Saturday, March 31, 2012

Can foreign aid buy growth?

This post will be an examination of an application of economic trend analysis using economic growth, investment, and foreign aid data.  In the article, Can Foreign Aid Buy Growth?,  William Easterly discusses the effectiveness that foreign aid has on influencing economic growth in developing countries.

The standard model used to justify aid is called the “two gap” model.  It was developed by Chenery and Strout in the mid-1960s.  The first gap in the model addresses the difference between the amount of investment in an economy that is necessary to attain a certain rate of growth and the available domestic savings.  Essentially the gap exists when the public does not save enough and thus there is not enough capital to invest.  The second gap is between import requirements for a given level of production and foreign exchange earnings.  In the article the author primarily focuses on the first gap.

The first gap, the “financing gap”, makes two assumptions.  The first is a stable linear relationship between investment and growth exists.   That is to say, that for every dollar invested in an economy, the economy sees a corresponding dollar in growth.   The second is that aid intended to fill the financing gap will actually finance investment rather than consumption.  Easterly says that if the causes of low investment in an economy are because of poor incentives to invest, then aid will not increase investment.  In fact, the author claims, aid could actually worsen incentives to invest which could lead to economic contraction.  Aid in this case will then finance consumption, the author cites the work of Boone in 2006 as an example.  

Easterly tested the “financing gap” to determine how many of the 88 aid recipient countries showed a significant and positive result from having received foreign aid.  The test covered the period of 1965 to 1995.  Only six of the 88 countries showed results that indicate aid was able to increase investment in the economy.  Hong Kong, China, Tunisia, Morocco, Malta, and Sri Lanka were the six countries.  The next step in the Easterly’s analysis was to look at the growth rate of the economy and rate of investment in the economy.  Using the same 88 countries the author found only four countries had a significant relationship between growth and investment.  Israel, Liberia, Reunion (a French colony) and Tunisia were the four countries.  Easterly concluded that only one country, Tunisia, passed the “financing gap” test.  Of course, the author said that Tunisia was more likely to have passed due to chance.  

The following graph shows a 10-year moving average of aid as a percentage of GDP and growth per capita in Africa from 1970 through 2000.

Easterly reports that the current theme in foreign aid is that aid should be directed to where it can do the most good.  Specifically, to nations that have good fiscal, monetary, and trade policies.  There is, however, some debate on what constitutes “good” policy.  
The article concludes with the author stating that in no other field of economics do economists and policymakers promise such large benefits for modest proposals.  Easterly says the macroeconomic evidence simply does not support the claims.  He suggest the goals should be more modest in that the aid should simply provide benefit to some of the poor some of the time.  However, Easterly also says the quality of aid should come before an increase in quantity.

Easterly , W. (2003). Can foreign aid buy growth?. Journal of Economic Perspectives, 17(3), 23-48.

Thursday, March 29, 2012

Corruption and Military Spending

The authors of this article noted a large body of anecdotal evidence suggesting a link between corruption and high levels of military spending in a country. They set out to empirically determine if such a link existed using historical data to compare economic trends and corruption over the same time periods in over 120 different countries.

First, the researchers developed a theoretical model comparing military spending to overall government expenditure and taxation levels as economic trends in an idealized, corruption-free situation. Once the ratios involved were calculated for each country, the researchers compared the results with the Transparency International (TI) corruption indicator index and the International Country Risk Guide index.

The research team then proceeded to analyze the relationships between corruption and military spending using annual data for ~120 countries from 1985-1998. The team performed a cross-sectional analysis and panel-regression analysis to explore these relationships and consider alternative variables such as time, arms imports, education rates, defense spending in neighboring countries, and other factors.

Their conclusion provided a basis a solid analytic tool for estimating corruption levels in a given country: "Corruption is associated with higher military spending as a share of both GDP and total government spending...[this] can be interpreted as evidence that defense spending may be used as a component of an indicator of the quality of governance."These results were statistically significant at the 10% level.

The authors also concluded that these findings, with further research, could lead to policy development aimed at reducing corruption by focusing on non-military productivity, or including defense contracts in freedom-of-information legislation for additional international oversight.

Gupta, S., de Mello, L.,& Sharan, R. (2001, November) Corruption and military spending. European Journal of Political Economy. Vol. 17, Issue 4. Pages 749-777. Available at

Summary of Findings (Green Team): Role Playing (4.5 out of 5 Stars)

Note: This post represents the synthesis of the thoughts, procedures and experiences of others as represented in the 12 articles read in advance (see previous posts) and the discussion among the students and instructor during the Advanced Analytic Techniques class at Mercyhurst College in March 2012 regarding Role Playing specifically. This technique was evaluated based on its overall validity, simplicity, flexibility, its ability to effectively use unstructured data and its ease of communication to a decision maker.

