Comparative Advantage

Comparative advantage describes how trading parties will choose to produce more of a good that they have a comparative advantage of, and use that to trade for other goods that they don’t have a comparative advantage in. Comparative advantage forms a foundation for international trade.

Comparative advantage is why there are call centers in India, manufacturing in China and highly specialized capital intensive labor in the US. It makes sense for China to do all manufacturing electronic goods and trade it to other countries that are specialized in producing other goods.

Conversely, an oil producing country will have a cheaper access to raw material for chemical products. They have a lower opportunity cost of producing more chemical products compared to countries that do not have access to cheap raw materials. This drives more chemical production in oil producing countries.

However, there are cases where countries, governments and business lobby together to protect niche interests. This can effectively keep foreign, cheaper goods out of the market to protect domestic businesses. However, in the long term, this might not good solution as neighbouring countries will be better off as they have to spend less to get the same goods.

Parimutuel Betting

Parimutuel stands for mutual betting. All the bets of a particular type are placed in a pool after deducting the house cost. This kind of betting is different from fixed-odds betting in that the payout is not known at the time of placing a the bet.

The payout is determined after the event has taken place and the pool is split to the outcome sustained. This kind of betting is common in horse racing.

An important innovation in this betting system was the introduction of a Totalizator. Nowadays, these are computers. A totalizator read the current pool and betting spread and calculates the odds and payout and show it to the public. This encouraged even more betting as it gave a feedback to the ones betting.

Pricing Power

Pricing power allows businesses to price their product or services higher than the rate of inflation and that of the competitors without reduced sales. Pricing power can come from a few ways. A very high quality product. A patented efficiency or feature of convenience that competitors cannot match. Or when a business is operating as a monopoly and barrier for entry is quite high.

A key indicator of the strength of a business is its pricing power That said, it does not mean that if a business does not have good pricing power it is a bad business. However, the opposite has a much higher probability to hold true.

In some businesses untapped pricing power is a good indicator that it is mispriced by the market. To reach such a conclusion one must have an idea on the costs and margins of that particular business against the backdrop of it’s competitors.

High pricing power can materialize as high ROIC over the years. But keep in mind that, high ROIC can be a result of many other factors. Operating and gross margins also provide an indication of the pricing power a company has.

Gini Coefficient

The Gini Coefficient is a statistical measure of dispersion. It is an indication of the spread of data similar to standard deviation and variance. In economics, the Gini coefficient is used to represent the income inequality within a demographic.

This coefficient was developed by the Italian statistician Corrado Gini. The Gini Coefficient can be calculated for both continuous distributions and discrete data.

Over the last century in developed countries, there is a trend of increasing inequality. While in developing countries, this is a decline in inequality since the 1980’s. THis can be attributed to all the new jobs created due to technology and globalization. Countries following the nordic model tend to have a lower overall Gini coefficient.

Gini’s coefficient is used in other disciplines. For example, it is used in ecology as a measure of biodiversity in a region. In health, it is used as a measure of inequality of health related quality of life in a population.

Flynn Effect

The Flynn Effect is the increase of intelligence test scores over the 20th century. The IQ measure is measured around 100 and their standard deviation on either sides. Over the years, the mean is adjusted based on the sample population and it is observed that the mean shifts upwards a few basis points.

There are a few explanations as to why this is a trend.

Total schooling time has increased steadily over the years. This means that kids would have had more chances to practice their analytical and cognitive skills.

Tests similar to IQ tests are used in a lot of scenarios. The familiarity of such tests has grown.

There is a more stimulating environment while kids are growing up now vs. back in the day. More video games and television stimuli. There are studies that show better cognitive activity and hand-eye coordination among those who game more.

Nutrition, both in quantity and quality has improved over time. There is data that suggests that the brain is ever so slowly growing as well with the improved conditions.

Better health conditions. Developed nations in general are more equipped to handle infectious diseases. Vaccinations are part of everyone’s growing life.

