Friday, June 17, 2011

A very interesting paper

On the economics of superstars. I read this a while back and was just reminded of it in trying to figure out with a colleague why the graduate wage premium estimates I was getting for my engineering sample were consistently higher than the typical college (i.e. - undergraduate) wage premiums in the literature.

Now, if you're the sort of person that thinks simple math that doesn't always flesh out all the detail of the market process and is not as useful as extensive prose on abstract ideas, you might not like this paper. I'm personally very glad to have reacquainted myself with it, and I'm finding that it is facilitating the development of a useful understanding of the world as I observe it.

[sorry... still baffled by how some people approach economics... it is a really good paper]


  1. Here is something about superstars.

    Compare a successful financial institution or financial services organization with a superstar.

    JP Morgan makes billions of dollars in profits every year and has a giant stock of capital invested all over the world. Yet, JP Morgan would not even be 1% of the total profits made across the world in the financial sector or even 0.01% of the total capital invested across the world. And if you remove Berkshire Hathaway's top 10 trades, you will see an average performance over all those decades.

    On the other hand, look at The Beatles, Elvis Presley, and Michael Jackson. Taken together, their 3 billion album sales would form the lion's share of all music ever sold, and they would be a million times better selling than what all music of entire genres sell.

    In music, the winner takes all, and many musicians are left performing in hole-in-the-wall stores.

    In financial markets, everybody's returns average out evenly in the long run.

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