Dear Berkeley,

Charles Murray writes [emphases mine]

The prerequisite for any eventual policy solution consists of a simple cultural change: It must once again be taken for granted that a male in the prime of life who isn't even looking for work is behaving badly. There can be exceptions for those who are genuinely unable to work or are house husbands. But reasonably healthy working-age males who aren't working or even looking for work, who live off their girlfriends, families or the state, must once again be openly regarded by their fellow citizens as lazy, irresponsible and unmanly. Whatever their social class, they are, for want of a better word, bums. 

To bring about this cultural change, we must change the language that we use whenever the topic of feckless men comes up. Don't call them "demoralized." Call them whatever derogatory word you prefer. Equally important: Start treating the men who aren't feckless with respect. Recognize that the guy who works on your lawn every week is morally superior in this regard to your neighbor's college-educated son who won't take a "demeaning" job. Be willing to say so. 

This shouldn't be such a hard thing to do. Most of us already believe that one of life's central moral obligations is to be a productive adult. The cultural shift that I advocate doesn't demand that we change our minds about anything; we just need to drop our nonjudgmentalism. 

It is condescending to treat people who have less education or money as less morally accountable than we are. We should stop making excuses for them that we wouldn't make for ourselves. Respect those who deserve respect, and look down on those who deserve looking down on.

Social pressure/social image/reputation concerns are very important (I would say the most important, but as a social image researcher I'm slightly biased) means for enforcing social norms. I'm 100% in favor of a 100% nonjudgmental mind-your-own-business approach to anything that doesn't impact those around you, but it's entirely justified to express disdain towards those who are taking advantage of other people in some manner. If it became acceptable, too many people would do it.

[link stolen from MR]

books

Thinking Fast and Slow by Daniel Kahneman - All the rave reviews are true.

The Baron in the Trees by Italo Calvino - Mildly entertaining as a story. I didn't think the philosophical themes came across very well in the context; too contrived.

Launching the Innovation Renaissance by Alex Tabarrok - Excellent all the way through, and not overwrought, as the topic might tempt. You should read this (yes you.) I like the kindle mini-book thing.

How Much Government Is Good Government - (another kindle mini-book, because two of them are about equal to one real book, and I like lists of three :) a debate between Paul Ryan and David Brooks on the scope and purpose of government. They aren't too far apart from each other or from me so of course I enjoyed it, although I wouldn't call it a "debate".

defining property rights

I've been wanting to blog this for a long time but luckily someone who is much smarter than me did it first so I can just link to it.

Paul Graham nails it in so many ways... Read the whole thing; it's not long.

It sounds ridiculous to us to treat smells as property. But I can imagine scenarios in which one could charge for smells. Imagine we were living on a moon base where we had to buy air by the liter. I could imagine air suppliers adding scents at an extra charge. The reason it seems ridiculous to us to treat smells as property is that it wouldn't work to. It would work on a moon base, though. What counts as property depends on what works to treat as property. And that not only can change, but has changed.

Exactly. Property rights, on the relevant legal margins, are arbitrary. This was obvious at the beginning of the era of piracy, when no one knew what the rules were, because we'd always made copies of tapes for our friends, and then hard copies of our CDs, and then digital copies of our CDs. Where were the defining lines? We didn't know because they didn't yet exist.

Then somewhere along the line, it became "just wrong"to make digital copies, and doing so was "stealing". What..? Shouting so doesn't make it so.

This is where it's helpful to have working democracies and multiple sovereign countries. If the world had a single, autocratic government, the labels and studios could buy laws making the definition of property be whatever they wanted. But fortunately there are still some countries that are not copyright colonies of the US.

Thank goodness for diversity, again. 

happy pi day!

So I got to say on the radio for pi day that pi is the circumference divided by the diameter of a circle. And  short story shorter, this got me thinking about why people like pi so much in the first place. I think it comes down to a combination of three things:

First, pi shows up everywhere in science. From the time you learn basic geometry in elementary school, pi is popping up in your school notebooks. Then you move on to trigonometry, calculus, Fourier analysis, and on up as complicated as you want to get, and that pi is carried along for the ride the whole ride. Anything oscillatory turns out to be described with sine and cosine functions, which boil down to geometry of circles, so waves, pendulums, light, sound, planets, optics, electrical currents, et cetera et cetera, all involve pi. Then it turns out that that other famous constant, e, is also related to pi, so population growth, electric charge, compound interest, probability distributions, and anything else exponential in nature, also all contain pis lurking quietly in the background. And somehow, even when you get into the domains of pure mathematics that seem superficially disconnected from all of that other real-world stuff, pi keeps showing up. The sum of the reciprocal of each natural number squared? There's a pi in that. Is it any wonder that pi begins to feel like a familiar friend?

