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Saturday, Nov 22, 2008 - 04:41 SGT
Posted By: Gilbert

- -
On Economics

With my Health Economics and Game Theory examinations being five days away, I thought I would just blog about my chosen subjects by way of revision. This is after I couldn't resist breaking out Championship Manager 03/04 and guide Brighton to the Premier League and beyond (I stopped at the First Division), and discovered a few things:

  • Players walk very slowly to the referee in the 2D engine
  • Brighton's David Lee is a world beater, with Beckhamesque free kick ability (20) coupled with C. Ronaldo's dribbling (in real life, he plays at Conference level now though). Gary Hart isn't half bad either
  • Nobody predicted Cesc Fabregas' rise back then - he was nabbed from Arsenal's reserves for a mere 240k Euros (probably even less if I had bothered to negotiate). No wunderkid tag for him. Loves to take long shots in the game
  • Ben Foster could be gotten for free from Stoke City
  • Steve Guppy (35 years old then) wanted 10k+ Euros a week coming from Celtic, and stated he "had no interest in joining Brighton" even for over 3k a week (all I could afford then), whom were then flying high in the Second Division. He proceeded to sign for Northwich Victoria F.C. in a lower division on 700 Euros a week, before eventually being flogged off to Brighton for some 20k Euros and a 1.9k Euro per week salary. Career financial planning seemingly isn't CM4's strong suit
  • Woodlands would demand over 1 million Euros each for Itimi Dickson and Agu Casmir
  • Noh Alam Shah would be available for 300k+ Euros, but wouldn't get a work permit

In other news, Football Manager 2009 (the continuation of the series after naming rights were lost, it's complicated) has just been released, with a 3D match engine. In a way this is kind of overdue since all they had to do was plug in some long-available 3D capabilities ala the FIFA XX series, but they've done it decently enough:

Another genre enters 3D (Source: Eurogamer)

Meanwhile, Everton have brought armchair managing to a whole new level by officially using Football Manager to guide their player scouting. Not too long before real-life players pack it in, and we just simulate all the matches on FM instead?

So that's that for football manager simulations, on to the main topic: I'll try to collect my thoughts on Economics in general, and Health Economics in particular now, and express them in narrative. Any errors are, of course, my own.

Firstly, the fundamental tenet of all economics is scarcity; If we could have all we desired at the snap of a finger, there would be no need for this field of study. As this is not the case, there is room to explore how to employ our limited resources to produce selected goods and services, for the greatest good (N.B. what is the greatest good?). Here I must add that a lot depends on the assumptions taken, and in actual fact I am uncertain of how accurate some of these assumptions are. Many times a problem is posed with some mathematical function modelling for the utility of a population, and thus the "correct answer" can then be dragged out from the given figures with some manipulation.

In reality, I feel that the precision of the function, and if it is even appropriate to consider a problem by a certain method at all, is probably the major part of economic skill, as the math is relatively trivial once the assumptions are made. It appears there must be some limitation to the degree of perfection that economics can attain, as there exist non-verifiable entities (e.g. comparism of utility between two different individuals, or even the true utility of an individual).

[An aside: Saying that the Sun rotates around the Earth may agree with available evidence, but that does not make it true - A person may buy stock X because of reason Y, and if the price of stock X does rise he may infer that he was correct and it was due to Y, but in actual fact it may be due to some other reason Z. The danger in this is that the person may then be misled to be overconfident in his flawed logic, and overextend himself based on it.

One way to distinguish between skill and luck is through repeatability - if a person consistently picks winning stocks 60% of the time, day after day, we then say he has skill, statistically. An interesting question then concerns those who take huge one-off risks and succeed (e.g. walking into a casino and putting one's life savings on a single number at the roulette table, and winning) - can we call that skill? One might say that is clearly luck, but surely few long-term gamblers can ever claim a 3500% return, and it is the practical result that we are after, no? In other words, does it even matter whether someone succeeds (or fails) through luck or skill? For more on this, a possible read is Fooled by Randomness by Nassim Taleb.]

Leaving these considerations aside, the basic principles of economics are admittedly a reasonable approximation in some situations (as Newton's physical laws were. Incidentally economics might even be viewed as an offshoot of physics: "...the progenitors of neoclassical economics, all of whom were trained as engineers, developed their theories by substituting economic variables derived from classical economics for physical variables in the equations of a soon-to-be outmoded mid-19th century theory in physics.") - take the Law of Demand, that states that all other things being equal, as the price of a good rises, the quantity demanded by consumers falls (unless the demand is perfectly inelastic, that is, or the good is a Giffen or Veblen good). This is simple enough that it can be recognized as true in general. The corresponding Law of Supply states, what else - as the price of a good rises, the quantity produced by firms will increase. And where Demand meets Supply, we find Equilibrium, and consumers and firms transact and rejoice.

So does this happen in real life? Well, there are many imperfections. Offhand, there are additional costs associated with obtaining market information (e.g. reading the classifieds), adjusting prices (e.g. printing new price tags and adverts), labour practices (e.g. relatively long-term contracts, compensation, retraining, acclimatization etc), and this already for so-called perfectly competitive markets where there are many relatively small firms producing near-identical goods. Exactly how much all these imperfections reduce the applicability of economic theory, and whether they can be offset, should be a worthwhile study. When market power comes in, and a few firms (or one) dominates an industry, more considerations come in.

A timely case study would be the U.S. automobile industry, whose CEOs made the sincere gesture of flying in private jets to Washington to beg for another US$25 billion from the public (though in truth that expenditure is probably among the least of their concerns as cost structures go - they had better come to some sensible agreement with the unions ASAP, and from what I've read it appears that unions in the USA have gone from the admirable goal of protecting the "little guy" to hamstringing operations with dumb rules such as "no picking up your own litter, or you'll be putting the janitor out of a job"). If cast as an examination question, the answer is straightforward - let the inefficient automakers fail. In practice, sheer size has its own distortion field, and as classical mechanics does not apply at extremes, neither does classical economics.

And on to EC3353 Health Economics. The basics of general economics of course apply. The syllabus is as follows:

  • Week 1: Introduction to USA/UK/Singapore Health systems
  • Week 2: Economic Efficiency/Cost-Benefit Analysis (CBA)
  • Week 3: Production and Demand for Health (Capital)
  • Week 4: Demand and Supply of Health Insurance
  • Week 5: Asymmetric Information/Adverse Selection/Agency
  • Week 6: Physician's Practice/Services
  • Week 7: Non-profit Firms/Hospitals and Long-Term Care
  • Week 8/9: Pharmaceuticals/Technological Change
  • Week 10/11: Managed Care (apply Adverse Selection)
  • Week 12/13: Government Health Insurance/Health System Reform/Comparative Health Care (+Canada/Japan)
  • Week 14: Epidemics/Addiction
I will attempt to summarize the key points below (click button to display, since I didn't want to overload my blog):

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