Saturday, June 30, 2012

education

Read this whole thing.

This also explains why more and more people are shouting that a college education is a "right". Because high school education is already a "right" but it no longer is all that helpful. College is taking the place of high school.

(So those people should be shouting for higher standard in high school education, not more free education, which will certainly follow the same path of falling standards...)

Friday, June 29, 2012

perfect price discrimination and social networking

Safeway is moving towards perfect price discrimination (well, we already knew that... we already get personalized coupons when we check out) through a personalized rewards program.

A "problem" with social networking being the foundation of everything on the web is that retailers have so much information about customers that perfect price discrimination is much more feasible.* That's not to say that price discrimination is inherently a bad thing, on net for society or for individuals, but it can be for individuals in individual instances: I like getting discounts for being me but I want to be able to hide who I am in the cases when retailers want to charge me more than other people. If everything I do online is associated with my identity, through facebook or google or amazon, it's a lot harder to switch to anonymity.**

This makes me wonder if amazon prime a long-term tactic to aggregate personal information for price discrimination purposes? Amazon toyed with individualized prices awhile ago but people were so offended that they stopped. But I'm sure they're tempted to keep trying, in less offensive ways. Individualized discounts can't be offensive, can they? But then, when everyone has their own price, what is the base price that the discount is relative to? They can declare it to be whatever they want, just as safeway posts "regular non-member prices" that are meaningless except to make people feel like they are getting a good deal (and to coerce everyone to be a member of course).

In the case of safeway, everyone is a member in order to get the good prices. In the case of amazon, everyone has/uses their amazon prime account in order to get free fast shipping. That allows amazon to charge more for prime customers who will still prefer (or are oblivious to the other option) to pay the higher individualized price than to pay for slower shipping.

Is this already happening perhaps? It tells you something that I don't even know, because I only shop on amazon within my account... If so, how are they framing it so as not to be objectionable?

*I'm trying really hard here to avoid balking at social networking-based price discrimination purely for being creepy and unfair, because what is 'unfair' depends on framing effects (see above on individualized discounts.) and 'creepiness' is an evolving, subjective thing. So, work with me; compartmentalize these things for the duration of this blog post :)

**There seems to be a trend in people using multiple web browsers for this purpose; one stays logged into things and the other doesn't. Also, non-tracking search sites like duckduckgo.

Thursday, June 28, 2012

morality is better without the supernatural

Morality is complicated and religion provides heuristic decision-making rules that help people get sort of close without having to think too hard, which also helps society in the aggregate mitigate destruction from stragglers who try to figure out their own morality and do a bad job of it.

But I maintain that a secular heuristic morality is perfectly achievable, is more credible without all that facetious supernatural nonsense, and allows society to avoid these mind-bogglingly ridiculous situations that occur when religious rules are followed to the letter instead of in spirit (or when religious rules that were invented before modern science and technology are followed despite their inapplicability.)

*smacks forehead*

[Link stolen from MR.]

Friday, June 22, 2012

game theory and logic are very useful things...

I usually love Ariel Rubinstein's writing (as intentionally provoking as it may be) but he's flat-out lost it with his game theory rant. "A good judge does not need to know logic."

...Are you kidding me?

He's got a pretty insanely strict definition of 'useful' if game theory doesn't qualify. I don't even know what it could possibly be...

Monday, June 18, 2012

Aldo Leopold

Once in awhile you come across a thinker whose writing echoes the most charitable interpretation of your own thoughts, and whose personal inclinations mirror your own so closely (or so you project), that you end up excitedly underlining every other line of a paper about him and prattling on like an infatuated schoolgirl to anyone who will listen.

I love Aldo Leopold.

I knew I loved A Sand County Almanac, but never read about him personally. It turns out that in addition to being a naturalist and a posthumous hero of the environmental movement, he was (sort of) trained as an economist and was in the Agricultural Economics department at the University of Wisconsin! That sure explains his keen understanding of human nature/institutions and his comments relating to economics.

(Although, he uses that term in a narrow-enough sense to be denigrating; I again would prefer that the 'single-minded money-grubbing' connotation be reserved for 'business(/men)' not to 'economi(cs/sts)'.)

To boot, he is amazing with words. But I wouldn't be able to choose among a thousand quotes to put here, so you'll just have to go read it yourself.

