The Currency of Collectable Signatures

Collectable signatures are fascinating to me because they seem to have almost magical properties to them similar to government legal tender laws.  By this I mean that they create value where there would be none otherwise.  Dollar bills are practically worthless in terms of materials, and a one dollar bill cost as much to create as a one hundred dollar bill.  What makes a dollar valuable is that it is legal tender of the United States of America, which is the largest economy in the world.

Similarly, most autographs are not on anything that is particularly valuable.  They are often on slips of paper, letters, books, or sometimes memorabilia.  The second that their signature is written onto the item though, the item becomes more valuable.  Its value is based on natural properties of supply and demand, and in the case where a signature is especially rare (George Washington) or especially in demand (Mickey Mantle), the price can be especially high.  It strikes me that we all have signatures, but celebrities have autographs.  These autographs have transformative effects on the items which they adorn.  This also makes the author, if still alive, a bit like a money press.

Current asking prices for famous autographs include $599.00 for President Franklin Roosevelt, $450.00 for Dr. Milton Friedman, $35,750 for President George Washington, £49.99 for former Prime Minister Tony Blair, $500.00 for athlete Michael Jordan, $400.00 for athlete Mickey Mantle, and $49.99 for musician Gene Simmons (to name a few).

These prices fluctuate with public interest, and based on how often the celebrities' signature is available in markets.  Some celebrities are signing constantly, such as a popular author, politician, athlete, actor, or musician, and others can be very infrequent signers.

This makes the behavior of autograph hounding more understandable.  Autograph hounding is the active pursuit of celebrities for the purposes of acquiring their signatures.  Many autograph hounds use children as fronts for what is essentially a business operation.  Many celebrities sign in social or public situations freely, but others are more guarded.

(warning: profane language)

The video above shows musician Ted Nugent demanding money for his autograph.  Celebrities demanding money for their autograph is also very common, and many memorabilia fairs feature former athletes signing for a fee.  Many celebrities also use autograph signing sessions as a method of promotion for their books, albums, and artwork.

Signature collecting used to be a common hobby in the United States.  Individuals would collect signatures from famous celebrities and friends alike.  Setting out guest books at ones' home was another common way of collecting signatures that was quite common in the recent past.  To a certain extent, it is still practiced.

This is a film titled "The Autograph Hound" from 1939 starring Disney character Donald Duck.

Celebrities must be sensitive to the factors of supply and demand if they want to maintain a stable and relatively high price for their autograph.  This is why many celebrities do not sign autographs very often, and sometimes leave relatives with caches of signed materials with instructions about how to release them into the public.  A famous story relating to that practice is with the death of Joe DiMaggio.  DiMaggio was an individual who was able to charge many dollars for his signature, because he limited the supply.  Before he died he signed many baseball bats, and left them to his family so that they could have an income from selling them after he died.

Please let me know if there is an aspect that I've neglected about the economics of collectable signatures in the comments!

Color Me Impressed: Hyun Song Shin

As a student, being blown away by new information is a more common experience than for most individuals.  This is the purpose of my series "Color Me Impressed."  An economist who just amazes me so much with their writing that I can't help but share.

Dr. Hyun Song Shin is a Professor at Princeton University.  He has just exploded with amazing articles on financial and monetary economics.  Some titles include, "Carry Trades, Monetary Policy and Speculative Dynamics," "Monetary Cycles, Financial Cycles, and the Business Cycle," and "Leveraged Losses: Lessons from the Mortgage Market Meltdown," to name a few.



Just this past month, he gave a speech at the International Monetary Fund.  The speech was titled, "Global Banking Glut and Risk Premium."  He seems to take the topic of the global recession, which is one that has been tackled by almost every economist, and give an entirely new spin.



I can't say that I've completely absorbed this, but I am so impressed because he seems to be observing international finance and monetary policies on a more sophisticated level than I have seen previously.

George Soros and Economics

George Soros is one of the more polarizing figures in the world.  He has backed pro-democracy movements throughout the world, and other politically aimed organizations primarily through his Open Society Institute.  Because of his political support, he has been criticized severely and has been made the subject of many conspiracy theories.  Glenn Beck and other American right wing pundits have especially made pointed remarks about George Soros.

One of the paradoxes of American right wing distaste for Soros is how much Soros' philosophy is similar to theirs.  Soros has been a lifelong capitalist and promoter of free societies.  He studied philosophy at the London School of Economics under Karl Popper.  Popper made an enormous impact on Soros and his book, The Open Society and its Enemies.  In some aspects, Soros is a classical liberal, but he clearly has different ideas about the role of government than typical Austrian economists and philosophers.


