the utility gained from an iPhone 8, consumers of course prefer iPhone X over iPhone 8, unless consumers are extremely inpatient that they could not wait for one more month after iPhone 8 is available (of course, the time could be longer as the consumers need to wait another several weeks after they place their orders for iPhone X). Therefore, when the demand for iPhone 8 is low, it also implies that the demand for iPhone X is much greater, as the total demand for higher-tier iPhone is relatively fixed.

In addition, the utility gained from buying a iPhone does not only come from the functions that an iPhone has got, but also comes from the signals sent from buying an iPhone. The signal effect of buying an iPhone is sometimes more important than the actual functions that the machine gives to is. Owning an iPhone can signal others that you are a fashionable, cool person from a good background (such as having relatively higher incomes, wealthy family backgrounds, being young and energetic). When consumers are trying to choose between iPhone X and iPhone 8, the effective signalling effect of buying an iPhone 8 only lasts for a month before iPhone X appears in the market, so the average cost of buying the signalling effect of an iPhone 8 is a lot more expensive than the average cost of buying the signalling effect of an iPhone X.

Therefore, from customers’ perspective, it seems more cost efficient to buy a relatively more expensive iPhone X, as the signalling functions gained from the two products are incomparable and the signalling function is the most important function for many consumers.