But that's not all, of course. Lots of numbers appear all over the place. 10. 2. Physicists have the speed of light. Chemists have Avogadro's number. Why don't these constants have the same appeal as pi? Unlike these other boring old numbers, pi is shrouded in mystery as a result of being irrational and transcendental. Its irrationality means that you can't write it down as a fraction, and that if you try to write down its digits, the sequence will continue forever without repeating. Transcendence is like turbo-charged irrationality. Not only can you not write it down as a fraction, you can't calculate it with any combination of whole numbers and algebraic operations like division and exponents and roots. You can get closer and closer the longer you try, but you can never quite get there. There's nothing to do but symbolize it with a Greek letter and forget about the fact that you can never be exactly sure what it represents.

But that's still not the whole story. e is also transcendental. The square root of 2 is irrational. i is certainly mysterious in its own way. There are plenty of other loved constants, but still none approach the popularity of pi. And that comes down to pure nostalgia. For many of us, learning about pi is the first time we catch a glimpse of the immense mystery of the universe and realize we can't hold on to it, put it in a box, and study it in all thoroughness. We have to content ourselves with squinting at it from many angles and then try our hardest to put together a coherent abstract picture in our minds. The mystery never ends, and for us mystery-junkies, the scientists, that first glimpse into the infinite abyss is an unforgettable moment that continues to drive us throughout our lives. And even after we come to terms with all our numerical friend implies, each time we casually say hello, a tiny part of our subconscious mind is reminded of that deliciousness of discovery.

bottom-up and top-down thinking

I majored in math in college, which meant I spent a lot of time reading carefully through textbooks that started with very simple definitions and carefully built enormous beautiful structures out of those basic puzzle pieces, one step at a time. Then my task was to put some pieces together myself, by proving results on homework sets.

To prove something, you have to have a strong and thorough understanding of all of that foundational fodder that it's built on. Otherwise, there will always be black boxes in your understanding and in your proof.

If you're trying to understand something intuitively, though, black boxes are fine. If one black box seems to make sense, you can happily say you 'understand' that a higher level truth is true because the black box leads to it.

But if you've spent four years focusing on the agonizing details, it's really hard to switch to top-down thinking. For the longest time, every time I tried to look something math-related up on wikipedia, I would immediately get frustrated and discouraged, because nothing is ever presented in a bottom-up form. You get some discussion at the highest level, and have to click back on a dozen links to understand where it's coming from, and inevitably in those links you have to click on a dozen more each, and it never ends and it never meshes cleanly back together.

But as I've come to enjoy math as a tool and a hobby rather than as an end in itself, I've slowly gotten better at accepting black boxes. And slowly grown to love wikipedia.

And on that note, if you feel like learning something fun, go read about irrationality measures!

the many virtues of free trade

Dani Rodrik is arguing against a straw man.

Everyone cares about procedural justice, free trade advocates included. There are very good reasons that have solely to do with procedural justice, rather than efficiency, to favor free trade. (Bryan Caplan posted on this last week.)

It's much more deplorable to allow policies that keep millions of people in extreme poverty than to insist on free trade policies that may, in the short run, hurt some poor Americans, who will still be better off than those millions. The burden of proof is on those who wish to restrict freedom, and they would have to argue otherwise to meet that burden.

If you care about expanding the worldwide pie, you should probably favor free immigration and trade. If you only care about expanding the American-wide pie, you should probably still favor free immigration and trade. If you only care about procedural justice, you should favor free immigration and trade. If you only care about reducing worldwide inequality, you should favor free immigration and trade.

If you only care about reducing American inequality, then fine, you may be able to argue against free immigration and trade. But I don't see how wanting that, in particular, is much more morally defensible than wanting any other arbitrary thing.

collaboration is inefficient

I hate that TED talks exist as videos but not transcripts, so I miss out on almost all of them, but the title of this one was enough to get me to watch, and it's very good: Susan Cane on the power of introverts.

This got me thinking again about the "madness for constant group work." Why is everyone so crazy about collaboration all of the sudden? When did the extroverts decide that their preferences are the objective best way to do things and start shouting it from the mountaintops, while the introverts quietly mind their own business as their way of life is bulldozed out of existence?

I don't know the answer to the second question, but I think I understand the former. Collaboration is just a more general version of the group brainstorming phenomenon. In a group, the new ideas are flying and interacting and reinforcing into groupthink tunnelvision, and it's exciting and things move quickly and directly of course this seems like an efficient way to get things done. But it's an illusion. If we could be simultaneously aware of all the progress that was being made by those same individuals working intently in solitude, that would seem clearly vastly more efficient.

(Ideas come up with by groups can only be as complex as can be communicated and understood by all on such a short timespan. Even if individuals work on their own and meet regularly to regather, which is an approach I generally support so long as the group meetings don't turn into agonizing marathons that are used as excuses not to do anything real on your own the rest of the time, two competing possibilities will be distinguished by simplicity, which leads to quicker understanding by the group, which leads to quicker adoption by the group. Not exactly the ideal choice mechanism.)

Extroverts thrive on the group madness. They love the constant stimulation and interaction. So they embrace the illusion and advocate like crazy for collaboration.

