Contents Preface Chapter 1: Introduction: Economists as Innovators Organization of the Book My Personal Interest (and Bias) Notes Chapter 2: An Easy Introduction to Economics Rationality Markets Market Failures The Macro–Micro Distinction Economic Growth in the Short and Long Run The Equity–Efficiency Tradeoff Innovation and Growth: The Role of Economists The Bottom Line Notes Part I: The Power of Economic Ideas: Direct Use in Business Chapter 3: The Price Is Right The Bloomberg Way of Pricing Auctions Different Prices for Different Folks The Bottom Line Notes Chapter 4: Minimizing Costs Optimization Learning by Doing The Bottom Line Notes Chapter 5: Beyond Moneyball A Brief Guide to Regression Analysis The Business of Forecasting The Business of Economic Consulting Data Analytics and Big Data Econometrics and Sports: Moneyball Regulatory Moneyball The Bottom Line Notes Chapter 6: Experiments in Economics and Business Economics in the Lab: Vernon Smith and Experimental Economics Lab Experiments in Business: Focus Groups Economic Experiments in the Field: Randomized Controlled Trials Business Experimentation in the Field Innovation and Entrepreneurship: Experimentation as the Foundation of Growth The Bottom Line Notes Chapter 7: Matchmaker, Matchmaker A Gentle Introduction to Market Design and Matching Theory Matchmaking in the Labor Market Matchmaking and Online Dating The Bottom Line Notes Chapter 8: Economists and Mostly Good Financial Engineering Not Putting Your Eggs in One Basket: The Rise of Index Investing Efficient Markets and Their Implications Behavioral Finance Valuing Options: Upsides and Downsides The Bottom Line Notes Part II: Economist-Inspired Policy Platforms for Private Business Chapter 9: Planes, Trains, and Trucks Origins of Transportation Regulation Airline Deregulation Trucking Deregulation Railroad Deregulation Deregulation’s Impact: The Transportation Industry Deregulation as a Business Platform The Bottom Line Notes Chapter 10: Economists and the Oil and Gas Revolution The Origins and Decline of Price Regulation of Fossil Fuels The Oil and Gas Supply Revolution The Energy Revolution as a Platform Technology The Bottom Line Notes Chapter 11: Economists and the Telecommunications Revolution Economists in a Quick History of Communications When Natural Monopolies End: The Run-Up to the AT&T Antitrust Case Competition in Telecommunications: The Benefits of AT&T’s Breakup Economists and Price Cap Regulation Economists and Spectrum Allocation The Bottom Line Notes Chapter 12: Economists, Financial Policy, and Mostly Good Finance Economists and Competition in Brokerage Commissions Economists as Detectives: Accelerating Automated Trading Economists and the Financial Crisis How Did the Crisis Happen? A Quick and Easy Guide Subprime Lending Excessive Leverage: An Introduction The Pre-crisis Demise of SEIR The Glass–Steagall Debate The Bottom Line Notes Part III: Looking Ahead Chapter 13: Economic Ideas in Waiting: Business Applications Prediction Markets Potentially Good Financial Innovations Congestion Pricing The Bottom Line Notes Chapter 14: Economic Ideas and Challenges on the Policy Shelf: Business Implications Federal Budget Deficits as Drivers of Policy Change Premium Support for Medicare and Medicaid Taxing Consumption Taxing Carbon The Bottom Line Notes Chapter 15: The Future of Economics: What It Means for Business and Economists The Revolution in Economics How Economics Will Continue to Affect Business Implications for Economists Concluding Thoughts Notes Appendix: Prizes in Economics About the Author Index End User License Agreement Since 1996, Bloomberg Press has published books for financial professionals, as well as books of general interest in investing, economics, 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economists : how economists and their ideas have transformed business / Robert E Litan pages cm Includes index ISBN 978-1-118-78180-7 (hardback) — Decision making Economists Economics Commerce I Title HD30.23.L578 2014 338.5—dc23 2014013664 Public policy: equity-efficiency trade off and executive compensation and stock options macro-prudential regulation market failures and role of pros and cons of regulation research funding and role of theories of regulation Public policy, applications of economic ideas importance to budget deficit reduction premium-support program for Medicare and Medicaid tax on carbon emissions or cap-and-trade system tax on consumption Public Use of the Private Interest (Schultze) Puts and calls Quest Rabushka, Alvin Race Against the Machine, The (Brynjolfsson and McAfee) Race between Education and Technology, The (Goldin and Katz) Radio, use of electromagnetic spectrum Railroad Revitalization and Regulatory Reform Act (1976) Railroads, deregulation of impacts of origins of regulation of trucking and regulatory limits on Ramsey, Frank profile of Ramsey pricing Random Walk Down Wall Street, A (Malkiel) Randomized controlled treatments (RCTs) Rassenti, Stephen Rate of return (cost of service) regulation Rationality, in economics: critics and defenders of concept importance of utility and Reagan administration Real estate prices, Shiller’s prediction of bubble in See also Subprime mortgage lending Redistribution, economic growth and Regional Bell operating companies (RBOCs) Regression analysis basics and uses of cautions about data mining and Big Data econometric forecasting businesses and economic consulting businesses and regulations and cost-benefit analysis of sports analytics and Regulations, cost–benefit analysis of See also Deregulation Regulatory Analysis Review Group