A technique where participants are given specific roles to follow in an exercise that depicts opposing perspectives of a given scenario.The goal of using role playing as a method is to take different standpoints in order to acknowledge new perspectives as well as minimize biases for forecasting. It can be used as a modifier in order to facilitate training and education. It may successfully forecast outcomes in some scenarios. The military, law, and business claim successful uses of role playing.

  • Works in a number of different disciplines
  • Helps in active learning in a controlled environment
  • Helps users to perceive and acknowledge different points of view
  • Provides an insight to understand behavioral patters of others
  • Can be cost efficient tool for forecasting, training, and analysis
  • Can be used in modeling and resolution of conflict situations

  • Time consuming to prepare
  • Highly dependent on the level of preparation
  • Difficult to evaluate effectiveness
  • Outcomes vary with the role players
  • It is almost impossible to account for all factors in role playing than a real scenario

  • Begin by defining the objectives of the role-playing exercise
  • Define participant roles and setting
    • Assign each individual their own role to fulfill in the group setting
    • Assign the setting to the entire group
  • Enact the scene with time limits that encourage interactions, discussions, and conflicts which could develop given the specific setting.
  • After the discussion, the group should discuss the results of the role-play, and possible findings from the experience.

Personal Application of Technique:
We performed a brief scenario of an oil company versus an environmental group on the topic of new drilling. Each group found a consensus on what arguments would most effectively argue their side. Then, we estimated what the other side would counter argue. In the exercise, the oil company group created three arguments, of which the environmental group accurately forecasted two of the arguments. On the other side, the oil company group accurately forecasted all points raised by the environmental group.

Rating: 4.5 out of 5

Summary of Findings (White Team): Role-Playing (4.5 out of 5 stars)

Note: This post represents the synthesis of the thoughts, procedures and experiences of others as represented in the articles read in advance (see previous posts) and the discussion among the students and instructor during the Advanced Analytic Techniques class at Mercyhurst University on 29 March 2012 regarding Role Playing specifically. This technique was evaluated based on its overall validity, simplicity, flexibility, its ability to effectively use unstructured data, and its ease of communication to a decision maker.

Role playing is a highly flexible technique that can be used as both a method and a modifier that is typically used to aid intuitive thinking.  It covers a broad range of activities in which participants seek to assume the attitudes, actions, and discourse of various roles, especially in a hypothetical situation to better understand a differing point of view or social interaction. Studies have shown that role playing improves forecasting accuracy when applied to a variety of conflict situations, and is more effective than intuitive thinking and game theory in such situations

  • Role play is an extremely flexible method of considering alternative points of view. It can fit nearly any situation with the right structure and facilitation
  • Encourages outside-the-box thinking and can lead to identifying new hypotheses/situations to consider.
  • Helps to offset analyst bias and to aid brainstorming. 
  • Demonstrated to be a superior predictive analysis compared to chance, unaided knowledge and game theory.
  • Can be used as an aid to other predicitve analytical techniques, such as MCIM.

  • Can require extensive effort and facilitation to provide structure and direction.
  • Can be time-consuming to role play multiple problems or highly diverse groups.
  • Some individuals are unable to adopt an alternative identity for role playing purposes.
  • Can be susceptible to deeply held biases from role players that are unable to forego their own understandings of the scenario.

1.    Define the objective of the role playing exercise.
2.    Assign participant roles and describe scene setting/background.    
3.    Set a time limit for the scene.
4.    Allow role play participants to interact in their assigned roles, each trying to think/speak/act as their assigned identity would.
5.    Hold a concluding discussion to elicit and highlight any findings or further questions raised by the exercise.
Personal Application of Technique:
For the activity, the class was divided into 2 teams – Big Oil Company and Environmental Activists. Each team was given a handout with a brief description of the situation, and given the following instructions:
 1) Create two or three arguments on behalf of your role to be used in an argument supporting yourside.
 2) Anticipate two or three major discussion points the other team will make and prepare brief counter-arguments to them.
Each team then took a short time to identify their own primary arguments as well as try to anticipate what the other team would bring up at the end of the scene. Each team was given 1-2 minutes to brief on their arguments and anticipated counter-arguments. Finally, the facilitator led a brief discussion of the scene, group dynamics, and any questions or comments participants wished to raise.
Instructions given to the teams:
Group 1 Roles/Setting:
You  work for Big Oil Company in the Public Relations division. Your company  is currently seeking to develop several offshore drilling platforms.  Environmental activist groups have raised an outcry against this  project, which is drawing media and public attention to the company’s  activities. As a result, you have invited the most outspoken activist  group to a public discussion with your PR representatives, where you  will allow them to make their arguments while you make yours.  
Your goal is to anticipate 2 major discussion points the other team will make and prepare brief counter-arguments to them.

