Wednesday, 29 April 2009

Live blogging The Apprentice: series 5, episode 6

10:30 Thanks for watching - see you next week.

The lessons from this episode's wander into economic theory? First, that seller ignorance is just as destructive of consumer benefit - or more - as buyer ignorance. Seller ignorance, in a situation like this week's task, is more likely to see something sold to a person who will undervalue it - because if the seller offers it at an unrealistically low price, it will be bought by people on a whim instead of those who will actually derive the most benefit from it.

Second, the importance of understanding the rules you're trading under. It's not clear whether the teams were told the full rules at the beginning of the task - that they would be penalised for selling things too cheaply. In the last series' version of this task, it was mandatory to sell all the items (if I'm remembering right) so it would be natural to assume the same thing for this year.

Third, the subjectivity of the boardroom process makes performance in the task much less relevant (under certain conditions). Although a good result does stop you from being in the room in the first place, once you're in there, it's pure psychology that determines whether you survive.





And here's the customary space to give you a chance to click away if you haven't seen the episode yet.



















10:29 An entire programme about Nooral which barely features him at all. No wonder the audience votes against him.

10:23 Now it's Debra's turn. And Nick's. And Margaret's. Nooral must be hating this. His face certainly is.

10:20 Indeed Ben is clearly more interesting than Nooral and is taking up much more of the show.

10:17 Ben is enemy of the week but he's more a figure of fun than of enmity.

10:14 Back to being a bit quiet again. Nick has a kind and probably accurate summary of Nooral - a decent bloke, courteous, educated - but not outwardly displaying the passion for business that Sir Alan is looking for.

10:00 I am curious to see how Nooral will come across in You're Fired. He's had a couple of different personalities so far, and this show often brings out the best one.

9:59 I can't quite tell what next week's episode is meant to be about. Something to do with developing new products...in the North of England. Or selling them. To shops. Seems to be cat-related. Struggling a bit.

9:58 Well, not the best episode in history but a great second half.

9:57 Getting more exciting now...down to the last ten.

9:56 Nooral! He screwed himself over at the last minute.

9:55 And a remarkably concise summary from Sralan - leading to the firing of...

9:54 Nooral is now telling tales which don't shed a good light on him. Ben has supposedly been "talking in the house about what magazines he's going to get interviews with". I think he's put himself in danger.

9:53 Ben's defense is straight out of the video CV from his audition.

9:52 Nooral is brilliantly manipulating Ben into making himself look useless.

9:51 Best boardroom scene of the series. It's tough to get this across in text - watch it if you can.

9:49 Ben's wasting all his time defending himself - ineptly. Surely he's going down.

9:46 Nooral started out the competition as a shy violet. But now he's doing a good job of dominating Ben in the boardroom. I'm impressed.

9:44 Ben is going to bring Nooral and James into the boardroom. James exclaims "Me??" at the same moment as Alan Sugar incredulously asks "James??" Debra and Yasmina seem to be safe...but Ben changes his mind and summons Debra instead. Debra is ready to kill someone - I wouldn't like to be in the room competing with her.

9:43 Interesting team dynamic. Instead of ganging up on Ben - who has put his foot in a few big traps - Debra and Yasmina are sowing discord between each other and James.

9:40 Alan has pointed out two clear mistakes by Ben: not planning properly to identify the valuable items, and selling things at any cost instead of focusing on making a profit on each item.

9:38 I don't have much insight into who Ben will take into the boardroom this time. Yasmina has been quite visible in this episode, but hasn't done much particularly wrong.

9:35 Empire made about £78 on a few items but lost £247 - a net loss of £169. We don't know what items they lost on, but no doubt some gory details will show up in the boardroom grilling.

9:34 Ignite made a profit of £96 on several items and a loss of £130 on two of them - losing £34 net.

9:33 Ben's stress is a theme in this week's editing. The other is obviously going to be the undervalued rug - particularly on Philip's side. That £5 difference in sale value is going to hurt them in the editing.

9:30 A little lesson in corporate politics. It doesn't pay just to be right - as Lorraine was - you need to either get people to act on it, or shut up about it! She's likely to be in trouble even though she was the only person who spotted the value.

9:29 Yasmina manages to sell hers for £55. Philip shifts his for £50. Both lose a ton of cash on it but at least it's balanced.

9:27 Ben's team is also getting their backstabs in early - Ben is "panicking" according to Nick and several of his teammates. A bit of irrationality - emotional motivations are quite likely to take over from rational ones, and his desperation to be rid of the items will lose him money.

9:26 Never knew Greenwich market to be open at 5.30 pm before...

9:25 Margaret is horrified by Philip's team's rug hijinks. Listen to the signals - she emphasises that Lorraine recognised the potential value of the rugs. Watch for that to come out in the boardroom in twenty minutes.

9:20 Nooral is selling the skeleton - we now get a direct comparison between the two teams' prowess - or luck. And Ben's team loses out on one or the other, selling for £60 - £100 less than the others.

9:18 So far it doesn't look like either team has been seriously ripped off by an informed buyer. I think that's about to change, as Philip is going to offload a £200 rug in a flea market for a fiver.

9:17 The other team abandon all pretence at search theory and get a ridiculous stroke of luck. Someone who always wanted to have one (and obviously wants to be on TV) offers them £160 (!!) for their plastic skeleton.

9:14 They are impatient to sell something and give up their bargaining position on a first edition of Octopussy in order to close a deal. Auction and search theory have some insight into this - how many buyers is it worth contacting before picking one? They probably found a reasonable balance.

9:13 Ben's project manager on one team and the task obviously isn't glamorous enough for him. But he is mistaking economic value for game value - every task is equivalent in this series, no matter if the stakes are pounds or hundreds.

9:10 A lovely reversal of the market for lemons. In the real world, sellers invariably know more about the object than buyers. There are a whole range of techniques used both by buyers and sellers to counter this information asymmetry and make transactions economically worthwhile for both. But when the seller doesn't know the value of what they're offering, the situation is reversed.

9:05 This week's task - after the vague subjectivity of last week's - is a paragon of clarity. Sell a bunch of objects for as much money as you can get. A nice collection of stuff, too.

9:00
 Welcome back!

Monday, 27 April 2009

Fairness and the Budget

It seems like someone in the Treasury has been reading Shiller and Akerlof's Animal Spirits. This Budget has a strong unstated theme of 'fairness' in the sense that the authors use it - as one of the fundamental psychological phenomena that they believe contribute to economic performance.

Two behavioural experiments are useful in understanding the Budget and the reaction to it.

