Wednesday, March 31, 2010

economics, the obvious science

So much empirical work I keep hearing about is so dull, because it's so obvious. Some event happens with intuitive and predictable impacts, and lots of researchers looking for things to write papers about diligently prove with fancy econometric tools that they did, in fact, happen. Amazing. *yawn*

That, and the fact that it's just so darn tedious and complicated because natural experiments and available data are never perfect, is starting to turn me off of empirical work. It's awesome when you get an unexpected result like in the original Freakonomics book or the movies-and-violence thing that Stefano DellaVigna did, but you can't count on that happening.

Theory is intellectually delicious and experiments are wonderful clear-cut tools for isolating just what you want to isolate. I think I'll stick to those.

Tuesday, March 30, 2010

new overtime rules

Well, the NFL finally came up with new overtime rules. Not the ones I would've picked but an improvement. Now the coin flip winner will get the ball first, and if they fail to score a touchdown, the other team gets the ball. If both teams don't score or both score field goals on their first possessions, the game goes to sudden death.

I'm curious to see how that plays out. There's going to be some interesting team-strength-dependent strategizing.

Personally I would have gone for one of two simpler solutions that maintain the sudden-death attribute (which is more exciting and avoids long overtimes that cut into other tv programming, and which can eliminate rather than reduce the coin-flip winner's advantage).

The first is to just move the kickoff line back to the point where, on average, half of teams score on that possession (somewhere around 20 yards, if I recall correctly). That's certainly better than the current situation, but still imperfect, since different teams have different strengths and the probability won't be 50% in any particular match-up.

The other solution, which is more wonky but in my opinion more awesome, is the divide-and-split rule, which I previously blogged about in more detail. The coin-toss winner (or the team who lost the initial coin flip, since they performed slightly better in regular time) proposes where the kickoff point will be, and the other team chooses whether to take the ball or defend first. Just like kids deciding how to split a pie, this should lead to an exactly fair overtime.

Ah well, the economic nerds lost this one.

In other football news, my favorite running back (who is admittedly over the hill, which is why the Chargers cut him in the first place, but oh well) is joining my favorite team, the Jets! Yay.

And, weeks 16 and 17 will be all or mostly division games next year, to avoid great teams resting starters (which, frankly, is the only way the Jets got to the playoffs this year.) Should be exciting.

Monday, March 29, 2010

monetary policy

I don't understand monetary policy, so someone please explain to me what the difference is between saying "The Greece crisis shows that the Euro zone is broken; Germany should leave and start it's own monetary union" and saying "The Detroit crisis shows that the US Dollar is broken; North Dakota should leave and form its own monetary union" aside from political feasibility and the fact that no one thinks of the US in confederate terms anymore? If there is no difference, Germany might as well get used to being the rich, responsible state within the unified European Union that supports its troubled neighbors. They should already be used to that because of reunification anyway.

Not that I actually support that conclusion; I like the idea of competing currencies. But the US dollar definitely isn't going anywhere no matter how much state heterogeneity there is.

Saturday, March 27, 2010

international governance

I don't follow foreign policy issues much, since I can't decide what my philosophy of it is so it's hard to get worked up about enough to pay attention (yes I know, I'm a bad person). But due to special circumstances I've followed a bit the potential hunting ban on bluefin tuna considered by CITES (the Convention on International Trade in Endangered Species of Wild Flora and Fauna), which occurs every 2.5 years and happened this week.

Going into the convention, people were generally optimistic that the conservation measure (proposed by Morocco) would pass, giving the horrendously over-hunted species of fish a chance at survival.

But sushi-loving Japan and sushi-suppliers France, Spain, and Italy of course strongly objected, to the extent, it appears, that last minute bribes of many developing countries (who have much more pressing priorities to worry about and are cheap to buy off) led to the measure's crushing defeat, 68-20 (30 abstaining). (Polar bears and sharks also got screwed.)

How could a measure so generally acknowledged as very important and generally supported lose so incredibly? This is corruption at its worse, corruption disguised as diplomacy and negotiation. And I have no idea how to change the system to prevent it.

Now I'm back to feeling depressed about international collaboration.

Thursday, March 25, 2010

books

Institutions, Social Norms, and Economic Development, by Jean-Phillippe Platteau - Excellent, fascinating book. Some chunks of it I only skimmed since I had it on short term personal loan, but it's obviously consistently great the whole way through and very thought-provoking. Not written for a popular audience but I'm sure it would be very interesting to many non-economists anyway.

The Complete Calvin and Hobbes, by Bill Waterson - Yep, I spent $80 on the complete set, and it was worth every cent. Nearly 1500 pages of distilled happiness.

Half Asleep in Frog Pajamas by Tom Robbins - Unique and very funny writing style, but a silly book should have a faster-moving plot line. Also I didn't understand the ending, so someone please read it and explain it to me... [This is why I don't read much fiction. Even the NY Times bestsellers go over my head.]