Introverts are exhausted by it. They shut down, hide in their offices, and quietly change the world one solitude-requiring deep idea at a time. Give them some room to breathe; stop the madness! (Fast forward to 16:30 in the video above :)

truer interpretations of atlas shrugged, part n+1

Karl Smith puts it well:

Hank Rearden says he only cares about making money but this is an obvious lie. Like most male obsessives he cares about steel and about women who care about steel and about nothing else.  

If he made money, so be it. If not, so be it. If metallurgy made you a billionaire he’d be a billionaire. If it made you a homeless crank, he’d be a homeless crank. 

That’s the way obsession works. 

What pisses him off is not taking away his money, its taking away his metal. 

Its funny that intuitively folks pick up on that but then in an effort to defend egoism make up this story about loving money that is actually both less accurate and less compelling.

 It's about personal responsibility, not money grubbing. 

symmetry is awesome

I heard this cute math puzzle recently (thanks Piotr :)

Three ants start at the vertices of a unit equilateral triangle. Ant 1 always faces ant 2, 2 always faces 3, and 3 always faces 1. They all start walking at the same time towards their target neighbor, at one unit per second. What happens?

Now I'll wait while you figure that one out.

In the meantime, here's another nice symmetry-related thing that Joanna showed me: The surface area on a sphere in between any two parallel slices through the sphere is only dependent on the vertical distance between the slices. So if you slice off the top mile of the Earth, and take out a one mile slice at the equator, those sections have the same surface area.

That's a little surprising, until you realize that since sphere are perfectly symmetric (they have constant curvature in any direction), the circumference of the slice you're taking is shrinking as you move away from the equator at exactly the same rate that it's flattening out, so to speak. That is, three inches "above" (3 inches along the axis of rotation) the equator translates to three inches on the ground, but three inches "below" the north pole translates to a looong way on the ground. And this exactly offsets the fact that the Earth is much bigger around at the equator than the pole.

...(ant spoiler alert)...

Ok back to the ants. By symmetry, they will collide at the center of the triangle. The question is, how long does it take for them to get there? They're spiraling inwards as they turn to keep facing each other, so they don't take a straight route there. But, by symmetry, at every point in time they're still in an equilateral triangle formation, essentially starting from scratch on a slightly smaller and rotated triangle! That means that if you figure out what's going on at the first instant, the same thing applies at every later instant.

From there it's easy. The inward distance from each vertex to the center of the triangle is √3/3. And the component of each ant's velocity that is pointing inward is cos(30)=√3/2. So they will collide in the center in 2/3 of a second.

Update: arithmetic corrected... again.

Mercury and a 28-hour moon

Yesterday there was an aesthetically nice astronomical coincidence. Even better, I got to observe it from the comfort and convenience of the economics grad student lounge, which has a beautiful view towards the west from the 6th floor of a building up a hill in Berkeley. This means you can see all the way to the western horizon, so you can observe objects that fall right on the cusp of possibility, setting just after the sun itself.

Today Mercury and a 28-hour old moon coincided in this brief window. Mercury by itself is very difficult to observe: since it orbits close to the sun, you can only see it just after sunset or just before sunrise, and even then only rarely, when it's as far away from the sun as it ever appears to us (with the Earth and Mercury forming a right angle with the sun.) The last time I saw it definitively was in 2001 (although I can't say I've often tried; I'm more of a deep sky fan than a solar system buff...)

The same applies to extremely thin crescent moons. A goal of any lunar observer is to pick out the hairline crescent as soon as possible either before or after the new moon, when it passes directly between us and the sun and is momentarily invisible. 28 hours old is definitely not the youngest moon you can observe, but I think it's my personal record, and is definitely sufficiently strikingly beautiful.

So, some pictures:

Mercury and crescent moon side by side over bay, shortly after sunset (about half an hour)

moon through binocular eyepiece

Mercury and moon a little later, as it's getting dark

Jupiter (upper left), Venus (left of middle) and moon sliver (on horizon). Unfortunately Mercury didn't quite get picked up in this exposure, but you could still see it naked eye at the time.

preference elicitation

Apparently economists are willing to trade half a thumb for a publication in the AER.

I see two possible interpretations. Either the time trade-off method of preference elicitation is a load of BS, or economists are such boring office-bound people that they have unusually low valuations for thumbs :)

jargon proliferation and literature search

If you have an idea and want to find out what has been done on the subject already, the biggest barrier is knowing what to google. Every discipline comes up with their own terminology, and six academics in the same field working independently will also come up with six different terminologies and then refuse to merge them (stubborn pride, obliviousness, habits, who knows why.)

For example, my research has to do with how people behave morally in part because they want to signal that they are good people. There are so many studies relating to different aspects of this motivation, in economics and psychology and sociology and anthropology and even biology, and they call it everything from "social image" "social pressure" and "social signaling" to "prestige" "self image" "guilt" "shame" "pride" and "reputation" (and probably others I haven't heard of; please clue me in). You can certainly break these categories down into well-defined non-redundant subgroups* but the literature doesn't adhere strictly to any particular such breakdown. And anyway, papers using any of that terminology are of interest, so you want to know it all.