Group 2 Roles/Setting:
You  are now environmental activists. Your primary concern at the moment is a  large new offshore-drilling development by Big Oil Company located in  the Gulf of Mexico. Due to your outspoken beliefs and some media  coverage, you have gotten the attention of Big Oil Company’s Public  Relations division. They have invited you to a public discussion of the  offshore drilling to allow you to make your arguments while they make  theirs. 
Your goal is to anticipate 2 major discussion points the other team will make and prepare brief counter-arguments to them.
The results of our in class exercise (below) validated the pre-existing vailidity studies. Our results demonstrated that RP analysis is indeed a superior predictive methodology as the two teams quickly established an accurate set of predictions regarding the opposing team's main arguments.

Tuesday, March 27, 2012

Wisdom of group forecasts: Does role-playing play a role?


The objective of this study was to identify the effect of group dynamics and role playing on forecasting accuracy. Although businesses increasingly use groups of employees to create consensus sales forecasts, little research has been done to determine the accuracy of these group forecasts.  The participants in this study were divided into role-playing (RP) groups and non-role-playing (NRP) groups in order to see how role playing affected forecasting accuracy of the groups.


Researchers split the group of participating MBA students into 13 groups of three, seven of which were assigned to be RP groups, and six of which were NRP groups Students in the RP groups were randomly assigned roles as forecasting executives, marketing directors, or production directors, and depending on their roles, they were given varying descriptions and instructions about the products used in the role playing exercise. They were also given initial model-based forecasts, and researchers tracked how each group adjusted these forecasts. 

Although the RP groups showed consistently higher accuracy than the NRP groups, researchers did not find any statistically significant results, possibly due to the small sample and group-specific factors, such as extroversion and expertise. 

Researchers did find that RP group members were less likely to agree with their group’s consensus forecast.  When asked individually after group discussion, only 44 percent of RP group members gave answers that matched their group forecasts, compared to 78 percent of the NRP group members.
The study also showed that role-playing influenced the likelihood that a group would adjust the initial model-based forecasts. RP groups made far fewer adjustments to the initial model-based forecasts than the NRP groups. Groups that did not have roles or scripts adjusted 92 percent of their initial forecasts, while only 67 percent of RP groups adjusted the initial forecasts.

Conclusion & Comments

At several points throughout the paper, the researchers highlighted the fact that more research needs to be done on group forecasting. While it is becoming a prevailing method for organizations to create forecasts, there is not research supporting the accuracy of using groups. Although the researchers seemed primarily interested in findings related to group forecasting accuracy, the study produced several interesting findings about how the role playing technique influences groups. It would be helpful to see more research done on the topic using more participants, and more discussion about the implications of the differences between RP groups and NRP groups.


 Onkal, D., Sayim, K.Z., & Lawrence, M. (2011). Wisdom of group forecasts: Does role-playing play a role? Omega 40 p. 693-702.

Role-Play Technique as an Innovative Training Technique

In this article, the author discusses the use of role-playing as a training and development technique for employees in organizations. According to the author, role play as a training technique serves as a multi –skill developing weapon where the trainee not only develops a broader perspective about the task or new role but also the horizon of understanding others behavior resulting into empathy, team work, better communication, interpersonal skills and management development takes place. The method helps in developing both cognitive and affective component of perception and helps in knowing how people behave and why people behave in different ways. The technique also focuses on emotional, behavioral and perceptual basis for development.
The author listed the following objectives of role playing as a training technique:
  1. Help develop a better understanding of the job
  2. Understand how to handle a particular situation
  3. Develop a better understanding of the issues for better decision making
  4. Help in developing communication, management development and leadership quality
  5. Help improve the interpersonal skills
  6. Help provide an insight to understand behavioral patterns of others

The success of this technique depends on the role brief, set circumstances, and the utility expected from the technique. Benefits or outcome of role play as a training technique are:
  1. It helps in both cognitive and effective development of trainees, and better learning by doing.
  2. It permits practice by repetition and helps in better reinforcement
  3. It also helps in improving human relation since it helps I developing empathy
  4. It helps in making people sensitive towards others
  5. It helps in better SWOT analysis of individuals and thus the feedback given helps in identifying and overcoming the deficiencies.
  6. It enables the role player to control his behavior and enact as if he is enacting in a real life situation
  7. It helps in bringing attitudinal changes in the employees as trainees
  8. It is a more practical approach than other technique since in this the learning by doing and feedback that whether a behavior reflected is acceptable or requires change can be given.