The first is the ultimatum game. This has two players, Mary and John. Mary is offered £10 to share with John as she wishes. The catch is that whatever share she offers to John, he has the chance to accept or reject it. If he rejects it, neither player gets anything.

In a perfectly rational world, Mary would offer John a penny and keep £9.99 for herself. He would accept the penny - it's better than nothing, after all - and both would get their money. But in practice, John never behaves like this. If Mary offers him less than about a third of the money, he normally rejects it - so both players lose out. In other words, John would rather have no money at all than accept what he sees as an unfair share. Mary is usually aware of this and makes a fair offer - averaging about £4.40, with many people offering an exact 50-50 split.

The results occasionally differ by culture - Henrich (2000) found a much weaker tendency towards fairness in the Machiguenga tribe in Peru - but nearly every experiment finds similar results.

The other relevant experiment is a simple question about which world you would rather live in. A world where everyone else's salary is $50,000 and yours is $75,000 - or a world where everyone else earns $125,000 and you earn $100,000 (assuming each dollar has the same buying power). There is a strong preference towards the 50/75 scenario - that is, people will accept a lower income in order to be the top dog in a poorer world (details of this and various similar experiments in Alpizar et al (2001)).

So what relevance does this have for the Budget? The most spectacular figure, the 50% tax rate, is all about fairness, as is the reaction to it.

Although it will raise a little money, it's clear that this change will have almost no direct impact on the expected deficits over the next ten years. Instead, it's intended to show the 99% of the population that are not subject to it that the other 1% are "paying their fair share". From a (somewhat) left-wing government's point of view, this is the perfect time to do it - the popular outcry at the supposed responsibility of investment bankers for the recession gives ideal political cover for the change. And if Shiller and Akerlof are right, a greater perception of fairness will provide more satisfaction for the majority of people and offer an extra incentive for them to participate in the economy. Indeed, initial poll results show majority support for this change - though it's too early to say whether the support will survive until the election.

Of course, that's not how it looks to the people who are hit by the change. Lots of complaints from them - claims from tax specialists that they'll be able to avoid the increase, threats to move abroad or stop working so hard - the usual stuff. Is this rational? Not very. The likelihood is that anyone leaving London is going to earn much less elsewhere - more than enough to outweigh any tax saving. Equally anyone who reduces their amount of work will gain nothing materially - only a sense of justification - or spite - at reducing the taxman's share of their income.

That doesn't mean nobody will act on it - we often see people acting against their own interests for the sake of pride or anger - or a sense of fairness. So we can expect to see a small outflow of people who would rather earn £200,000 and pay 30% tax than earn £400,000 and pay 50% tax - because they simply see the 50% rate as unfair. This would accord with the results of the ultimatum game.

Fundamentally, however, what is it that makes people perceive 50% as unfair? It's just a number. What if, instead of raising the income tax rate, the arbitrary ceiling on national insurance contributions had been removed - which would have an identical fiscal effect but in a much less obvious way? I suspect that far fewer high earners would have the same feeling of unfairness - of being punished - but also, the rest of the population would not have felt the same kind of justice which I think they perceive in this tax hike.

More rationally, there may be a few people who are close to the margin of benefits versus costs of living in London now, and for whom this is just enough to push them over. But moving costs and inertia make the margin effect weak in this direction - in fact a stronger effect may be to discourage people who might have otherwise moved to the UK. Those people, of course, will never show up in any statistics, but it may be possible to look at immigration figures in a few years and try to decipher an effect.

If doing a conventional macroeconomic analysis we would look at other counterfactuals. If the Government had not spent as much over the last ten years, or if it were to reduce spending over the next ten, what would happen? Higher-rate taxpayers might pay less in the short term, but aggregate demand would be greatly reduced, and - if you think that the economy will be stuck in a low-activity Keynesian equilibrium for a few years - GDP might be about 10% less by 2017. On average, everyone's income would be lower - so we might even end up paying a higher tax rate, but on a smaller income. Net income would be lower, not higher.

Of course this can't be proved - it is far from certain that the size of the economy would be reduced by lower public spending. Laffer advocates would say the converse, that the economy will thrive if government spending (and taxes) are reduced - but the reality is that nobody has a demonstrably reliable model which can answer the question either way.

Looking at a more monetary analysis, you could argue that this tax increase signals the government's willingness to increase future taxes to close the fiscal gap - which should reduce financing costs for UK debt. Or you could say that this tokenism shows the deficits are too large for the government to credibly close, and the cost of funding will instead go up.

In other words, the macroeconomic effects are extremely hard to predict - but the cultural and psychological effects are quite easy. Somewhere in between is the puzzle of evaluating the medium-term economic impact of this change in psychology. On balance, I expect that the effect on economic activity is more likely to be positive - but if the Government doesn't have a good model for projecting this outcome, it is playing with fire.

Sunday, 26 April 2009

missmarketcrash's zeitgeist analysis, 26 April 2009

A behind the scenes look at the words that appear in the cloud generation list, but, get lost in translation is a privilege only the word cloud analyst has.  Hello, it is me, Missmarketcrash, guest blogger, looking behind that curtain.  What a great private tour in the land of Leigh and his lofty cloud generator data lists I've had.   Being far less analytical than Leigh, I was wandering around in the data in awe, marveling at its peculiarities.  Here is what I found in the backroom.

Looking closely, "Bush" is hiding out with 92 mentions.  Tied at 92 with "Bush" are "security" "programs""happen".  I can almost hear the quote.  "Chinese" also is lurking off the edges of the picture generated.  At 96, the "Chinese" are accompanied by  "carry" "failure" "gets" "bear" also at 96.  At 94, "Thinking", is in good company with "earnings""profits""falling".  At 181, "human" stands next to "reserve""process""problems""possible".  "Thing" and "idea" stand together at 181.  At 82, "everything" "long-term" "lack" "forecast".  At 81, "Zero" "risks""sometimes" "require""individual""events".  "Fact" stands alone at 297.  It all reads like some kind of giant e e cummings poem to me.

With that, here is a mock-poem using this weeks word cloud words.  If Leigh were my teacher, I'd likely be the class clown who ought to be punished for data mockery.  And bad poetry.

bad, bad bad.
exactly and actually in form
overall a huge common response
to zero looking at itself
international risk
two years two
my green nothing
rising largest across
increasing huge existing
pretty society with liquidity failed
yesterdays trend question play open known feel
nearly indeed
goes certain actual something and everything reasons again.

The economics zeitgeist, 26 April 2009




This is a word cloud from all economics blog postings in the last week. I generate this every Sunday - this week with assistance from a special guest - so please subscribe using the links on the right if you'd like to be notified each time it is published.