So it goes like this. I start off knowing that "social image" is a term used by economists. I google-scholar that, read a bunch of papers about it, and learn about social pressure and social image and social signaling. My previous reading on models of social preferences informed me of a paper on prestige. I talk to a professor about my research, and he mentions a paper by Benabou and Tirole, and through there I learn about self image and self-signaling models. A footnoted reference there leads to a paper in a sociology journal, and by following another long tree of citations, I learn about guilt, shame, and pride. At some point, the word 'reputation' randomly occurs to me, so I google-scholar that and find another branch of literature.

This is hardly a systematic or reliably comprehensive way to learn something.

I don't suppose that a movement towards terminological standardization is going to be successful, and that won't help with the bootstrap problem of knowing where to start in the first place (sometimes the eclectic terminology is helpful there, since no matter what you google, you'll find something...)

But how about we at least make an effort to mention the alternative terminologies in the introductions to our papers? If even a percentage of papers did this somewhat comprehensively, it would be vastly easier to track down the full literature, because one in five (say) papers we randomly stumbled on would tell us where to look.

It would also be really nice if there were a better visualization for relationships and timelines in the literature. Even simply based on citations. It should be really easy for Mendeley to show you a timeline slash citation web for everything in a library, and suggest related articles... if only the non-standards didn't suck so much that even extracting basic metadata wasn't a Herculean task...

I don't even want to know what people did before google. I guess they didn't have lists of papers in the thousands. Either that or grad school was a horrific tree slaughtering madness...

*I propose the following, for the record: Social image motivates people to be nice in order to avoid shame or gain prestige. Self image motivates people to be nice in order to avoid guilt or gain pride. Social pressure is the welfare-reducing altruism that results from avoiding shame. Reputation is the thing you control strategically during repeated interactions.

imagine being wrong

Robin Hanson says

[O]ne is supposed to believe that racists are so obviously and extremely crazy that it is impossible for a reasonable person to see things from their point of view. Pretending to believe this signals to your associates confidence in your shared anti-racist position, and so is a signal of group loyalty.

This reminded me of an amusing, although extremely frustrating at the time, incident in a high school literature class discussion in which I ignored (or was oblivious to) this rule long enough to essentially say "I can understand how people who grow up in certain environments can end up racist." Of course, the rest of the class instantly attacked me, with surprising virulence and shocked faces, as a racist (and this false impression lasted longer than the hour...)

Too much group loyalty leads to unproductive conversation. Acknowledging differences between races and sexes doesn't imply racism or sexism. Acknowledging that there are reasons aside from insanity why people might be racist or sexist does not imply racism or sexism. Admitting that different races exist in the first place most certainly doesn't imply racism.

If you want to solve these problems, you have to look them in the eye long enough and honestly enough to understand the complex intertwined factors involved. Economists are particularly good at that. Maybe that's why we're so widely hated :)

brainstorming

We know that group brainstorming doesn't work. Yet group brainstorming/open-ended discussion sessions always feel incredibly creative and thought-provoking, which presumably is where its appeal and illusion of effectiveness comes from. But not hard to understand the illusion. If everyone has distinct starting point for their personal brainstorming, allowing everyone to brainstorm separately and combining those insights will lead to a cumulative view that circumscribes those ideas. On the other hand, brainstorming collectively pulls each person away from their starting point towards the group mean, from the start, often before they have a chance to voice each their starting point, let alone go in a different direction.

So each person is pushed farther from their comfort zone, and therefore feels thought-provoked, but the overall result is much less diverse.

inefficient time use?

A basic result of microeconomic theory, the equimarginal principle, is that, if you are allocating your resources efficiently (spending your  money in the way that makes you best off), the marginal utility of each good you consume should be the same.

For example, let's say there are only two goods in the world you can buy: apples and hamburgers. The nth dollar you spend on apples gives you 6-n dollars worth of happiness (so buying 2 dollars worth of apples gives you (6-1)+(6-2)=$9 worth of happiness.) The nth dollar you spend on hamburgers gives you 10-2n dollars of happiness (so buying 2 dollars of hamburgers gives you (10-2)+(10-4)=$14 worth of happiness.) If you spend 3 dollars on hamburgers and nothing on apples, the third dollar is getting you an extra $2 of happiness, whereas if you instead bought $2 of hamburgers and $1 of apples, you would get $5 from the apple, so you should reallocate one dollar to apples. More generally, if the last dollar you spend on one thing makes you less happy than you would be if you transferred that dollar to another item, you should do so. Therefore, the last dollar you spend on every good should be the same; i.e. your marginal utility of consumption of every good is the same.

But the same thing applies to time use. Time is another scarce resource that we allocate between many possible activities, so it should be true that the last minute we spend on every activity is equally enjoyable. This is largely ignored (the diminishing returns to experiential utility in time, more generally) when analyzing time use. Hence, you see scholars puzzled by the fact that women in Texas are happiest* when having sex, and yet only 12% do this on a given day for an average of less than 15 minutes per day. Why aren't they, uh, doing it more often?