Regulatory forbearance Regulatory lag Reich, Robert Reischauer, Robert Research-backed securities Retirement accounts, behavioral economics and Reynolds, Bob Ries, Eric Risk-adjusted returns, efficient markets hypothesis and Risk-based bank capital system Rivlin, Alice profile of Robb, Alicia Robinson, Joan Robson, John Robyn, Dorothy Roosa, Robert Roosevelt administration Rostenkowski, Dan Rostow, Eugene Roth, Alvin profile of Roubini, Nouriel RoundPegg Ryan, Paul Sabermetrics Sabermetrics Revolution: Assessing the Growth of Analytics in Baseball, The (Baumer and Zimbalist) Safety, market failure and market design Samuelson, Paul profile of Sandel, Michael Sandor, Richard Sarbanes–Oxley Act (2002) Sargent, Thomas Savings and loan crisis Scarcity auctions and Julian Simon’s skepticism about (see also Congestion pricing) Schmidt, Eric Scholes, Myron Schramm, Carl Schroeder, Alice Schultz, Paul Schultze, Charles profile of Schuman, Mary Scorecasting (Moskowitz and Wertheim) Second Machine Age, The (Brynjolfsson and McAfee) Second-highest bid auction Securities Acts of 1933 and 1934 Securities and Exchange Commission (SEC) Securities See Financial policy; Investing Semiconductor industry, optimal pricing and Sequester Shadow Financial Regulatory Committee (SFRC) Shadow prices Shale formations See Energy, deregulation of Shapley, Lloyd profile of Shapley value Shenefeld, John Sherman Act (1890) Shiller, Robert profile of Shoven, John Siegfried, John Silver, Nate Simon, Herbert Simon, Julian Simplex solution method Sims, Christopher Sinquefeld, Rex Siroker, Dan Sloan, Alfred P Smith, Adam Smith, Vernon profile of Smith, William French Snowball (Schroeder) Social regulation, distinguished from economic regulation Social safety net programs See Public policy entries Solow, Robert Sonmez, Tayfun Southwestern Bell Speculation Sports analytics Sprint Squadron, William St Louis Cardinals Stable matching concept Stagflation Staggers Rail Act (1980) Standard of living, economic growth’s benefits to global State Street Bank v Signature Financial Group Statistical analysis See Regression analysis Steagall, Henry Stein, Herbert Stigler, George Stocks See Financial policy; Investing Strategic Planning Associates (SPA) Straus, Eric Street Smarts (Brodsky and Burlingham) Strike price Strom, Robert Structured early intervention and resolution (SEIR) reasons for failure of Structured investment vehicles (SIVs) Structured mortgage securities Strumpf, Koleman Subprime mortgage lending Sunstein, Cass Super Crunchers (Ayers) Supply curve, energy deregulation and Supreme Court Surowiecki, James Survivorship bias, in experimental results Systematic Thinking for Social Action (Rivlin) Tail risk, in investing Taxes: cancelling of Bush-era cuts negative externalities and proposed on carbon proposed on consumption public goods and redistribution and Telecommunications AT&T’s breakup’s benefits AT&T’s natural monopoly’s end history of communications origins of regulation of rate-of-return and price cap regulation spectrum allocation and economists use of electromagnetic spectrum Telecommunications Act (1996) Television, electromagnetic spectrum and Terrorism prediction market Tett, Gillian Thaler, Richard Thickness, market failure and market design Thinking, Fast and Slow (Kahneman) Thorp, Ed Thorp-Kassouf options pricing formula Tinbergen, Jan Tirole, Jean Tobin, James Transaction costs, investing and Transportation industries, deregulation of impacts on new business platforms impacts on prices regulation’s origins Transportation problem, performance optimization and Travel services, conditional offer of purchase and Priceline Travelers Insurance Trial and error method Trucking industry, deregulation of impacts of origins of regulation of TSP (Time Series Program) Tullock, Gordon Ultimate Resource, The (Simon) Ultrahigh frequency (UHF) spectrum bands Unemployment: Great Depression and inflation and natural rate of public policy and wage insurance and Unver, M Utku UPS Upside of Down, The (McCardle) Utilities: incentive regulation and Ramsey pricing and (see also Energy, deregulation of) Utility Value-added tax (VAT) See Consumption, tax on Vanguard VAR (vector autoregression) models Variable costs Varian, Hal profile of Veach, Eric Verizon Very high frequency (VHF) spectrum bands Viard, Alan Vickery, William Vickery auction Viner, Jacob Virtual currency Volcker, Paul profile of Volcker rule Wage insurance Walker, Jay Wallich, Henry Walras, Leon Warren, Elizabeth Wasserman, Noam Weiler, Em Weinberger, Casper Wertheim, L Jon Western Electric Wharton Econometric Forecasting Associates (WEFA) Wharton Models Wharton School of Finance, at University of Pennsylvania What Money Can’t Buy (Sandel) Whatsyourprice.com White, Lawrence Wilson, Robert Winkler, Matt Winston, Clifford Wisdom of Crowds, The (Surowiecki) Wisdom-of-crowds approach, to forecasting Yergin, Daniel Yield management Zimbalist, Andrew WILEY END USER LICENSE AGREEMENT Go to www.wiley.com/go/eula to access Wiley’s ebook EULA ... 1950– Trillion dollar economists : how economists and their ideas have transformed business / Robert E Litan pages cm Includes index ISBN 978-1-118-78180-7 (hardback) — Decision making Economists. .. books have been translated into more than 20 languages For a list of available titles, please visit our Web site at www.wiley.com/go/bloombergpress Trillion Dollar Economists How Economists and Their. .. AT&T’s Breakup Economists and Price Cap Regulation Economists and Spectrum Allocation The Bottom Line Notes Chapter 12: Economists, Financial Policy, and Mostly Good Finance Economists and Competition