George Soros (photo: World Economic Forum)

One of George Soros ideas that has gained little, if any, traction is his Theory of Reflexivity.  For economics, this is an enormous idea that if it were accepted, would be as revolutionary as marginalism.  The idea for reflexivity is grounded in logic rather than mathematics, but it seeks to replace the equilibrium as central point of analysis for economics.

Soros writes that "there is a two way interaction between the participants' thinking and the situation in which they participate.  One the one hand, participants seek to understand reality ( f ); on the other, they seek to bring about a desired outcome ( φ ).  The two functions work in opposite directions: in the cognitive function reality is the given; in the participating function, the participants' understanding is the constant.  The two functions can interfere with each other by rendering what is supposed to be given, contingent."

His set of equations looked like this:

f (x) = y ,

φ (y) = x .

Soros criticizes the concept of equilibrium as being illogical because it attempts to use a dependent variable to influence a respondent variable when the dependent variable is also a respondent variable.  Soros admits that this is a bit of circular logic, an aspect which he calls a feedback loop.

Soros gives several stock and currency market examples of his theory in action in his book, The Alchemy of Finance.  He criticizes the concept of economic equilibrium and attempts to shake it to its core, but he does not replace it with any robust mathematical concepts, instead merely simple logic and life experience.  Surely, all of us find the concept of equilibrium to be very abstract when applied to our daily lives, because equilibriums are not always intended for real life.  They are models based on assumptions to help us understand difficult but widely observed truths like the relationship between supply and demand.  In real life, we often depart from these concepts on the individual scale, and it is often not until we reach populations that noticeable trends emerge.

The concept of perfect information is used to make our supply and demand lines straight rather than a blur of individual dots that trend in those lines.  Similarly, on supply demand graphs with equilibriums, we generally use static time, which is not realistic either.  Transactions are constant and as Soros describes, the market's actions affect the market's information about future actions.  He is correct that there not actually any constant variables and that everything is actually respondent.

Soros actually borrows this idea from his mentor Karl Popper who wrote about it in, The Poverty of Historicism.  Popper defines it as "the influence of the prediction upon the predicted event," which he was using to refute what he called historical prophecy.  Popper is such a famous philosopher, and one that the progressive movement has not warmed to.  Like the flip side of a coin, Soros is probably an even more famous currency trader and philanthropist, and one that classically liberal and conservative movements have not warmed to either.  Yet the connections between Soros and Popper are very strong.

While many have accused George Soros of various conspiracies, most of these accusations are rather groundless.  He would like to replace the concept of equilibrium with the theory of reflexivity, while it may not be a sinister conspiracy involving dark alley ways and secret handshakes, it is something.  It seems to me that his main argument against it is that it is static, but it is measuring elements which are dependent upon one another and are never actually static.  He would prefer a different, reflexive point which would be dynamic and more realistic.  G.L.S. Shackle writes of this issue in economics, "We cannot, then, regard the 'present moment,' or the moment-in-being, as strictly a still platform from which the 'rest of time' can be surveyed."

Many others have written about how future events or our expectations affect our decision making and even that a certain awareness of our own impact could enter into these rational expectations.  These writings do not scrap the notion of equilibrium, and nor would I.  I do not think that Soros' theories have risen to level of rewriting our understanding of economics, but that does not necessarily mean that they are not worthwhile ideas either.  For a more detailed, mathematical understanding of reflexivity, read the paper by C.P. Kwong, or read it in its original form in The Alchemy of Finance.


REFERENCES:


Kwong, C.P.  "Mathematical Analysis of Soros' Theory of Reflexivity."  Cornell University.  2008.  Web.
Popper, Karl.  The Poverty of Historicism.  London: Routledge & Kegan Hall.  1957.  Print.
Shackle, G.L.S.  Time in Economics.  Amsterdam: North Holland Publishing.  1957.  Print.
Soros, George.  The Alchemy of Finance.  Hoboken, NJ: John Wiley & Sons.  2003.  Print.  (originally published in 1987)

The Black-Scholes Equation

New York Stock Exchange

Traditionally, higher returns have been associated, or rather demanded, with trades involving higher risk.  Traders since the dawn of time have endeavored to reduce or eliminate risk.  By the mid-twentieth century, many traders believed that they had done just that.  Building on the work of Paul Samuelson who, in turn, drew from Louis Bachelier's The Theory of Speculation.  The main way that risk has been reduced is through the Black-Scholes equation and a process known as dynamic hedging.

The Black-Scholes equation was first authored by Fischer Black and Myron Scholes.  They introduced a method of hedging by purchasing the option on an asset and the asset itself.  The equation creates a relationship between the asset and the option on the asset which aims for a risk free environment within the parameters of assumed volatility.  Around the same time, Robert Merton developed a more robust method of pricing options.