If the marginal utility of sex is sharply diminishing in time, this isn't surprising at all. No more surprising than that people whose favorite food is fudge only eating an ounce of it at a time. It's true that the first bite of fudge makes them really happy, much more happy than anything else they eat, but it's also true that eating more would be a suboptimal choice.

*Not necessarily the authors of the linked study; I've just seen it referenced in that context several times.

birth control coverage

Cochrane glosses over the main reason for small, regular health costs being incorporated into health insurance (because people will put off those routine preventative things more if they have to pay for them, but ultimately those preventative things reduce healthcare costs, so the insurance company has an incentive to cover those things - and charge you higher premiums for them - in order to coerce you into using them and reduce its own costs later) but that's not relevant with birth control, so I can forgive the simplification. The article is otherwise great.

Especially since I'm a fan of any professor who posts pdfs of their gated articles on their websites :)

(Link stolen from Mankiw.)

gender gap in sticking with your STEM major

Here's a scary chart* that shows that only white males stick with their plans to major in STEM fields in college:

This paper goes on to show that the racial gap in sticking with STEM majors is entirely explained by preparedness/ability (SAT scores etc); i.e. since affirmative action policies lead black Duke students to underperform their white peers, and since STEM majors are harder than humanities majors, more black students switch to the easier majors. BUT, the male/female gap is not explained in this way (as you might expect, since a majority of the Duke student body is female, and they are therefore definitely not being targeted by affirmative action policies.)

So what the heck is going on with the girls? Stably with respect to all kinds of aptitude/background controls, almost 20% of girls switch from STEM to humanities majors. Is it possible that high school STEM education is so bad that girls don't realize their humanities-leaning preferences until college? Do women care more about grades and therefore lean towards the majors with more grade inflation? (This entanglement between STEM classes, cognitively hard/quantitative classes, and classes with relatively low grade inflation, makes it very hard to distinguish between many of these explanations...) Is the impact of STEM professor gender, known to be at least a contributor to this gender gap, actually large enough to explain most of this away?

There's lot of research on STEM participation/achievement gender gaps but I've seen little that looks at this specific choice to switch from a career in science to the humanities**. That switch is the most interesting piece of the puzzle to me: if girls aren't as good at science or they don't like science, fine, but if they want to be scientists and aren't realizing that dream, the educational system may be failing them.

*stolen via MR

**Please do send me other papers that I might've missed :)

Update: Correction: 70% of the black student body at Duke is female, not the overall student body.

revealed preferences to the rescue?

So there's this myth among the American liberal elite that Europe has a higher standard of living despite working less (yes a myth, even moving beyond the purchasing-power-adjusted GDP-per capita numbers, which show most concisely how dominant of a success story the United States is.) The core of this myth is that Europe traded work hours for leisure time and that this leisure time makes up for the loss of income.

But despite the valiant attempt of the above-linked paper, measuring utility meaningfully and broadly is really impossibly hard, and the ideal comparison wouldn't even try to make these accounting adjustments like how-much-American-spending-doesn't-contribute-to-welfare and how-much-more-value-are-Europeans-getting-from-their-government-for-their-extra-taxes and so on. Ideally, we would want revealed preferences to tell us the answer.

This is also really hard because people aren't able to make decisions on the margins relevant to these international comparisons. But what if we limit ourselves to strictly the question of whether four extra weeks of vacation time is worth the drop in income?

Are there median-earning jobs in which hours worked are truly chosen on the margin equating leisure time with work time? I can't think of a good example. Entrepreneurs fix their own work schedule but realistically they have to work all the time to stay afloat. Cab drivers set their own schedules but don't make enough money to be a median earner; likewise for any other flexible-hour job I can think of. A small number of jobs during the last recession instituted a policy change in which people could choose to work less for less pay, but with job security in a tight job market of the utmost concern, I'm guessing that most people who would love that option normally were too afraid of signaling their lesser commitment or their dispensability  or somesuch to actually take it.

Better ideas? Is there a paper that already tries to do this?

If we could find people in the U.S. who make $35,000 (or whatever is median per capita or median per household) and take six weeks of vacation but who could take less vacation and earn $10k more, I would believe that the European model is making people better off on average. I doubt this is true (even though I want it to be true, because it would be true for me, and I would like work norms to line up with my own preferences...)

(Or, we might find an intermediate result, in which the median hourly wage earner prefers 3.5 weeks of vacation, in which case neither the U.S. or Europe is optimizing.)