It has been constructed from a list of economics RSS feeds from the Palgrave Econolog and other sources, and uses Wordle to generate the image, the ROME RSS reader to download the RSS feeds, and Java software from Inon to process the data.

You can also see the Java version in the Wordle gallery.

If anyone would like a copy of the underlying data used to generate these clouds, or if you would like to see a version with consistent colour and typeface to make week-to-week comparison easier, please get in touch.

A special treat coming this week - zeitgeist analysis by guest blogger missmarketcrash.

Wednesday, 22 April 2009

Live blogging The Apprentice: series 5 episode 5

10:00 Thanks for watching and I'll now put a blank space in for the benefit of those who haven't seen the episode yet.








In about eight more lines, you might see who got fired this week. If you don't want to, look away now!







9:59 Nothing interesting in the ending except the preview of next week's task. They have to sell ten items for the highest price possible. That should have a bit more to it.

9:56 Kimberly is fired for being like the Wizard of Oz - looks impressive but nothing behind the curtain. Ironic in a task about advertising!

9:54 "Why shouldn't I fire you?" Kimberly gives a reasonable answer, Lorraine gives the usual cliches. But she doesn't seem to be sufficiently responsible to get fired.

9:51 Philip's bravado "soars like an eagle" and "attracts a hunter". Alan's "12-bore shotgun" is pointed at him. Are the writers tired of "You're Fired" as a catchphrase?

9:50 There's an economic theory that a team as a whole will always have better quality knowledge than any individual member. The three remaining candidates are busy trying to disprove it.

9:48 Kimberly has to bring back Lorraine and Philip, and does. Nooral, Mona and the other guy get away with it.

9:46 How authority is exerted within an organisation is an economic problem which isn't well-understood. But what seems clear is that Kimberly's authority was not exerted successfully.

9:44 As always, a bit of game theory - Lorraine made sure to put her marker down in advance, in case of a loss. Not forgetting that if the team happened to win, the problem wouldn't arise.

9:42 And the pants team are utterly wiped out. I thought it was closer than that.

9:40 Bad time planning from Kimberly - as always, resources are a critical counterpart to sales ability.

9:38 The ad agency thought that the execution of the pants advert was very good. An omen of a twist in the end of this episode?

9:37 "Brave" choice by Kimberly according to Alan. I think we agree.

9:34 Kimberly's team seems to have better highlights but some worrying low points. High-risk but the feedback is more interesting at least.

9:32 The teams show their ads, and: a critical problem for Kate's team. Their brand has no definition: it is trying to hit too many benefits at the same time. But everything seems competent.

9:28 Project manager is a tough gig on this show. To successfully lead a team you need respect from the people who work for you, and Kimberly doesn't have it. Then again, she isn't going out of her way to earn it. Respect for your team in return is a good way to start.

9:25 Kimberly's ad has its own disaster waiting to happen: Philip proves me wrong by trying to sing the song himself and "may think he's Bono" according to the agency. Their TV ad is a bizarre conceit, and Nooral is desperate to assistant direct - even though he's acting in it. They're not that short of staff yet.

9:23 Actually it turns out to be Kate's team who get the sting - their child actor has a nut allergy and can't eat the cereal! Margaret thinks the ad is too complicated.

9:22 Two scenes of Treasure Flakes in a row...something big and dreadful is being set up for Kimberly's team.

9:21 It's quite funny to see candidates doing jobs they are completely unqualified for - they obviously didn't pretend they could sing the tune, but they are happy to assume they can direct the singer.

9:19 The Wake-up Call box doesn't look as bad as it could have. But they've managed to get Kimberly to complain about it for the cameras - clever!

9:18 Nick's got this episode's devastating criticism in - Kimberly's team has left the packaging design up to their designer without even looking at it. Clearly dangerous: we saw this a couple of times in previous series.

9:17 Signalling from the production team: Kate's team's parrot - cereal called "Treasure Flakes" - appears to be going a bit too well. Something has to go wrong for them before the end.

9:15 Kimberly's (actually it's all Phil's now) cereal is going to be called "Wake-up Call" which doesn't sound like any cereal I've ever seen.

9:13 Live blog also going on at the Guardian, but updates seem slow and I'm not sure if their comments box is working.

9:12 While the other team have a pirate parrot - Captain Squawk - which is a lot more family-friendly but quite bland so far.

9:11 Philip has gone in a strop and got his 'pants' idea adopted. It does have some personality but is it Alan's personality?

9:07 One of the drawbacks of this episode is there is no objective measurement of success. It's purely Alan Sugar's opinion (informed by whatever ad agency is getting the free publicity by appearing in this episode). This will (or should) influence the teams' campaign design. There's a name for a market of one - monopsony. It is no better for the economy than the traditional problem of monopoly.

9:05
 Alan says that the outside of the Imax has one of the biggest advertising hoardings in the country. I live three minutes from there and I don't remember any ads for made-up cereal brands.

9:04 After the obligatory three minutes of boilerplate and recap, the candidates are off to the Imax cinema to design an ad campaign for a cereal.

9:00 Welcome back! Every Wednesday I write a live commentary on BBC1's The Apprentice. Last week was great fun but will this episode measure up?

Tuesday, 21 April 2009

Zeitgeist analysis, 19 April 2009

Has someone been gaming the system? Are the tea parties actually working? Suddenly this week, tax appears out of nowhere to reach number three in the economics zeitgeist list.

Or it could just be April 15, American tax return submission day, and economists all over the nation are blogging about how much money they made from their textbooks this year. Income has jumped 200 places to number 34 and taxes 244 places to 54.

Other moves in the top twenty:
  • US down one to 4
  • market and people steady at 5 and 7
  • financial up two to 6
  • government falls five places to number 9
  • money and price are both up two places
  • economy falls three and economic one place
  • years is up seven to 17
Some big rises among words that look meaningful: credit up 25 to 28, policy up 34 to 29 and oil up 50 to 30. On the other hand rate is down 20 to 45, public down 14 to 60 and crisis down 55 to 98.

My favourite numbers: billion is down 25 to 52, million down 19 to 56 and trillion down 107 to 467.

Maybe cooperation is a hot topic: individual is up 146 places, common is up 138 and social up 80. Then again, companies and businesses are both down while company and business are up.

Highest new entry and company of the week is Goldman at 212 (Sachs is also new at 572). Other notable entrants are environmental at 314, stress at 408, tea at 422 and kids at 429 (??) Pirates also makes an appearance at 851.

