Expectations

2012-01-22T09:58:00.000-08:00

A few weeks ago I found myself googling "methods of seasonal adjustment" (for reasons I will not bore you with).

For the layman, this would refer such things as why fruit is more expensive in areas that have harsh winters. In analyzing information, it is useful to find ways to remove this seasonal effect on prices, perhaps to make other things that are effecting price more apparent.

It turns out that adjusting for seasonality is of its own, a large topic with many facets. Long story short, I found myself reading through papers on seasonality over at the U.S. Census Bureau:

http://www.census.gov/srd/www/sapaper/historicpapers.html

What caught my mind was an excerpt from a 1978 paper on expectations:

"An extreme example is that of British egg prices in the early sixties. The eggs were produced almost entirely by battery hens, who had no idea of the season as they existed in a closely controlled, stable environment, and, thus, production could be made steady throughout the year. The egg prices were fixed by the Egg Marketing Board, who, on being asked why the prices contained a strong seasonal element, replied that "the housewives expect it." The seasonal in egg prices vanished soon after the enquiry was made."

- Seasonality: Causation, Interpretation, and Implications, pg. 34

by Clive W. J. Granger

http://www.census.gov/ts/papers/Conference1978/Granger1978.pdf

This is, in itself, a great example of how our expectations can distort something very real, why economies rise and fall, why markets boom and bust, why the opposite of what you would expect can happen. The error-prone, irrationality inherent in us (for the simple fact that we are human), can drive extreme outcomes.

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2012-01-22T09:26:00.000-08:00

I'm stepping up onto the proverbial soap box. I'm not sure why, but I felt it must be done. Yesterday I deactivated Facebook; an action at least not intentionally related to the starting of this blog. At the very least I hope to waste my time in a more academic, thought provoking, manner.

This blog will be a simple collection of thoughts, ideas, and stories. I am a student in economics and while I endorse the activity of studying economics, I do not cling to it's teachings as if they were absolutes. Instead, I find the theories and ideas of economists merely as different points of view, albeit usually in a more constructive and factual manner than most non-economists (a sweeping generalization, I know, so take this statement at it's face value). If there's one thing I've learned studying economics, it is that for every piece of conventional wisdom that would hold presence around the water cooler, there are handfuls of PhD's with contradictory points of view. This to me, is worth knowing. Not to accept every abstraction of every idea, but simply to know what all the abstractions are and to form my own ideas.

With that in mind, here I will cover topics in economics, finance, human behavior, and whatever else I feel is relevant to this idea that, for every thought printed on a sheet of paper, the contradiction should be printed on the back.

Life & Economics

Expectations

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