Tuesday, March 23, 2010

influential books

There's been a "list of influential books" meme going around the blogosphere, started at MR. I wanna play.

First of all, though, two caveats. The books that linger in my memory are the ones that confirmed or expressed in a striking way thoughts I'd already toyed with. Those aren't really "influential" in the sense of changing your outlook on life, but I think of them that way anyway, and they go on the list. The ones that were truly transformative probably were in a subtle long-term manner, which I don't consciously remember.

Second of all, newspapers and magazines and articles and blogs and papers and lectures don't fit into this list but they all have a larger aggregate impact on my philosophy than full-fledged books. I don't want to exclude them, when it's possible to enumerate them, so I won't.

So, my list (in chronological order, not magnitude of influence).

1. Contact, by Carl Sagan - The scientific method, religion, math/logic, philosophy, and the [dis]provability of all of the above. In a context of astronomy. This book was basically written just for me... Billions and Billions by Carl Sagan also belongs in this category of influence, along with many essays and statements by Albert Einstein.

2. Atlas Shrugged, by Ayn Rand - Take responsibility for your life, work hard, don't hurt anyone else. The moral justification for libertarianism (or how I wanted the world to be.) I want to clarify the differences between this interpretation and the stereotypical interpretation, but I don't see that happening effectively, so fill in the blanks yourself.

3. Locke / Hobbes / Rousseau / Milton Friedman - As much as I hate to admit that I got anything valuable from high school humanities classes, these various essays in Western Civ caused me to think hard about the social contract.

4. Economics 101 - This is when my philosophy got concrete instead of moralistic and idealistic and completely changed my way of thinking about the world (so that I can't remember how to think about it non-economically anymore.) Basic economics should be standard high school curriculum. People are extremely opinionated yet flat out ignorant about economic issues in a stunning way.

5. Vamps and Tramps, by Camille Paglia - Gender roles, [anti]feminism, modern social constructions and culture and their implications. Realistic, pragmatic, yes-thats-so-true! hilarious.

6. Handbook of Experimental Economics Results, Ed. Charles Plott and Vernon Smith - By this I really mean the readings and lectures in the experimental economics class I took from Charlie Plott. Thinking about economics in terms of experiments really connects the individual actions with the theory and really clarifies the muddled mess of causation arrows and unobserved variables in empirical economics.

7. Gödel, Escher, Bach, by Douglas Hofstadter - Math and beauty. Intangible unprovable truth. This is the most mind-boggling and amazing book I've read.

8. Zen and the Art of Motorcycle Maintenance, by Robert Pirsig - My favorite book overall. I still am at a loss to explain exactly why and how it influenced me though. Quality, care, thoughtfulness. Beauty and goodness is everywhere. The satisfaction of a job well done. Don't compromise with mediocrity. Independent thought. Exploration. Self-evident truths. Just read it and you'll see... (One concrete impact it had though is that I am quite patient and enjoy motorcycle maintenance, despite the fact that it never goes as planned, is incredibly frustrating, involves tools and parts I never happen to have or don't fit together like they should, and takes 6 times longer than you generously estimate. When I'm about to rip out my hair and kick the engine, I just think of Robert Pirsig. The book isn't really about motorcycle maintenance though, that's just a recurring example.)

9. A Sand County Almanac, by Aldo Leopold - After swinging from idealism and moralism to complete pragmatism, this reminded me that there is a middle ground sometimes, or at least that pragmatism can cause you to miss some important things that are still reconcilable with pragmatism when you do take them into account, and that morality and self-evident truths are a good way to find them. The beauty and value of nature. Details worth paying attention to. Simplicity over consumerism.

Monday, March 22, 2010

mixed-gender dorm rooms

I keep seeing this in the news as though it's some new liberal movement.

Caltech has had that forever. Anyone can be roommates with anyone, and even the bathrooms aren't gender segregated. It seemed completely normal at the time and didn't cause any problems that I'm aware of. I'm not sure why any other college would gender segregate dormitories or individual rooms. By college, people are adults and can make their own decisions about how to live, and many prefer roommates of the opposite sex for many legitimate reasons.

Caltech also has a lopsided gender ratio (about 30% girls) because it doesn't pay attention to gender or race at all in the admissions process (although there is a scholarship for minorities, and they have some recruitment activities specifically for girls and minorities).

That's the kind of gender-blindness I like. No discrimination and no preferential treatment. Frank, fact-based discussion of gender-related issues. The rest of the world should follow the example.

In particular, I don't think there's anything wrong with a lopsided gender ratio that reflects disparate interests. Science and technology just attract more men, for whatever reason. Maybe some of those reasons are good and some are bad, and the bad reasons should be changed at the source rather than the symptom. And in the meantime, it only makes sense to have the same standards for men and women who do choose to enter the field.

The explicit affirmative action at MIT that has achieved near gender parity, and the inadvertent affirmative action at my high school resulting from having equal dormitory spaces for both genders but many more male applicants, are both violations of that principle.