International moves: international is down 52, global down 46, world down 2 (but this is still a relatively big move because it is at number 14), UK down 436, Israel down 414, European down 176, Iran down 133 and China down 56 at 202. The US is down one at number 4, but no other country even appears except Europe which is up 61 to 693. The rest of the world clearly isn't popular.

A new feature for this week is Preposition Watch. While is up 3, still is down 3. Between steady at 41. Through is down 27 but before is up 25. Off is up 33 and under down 30. During falls 38 and enough soars 119 places to 201. Not strictly prepositions, but past is up 93, future up 51 and present up 183.

Do let me know if Preposition Watch is popular, because I have my doubts. It may be killed if there isn't a petition within the week.

Green shoots watch: GDP is up 46, profit and profits are both new entries, and loss is down 148. Unfortunately losses is up 43, recession up 11 and recovery down 53, so let's not count on it yet.

Obama continues to decline at 124, while Bush has entered at number 813. Bernanke is up 200 at 663 but there don't seem to be any other people at all, unless you count Messrs Goldman, Sachs and Bloomberg. We do have John, Paul, George and...not Ringo, but David and Mike. Professor, Mr and President also make an appearance.

On a slightly (but only slightly) more serious point, the entrance of environmental has led a few others: carbon, oil, gas, water and solar are all rising and gasoline is new. Perhaps this is pointing to a more substantive conversation about environmental economics. Come back next week and see if it continues.

Sunday, 19 April 2009

The economics zeitgeist, 19 April 2009




This is a word cloud from all economics blog postings in the last week. I generate this every Sunday so please subscribe using the links on the right if you'd like to be notified each time it is published.


It has been constructed from a list of economics RSS feeds from the Palgrave Econolog and other sources, and uses Wordle to generate the image, the ROME RSS reader to download the RSS feeds, and Java software from Inon to process the data.

You can also see the Java version in the Wordle gallery.
If anyone would like a copy of the underlying data used to generate these clouds, or if you would like to see a version with consistent colour and typeface to make week-to-week comparison easier, please get in touch.

Wednesday, 15 April 2009

Live blogging the Apprentice series 5: episode 4

And we're done. Good to see you all again and hope to hear from you next week. And if you want to get a bit of slightly more serious economic analysis each day, subscribe using the form on the right - there are articles on here almost every day, with a focus on behavioural economics.




Anyone who hasn't yet seen the episode would be advised to stop here before reading on... and if you want to watch alongside the commentary, scroll to the bottom and then work backwards.







10:30 And a bit of preview of next week - looks like one of those judgment shows, which is always annoying. Who has the best ad campaign? You can't really tell until you put both of them on TV and look at the sales figures. But instead we'll have "experts" judging it. Well, that always leaves room for a bit of ridiculousness, which might be light relief at this point.

10:29 For once, the 'best of' sequence seems to show Paula as a really nice person. That hasn't happened yet this series.

10:28 Second time this series that the whole panel thinks AS got it wrong. Never happened before series 5, apparently...

10:26 And a little analysis of Philip, who uses hair straighteners and wears makeup. I would be stretching to put an economic interpretation on that, but maybe something from Thomas Schelling...

10:24 Like the panel, I'm looking forward to hearing more from Kim. Maybe she will go up against Yasmina as team leader next time. Visibility is getting to be valuable at this point in the series.

10:23 I also got a clue to a spoiler earlier in this interview. The dangers of liveness.

10:22 James is being touted as a potential winner. I saw a hint of that earlier in this show.

10:18 Ben has kept himself alive by becoming the hate figure of the show. A good short-term investment but it cannot possibly sustain him to the end of episode 12.

10:16 "I'll bite their bloody teeth out" from Sandhurst man. What an amazing phrase. Again.

10:15 Nooral surely is due to be fired next week. He was just awful. But, he won. I'm still surprised.

10:14 But Yasmina and Ben don't come off too well either. Yasmina's made herself very popular by promising to stab everyone in the back as soon as she can. Ben couldn't have redeemed himself in the audience's eyes if he tried.

10:13 Looks like I was slightly harsh to Yasmina - Paula was a little more involved in the costs than I remembered.

10:04 Thanks for watching, everyone. I'll post a couple of comments during You're Fired but give me a few minutes because I need a drink. Do subscribe (boxes on the top right) and come back next week for the economic analysis of episode 5.

10:00 Irrationality count: 3. One big one from the big man. One small one from Yasmina - mixing up two different types of oil. And one medium error from Nooral - creating a low value perception for his product by underpricing it.

9:59 That was quite exciting for once. I would quite like to hear the You're Fired opinion of Paula, because I think we need a market corrective for the irrational opinion of Alan Sugar.

9:57 Should I offer Paula a job? She is a good salesperson, a good leader and has good judgment. The only thing she doesn't have is straight black hair or designer stubble. Oh, and the arrogance to survive to episode 10 (which is about as far as Ben will get) or 11 (Yasmina).

9:56 And Paula is out! A big surprise and I think one of the worst decisions he's made. It can only be based on Yasmina and Ben being better telly than Paula. Tragic.

9:56 But she is saved!

9:55 Alan's little summary: Paula comes off well, Ben not so well, Yasmina badly. She's in danger.

9:54 Economics - at least rational economics - is based on accurate information available to market participants. In reality of course, information is not always accurate.

9:53 How can he make Paula responsible for the costs? She was directly given false data. How could she act differently?

9:52 Ben is a nasty piece of work.

9:51 "Whatever way you look at it, it's going to be down to you to slice it, to find the Achilles' heel". Has Nick gone mad this week?

9:50 If ever the project manager is not at fault, this is the episode.

9:49 I was wrong - she chose Yasmina and Ben.

9:49 Boardroom time - my prediction - Ben and Yasmina.

9:48 Paula has found a way to keep herself safe - take the credit for the bit that Alan likes - the product.

9:44 Ben could be in the Anita role in this episode - he was made responsible for the costs but avoided all participation.

9:43 Ben has predicted - I think quite accurately - that he'll be in the boardroom. He is planning to go down with guns blazing.

9:41 So Empire has lost! I am astonished. Nooral's team are much better salespeople than they look. The trap of tricky editing.

9:40 Empire sold only £1080 and spent about £1150.

9:39 Ignite sold £900 and spent about £400.

9:39 The blame has already started on Paula's team - but I am convinced they have won.

9:37 In the boardroom, and the figures are about to come out - but not until Alan's had a go at all the problems we've already seen. I think this is a flaw in the format - Alan is meant to be the guru but he doesn't get to reveal anything new to us. He just harps on the problems we've already seen.