Thursday, June 14, 2012

middle-American pride

I stole this from facebook (thank you LinLin!). I have no interest in basketball but it does such a good job of capturing the strange local pride, tinged but strengthened by an edge of defiant pseudo-self-deprecating underdogness, that you find in the middle of the country. Particularly in Oklahoma, for some reason (the bombing is surely part of it, as the article describes). In the big cosmopolitan cities of the U.S., no one is more ready to defend their home state than Oklahomans, even though displaced Oklahomans are precisely those who probably didn't like living there in the first place. It's a bizarre yet consistent irony that I don't understand despite being a living example. (And the fact that introspection fails me in this department, despite the fact that introspection is so reliably able to rationalize anything, makes me all the more interested in it.)

It's the same strange loyalty that creates sports fanaticism (and team-pride+local-pride is I'm sure why the case of the Thunder is so particularly powerful). And once again, I'm caught up in an inexplicable psychological phenomenon. I didn't even watch football until after college. I arbitrarily ended up choosing the Jets to root for when I lived in New York and lo and behold, no other team will ever hold the same sway in my eyes. Sure, I'm happy to root for the Giants too, or isolated players like Peyton Manning and Aaron Rodgers, but despite the fact the Giants have won two Superbowls in the short time I've been following the game, it's not the same as if the Jets had won. (And don't even get me started on how not only did they fail to pick up Peyton Manning, they got his displaced leftovers, that infuriating flailing ineffectual holier-than-god-himself weasel.) Why?? Please explain it to me.

Now if only OKC had an NFL team too. Yeah yeah, a town that size would have a hard time supporting multiple pro teams and there is already an insane college football culture it would have to compete with, but whatever; the NFL is the best sports league, and that's that :)

Wednesday, June 13, 2012

studying particular preferences

It occurred to me today that it's really sort of strange that we study preferences so much in psychological economics. This is a very foreign thing compared to classical economics, in which it's assumed that people have well-defined preferences and act on them in a basically optimal manner, but what those preferences are is immaterial. Applied studies of course have to make some assumptions about preferences, but those are usually of a very obvious sort such as "more money is better".

Even if you exclusively look at pure theory, classical theory abstracts from those particulars entirely, whereas in psychological economic theory, much effort has been put towards understanding what preferences people have (over risk, over others' outcomes, over beliefs, etc.) and breaking them down into as many pieces are necessary to explain every choice.

Why? I see three possibilities:

  1. The alternative would be to expand the domain and type of preferences that are allowed more generally, and derive general implications. Is it that doing so opens up the doors so wide that anything is possible and nothing interesting is provable?
  2. Or are the necessary generalizations of forms of preferences just too unwieldy to work with mathematically, or not sensibly representable at all, except in particular cases?
  3. Or, are we just more concerned with accurately predicting real world behavior as a profession now, and these psychological preferences are the only ones unobvious enough to warrant particular study?

progress

It's also really funny to read economics papers from the early 20th century, because the field hadn't gotten comfortable with math yet. The following (from Tinberger, 1939, page 15) would be downright insulting to explain to a first year graduate student nowadays. I guess that's progress!
If we are to understand the mechanism as a whole, we must continue this procedure until the number of relations obtained equals the number of phenomena the course of which we want to explain. We should not be able to calculate, say, n variables if we had only n-2  or n-1 relations; we need exactly n. Such a system of as many relations as there are variables to be explained may be called a complete system. The equations composing it may be called the elementary equations. The word "complete" need not be interpreted in the sense that every detail in the complicated economic organism is described. This would be an impossible task which, moreover, no business-cycle theorist has ever considered as necessary. By increasing or decreasing the number of phenomena, a more refined or a rougher picture or "model" of reality may be obtained; in this respect, the economist is at liberty to exercise his judgment. A conclusion about the character of cyclic movements is, however, possible only if the number of relations equals the number of phenomena (variables) included. (The remark may be made here that there is no separate or special variable representing "the cycle" which has to be included in the elementary relations. It is by the mechanism itself that all variables included are compelled to perform cyclic changes.)
Teehee! N independent equations solve for N unknowns, and dependent variables can't be independent variables. I'll keep that in mind :) 

description + math

It's fun reading economics papers from a hundred years ago, prior to the full shift to mathematical methods, because they're in a great intermediate state where they still explain what they want to show with lengthy verbal descriptions, but then supplement that with a couple of equations (which also thus facilitate the verbal discussion because you can point to variables clearly). Nowadays, economists write down an equation, define the terms and any assumptions about their form, and maybe briefly describe the intuition in a couple of sentences. Sociologists, on the other hand, write down no equations (maybe a flow chart, if you're lucky), and describe all the possible interactions in page after page of text that becomes impossible to follow because each new interaction is given a new inscrutable word to remember. 

