Risk Assessment Affects Air Prices?

Richard and James have been having a little chat about the openness of information in markets and how this affects prices. This caused me to wonder about the recent alleged terrorist threat in the UK, and how this would affect plane ticket prices. The commonly accepted wisdom seems to be that there was a terrorist threat, that a certain amount of it still persists, and will continue to do so for the foreseeable future. The current restrictions on carrying liquids on planes are also a serious inconvienience for people who do a significant amount of air travel.

That liquids are banned is (hopefully) an incontrovertible fact, and I’d be surprised if this didn’t have an affect on demand for flights, and thus presumably prices, as airlines become more desperate to attract customers. The extent to which the terrorism threat exists is more debatable. If the commonly accepted wisdom is correct, people are likely to cut back on the amount of air travel they do (human beings are notoriously bad at assessing risk so it’s hard to know whether this is rational). However, if it is incorrect (let’s take the extreme example where there is no terrorist threat and the allegations are wrong, whether malicious or mistaken), this will still happen, and we can still expect prices to fall - because most people still believe the accepted wisdom. What this means is that if you don’t believe in the threat, you’re getting ticket prices cheaper than you otherwise would do - because there is distortion in the market on a grand scale. This would be an example of market failure because of faulty information, and is a longer-term variant on the problem James was alluding to with the discontinued component. Normally market failure is identified when there is information asymmetry between the buyer and the seller, but I believe inconsistent information between buyers could be another potential cause (I’d be interested in comments from those more qualified in economics than I).

I’m not making judgements about the likelihood of any particular situation (although I do have opinions that I’ve discussed in other posts). I do think this is a good example, though, of how centralised information dissemination can influence a market.

5/100

As this is my 100th posting to this blog, I’ve decided to do a run-down of the five most popular postings so far:

  1. Tesco Show What Innovation Is

  2. Shaving and Carry-on

  3. What is an ESB?

  4. WebSphere Message Broker and WebSphere ESB

  5. Blog Commenting is Weak

These rankings are provided by the Wordpress Popularity Contest plugin, which calculates them based on a weighted average of views, comments, etc. It’s almost endlessly tweakable - I’m trying to resist the temptation to fiddle. I don’t think the above numbers are particularly accurate right now, so they’re just a bit of fun, but hopefully the statistics will settle as the new plugin starts to record information.

What is Business Logic?

In the world of business-oriented software, we use the phrase ‘business logic’ a lot. In my particular area (WebSphere integration products), a typical pattern is to delegate ‘technical logic’ to mediation flows in WebSphere ESB, and to put ‘business logic’ in process flows in WebSphere Process Server. It doesn’t have to be that way, but that’s what many people encourage, as it seems to neatly match what the software can provide.

But what do we mean by the phrase ‘business logic’? Ultimately both business logic and technical logic come down to the same thing; instructions executed by the machine. I can implement both in mediation flows, Java, Perl, assembler, or shell scripts. So why the distinction? It really depends on one’s perception.

For example, let’s imagine we are developing an integration system for a peanut factory, and we are developing a system to handle the orders. A typical way we might encourage someone to use WebSphere ESB is at the boundary, to convert between the protocol used by the web-based bulk order system (say SOAP/HTTP) to the one used by the back-end production system (say JMS). The distinction between these isn’t important to the business; it doesn’t matter what format the message is in; it just has to be in a certain format because we need some integration and don’t want to change everything.

By comparison, we might encourage someone to use a business flow to model (say) the approval of orders of peanuts. The process might follow a number of steps, some of which might involve human intervention, to modify the order (message) accordingly - i.e. adding ‘approved’ or ‘denied’. This would be based on the size of the order, that customer’s past history, whether they were salted or (urgh) dry roasted - all things that are at the business level - things that we find interesting (assuming we like peanuts).

Therefore, let’s characterise the difference as follows:

  • Technical logic: Stuff we don’t want to do, but need to in order for everything to work.

  • Business logic: Stuff we do want to do - the reason we’re doing all this. We can not only decide on how to implement this (as we can with technical logic), we can also decide not to implement it all, or to implement different logic.

Therefore, these two types of logic are at different abstraction layers - the technical layer we’d love to make as simple as possible and hide away (and I’d like to think WebSphere ESB does a good job of helping IBM’s customers do that), whereas the business layer we find interesting and want to spend some time on. I mentioned something similar before as a best practice - I could rephrase that best practice here as: ‘Spend as much time as possible on the business logic, and as little time as possible on the technical logic’. It seems sensible, then, that to keep them separate (and there are plenty of patterns for doing just that) is a natural thing to want to do.

I’d love to hear some comments from my consultant colleagues on this: do you think this distinction is important? Does it impact the way you work day-to-day?

The Sixth Sense

The Sixth Sense is a reasonable thriller with a good twist at the end (I genuinely didn’t know what it was; and I won’t spoil it for anyone else who doesn’t). Haley Joel Osment and Bruce Willis are both excellent, and the supporting cast competent. Osment in particular stands out - he has done well in other films such as A.I., and is one of the most competent child actors of the modern generation. The film drifts rather to start with, and by the time it gets going the end of the film is approaching. But apart from this mismatch of pace, this is an interesting film from M. Night Shyamalan, one of the most successful Indian film directors to break into Hollywood. Willis again proves that he isn’t just an action hero (see Death Becomes Her and Color of Night for other examples).

Why Trade is Beneficial - The Ebay Way

Ebay can provide a very good illustration of why trade is good for everyone.

Let’s say I have a Coldplay t-shirt that I was given as a present, have worn once or twice, but am ashamed of and want to get rid of. As such, it isn’t worth much to me - if forced to assign a value, I might say £1. I’ve just been given a phone, though, an older model, and want a spare charger for it.

You have just upgraded your mobile phone, and are left with the old charger. It’s therefore useless to you - you might say that’s worth £1 to you too. You like bland British pop, though, so you’re looking for a Coldplay t-shirt.

I put up the t-shirt on Ebay, and you put up the phone charger. We both bid £5 for each other’s items, and exchange goods and money. Since we both bid the same amount, the amount of money in our hands has not changed. However, we’ve both gained wealth, because we both now have items worth at least £5 to us rather than £1. Thus, the total amount of wealth in the economy has gone up, and we’ve both made a profit. In other words, the transaction is win-win (as are most transactions).

Of course, there are some simplifying assumptions here:

  • The market is more complex: the chance of us both being buyers and sellers on Ebay and exchanging items like this is obviously low. In fact, in the example above, we could have bartered and simply exchanged items - money is typically used just because it makes the market more liquid - it doesn’t require both of the transactions above to happen simultaneously between the same parties. If only one of the transactions above happened, the same argument would still apply: it’s simply that the seller values the item less than the money paid, and the buyer more.

  • I haven’t discussed the transaction costs involved.

Hopefully this example illustrates why trade is a good thing for increasing everyone’s wealth. The corollary is that international trade is also beneficial - because there is wider scope for finding people who wish to trade and increase the net wealth. This is one reason why I support the Adam Smith Institute’s campaign to increase free trade and oppose any artificial distortion of trade boundaries or protectionism. (Incidentally, their blog is well worth reading).

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