In a CNN article on 5 ways to improve Wal-Mart, it begins by stating that investors are unhappy with the largest U.S. company's performance. It states that Wal-Mart's profits have increased 1%, meaning that they took their investors money, and earned it back plus an extra 1%. So why are investors unhappy about this?
Remember the difference between accounting and economic profit. Wal-Mart has earned a 1% increase in accounting profit. However, most other companies have earned better returns well above 1%. In fact, you could open a e-savings account with Citigroup and earn 4.5%. What the investors here are implicitly complaining about is that Wal-Mart has had a negative economic profit, even though it earned a positive accounting profit. Higher returns, like the savings account, offer a better return than Wal-Mart as of late. As a result, investors have punished them as indicated by a 5.1% fall in their stock price over the last year.
Thursday, May 31, 2007
Wednesday, May 2, 2007
Game Theory and the War Funding Bill
For those of you who have been watching the news, you are aware of the Democrats' War Funding Bill stipulating an end date for the pull-out of troops from Iraq. This whole topic is loaded with Game Theory applications. First, the pull-out date that the Bush administration opposes is based on game theory. There is a big difference in strategic games outcomes when the game has an ending point versus ones that the players perceive to have no end-date. If you take game theory here later in your schooling you will learn about that. Secondly, Bush promised to issue a veto if the Democrats passed the bill through congress. You can easily imagine a sequential game where this changed the strategy the Democrats pursued. Suppose you are a congressman who wants the political benefit of being in favor of a troop pull-out, but you also don't want to be remembered as the politician who prevented any form of success in Iraq. Now because of the veto you can have both, by supporting the bill in Congress knowing that the policy won't reach that outcome. I think the bill would have been much more likely to fail, or would hve received fewer votes anyway if Bush had not promised a veto. No way to know for sure though.
Tuesday, May 1, 2007
Racial Bias in the NBA
There is an interesting piece in the NYT covering a new economics article that reveals that referees (both white and black) are more likely to call a foul against players of the opposite race. Take a read when you get a chance, it is essentially contributing to the literature on peoples preferences for homogeneity (desires for similar people) and takes the standpoint that this is on the subconscious level.
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