An economist might say: A/B, where A and B are each greater than 0.

A sociologist might say: "Item1 and item2 are related in such a way so that if item1 increases in magnitude, their combination, call it item3, also increases in magnitude through a process known as process1. Also, if item2 increases in magnitude, process2 causes item3 to decrease in magnitude. In more complicated situations, process1 and process2 can combine. Sometimes, this results in outcome1, in which item3 nonetheless increases. Othertimes, outcome2 occurs, when item3 is seen to decrease. In special cases, item3 remains unchanged entirely. We call this outcome3. In certain pathological scenarios, many more complicated interactions can occur if item1 and item2 are allowed to disappear entirely or to exist as countervailing, rather than positive, forces, but we ignore these situations in our analysis."

(You can see why I get frustrated by reading sociology papers :)

Nonetheless, the economist's approach is also less than ideal. There is a better middle ground. Describing the possible changes and their impacts in some amount of thoroughness is a very nice way to convey the intuition for a model. Take, for example, this wonderful presentation of the equation of exchange, by Irving Fisher. This is not a complicated equation. It'd be hard to write down a simpler model. And still, the extra description makes it so beautifully clear, as it forces you to really process what the equation says instead of skimming over it. While it's certainly not necessary to go on quite as long as he did, he does it in such a wonderfully clear, unassuming, level-headed tone, that I didn't even mind.

Tuesday, June 12, 2012

institutional/psychological economics

Let me admit up front that I'm still very ignorant on the topic and that this post is more of a request for information than any sort of accurate presentation of something...

So, in the first half of the 20th century was an institutionalist movement in American economics. This school of thought was characterized by descent from the neoclassical school in favor of an empirically-based focus on human institutions. Many members were educated within the German historical school of the period, and brought those ideas about data-driven science and belief in the impossibility of generally-applicable theory back home.

Allegedly, there was at the time a great deal of crossover with psychologists and sociologists and the institutional economic school. There was a great deal of empirical sociology at the time, so their observation-based studies of, for example, household consumption, were compatible with institutional economic observational studies of, for example, the coal industry.

"Modern psychology" at the time emphasized habit, instinct, and that sort of evolutionary view of behavior. The institutionalists allegedly wanted their worldview to be compatible with psychology. But it's not at all clear to me how these evolutionary ideas about psychology influenced institutionalist research. What was the crossover? Who were the major psychologists who did economics research during that period? Was it all well-intentioned empirical work that didn't get around to tying results to psychological theory, or was there a real attempt along those lines?

Anyone know? I'm planning to look up a few authors that might lead in the right direction, or just ask Malcolm Rutherford again if I see him (I didn't really ask the right question the first time I tried, or I didn't follow all of his answer, or something, so I'm still confused) but maybe someone is secretly an economic historian who reads this...

Monday, June 11, 2012

anticipatory utility

I came to the Duke Summer Institute on the history of economic thought with the hope that I could learn how earlier economists thought about the behavioral phenomena that psychological economists are now studying more rigorously, before the mathematization of neoclassical economics took over the profession for the last century.* My expectations have already been rather blown out of the water.

Take, for example, Jevons writing in 1866:

A principle of the mind which any true theory must take into account is that of foresight. Every expected future pleasure or pain affects us with similar feelings in the present time, but with an intensity diminished in some proportion to its uncertainty and its remoteness in time. But the effects of foresight merely complicate without altering the other parts of the theory. 
Such are the main principles of feeling on which economy is founded.  A second part of the theory proceeds from feelings to the useful objects or utilities by which pleasurable feeling is increased or pain removed. 
An object is useful when it either affects the senses pleasurably in the present moment, or when, by foresight, it is expected that it will do so at some future time.  Thus we must carefully distinguish actual utility in present use from estimated  future utility, which yet, by allowing for the imperfect force of anticipation, and for the uncertainty of future events, gives a certain present utility.

Anticipatory utility, anyone? Apparently it took us 134 years to develop Jevons' idea of a "true theory", although we can hardly be blamed, since it was also not such a trivial extension as he suggests there.

