Management versus Economics

I recently became aware* of a paper by Benito Arruñada and Xosé H. Vázquez that attempts to link the outcome of MBA degrees to the different subjects offered – specifically the proportions of  subjects that are based on standard assumptions of rationality and self-interest (called economics subjects in the paper) and those that rely on “human assumptions” (called management subjects in the paper).

In a nutshell they are interested in the proposition that “managers are more successful than business analysts.”

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The analysis is based on FT ranking data and done at the level of the school. The authors do make an attempt to account for he problem of endogeneity of GMAT scores. They conclude that

Controlling for the average quality of their students and some other schools’ characteristics, average salaries are significantly greater for those schools whose core MBA courses contain a higher proportion of management courses as opposed to courses based on economics or technical disciplines.

However, there is a major problem with the findings it seems to me. They measure the success of the course by average salaries (3 years after graduation). There is no measure of management ability. It seems to me that the authors have fallen into the very mindset that they decry. Measuring manager performance by the salary that the graduate manages to negotiate for themselves is precisely how a (rather poor) economist student might think!

I am not at all surprised that those students who major in management subjects (such as human resource management, negotiations and leadership) are better able to find a high paying job than those who major in Finance and Econometrics, poor tongue-tied geeks that they are.

*via Nick gruen at Clubtroppo

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Mind the gap

Several years ago I posted a graphic plotting country’s GDP per head against mean lifetime and drawing attention to the tragic loss of life in southern Africa, mainly due to AIDS. There is a fantastic data visualisation tool called GapMinder that tells this story – and other stories- much more clearly. And it is really fun to play with.

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Click HERE to open the tool in another window at a much sexier version of the original graphic (for the year 2007). You need Flash 7 and it may take 30 seconds to load but it is worth the wait.

A quick explanation. Each point is a country and upper right means high GDP and high life expectancy. GDP is on a log-scale partly because the distribution is so skew, but also because the relationship is almost linear that way. Colours are different continents – with Africa in blue. Size of the blob is population size – probably not of primary interest here. But the really cool thing here is the last dimension – time. Move the slider back to 1800 and hit the play button to see the data displayed in sequence for the past 200 years.

My original interest in these data was the AID epidemic in Africa. Focusing on the blue swarm of African nations, you will see that there was virtually no improvement in life expectancy until after WW2. Over the past 30 years however, you will also see the blue swarm stagnate to the bottom left. Then, during the past decade about 10 middle income countries just drop through the floor. Pretty stark it is.

You can follow individual countries just by clicking on them (or on their name in the list at the left). Below is the trajectory for Iraq. What do you think happened in 1979?

Other countries whose trajectory has a story to tell – Rwanda but ther civil war was devastating it pre-genocide (1994), Chile which did well after Pinochet (1974) but was doing extremely well in terms of life expectancy before 1974. Check out Russia…it hardly looks like the wall coming down was a resounding success.

Let’s get parochial. Apart from minor glitches after the great depression and WW2, Australia has enjoyed an uninteresting march towards wealth and health. Give me a boring trajectory any old time. For those who ever doubted that NZ was the eighth state, look at their trajectory at the same time as ours. Peas in a pod.

China watchers might like to focus on the middle kingdom around the late 1950’s. I was actually impressed that they managed to get data on life expectancy from a nation that does not like its dirty linen aired. But this thought process led me to a more obvious question – what does life expectancy mean for 2007? This has to be a model projection – it is not really data at all. So I checked the documentation and it is defined as “the number of years a newborn child would live if current mortality patterns were to stay the same.” In China’s case then this would mean that the drop we see is an extrapolation of what would have happened if the great leap forward continued indefinitely. Ditto Rwanda. It is certainly not the case that the babies who were born in Rwanda in 1991 will have a mean life of 24 years.

I look forward to the inclusion of 2008 and 2009 data so we can see the ffect of the GFC and how it is differentially felt in different countries. Look out for the Icelandic bubble to bounce faster than Novak Jokivich’s service routine. You can waste hours playing with this site. There is a huge range of economic, environmental, health, education and demographic measured to select from.

If you want to use this tool for your own data.. .. you can’t. But GapMinder suggest using Motion Chart, which is a free gadget in Google Spreadsheet (an online spreadsheet similar to excel).

Cross Posted at ClubTroppo and Fishing in the Bay

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Rooned. We’ll all be rooned.

There is something about the way real estate trends are reported that borders on the irresponsible. OK. Real estate is the single biggest exposure that Joe and Jill Average have to the economic cycle and people are naturally interested. I get it. But bearing in mind the level of herd behaviour involved in any market, media exaggeration of any figure that can be converted into a sensational headline can only fuel irrational exuberance and despair.

Continue reading “Rooned. We’ll all be rooned.”

Business Confidence

One of the better known surveys of business confidence is NAB Business Confidence index which is part of their monthly business survey. I have a few gripes about how it is used and reported and an interesting observation about how you should respond if you are ever surveyed.

Continue reading “Business Confidence”