Unix's PR problem

(I love Linux, and highly recommend it to anyone, now that it's so trouble-free, so don't interpret this in any way to the contrary :)

A friend of mine said this to me and I died laughing, as did several other people at my book club last night, so I thought the broader world might appreciate it too.

redacted: omg using unix comp [at school] so horrible
Vera: why?
redacted: it popped up command line after i figured out how to log in
redacted: and i had no idea of any commands or how to open the internet to look up commands
redacted: iw as about to text you but we're underground
redacted: so i pulled out my "welcome" packet and ended up typing in man -k internet | less
redacted: and then it scrolled and a weird message appeared and every button i pressed made the computer beep loudly and do nothing
redacted: so in a panic after many minutes i just closed the command window with the little x button
redacted: and then i couldnt figure out how to re-open or even how to log off. so i just stared at this blank screened computer
redacted: you could make a movie out of it

externalities ⊄ market failures

This non-technical paper has a really great presentation of four ways in which externalities are often corrected without government intervention. (Oftentimes, since externalities mean that the full cost and benefit of a decision is not felt by the decisionmaker, he may make the wrong decision, and that this can lead to market failure, in which society would be better off if in sum if he made a different decision.) Even the jargon is explained along the way, so I highly recommend it to non-economists wanting to understand the topic.* To summarize:

1. Simple Coasian internalization: Coase's theorem says that if property rights are clearly enough defined, and transaction costs are low enough, externalities will not lead to market failure. That is, if someone wants to do something (like paint their house chartreuse) that has a side-effect on someone else (the homeowners on the block whose property values drop), as long as it's easy enough for homeowners to get together and negotiate, they will either agree to pay off the chartreuse-lover not to paint his home or to pay off the other homeowners to compensate for the loss in property value. Which of these outcomes is chosen is simply which one leads to the greatest total good. It's important to note here that externalities are symmetric: you may be hurt by my smoking, but I would be hurt by your smoking ban. So, whatever the outcome, someone is going to be harmed, and the optimal outcome leads to the person being harmed who least minds it, regardless of how money changes hands in order to get everyone to agree to that outcome (because side payments are zero-sum and therefore irrelevant to the utilitarian policy analyst).
2. Complex Coasian internalization: But, sometimes it's not so easy for parties to negotiate, or it's not even clear who owns the entities that are being affected by the externality. Lighthouses can't negotiate with passing ships about whether to provide their services, and no one owns coastal safety. Therefore, you might expect a shortage of lighthouses. But, if different groups with different motivations can combine, suddenly it might be privately worthwhile to provide that public good after all because the affected party essentially is the affecting party (and therefore transaction costs don't matter either). For example, if harbor owners also run lighthouses, now they have an incentive to provide the right number of them, because they will be able to charge harbor fees in the amount that reflects how much boats value having a safe place to go.
3. Informal mechanisms: Basically, even without governments, property rights can be effectively defined and enforced and transactions handled through social institutions and norms. That is, the above conditions for Coase's theorem to hold don't need to come from the government. For example, no one may own the space in a common area, and it may be impossible to negotiate with everyone who uses it, but nonetheless, social norms can dictate that smokers stay in one corner away from the non-smokers, and that trespasses against this norm are punished with evil glares.
4. The externality just may not exist at the relevant margin: This is a bit of a facetious way to argue that externalities don't always cause market failures, and I almost dismissed it as such, but actually there are plenty of contexts in which its important to remember... Basically, while some actions do cause externalities when those actions are taken at certain levels, that doesn't mean it happens at the relevant levels. It may be true that libraries are things with wonderful positive externalities, but if there were privately run libraries in every city already, it may not be true that the government needs to worry about a library shortage. Additional libraries don't add any extra positive externality on top of what the old libraries already provide. (I think #4 is worth including because of the phenomenon in which voters consider whether things are good at all but not how much of those things are optimal given inevitable tradeoffs...)

*I'm less convinced by the later argument that there doesn't seem to be an unoptimal amount of cybersecurity, and I have more to say about that, but one blog post at a time...

self-fulfilling beliefs

A particular amusing form of self-fulfilling beliefs. (In China, being born in the year of the dragon is considered good luck, and children born in that year are in fact raised better and turn out better. No such difference exists for these cohorts in the U.S. population of course.)

(Stolen from MR.)

(More on self-fulfilling beliefs.)

privacy and introversion at work

Read this.

My former job was the worst of both worlds - we worked independently or collaborated over email, but still had to sit in an open-plan office with no privacy (luckily, I was one of two women, so I could hide in the bathroom if I needed to really think...) It drove me so nuts I quit. Apparently this is the case for 70 percent of us now, despite the fact that the internet makes it easier than ever to collaborate without sacrificing privacy. WTF mate?

bite-sized ideas

Something funny happened recently. Tyler Cowen gave a TED talk on a topic that he also covered in a book from over a year ago, Create Your Own Economy, retitled (aptly) The Age of the Infovore when it was released in paperback. The topic was "stories"; you can see it here or read the transcript here; the punchline is that fitting messy data into stories is a misleading way to interpret the world, and one that we're strongly prone to.

The talk itself doesn't matter; the strange thing is that this talk was taken almost directly from the book, yet received vastly more attention in talk form than when the book came out. This is despite the fact that a large fraction of the talk audience would have already been exposed to it directly by having read the book (which isn't long or inaccessible or anything), and a huge majority of the audience would have been exposed to it indirectly if the idea had been recapped in the blogosphere at the time by anyone who had actually read the book.