9:36 Clearly devaluing the product - and nobody wants to buy it even at the cut price. While Paula's team have managed to offload their remaining stock to a dealer for £400.

9:34 Nooral refused to let his team cut below £1.50 before he got there. Now that he's arrived, the product's obviously worth less. It's being flogged off at 50p.

9:33 The sandalwood is selling like hot cakes. No wonder it's so expensive.

9:32 Kim and Phil have sold a product to every soap user in Camden and now need to cut prices to clear. Signalling that their product is no good does not seem a strategy calculated to make people buy.

9:31 Some interesting pricing experiments. Paula has put the prices up even further - and seem to be doing OK. Still clever!

9:29 I guess I was wrong about Ben - I thought he'd be a natural on this, but I guess a tendency to bodybuilding doesn't necessarily go with habitual use of soap. The danger of assuming correlations that don't exist.

9:28 Nooral's team is also dressed up in beekeeper outfits, which are not getting much attention. At least Nooral himself is not selling anything. But his female colleagues are managing okay.

9:26 Nooral's team is selling in Camden - at cheap rates. The other team are in Bond Street and Portobello - and seem to be selling the same volume at double the price. They might just save themselves.

9:25 The other team have a production problem: their soap is falling apart. But they only need to sell it once, not get repeat business.

9:24 Clever idea - Paula has doubled the prices on her product. She is doing it because the costs are high, but if she did it because it enhances perceived value, it would be a genius move. Either way, it might just save them from sandalwood disaster.

9:22 Nick is taking so much pleasure out of telling Paula's team they are £600 over budget. Of course only after it's far too late. He has never been this nasty before. I think there's a proactive director this year.

9:21 Nooral's team is at least loyal to him - Margaret is happy to criticise though.

9:19 Phil has worked out how to beat Nooral and Kim in the boardroom - get the blame in early.

9:18 Ooh, they have discovered a problem. Nearly. Debra knows there's a cost trap in this and looks at the price of sandalwood. But disaster is averted...disaster for the viewer that is, as it would have been dreadfully boring if they had figured it out.

9:17 Nick knows what's going on. One of the key messages of successful capitalism is to get swift course corrections as you go. Watching Nick's face would be one of the best ways to achieve this.

9:16 But they are about to spend 40 times their budget on sandalwood instead of cedarwood...and have mixed up 3% with 3 grams. The music has stopped and they are about to lose £500.

9:14 Paula's team (I have forgotten which one it is) don't seem to be having major organisational problems - you can tell by the funny music in the background.

9:13 Welcome to any Guardian readers joining us. For those who want to get an alternative view of proceedings, Anna Pickard is back at the Organgrinder blog with her live commentary on the episode.

9:12 Production is a potential problem - back to the challenge of the catering episode. Nooral's team don't know how much honey to collect. So they're just going to get as much as possible. Cost alert...

9:11 Seaweed and mint, versus apple, honey and hawthorn. What's the betting that this task doesn't pivot on the choice of ingredients?

9:10 James has spotted the cost issue (or the editors have made sure to fit it in) and team leader Paula has admitted she's weak on this area. Red flag - and possibly clever game theory on the leader's account.

9:09 The last two weeks, expertise and understanding of the industry sector has been critical. It seems to be starting out that way this week... but Nooral is already being presented as an indecisive leader. That creates lots of room for agency problem - that conflict between individual and team.

9:08 A bit of outsourcing - the teams are off to Poole (a good 150 miles from London) to make their product. No market testing on this one I guess.

9:07 Alan hints at the business principle behind this task: make the product for pennies, sell it for pounds.

9:06 More switching of contestants between teams - highlighting the distinction between individual and corporate interests. One of the key tasks of company management is to align the incentives of employees and company, so that employees can be free to make their own decisions and use their initiative and creativity while the company still succeeds.

9:05 Is the setting (Kew Gardens) a clue? Apparently so...the beauty products business is relying heavily on organic or natural materials - to the tune of £3.5 billion in the UK each year.

9:02 Ben leads the teams out towards the cars. I can see him flourishing in this task.

9:01 In previous years reviewers have pointed out the slightly threadbare appeal of the "six-figure salary" first prize. In the middle of a credit crunch, recession, and the City's biggest job losses in twenty years, it doesn't sound so bad.

9:00 Welcome to Knowing and Making's coverage of The Apprentice. Tonight - starting a beauty business. Should be a good choice for the bunch of narcissists on this show.

As usual, I'll be live blogging The Apprentice tonight and on the lookout for irrationality and other illustrations of - or counterexamples to - economic law.

See you at 9pm UK time.

Comparison of blogger popularity

A startling result:

How many times did blog posts in the last 90 days contain the following keywords?
krugman vs. mankiw vs. thoma vs. cowen vs. caldwell

Tuesday, 14 April 2009

The making of "Knowing"

In the last few weeks I've been getting a lot of searches for "the making of knowing". Of course these curious people are more likely to be seeking the "Making Of" information about the incomparable Nicolas Cage film Knowing, than the rather different type of action that is available on Knowing and Making. But why not offer them some education about economics too?

I haven't yet seen the film, so I'll be constrained in offering meaningful advice about it. But let's see what we can determine.

First, it went through several different directors before being made. This information was more readily available on the film's Wikipedia article than on IMDB, the Internet's default link-target-for-any-movie-title (just as Amazon is the default for books). Wikipedia also has a little more information about production companies and funding - which to me is quite interesting, and makes me wonder why IMDB doesn't have it. Are they more closely tied to the film industry and less likely to share this kind of data? Or is it that the information is already implicit in the Company Contacts page, and mere mortals like me don't know how to read it? That's implied by the fact that the full information is only available on IMDbPro, the sister site for film industry professionals. In any case there's definitely some intriguing economics to be done about insider understanding of specialist industries.

Second (also according to Wikipedia) it's meant to be a "brooding, hauntingly allegorical terror-thriller". Sounds good to me. However it also provokes "hoots and giggles" which are presumably not the intent. Then again, Scream was quite successful.

Third, it was filmed in Melbourne which is apparently a cheaper substitute for Boston. This will please my friends Bonnie and Andy who come from Melbourne and have moved to Boston. No doubt they are enjoying the more costly, yet more authentic, version of their home town.

Fourth, Nicolas Cage has a beard in one of the promotional photographs. That's just not right. Beards are surely reserved for economists (though this writer disagrees).

Fifth, some information about the actual making of the film, which is after all what people are probably here for. It was shot on Red One digital camera - the first time the director had shot on digital.

