‘A Video Lesson on the Price of Movie Popcorn’

Friday, April 4th, 2014

Richard B. McKenzie is the Walter B. Gerken Professor Emeritus of Enterprise and Society at The Paul Merage School of Business, University of California, Irvine. Here he is presenting ‘A Video Lesson on the Price of Movie Popcorn’

Also see: ‘Why Popcorn Costs So Much at the Movies’ by Richard B. McKenzie and Gordon Tullock,  The New World of Economics, 2012, Part 4, Chapter 14, pp. 219-234,

“ […] because theaters cannot be owned by movie producers and distributors (because of a series of court orders that date to the late 1940s), theaters have an incentive to hold down (relatively speaking) all ticket prices in order to increase the demand for popcorn (and other concessions), thus allowing theaters to hike their prices on popcorn and other concessions and their profits.”

 NOTE: Paul Merage co-invented the Hot Pocket microwaveable turnover.

Smirkness in Economics

Friday, August 2nd, 2013


Those who follow developments in the derivatives market, and particularly in its sub-section, the options market, may be aware of the concept of Smirkness. It was first proposed at the 2005 China International Conference in Finance, where professors Jin Zhang and Yi Xiang presented their paper ‘Implied Volatility Smirk’

“In this paper, we propose a new concept of smirkness, which is defined as a triplet of at-the-money implied volatility, skewness (slope at the money) and smileness (curvature at the money) of implied volatility-moneyness curve.”

The paper not only covered ‘The Dynamics of Smirkness’ [page 18] but also laid out ‘The Applications of Smirkness’ [page 19]. For clarification, another publication from professor Jin Zhang – also titled ‘Implied Volatility Smirk’ gives an etymological history of the term :

“After the market crash in 1987, the implied volatility as a function of strike price is skewed towards the left. The phenomenon is regarded as implied volatility smirk.  Smirk = skew + smile

And a third paper from the team, this one called : ‘The Implied Volatility Smirk’ went into even greater detail – and this time provided graphs like the one above which showed : “The flat, skewed and smirked implied volatility functions together with market implied volatilities (shown as dots) on 4 November 2003 for SPX options that mature on 21 November 2003.”

BONUS : Another viewpoint on derivatives : from Philip Coggan writing in his book ‘Paper Promises : Money, Debt and the New World Order’, (Allen Lane, 2011, Hardback, p. 170)

“Banks may have had an ulterior motive for the growth of derivatives. The more complex the product, the harder it was for investors to see the price. The result was fat fees for the banking sector.”

Investment hint from Ig Nobel Prize winner Gideon Gono

Tuesday, July 30th, 2013

Exciting investment news from Zimbabwe: Every now-nearly-worthless 100-trillion Zimbabwe dollar bill might, just might, soon be worth more than 100 trillion US dollars. Eyewitness News reports:

[President Robert ] Mugabe urged people who still have worthless Zimbabwe dollars not to tear them up, as they will be compensated.

Central Bank chief Gideon Gono told Mugabe many people still have Zimbabwe dollars in their homes. He said if elected into power next week, he will work out how to compensate people. Zimbabwe dumped its currency in 2009 and switched to the Rand and United States (US) dollar.

Mugabe says his party, Zanu-PF, plans to reintroduce the Zimbabwe dollar at some stage. If backed by gold, the local unit could be worth more than the US dollar, Mugabe said.

Gono, governor of Zimbabwe’s Reserve Bank, the man responsible for creating those bank notes, was awarded an Ig Nobel Prize in mathematics in 2009 for giving people a simple, everyday way to cope with a wide range of numbers — from very small to very big — by having his bank print bank notes with denominations ranging from one cent ($.01) to one hundred trillion dollars ($100,000,000,000,000).


NOTE (not about the bank notes): Gideo Gono’s web site seems to be under new ownership.

Economics experiment finds people volunteer for economics experiments largely to make money

Tuesday, May 21st, 2013

What does one learn from reading about economics experiments? This:

Johannes Abeler

Johannes Abeler

Self-Selection into Economics Experiments Is Driven by Monetary Rewards,” Johannes Abeler [University of Oxford, IZA and CESifo] and Daniele Nosenzo [University of Nottingham], IZA [Forschungsinstitut zur Zukunft der Arbeit / Institute for the Study of Labor] DP No. 7374, April 2013. The researchers explain:

“Laboratory experiments have become a wide-spread tool in economic research. Yet, there is still doubt about how well the results from lab experiments generalize to other settings. In this paper, we investigate the self-selection process of potential subjects into the subject pool. We alter the recruitment email sent to first-year students, either mentioning the monetary reward associated with participation in experiments; or appealing to the importance of helping research; or both. We find that the sign-up rate drops by two-thirds if we do not mention monetary rewards. Appealing to subjects’ willingness to help research has no effect on signup. We then invite the so-recruited subjects to the laboratory to measure a range of preferences in incentivized experiments. We do not find any differences between the three groups. Our results show that student subjects participate in experiments foremost to earn money, and that it is therefore unlikely that this selection leads to an over-estimation of social preferences in the student population.”

(Thanks to investigator Dan Vergano for bringing this to our attention, and for supplying the headline.)

Experimentally kill a mouse in/for/because of the market

Monday, May 13th, 2013

Economists rarely perform experiments with mice. But it does happen, as in this study:

nora2Morals and Markets,” Armin Falk, Nora Szech [pictured here], Science, vol. 340, n. 6133, May 10, 2013, pp. 707-711. The authors, at the University of Bonn and the University of Bamberg, Germany, explain:

“In the experiment, subjects decide between either saving the life of a mouse or receiving money. We compare individual decisions to those made in a bilateral and a multilateral market. In both markets, the willingness to kill the mouse is substantially higher than in individual decisions. Furthermore, in the multilateral market, prices for life deteriorate tremendously. In contrast, for morally neutral consumption choices, differences between institutions are small.”

(Thanks to investigator Cosima Reich for bringing this to our attention.)

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