Before selecting this technique for training, it is essential that the organization identify the objectives, experience of the trainee, and the issue or task at hand. The goal should be with maximum involvement of individuals as participants so that an overall exposure and understanding of attitude, skills, knowledge, behavior, expectation, need for improvement, emotional stability, and required competencies can be identified. 

Chaturvedi, V. (2009) Role – Play: An innovative training technique.

Forecasting Decisions in Conflict Situations: A Comparison of Game Theory, Role-playing, and Unaided Judgement


In the International Journal of Forecasting, Kesten C. Green builds upon the role playing research begun by J. S. Armstrong. Written in 2002, this new study compares the forecasting accuracy of game theory, role playing, and unaided judgment when applied to conflict situations. Based on the results, Green concludes that game theory is more accurate than unaided judgment, and that role playing is more accurate than game theory when seeking to predict the outcome of conflict situations.


Green defines accuracy as “the proportion of forecasts that match the actual decision.” In order to test the accuracy of unaided judgment, game theory, and role playing Kesten employed a total of six different conflict scenarios. Four of these (Artists’ Protest, 55% Pay Plan, Panalba Drug Policy, and Distribution Channel) were used by J. S. Armstrong during his research. The final two (Zenith Investment and Nurses Dispute) were developed by Green for the purpose of this study.

Unaided judgment participants were generally given a one to two hour time frame to complete their predictions. They were asked to review the full set of information for a single conflict scenario, and then choose the outcome they thought most likely from an exhaustive list. Game theorists were sent email instructions, along with all scenarios, and asked to complete all six. Finally, role players were given a single role in one of the two new conflict scenarios, and were then briefed on the scenario. 30 minutes to an hour were allowed for the role players to act out their scenario, at which time they recorded the decision the group arrived at, or predicted how they believed it would end in the event they were unable to come to a conclusion on time. The numerical results of the study are as follows:







Artists’ Protest


5 (39)

6 (18)

29 (14)

Distribution Channel


5 (42)

31 (13)

75 (12)

55% Pay Plan


27 (15)

29 (17)

60 (10)

Zenith Investment


29 (21)

22 (18)

59 (17)

Panalba Drug Policy


34 (68)

84 (19)

76 (83)

Nurses Dispute


68 (22)

50 (14)

82 (22)

Totals (unweightedc)


28 (207)

37 (99)

64 (158)

Table 1. Accuracy of unaided judgement, game theorist, and role-play predictions. Percent correct predictions (number of predictions)

Given the totals, unaided judgment was accurate 28 percent of the time, and almost even with chance (27 percent.) Game theorists had an improved, if unimpressive, 37 percent accuracy. Finally, the role players averaged 64 percent accuracy and were better than chance and unaided judgment in all situations. They only scored lower than game theorists on the Panalba Drug Policy scenario. Game theorists, on the other hand, were less accurate than people using unaided judgment in 2 of the 6 scenarios, and were even with chance in 4 of the 6. Green suggests that further research will be necessary to determine if game theory expertise gives any advantage over the unaided judgment of experts on conflicts who are unfamiliar with game theory.


Given the results of his study, Green concludes by agreeing with Armstrong that “role-playing will provide more accurate forecasts than other methods for forecasting decisions in conflicts because it provides more realistic representations.” In his assessment the cost of conducting these three forecasting methods is similar, which lends further strength to the role playing argument.


Green, K. C. (2002) Forecasting decisions in conflict situations: a comparison of game theory, role-playing, and unaided judgement. International Journal of Forecasting. Volume 18, Issue 3, July–September 2002. Pages 321-344.

Role Playing for Teaching Negotiation


Ulijn, Robertson and O’Duill (2009) present an argument for Role Playing as a tool to teach negotiation to engineering students.  This method is designed to closely enough resemble life situation such that students who otherwise wouldn’t be able to can gain experience with business negotiations. Engineering students typically do not focus on the business aspects of their careers. Role-playing offers a more effective method for teaching engineering students then the theory based, pen and paper strategies.