I must be too much a child of the digital age, because I don't get the significance of this. Every time I've picked up a camera I just wanted to make a permanent record of whatever was in front of the lens. Digital or analogue - it should just be a matter of convenience. Admittedly, in trying to edit a 1-minute video this weekend I discovered many of the drawbacks of digital formats - but I can't imagine the hell I'd have suffered if I had to cut together a physical reel of tape.

The original writer has some interesting insights into the process in this interview from (I'm guessing) about 2001. Best line out of context: "I want to be a hack in the worst way". Screenwriting is one of those industries where you succeed best by accepting the principle that specialisation of labour is the key insight of all economic thought. A lot can be learned about economics by comparing Hollywood with most other fields of artistic endeavour. For all the wastefulness and risk that goes with it, it's a collective enterprise which has managed to dominate the world's media for a century.

Some of the film was shot at Camberwell High School, which missmarketcrash readers will recall is where everyone in South London lives. We like schools with large catchment areas.

It seems to be mainly populated by actors from Australian soap operas. Unless the author of the Wikipedia article is a specialist and only added that subset of the cast into the article. Selection bias is a key concern for econometric researchers and you should certainly be on the lookout for it when reading articles about brain-behaviour correlations (somewhat technical but very interesting - stick to this summary if you are short of time).

What an odd chap Nicolas Cage is. Did you know he named his son Kal-El, after Superman? Other than that, you can read the linked Wikipedia article for its amusing writing style as much as its amusing subject matter.

A final comment, and apologies for a minor spoiler (look away now if you still want to see the film...)





...the highly amusing automated selection of a Google advert on the IMDB page reads "www.mphsolicitors.co.uk * Specialist solicitor in aviation disasters". If you are Nicolas Cage, and you have genuinely experienced the events depicted in this film, I certainly recommend you contact these solicitors. Hope you have better luck with these guys than your last divorce attorney!

Zeitgeist analysis, 12 April 2009

Federal and state are both up about 50 places in this week's economics zeitgeist, with US and government retaining their positions at the top of the charts. Obama has fallen 45 to 110 and administration 177 places to 401. Washington is up 28 to 425, so rather a mixed picture there.

Nearer the top of the charts, market is up one place to 5, with financial and economic down three and two respectively to 8 and 10. Bank and money are each up nine places to 14 and 15. Price is down eight to 18 but prices up ten to 23. So no clear trends at the top either.

Trillion had the rise this week that I'd expected last week, up 47 places to 360; billion and million both up about ten places too.

Top new entries are WAIS, North, Chinese and default, all around the 300-400 mark. Israel, exports and nuclear are new around 400-500 with Smith at 595, zombie at 599 and TARP at 626. The WAIS entries seem to be from the blog of the World Association of International Studies, which has been in the dataset the whole time but is a bit more active this week.

Internationally, China has had a big jump - up 189 places to 146 - with UK up 99 to 426, but Germany, France and EU dropping out of the list and Europe and European both dropping. Country is up 90, countries is down 100, and foreign is up over 200 places to 205 (national and American are also doing well).

If you're looking for indicators of recovery, you won't get clear ones yet - recovery is up 10 places but only to position 279, growth is exactly steady at 81, green is up one to 475 but shoots doesn't show at all and confidence is nowhere to be seen.

Think is up a lot and thought too, with economists and blog also rising strongly. Not enough to make much inference from, but I'll keep an eye on them.

AIG is still falling, so is Geithner but Bernanke is back in (albeit at number 863, just above socialism).

And to finish, a few trends about time. 2009 of course is the best-performing year, up 48 to 48, but 2008 does almost as well, up 38 to 65. 2007 has fallen 88 places to 333, but 2006 has had a mini-resurgence, up 98 places to 779 and even 2005 is up 13 to 865. Meanwhile, nobody wants to think about 2010 which has fallen 299 places to 740.

See you all next week.

Monday, 13 April 2009

The economics zeitgeist, 12 April 2009



Slightly delayed, but here it is as always:

This is a word cloud from all economics blog postings in the last week. I generate this every Sunday so please subscribe using the links on the right if you'd like to be notified each time it is published.


It has been constructed from a list of economics RSS feeds from the Palgrave Econolog and other sources, and uses Wordle to generate the image, the ROME RSS reader to download the RSS feeds, and Java software from Inon to process the data.

You can also see the Java version in the Wordle gallery.
If anyone would like a copy of the underlying data used to generate these clouds, or if you would like to see a version with consistent colour and typeface to make week-to-week comparison easier, please get in touch.

Analysis now available.

Sunday, 12 April 2009

VAT cuts work!

According to the CEBR, the government's VAT cut in December has worked - with retail sales likely to be £8-9 billion higher this year than without it.

This is contrary to anecdotal evidence from small businesses, but I speak to lots of small businesses and they are not the first people you'd go to for econometric analysis. By their nature, smaller firms find it harder to dissociate the effects of a VAT cut or any other single input from random changes in demand. A number of larger businesses have reported better results from the change, but again they are not in a position to measure the effect across the whole economy.

The CEBR is independent of the government, although they were calling for the VAT cut before it happened, so they have a vested interest in declaring it successful. Regardless of this, the retail figures are certainly good news and point to an earlier recovery than might have been expected.

Economics zeitgeist

The economics zeitgeist word cloud is temporarily delayed as I don't have access to the relevant server today - it should be uploaded by tomorrow.

Thanks for checking!

Saturday, 11 April 2009

Models of consumer value estimation and price choice

Experimentally, we know that the following phenomenon can be observed:

Offer consumers two bottles of wine, priced at £5 and £9. A proportion will not buy at all; of those who do buy, a proportion (70% would be typical) will buy the £5 bottle and the rest (30%) will buy the £9.

Repeat the experiment with three bottles on offer, priced at £5, £9 and £15. A similar proportion will still not buy; of those who do, the propensity to buy the £9 bottle is much higher than previously. It would not be surprising to see the proportions exactly reversed: 30% at £5 and 65% at £9. Barely anyone will buy the £15 bottle, but a majority of buyers are influenced by its presence.

This experiment violates the assumptions that conventional consumer theory is based on. Rational agents "should" have an context-independent demand curve for each product: they are supposed to evaluate the utility of each option, apply a constant exchange rate between utility and cash, compare the result to the price of each product, and maximise consumer surplus. If the value of the £9 bottle exceeds that of the £5 bottle by more than £4, they buy the £9 bottle. Sensible assumptions about the distribution of the utility function among consumers and the effect of diminishing returns together allow us to derive the standard demand curve.