(By the way, I'm sure this isn't an uncommon phenomenon, but the chances of me reading the book when it comes out, remembering it when some part of it takes off later, noticing it when it takes off later, and the gap in time being large enough to clearly attribute the attention to the later abridged presentation, is pretty slim for any given instance.)

Why did it happen like that? Why didn't an idea that is appealing enough to be talked about extensively now that it's a TED talk take off in its original book form? Am I misestimating the numbers and probabilities involved? If so, where and how?

I suspect, simply, that ideas presented in bite-sized form are easier to consider in a thorough manner, because we devote less attention per page to books than to blogs, because we expect blogs to present information in a denser manner. And (obviously) ideas taken out of the broader context are easier to consider independently of the broader context. And (obviously) ideas that are already in bite-sized form are easier to re-hash in a medium (blogs) that only allows for bite-sized ideas.

There's some obvious related cost-benefit analysis, but I'll let you fill in the blanks; I just wanted to point it out. If true, I'm surprised that it's so hard for the particularly appealing bite-sized chunks of books to filter out to the blogosphere.

a string of zeroes

Loss aversion is the aspect of prospect theory that gets the most attention. A kink in the value function produces lots of neatly testable implications, so tons of empirical work studies it. And all of this collected wisdom is summarized as "losses matter a lot, but gains don't matter very much."

Loss aversion is very important: when comparing losses and gains, losses do indeed dominate individuals' decisions. But reference dependence itself is also very important, and overlooked, since an important consequence of it is a negative (lack-of) outcome: our minute-by-minute experiential utility is mostly a long string of zeroes.

We're really good at predicting what will happen to us. We plan and execute, leading to intended predictable results, and we have plenty of experience with random chance and external factors to not be so surprised by those either. How frequently are we significantly surprised? Not often. And that's how often our utility functions differ from zero.

This implies that, actually, both losses and gains are VERY important. That meshes with experience. It's true that, if I am expecting to sit in a middle seat and get moved to the window on a flight, the bump in utility is smaller than if I've been counting on a window seat and get moved to the middle. But either of those experiences has an enormous effect on my short-term happiness*, and either one is much more likely than a direct comparison between losses and gains such as is the focus of the prospect theory literature.

[Let me be more precise. There are two technical details that can interfere with this interpretation. First of all, it matters what the reference point is, and second of all, it matters whether the gain-loss value function is the same thing as the utility function (or is there is a separate standard consumption utility component.)

As to the first question, I'll jump on board with the Koszegi-Rabin version of prospect theory, which endogenizes the reference point as recent expectations. (I suppose that sounds like I'm choosing that variety in order to support my conclusion, but actually the way I'm thinking about it is that the conclusion is self-evident and that this supports their particular reference point theory.)

As to the second question, this is why I qualify the original statement with "minute-by-minute experiential". I'd rather be a millionaire (who earned their wealth in a deliberate, predictable method, never experiencing gain-loss utility in the process) who never wins anything than a homeless person who sometimes surprisedly picks up ten dollar bills on the sidewalk, but the short-term experiential utility of both the millionaire and the homeless person is dictated not by bank account balance but by small surprises.)]

*I recently had a flight in which I was assigned a middle seat, and tried to change it, but was told I couldn't. When the plane had completely finished boarding, the window seat next to me was still open. It made me so happy that I'm still excited to write about it a week later...

trust in government

Apparently only 10% of Americans trust the federal government to do the right thing most of the time.

David Brooks interprets this as widespread disillusionment with government and claims that this is why the label 'liberal' is broadly shunned. Karl Smith doesn't agree and provides an alternative interpretation, which rings mostly true, but doesn't address why Brooks is wrong, which is what I want to do.*

The conundrum is, why are many liberal concerns and programs are so well-loved, when they depend on big federal government, which isn't trusted?

Americans don't trust the current set of politicians in the federal government to do the right thing most of the time. But they think we just have to elect better people to make better decisions. They look to government as the only entity that has the power to enact the change they desire, and they love that this powerful tool exists. They love having a clear target to look to for help and to blame for problems. Rather than "of the people, by the people, and for the people", they see government as a parental authority who can step in when things are getting chaotic and make things right.

They just think the wrong people are running it.

I, obviously, think they just don't want to face the logical conclusion. Government attracts politicians rather than people who want to do the most good and are most competent at doing so, and then incentivizes those politicians in a plethora of profoundly distorted ways. Sometimes power accomplishes wonderful things, but mostly, it just corrupts. Electing different people won't change that. The only thing to do is to try hard to get the incentives right, be humble about the efficacy of government, be conservative about what we undertake using the tool of government, and try hard to find alternative solutions whenever possible.

*Yeah, you read that right, I definitely disagree on occasion with my favorite journalist...

Occupy AEA

To my immense amusement, there was an Occupy AEA (American Economic Association, which just had its annual conference in Chicago) protest. It's like watching victims of a plane crash protesting a physicists' convention.