Chicago Board of Trade (photo: Jeremy Kemp)

Robert Merton and Myron Scholes won the Nobel Prize in economics for their idea in 1997.  The equation is used throughout financial markets as the basis for more complicated and tailored strategic financial models.  Because it is based on the random walk concept within markets, the model has an assumed parameter of volatility and performs very well within those boundaries.

The problem with the concept of eliminating risk is that it is impossible.  The model actually simply manages risk in a predictable way, when given a relatively predictable future (that the random walk will continue to be a random walk).  The model is incapable of detecting seismic shifts within the markets.  Traders that are overly reliant on this model can be disastrously ill prepared for stock market crashes and panics.  Nassim Nicholas Taleb and Benoît B. Mandelbrot have been critical of this model for understating the volatility of the stock market.  Here is one paper by Taleb arguing not to discount improbable events.

The Midas Formula is a BBC documentary on the Black-Scholes equation.  It is available in a series of YouTube videos below.

The Lemonheads in the Market for Lemons

Alternative rock band The Lemonheads has had a tough path since their last hit album, Come on Feel the Lemonheads in 1993.  They haven't had a hit single since "Into Your Arms" was #1 on the U.S. modern rock charts.  It's not easy being a fading star, but it's still better than many other things.  Many musicians hold onto stardom far after the masses have stopped screaming for more, and sometimes after the die-hards have stopped as well.


Evan Dando of The Lemonheads (photo: Martijn van Exel)

So what is an artist or band to do when their audiences are getting smaller and smaller?  One thing that many bands (De La Soul, Metallica, Megadeth, Sonic Youth, etc.) in the past ten years is to start promoting their shows using a single album rather than a blend of the entirety of their career.  Most artists or bands have many albums, but fewer numbers of hit albums.  This is one element that makes concerts something of an asymetric information market.  When the band schedules a performance, how does the audience or individual consumer know which songs are they going to play?  The ones that the consumer knows and loves, or other songs?

As with all asymetric information markets, this introduces elements of risk into the experience and can scare consumers off.  The consumer has other ways of reducing this risk of seeing a poor effort or a set list that they are not interested in by following the music industry on any of the many magazines and blogs designed to promote that industry.  That, of course, takes time.  Time involves opportunity costs, but this is often somewhat negligable because it is almost always a part of the consumers recreational time, and could be considered a part of the recreation.

One way for a band that has not had as much attention (or attendance) as they would have liked in the recent past, but has a very well known album is, to promote the fact that they will be playing the entire album during the concert.  This adds certainty to consumer expectations.  It may also serve to refresh a tired brand, by reminding consumers why they loved them in the first place.  Right now, The Lemonheads are on tour playing It's A Shame About Ray album in its entirety.  The Lemonheads recently played Minneapolis, and many of my friends were abuzz about the show, and bragged on facebook about how much they were looking forward to and enjoyed the show afterwards.  This was in stark contrast to the 2009 Lemonheads tour which passed largely unnoticed (at least by my friends).  I don't have attendance figures for the two tours, but I imagine that this tour is better attended.

I imagine that many music fans will tell me that song selection mystery is part of the allure of any good band.  Also, bands rehashing hits that they wrote 20, 30, 40, 50 years ago (perhaps with different backing bands) ends up being little different than a cover band.  They're probably right about both of those, but reducing uncertainty generally helps markets.  If what you're selling is uncertainty, then give your audiences as much as they can handle (note: suspenseful movie trailers), but if you're selling something else, then reducing uncertainty will probably be a positive thing for sales volume and corresponding higher prices.


THE LEMONHEADS TOUR DATES:


11/30 Portsmouth, UNITED KINGDOM – Wedgewood Rooms
12/1 Nottingham, UNITED KINGDOM – Rescue Rooms
12/2 Leeds, UNITED KINGDOM – Cockpit
12/4 Newcastle upon Tyne, UNITED KINGDOM – The Cluny
12/5 Glasgow, UNITED KINGDOM – Oran Mor Auditorium
12/6 Manchester, UNITED KINGDOM – Ritz
12/7  Liverpool, UNITED KINGDOM– Academy 2
12/8 Sheffield, UNITED KINGDOM – Plug
12/10 Birmingham, UNITED KIMGDOM – Academy 2
12/11 Cambridge, UNITED KINGDOM – The Junction
12/12 London, UNITED KINGDOM – Shepherd's Bush Empire
12/13 Brighton, UNITED KINGDOM – Concorde 2
1/10 Brooklyn, NY – Knitting Factory
1/11 Brooklyn, NY – Knitting Factory
1/12 Clifton Park, NY – Northern Lights
1/13 Uncasville, CT – Mohegan Sun Casino, Wolf Den
1/14 Buffalo, NY – Town Ballroom
1/16 Pittsburgh, PA – Stage AE
1/17 Toledo, OH – Frankie's
1/19 Grand Rapids, MI – The Intersection
1/20 Indianapolis, IN – The Vogue
1/21 Milwaukee, WI – Turner Hall Ballroom
1/22 Madison, WI – The High Noon Saloon
1/24 Des Moines, IA – Vaudeville Mews
1/26 Omaha, NE – The Waiting Room
1/27 Lawerence, KS – Granada
1/28 St. Louis, MO – Old Rock House
1/29 Fayetteville, AR – George's Majestic Lounge
1/30 Oklahoma City, OK – The Conservatory
2/1 Colorado Springs, CO – The Black Sheep
2/2 Aspen, CO – Belly Up Aspen
2/3 Boulder, CO – Fox Theatre
2/4 Albuquerque, NM – Launch Pad
2/6 Phoenix, AZ – Rhythm Room
2/7 Tucson, AZ – Plush
2/9 Dallas, TX – The Door
2/10 Houston, TX – Fitzgerald's
2/11 Austin, TX – Mohawk
2/12 San Antonio, TX – White Rabbit
2/14 Baton Rouge, LA – Spanish Moon
2/15 New Orleans, LA – One Eyed Jacks
2/16 Oxford, MS – Proud Larry's
2/17 Birmingham, AL – Bottle Tree
2/18 Pensacola, FL – Vinyl Music Hall
2/20 Tallahassee, FL – Club Downunder
2/22 Gainesville, FL – Double Down Live
2/23 Orlando, FL – Hard Rock Live
2/24 Tampa, FL – Crowbar
2/25 Jacksonville, FL – Jack Rabbits
2/27 Atlanta, GA – The Earl
2/28 Athens, GA – 40 Watt Club
2/29 Greenville, SC – Handlebar
3/2 Greensboro, NC – Blind Tiger
3/3 Knoxville, TN – Bijou Theatre
3/4 Asheville, NC – The Orange Peel
3/5 Louisville, KY – Headliner's Music Hall
3/6 Columbus, OH – The Basement
3/9 Richmond, VA – The Canal Club
3/10 Baltimore, MD – The Ottobar
3/11 New Hope, PA – New Hope Winery
3/13 Hoboken, NJ – Maxwell's
3/14 Hoboken, NJ – Maxwell's

The Lemonheads "Its A Shame About Ray"

We're Gonna Need A Bigger Boat

via Bloomberg

It is starting to really hit the fan in Italy as yields on 10 year Italian bonds hit 7.4%!  This was always the country that everyone was worried about when they were talking about the other PIGS (Portugal, Italy, Greece, Spain), and it looks as though Italy is almost tipping over.  This recent market action has been the main cause for the President of the Council of Ministers, Silvio Berlusconi, to resign.  This news has not stopped the market from driving up the yield for Italian bonds further.


Palazzo Montecitorio, Rome (photo: Marco Assini)


It remains to be seen what, if anything, the Eurozone can do to help the Italian bond market, as they have with Greece.  Economists and market watchers have long said that Italy is too big to get the same "fixes" that Greece received.  The wheels keep churning at the Italian Ministry of Economy and Finance, they'll be having new bills issued tomorrow, and more 10 year bonds next week.  This might be the one of the more interesting months in economic history, as it might see one or more countries exiting the Euro.  It seems the economics blogosphere is abuzz with that idea, and rumors are spreading that top French and German officials are already discussing how it would happen.

Most currency changes are done years in advance so that all market participants understand what is happening.  The Euro was introduced over a three year period, initially (1999) only electronically, and older currencies were still accepted physically until 2002.  It is likely that if the Euro shrinks in terms of countries, or if it is scrapped altogether, it will happen quickly.  If Greece reintroduces the Drachma, or Italy the Lira, it will be almost overnight.  This will be an awful shock to the economy.  Deflationary pressures will be enormous, and productivity losses could be severe due to loss in the medium of exchange because large economic areas won't have currencies for a period.  It will be ugly, but the uncertainty of how ugly is enormous.

Intermediate Microeconomics

The internet can be such a terrific place to learn economics and subjects of all sorts.

J. Anthony Cookson or Tony is a graduate student at the University of Chicago.  So as a grad student, he's already written papers like this one.  He has several websites: one is about econometrics, and the last helps students such as myself learn microeconomics.  Here is a sampling of the videos:

Moving versus Shifting Demand

Basics of Elasticities

Marginal Rate of Substitution

Deriving Demand Using Calculas

Deadweight Losses

There are many other videos at his site.  I'm just really grateful for the videos that he put up because they were really helpful to me.  I'm sure he has a bright future ahead of him as an economist and an educator.