Light Sails

Light sails, aka Solar sails is method to propel a spacecraft using light. The light from the Sun exerts a radiation pressure on these sails that accelerates the spacecraft. However, the magnitude of force is quite low. A sail of dimensions 800m x 800m will experience a force of about 5 newtons at Earth’s distance from the Sun.

What exactly happens is that only a fraction of the photons that hit a light sail is reflected. Some of it are absorbed. And this causes a transfer in momentum from the photon to the light sail. For the momentum to be of any considerable value, there has to be a lot of photons and the light sails have to be as light as it can be.

Omuamua is the first interstellar object detected as a passing object through our solar system. Interstellar, meaning that it originated outside our solar system. These objects are hard to detect before-hand that we can be ready to send a spacecraft behind it. In addition to that, the speed of these objects are quite high to keep up with conventional propulsion methods. Light-sails could be a good candidate for probes that can be used to patrol the boundaries of our system for such objects in the future.

Household Stocks

A layman idea that has permeated the investing world is that if you are using a product or service then and you enjoy it, then you should own the stock of the company behind it. This is a good example of why Albert Einstein said “Everything should be made as simple as possible, but no simpler“”. By making a concept simpler than it should be, it has omitted some important aspects of it.

There are a few shortcomings to this idea. The fact that you like it does not mean everyone else likes it. And is also not any indication of what the business might expand into later. It does not give an idea of what it’s competitors are. Maybe the competitors don’t sell or market to where you live.

The business behind it can tell a totally different story. They can be debt ridden. Found malpractice. Or fighting a patent lawsuit. Anything is possible.

Households names are a good starting point. There is something in you that made you purchase the product or service. That in itself is a pre-requisite for a good product. But analysis shouldn’t end there. Looking into the financials and the story of a business is key to investing as much as having a mouth feel of the latest flavour of coke.

Genetically Engineered Products

All products that are aiming for a sizable market has to be generalized to some extent. To make it efficient to create, distribute and market the product it was essential that the product appealed to the masses. Having minimum variability was key to optimise the business as a whole. Take Apple for example, Back in the 2000’s they were successful partially because of their relatively small product line. Less options for the customers to choose from but why would they need options if the product was just so good.

On the other end of the spectrum are products that are bespoke to an individual. A good example are tailored outfits. By definition there is a need for the product to be unique and match a person’s style. Usually these kind of businesses rely on physical and more tangible parameters of a customer to make a customised product. With the reduced cost of doing a DNA test, there is a new vertical altogether that opens up a possibility for a business to create hyper-customized products.

23AndMe is a company that helps you map out your ancestral lineage using a sample of your DNA. As more and more customers use the service, the better their data and reach will become.

GenoPalate is a business that aims at creating a specialized diet plan based on your DNA. Based on the combination of genes that a person has, Genopalate can come up with an optimal nutritional plan. It can provide analysis on how our body digests various types of food and substances(caffeine, alcohol etc.).

Forgetting Curve

A forgetting curve is a representation of memory retention over a period of time. Based on some early studies conducted by Ebbinghaus, it was shown that the forgetting curved follows a logarithmic curve. Given that there was no attempt to retain it. But how do you retain a memory.

Memories in our brain become more consolidated when we try to recollect it. That is why being tested on new concepts help you remember them more. However, testing yourself right after you learned something doesn’t help. This is where spaced repetition comes into play. The more spaced out the repetitions are more you can retain with a reducing effort every subsequent try.

When we encounter a new experience and we recollect an already existing memory. There are two possibilities that can happen. If the new experience is in agreement with the existing memory our brain consolidates even more. If it is differing, our brain creates a new memory based on the original memory. A representation is shown in the below picture.

Related

de Oliveira Alvares, Lucas, and Fabricio H. Do-Monte. “Understanding the dynamic and destiny of memories.” Neuroscience & Biobehavioral Reviews (2021).

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