The switching effect caused by the presence of the £15 proves that this is not the process that's going on. Instead, some more subjective decision is at play.

We would like to find a mechanism that explains this. It's one thing to simply say "people's judgment is influenced by the range of options available to them", but much more powerful to be able to explain the strength of that influence, and predict how it will be affected by changes.

For example, will the effect be stronger with a £12 or £20 bottle of wine instead of a £15 bottle? What if there are four options instead of three? And will more, or less, people actually buy a bottle - and does this outweigh the additional profit from the switching effect?

In this article I'll propose a model which could explain the effect. It won't yet be able to answer the questions of the preceding paragraph, but it will hint at where those answers could come from. And it should give some idea of the sign, if not the magnitude, of the answers.


Suppose that consumers are highly uncertain as to the utility they will gain from a bottle of wine. This is plausible - even under rational decision-making, there are many factors contributing to utility which cannot be predicted at the time of purchase. The quality of the wine, the exact time and place you'll drink it, the mood you'll be in and the people you'll be drinking with. Taking the simplest of these, quality: it is not precisely measurable even if you have bought the same bottle of wine before. If you enjoyed it last time, this could have been a result of the other factors; perhaps I enjoyed it because of the woman I shared it, or the food I ate, and not because the wine was great.

Given this uncertainty, which bottle should you choose? The only choice we can have a direct insight (and a limited one at that) into is our own. But I propose that the following model of decision-making is consistent with this effect:

The buyer (probably subconciously) recalls the main categories of their experience of drinking wine. For most of us, there are a small number of high-end experiences - a special occasion, an expensive bottle and meal, perhaps with special people, and an intense experience filling the mouth and nose with distinctive, delicious aromas. A more common experience of enjoying a refreshing glass of wine, either on its own or with dinner, completing an enjoyable experience of afternoon or evening. And an occasional recollection of some really rough vino which went down harshly, stained our teeth and left a bad hangover.

With three ranked bottles of wine in front of us, we can perfectly superimpose them on these three different kinds of experience. Naturally, we want to achieve one of the first two - and most commonly the middle one. To achieve that, we pick the £9 bottle.

But with only two bottles, if we try to superimpose our memories of wine we are forced to include our third choice - to have no wine at all. This becomes associated with the lowest-ranked experience; the £9 bottle becomes the special one; and the £5 bottle the refreshing everyday choice.

In each case we use pattern-matching to associate the choices in front of us with memories of past experiences - probably because those are more easily accessible, more credible and more concrete than the hypothetical experiences we might have in the future.

So the models of decision-making we build may be closely associated with memories of past experiences. There are a number of analytic or practical conclusions we could draw from this:
  • That consumers should be more likely to buy wine when there are three choices than when there are two.
  • That the effect may be weaker with white wine than red - because far fewer people have memories or even an image of very special experiences of white wine. This, and the previous effect, should be testable.
  • The price of the most expensive bottle should be in a range that the consumer might at least consider buying, but sufficiently above the middle price that it is clearly in a different category. This would indicate that the effect might work less well at £12 but also would not work at £50 - probably £15-25 is the optimal range.
  • That four options may work less well than three. I have an intuition that three simple, broad categories are about as far as the subconcious will go (in a field where we are not expert, and this effect is not aimed at experts in any case). Four will probably push us back towards rational choice, and I suspect that the effect would be diminished.
  • More generally, that there is a specific kind of correlation between experience and choice - for example, people who are new to a product category may be less influenced by framing effects than those who have used it before.

I would not put this forward as a concrete model of decision-making without further testing, but it's an interesting place to start. If you can think of other explanations, please feel free to comment.

Friday, 10 April 2009

Stunning show from Gob Squad

Actually, before posting the behavioural theory promised in my last post, here is a quick announcement. Last night I saw Saving the World by British/German theatre company Gob Squad, and it was amazing and beautiful.

More people should see it - half the seats were empty. Today is your last chance: there's a matinee at 3 and an evening performance at 7.45 I think. If you have ever been on the South Bank, enjoyed London or thought about life, you must see this show.

You can find it at http://www.spillfestival.com/index.php?plid=19 - see it if you can.

Behavioural economics versus "real" economics?

Eric Falkenstein has an interesting post which highlights some of the problems in the study of behavioural economics (in this case, behavioural finance).

I have to agree with his premise, though my conclusions are a bit different.

I've just reread some of Nudge and am partway through Animal Spirits. Both books cheerlead for the behavioural cause - though in each case, one author - Thaler and Shiller respectively - seem to be much more closely associated with it than the other - Sunstein and Akerlof.

However both books exemplify the problem that Falkenstein identifies. The field is full of effects without explanations.

You can easily list a whole string of cognitive biases which can be easily demonstrated - I show the effect directly to audiences in presentations, by running a price anchoring experiment. But the behaviourists rarely seem to propose a good underlying model of how these effects arise.

Having just completed another book, The Making of an Economics, Redux, I can see why this might be. There is a surprising split between theorists and empiricists (experimental economics or data analysts), and most of the behavioural work has come from the experimental side. Indeed most theorists working on behavioural economics are busy trying to disprove it - come up with an apparently irrational effect, and they'll show how it can in fact be explained within their rational models.

Nothing wrong with that in principle - the key distinction of the scientific method is that hypotheses must be falsifiable, and we move forward by gradually disproving the wrong bits and leaving the best parts in. But in most sciences, the theorists propose something new and the experimenters try to disprove it. In behavioural economics it is the other way around!

Mainstream economists, understandably, want to have a solid theoretical foundation before trying to incorporate behavioural economics into the fields they study. This is perceived as part of how "real" economics is done. And, as far as I can tell, the behaviourists haven't stepped up yet.

Perhaps it's a cultural divide that has kept the theorists out of the field, or perhaps there really is an underlying flaw in the behavioural ideas, which the experiments are skirting around. While I believe that the behavioural results are real, I would not like to be defending a PhD thesis on them just yet. It's imperative that we find out whether these results can actually form the basis of a new economic model.

I'm going to start to attack this myself by proposing a theoretical decision-making model which might explain certain anomalies in consumer response to prices. That will be in the next posting.

Thursday, 9 April 2009

Second top

The new EconDirectory.com rankings are out, and Knowing and Making has moved up to number 65 (based on visitors) and 68 (based on page views).

In the UK, we are now the second most popular economics blog, behind Tim Worstall.

The BBC and FT blogs do not publish their stats in this directory (Willem Buiter is on there but it's his pre-FT blog address), so it's likely that Stephanomics, Undercover Economist and Economist's Forum are ahead too - but we are definitely in the top ten.