I understand your frustration (sort of), but your anger is profoundly misdirected. There are a hundred better places to place blame than on the eggheads who are just trying to figure out how the system works in the first place.

(It's unfortunate that academic economists and policymakers are one and the same in the public's eye.)

economics journalism

So true:

“If you laid all the economists in the world end to end, they still wouldn’t reach a conclusion.” This old joke still works because it reflects a common belief that economists can’t agree on anything important. ... 

We think there are two main reasons for the distortions. The first is the conventions of journalism itself: Although there are notable exceptions, most journalists have limited training in economics, and those who edit the articles often have even less. Hence, out of an understandable but misguided sense of fair play, there is a bias toward wanting to show both sides of an issue. When, for example, an economist tells a journalist the equivalent of 1+1=2, the writer, in an effort to provide “balance,” will often include a quote from someone who says that 1+1=3. 

Second, editorial boards don’t want wishy-washy, hedged opinions. As a result, op-ed pages are more likely to publish someone advocating an unequivocal position than someone who offers a more nuanced argument. This favors fringe views. A position that sounds new, yet is completely untested, is all the more enticing to editors, so long as it appears to challenge mainstream views.

Economics is almost definable as the study of trade-offs, and as a result the conclusions always lie in gray areas. But they lay decidedly in the gray area; there's not some confusion or disagreement about whether it's actually black or white. Insisting on a 'balanced' "some say white, others say black" view is just wrong, and insisting on a clear answer to the question "is it white or black?" is also just wrong.

speaking of gender

I've noticed, here at the AEA convention, that in the seminars in which enough women are in attendance to actually ascertain a seating distribution, they sit disproportionately towards the back. And, since these are usually the same seminars that are full, this is not the same seating distribution as for men.

I was surprised by this since it counters my sexist prior that women tend to be more diligent goody-goodies and therefore more often prefer to sit at the front*. Is this no longer true among women who have selected into the profession of economics? Is it no longer true after a certain age? Why the switch, rather than simply a convergence in seating preference across genders? Is it just because they arrived earlier and took the rear seats, preferred by all? (I doubt that, since the emptier seminars I attended were not fuller at the back at all.) Is it just a fluke?

*which contributes to my typically contrary desire to sit at the back (in addition to the much stronger factor of wanting to fly under the radar in general...)

social norms and social image

(or 'Vera sees a nail and gleefully pulls out her hammer.')

I've never been so happy that feminism exists - the Committee on the Status of Women in the Economics Profession has the only free diet coke at this convention. Plus, it's a nice quiet room to sit and work during this two-hour lunch break.

I just feel bad for the men who furtively pop in and out for coffee while the women sit around loungingly.

It's not that you have to be female to use the hospitality room; indeed, signs advertising it as open to all are all over the place. And it's not that men are sexistly hesitant to associate themselves with a women's association; several are sitting here working or reading (just not drinking the coffee).

But there's an unspoken norm that, when partaking in a service provided by an organization, one should reciprocate at least with interest in that organization. A man may or may not be interested in promoting gender equality, but even if he is, he can't signal his interest silently (or loudly, very credibly). A woman may or may not be interested in promoting gender equality, but whether she wants to or not, she signals her likely interest simply by being female.

And so the women stay, comfortable in their plausible deniability of having violated a norm.

"fewer jobs are precisely the point"

Read these two posts by Alex Tabarrok; the second in particular. With "jobs" so important in national debate right now, it's important to understand this.

A key aspect of economic development is the destruction of jobs: An economy can't produce more and more value per person if everyone continues to do the same jobs; the potential gains in efficiency are very quickly exhausted. True growth comes from transitioning to entirely new modes of production or entirely new industries. In an extremely poor country such as India, fewer jobs in agriculture and small-scale retail and such things is exactly what you'd want if you want to see them transition into a richer modern society.

I caveat that sentence with "In an extremely poor country..." despite the fact that it's true for any country regardless of wealth. I just also think it's reasonable to transition from prioritizing economic development to prioritizing low-risk subsistence for the greatest fraction of the population, once you've grown "enough", whatever you decide enough is (India clearly has not). Economic development means job destruction, and job destruction means that some people lose out hard for the sake of the greater good when their job is suddenly outsourced or automated, and in a country as wealthy as the United States, I'm perfectly fine with providing a basic safety net for those people.

I'm NOT ok with sacrificing growth and economic dynamism in order to artificially preserve those jobs. Provide basic safety nets, but get rid of subsidies and tariffs and stop bailing out dead businesses just because you can't imagine a world without Detroit. The government can temporarily save jobs but only by preventing the market from creating new and better ones. Ultimately, it's a losing battle that they're making only more painful by pretending that they have the power to stop progress and encouraging everyone whose lives are at stake believe it too.*

*The high rate of unemployment now actually makes me optimistic about the eventual recovery of the American economy. It means that the government failed to halt progress and that reemployment will eventually come from true innovation and progress and reallocating labor resources more efficiently among industries. That's a much more solid foundation for the future economy than, say, a bailed-out Detroit...