[For the sake of telling the whole, not-always-so-rosy story, Caltech's current liberalism is a result of a particularly sexist history... it didn't admit women until 1970, and they were a tiny minority until an admissions overhaul that emphasized grades over SAT scores, which men ceteris paribus tend to do better on. The dorms were all-male and so only had male bathrooms. Available facilities dictated coed dorms and bathrooms when women were finally admitted.]

Wednesday, March 17, 2010

The Allais Paradox

The more I think about this statement the more it makes me laugh...

Shachar Kariv: "I just wonder what is really going through people's heads when they are given these choices in an experiment. My mother would start crying."

(For the non-economists who might wonder what the Allais paradox is, keep reading...)

Suppose you're given the choice between two lotteries:
Lottery A: Win $1 million for sure.
Lottery B: Win $1 million with 89% probability, $5 million with 10% probability, get nothing with 1% probability.

Most people will choose Lottery A.

Now suppose you're given the choice between the lotteries:
Lottery A': Get nothing with 89% probability, $1 million with 11% probability.
Lottery B': Get nothing with 90% probability, $5 million with 10% probability.

Most people will choose Lottery B'.

But, if you choose lottery A, you SHOULD choose lottery A' as well. The difference between the first choice and second choice is that an 89% probability of $1 is taken away from both choices. So the relative value does not change.

The point is that people overvalue certainty.

Tuesday, March 16, 2010

Reality check

This is very good. Good enough that I won't bother to elaborate.

Tuesday, March 9, 2010

Pigeonhole Sock Principle

When running late for class and rummaging through your laundry basket, you will find one of each pair of socks before a matching set.

Saturday, March 6, 2010

experiments

I think anyone who runs economic experiments should have to do lots of them too, for two reasons. 1) Experimental results are much more surprising when you realize that the players don't really understand what's going on on a larger scale, don't know how to maximize their payoff, don't know what the equilibrium is, and are just fumbling around trying to make a few bucks. 2) Theoretical results aren't behavioral, and theoretical intuition is very different than behavioral intuition. If you are used to thinking in terms of the latter, it guides the former (and methodologically, guides the experimental design to start with, which is critically important.)

As an example of the first point, I once played a committee voting game where we tried to get majority support for an agenda that was as close as possible to our ideal point. I had virtually no idea what other people's preferences were based on a few votes and propositions, and REALLY had no idea what equilibrium was. Yet results from these experiments show robustly that equilibrium is reached quickly and exactly. It's pretty crazy, from that confused perspective.

As for the second point, Once as an undergrad I played a variant of matching pennies. Theoretically, the optimal behavior is to randomly choose an action, 50% of the time on each choice. In reality, you sit there trying to guess what your partner will do based on their previous decisions. Humans aren't very good randomizers and the more rounds went on with both of us sticking to a single decision, the more the tension rose. Every time I chose the same action, I implicitly said, "hey come and get me, I'm doing the same thing over and over, I dare you to optimize against it."

Of course, theoretically, the other person's choices period by period have nothing to do with what you should do (if they're anywhere near equilibrium, which is obviously true in this game...). Choices should be perfectly uncorrelated with previous choices. Yet in models of learning, beliefs about your partner's next choice is some kind of weighted average of their previous choices, ie positively correlated. And in reality, with real humans who aren't good at randomizing and partners who are the same or at least anticipate this, they should be negatively correlated. Having done it, it's obvious that those standard belief models are inappropriate in that situation. But that's what they focused on anyway.

(Not that it's a bad paper, but I think a different game would be a better setting in that sense...)

Thursday, March 4, 2010

evolution

It's incredibly easy to come up with an evolutionary explanation for almost any phenomenon, because everything has an upside.

That doesn't make it right, that makes it useless.

(I'm tickled by baseless hypothesizing as much as anyone in the world, and love evolutionary explanations in particular, but in this arena, there is way too much speculation and not nearly enough hard science backing it up.)

Wednesday, March 3, 2010

reinforcing bias

It's well known that people tend to interpret data in a way that favors the views they already hold. But I think it's also true that people tend to learn more about what they already are familiar with regardless of what they actually want to learn about. Being a renaissance man requires some deliberate diversification effort.

I have no interest in finance. I rather loathe finance, and have less than no desire to learn more about real-world finance. Yet as a result of study sovereign credit for eight months my ears always perk up at information about Argentina, Venezuela, Iceland, etc government finance decisions or default speculation.

I also tend to multi-task during lectures (verbal communication is so slow...) by working on homework or writing code or emails or whatever, and keeping 120% of an ear on the professor, more or less depending on how important it seems. But in the current lecture we covered models of belief learning, which I was just looking into yesterday and want to know more about, and cognitive hierarchy and the beauty contest game, which I've been taught at least five separate times previously. Which did I pay more attention to? The latter, of course.

Oh, human nature can be so frustrating.