Thanks for all your visits over the last year, and if we can get ahead of Tim Worstall by the summer I'll buy you all a drink*.


* Offer limited to those who turn up in the pub and collect it

Wednesday, 8 April 2009

The Apprentice series 5, episode 3 - live blogging

If you're reading this after the show and haven't seen the result yet, head down to the bottom of the page now. If you read from the top you'll see who gets fired.

If you already know the result, feel free to read in either direction. Probably still more logical from the bottom upwards, though.





10:31 Thanks for watching, everyone, and see you next week.

10:30 Another preview of next Wednesday, which looks like a reasonable episode but not as good as today. Perhaps I will be able to get an analysis of dynamic stochastic general equilibrium out of next week's show.

10:27 The audience doesn't like the firee as much as I do. They must be wrong, of course.

10:24 I must agree with Heidi at the Guardian about the pointlessness of Carole Malone. Who is she again?

10:20 A nice little demo of the winning product from Trevor Nelson.

10:18 Maybe I'm in a better mood this week, but I'm enjoying both shows. That Michelle Mone is lovely.

10:06 Actually, this is notable. So far Maj is the most likeable candidate we've had on You're Fired. In fact the best since Raef last year.

10:03 This week I'm not commentating on You're Fired. Unless something really interesting comes up.

10:00 Not much direct irrationality either - unless you count lack of omniscience as irrationality (which traditional economics often does).

9:59 A good episode this week. Lots of interesting insights into the innovation process and the diffusion of new ideas in a population with bounded rationality.

9:58 James is popular in the house!

9:57 However, it's fair to say that Ben made a good try at this - there was not much wrong with his attitude or work rate, just his judgment.

9:55 I'm surprised by the result. A firing for passivity when there were much worse sins in this task.

9:54 The expression of certain concepts in this episode is much more interesting than normally. Margaret has reported back that James is a good leader, and Alan mentions this as a factor in his decision.

9:51 Ideas can be generated by coming up with a small number of good concepts: or thinking of lots of concepts and then applying a good filtering mechanism. In this case the small number theory seems not to have worked.

9:50 Alan Sugar, amazingly, just criticised someone for never having a good word to say about anyone.

9:45 Communication within the firm this time: the manager claims he decided to mislead his team about their product to keep their morale high. A legitimate argument.

9:43 Margaret points out that they have not understood their target market. Markets are not homogeneous, and an idea that strongly resonates with a subset often works better than one that weakly resonates with everyone.

9:41 The prize this time (a private opera recital from Katharine Jenkins) seems not to be efficient economically: it must have been expensive because Jenkins doesn't need to be on the Apprentice for free just for the publicity; while the utility to the team seems likely to be low. But they have all dressed up and look very pretty for it.

9:40 Ben does have a lovely turn of phrase. About James: "I'll bite his bloody teeth out" if he tries to blame me in the boardroom. If we lose him today the series will get slightly more boring.

9:39 Alan Sugar actually singled out two contestants for individual praise. That's a new one.

9:38 John Lewis ordered 500 from Empire and 10000 from Ignite!

9:37
 Totally Fitness ordered nothing from Empire and 100 from Ignite.

9:37 Results: Powerhouse ordered nothing from Empire and 80 from Ignite.

9:34 And...boardroom time. It's quite interesting that the team don't get feedback on their sales orders during their negotiations - giving them no chance to innovate or refine the idea iteratively as they enter the market. Any idea that survives in the marketplace ends up embodying the structure of the market as much as the mind of the original inventor.

9:32 Let me correct that: Lorraine has got much better. John Lewis just asked for an exclusive on the product. The team wasn't quite sure how to respond - they don't have experience of retail volumes - but it's a great buying signal when someone asks for that in a negotiation.

9:31 Kate of Empire is a better pitcher than Lorraine of Ignite. Shame about the product. Ben is very proud of his invention but I foresee a fall coming.

9:29 Ouch! Empire have mistargetted their product. At a price point of £30 it competes with a £2000 multi-gym product. It's critical to remember the interests and incentives of the firms in the sales channel as well as the end user.

9:28 Empire's pitchee already seems bemused. A new idea needs to be simple to be transmitted easily into the market.

9:26 Pitch time! If we go back to evolutionary theory, this is a mating display. Ignite's pitch is not as bad as the rehearsal.

9:25 Good: time for Nick to have an opinion.  External validation of your idea is an important method of signalling to new prospects in any market. Unfortunately, he's not validating it.

9:23 Ben is trying to chat Kate up. But not when she's there, which is a bit odd.

9:22 More on communication: a terrible pitch from Lorraine. Debra then decides to let her pitch it anyway, because "the product is so strong". And, of course, because it gives her someone to blame if they lose.

9:18 Product prototyping companies must love this show. What fun to build these people's random ideas into something that (on past experience) seems to work pretty well.

9:16 Market research, to refine the idea. Empire finds that the biggest-selling items in a local gym shop are the simplest. The rest of their team then proceeds to make the product more complex. Ideas need to interact with their environment to become successful. Danger for Empire here.

9:15 A juicy argument between Ignite team members about whether to have two "ethnic minority" candidates in the poster.

9:13 Ignite hasn't come up with any workable ideas at all. But they're going ahead with marketing, which is probably a rational resource allocation decision.

9:11 They're struggling a little with names - the next stage in innovation, after developing the idea, is communicating it to other people. Not serious yet, though.

9:10 Ben has an idea that seems to come from some knowledge of actual fitness. This supports the theory that new innovations come most often from firms already active in the same industry.

9:09 The Ignite project manager is already complaining about her team. Not in front of them, fortunately.

9:08 "Something that works in the shower". "I'm keen to go down the 'sex sells' route. Something that you can use while you're actually having sex, that creates resistance." I think where these ideas come from is whatever is on the contestants' mind most of the time.

9:06 There's some interesting economics about where intellectual content comes from - and particularly how it impacts economic growth. It will be interesting to try to identify where the ideas come from.

9:05 The task is to invent an item of portable home fitness equipment and sell it to three big retailers. A bit of team-switching, which should relieve the sex-war monotony.

9:04 Nothing really happening yet. A bit of grooming by the girls and posturing by the males. There's some evolutionary basis for this (fitness signalling) but it's a stretch to call it economics.

9:00 Welcome!

I'll be live blogging The Apprentice again this week, starting in just over an hour. As usual, I'll focus on the implications for economic theory and rationality, whatever that means in the context of these contestants.

In the meantime the Guardian are probably getting started - click here to start chatting to their commenters.