An obstacle often encountered in learning negotiations in the classroom is that negotiating is largely experiential; it is learned through doing. And life-like experiences can be difficult to create in a classroom setting. Role plays attempt to simulate real-world situations by creating a setting for students to interact within.  Ulijn set up a role playing scenario in order to allow the students to develop a sense of the skills they will need in negotiations. Furthermore, it allows them the chance to get a feel for what outside actors will look for in these negotiations.

The scenario is set up as follows.

  • Four students are chosen, each receives a specific role. Two students negotiate on behalf of the startup, and two represent venture capitalists.
    •  The goals of XM: to try and obtain a 51% share in BFC, at least for the first 5 years. XM also wants codetermination and management authority within the company and to guide the young entrepreneurs in developing more products. Their initial strategy was to be “tough,” as they felt the power in the negotiations lay with them.
    • The goals of BFC: to get the money necessary to start the company successfully and business contacts, confine the right of codetermination of XM to marketing decisions, and to keep the overall control of BFC. The adopted strategy to reach this goal is to keep as much management responsibility as possible in BFC, while XM accepts to pay the needed funds for the first year of operation. The maximum amount of shares XM could acquire in return should be 49%. And they agreed to stress to XM that investing in BFC is a golden opportunity, which should not be missed. (Additional information regarding individual goals is contained in Appendices in the document.)
  •  The role play includes timeouts where professionals can moderate and train the students, directing their attention to salient points.
  • After the negotiations, the observers (the rest of the class) are given a chance to make comments on the proceedings and the participants’ performances. 
         The structured process of the role play allows experts and observers to develop an idea of their own part in negotiations, and also the likely strengths and weaknesses of their opponent’s positions.


In this study, the implications of the role play were evaluated post hoc by Ulijn, rather than through discussion with the class.  The authors are unclear about the consequences of the role play, and their applications to business practice. The theoretical training this exercise provides is still unclear.


Ulijn, J. M., Robertson, S. A., & O'Duill, M. (2009). Teaching Business Plan Negotiation: How to Foster Entrepreneurship with Engineering Students. Business Communication Quarterly.

A Hermeneutical Approach to Role-Playing Analysis


This article, coming to us all the way from Finland, seeks to examine the relationships formed in role-playing games or in role-playing contexts and try to understand the importance of the role-playing activity in the same way that the participants of the game might understand the activity. The writer acknowledges that the study of role-playing games and role-playing analysis in general is in a precarious place in the field of academia: it is accepted but it is not exactly nailed down with regard to a precise definition and is still too loosely studied to really churn out a complete study. The idea of role-playing is still, in his words, lacking shared research guidelines and subject to subjective biases. I guess this explains why in the vastness of the internet and in ebscohost I found a whopping 8 articles regarding role-playing that didn’t have to do with LARPing around a public park on Sunday afternoons. But I settled for one of those articles anyway.


To kick off his study, the author states, somewhat ominously, “In the interests of analytic objectivity, any definition of role-playing should also be seen as a conclusion of the respective author or as an analytic base assumption, not only as a discourse tool without bias.” Essentially, he’s stating that the study of role-playing is still quite dubious and potentially bias-laden.

The real meat of the study comes in section 4, entitled, reduction by layers, where role-playing games, or just games in general are described as A form of activity is treated as if it were a metaphor-filled story, which the performers and observers of that activity then interpret from their own perspective.” The author asserts that all games exist (role-playing games) on a many intellectual and experiential layers at the same time.

There are 4 primary layers to be constructed:

1) The level where players interact with each other in a physical context

2) The ‘real’, physical motivators that exist in the real world

3) The level of subjective diegeses

4) The fantasy world in which the characters live

The author acknowledges that there are different interpretations of these levels and layers, but essentially these are the main four. There are times during a game or activity in which the theoretical game is frozen or suspended and one or two layers are temporarily paused. However, the entirety of the experience derives from two simple (or not so simple) thins; discourse, which creates material for the later and the later guides the action of the activity.


Without getting too meta here, the role-playing activity is essentially a convergent focal point between the real and theoretical and imagined world which has shared interpretations amongst its players.

Essentially, what the author explains, or seeks to explain is that the shared experience of role-playing is a quasi-synthetic reflection of the games people play in real life-college, vocation, relationships, determining values of physical objects. Really, role-players serve as guinea pigs which can provide meaningful data (scientific, psychological or otherwise) that can be studied to not only further the study of role-playing itself but to further understand the way people choose to construct the world.