*I definitely do not mean to imply that this was a bad thing or a thing that psychological economists now need to 'fix' neoclassical economics. More on that later, perhaps, if I decide my view hasn't already been repeated often enough by others.

the marginal revolution

I'm at the Duke Center for the History of Political Economy's Summer Institute on "The Emergence of Modern Economics". There is a very interesting group of about 30 participants, and of course excellent faculty. The topic is one that I'm interested in but know very little about (history and philosophy of economic thought), and it's a much more diverse group of scholars than I interact with on a daily basis, so altogether this adds up to an intellectually exciting two weeks.

That also adds up to many blog posts. Normally if I'm in an unusual(ly stimulating) seminar or something, I write a bunch of blog posts and schedule them to post over several days, but that won't work so well over a full two weeks, so a relative deluge is likely. Sorry!

The first is just an interesting fact. I didn't realize that the establishment of marginalist thinking / theory of value at the turn of the last century was actually referred to as the "marginal revolution". I'd therefore been missing out on the pun for who-knows-how-many-years-I've-been-reading-MR.* That is, if it's an intentional double entendre. I would assume so, unless that's not actually a common term for the movement.

Note for the non-economists: marginalist thinking is one of the most important central tenets of economic theory. It's so fundamental that I'd forgotten it was ever a point of contention (prior to the rigorous mathematization of basic economic laws). The marginalist theory of value, first proposed by the likes of Menger, Walras, and Jevons in the 1870s, basically says that the value of an item is the value of the marginal unit of that item produced/consumed. In equilibrium, the price is equal to the marginal value to the consumer, which is also equal to the marginal cost of producing the same marginal unit. This is in contrast to, say, the labor theory of value of the Marxists, which says that the value of an item is tied to the labor used to produce it. While perhaps less intuitive, marginal utility is vastly more useful for explaining economic phenomena, and with a little explaining of the law of supply and demand, it becomes quickly much more intuitive.

*It is in fact intentional. I think I like the original "think marginally" meaning better than "small steps towards a much better world", which sounds like the other meaning of marginal and suggests to me "change your showerhead to save the world" type steps :)

Thursday, June 7, 2012

3 3 7 7

Here's a fun puzzle (thank you Piotr!):

Using only multiplication, addition, subtraction, division, and parentheses, combine all of the four numbers 3, 3, 7, and 7 to get 24.

Apparently this is an example of the "24" game in which you do this with any other four numbers. (A related game I remember from middle school is to use the four digits of the current year to make as many numbers from 1 to 100 as possible, using more creative operations like !, mod, and exponentiation. This worked better in the 90s :)

This is a fun one in particular because it's really hard to figure out in your head, but when you use pencil and paper to explore more systematically, the two double numbers cuts down the number of possibilities drastically and it's very doable.



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Now don't keep reading until you figure it out!



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The answer is to use fractions in the intermediate values in an unobvious way. Three sevenths plus three is twenty four sevenths. And there you go. (I spelled that out in words intentionally because you can't glance at it accidentally and give away the answer to yourself.)

Oakland

I've lived in a lot of iffy neighborhoods. I like cheap rent and I don't like expensive pretentiousness, so I've moved from Bed-Stuy in Brooklyn to south Berkeley to northwest Oakland and now to downtown Oakland. This one might beat them all, however.

I can no longer count how many total strangers (and four different people from the building management office next door) have randomly warned me to be careful or asked if I was ok. Frankly, rather than feeling endangered, I feel strangely looked-after. My building maintenance man knows the people in the house next door and told them to watch out for me. I just went outside to cover my motorcycle and a guy in a pickup pulled up to the lot and asked if I was ok.

On the way back in, a tall transvestite wearing high heels, fishnets, and a nearly-inexistent miniskirt was standing next to the front steps, and said to me "Girl, you better get inside, they're shooting paint guns at people."

I don't even know how to parse that interaction, for better or for worse. Smile and nod, say thanks for who-knows-what-but-better-stay-on-people's-good-sides. Keep your trigger finger on the mace at all times. And then, yes, get inside.

Sunday, June 3, 2012

as-if economics

Social preferences research (behavioral economics in general, I'm sure) is so plagued by identification issues. By that I mean, there are many possibilities for what it is that motivates people to do things, and it's really hard to tell them apart. And in behavioral economics, for the first time, we really are trying to figure out how people think, rather than just how they act as though they think.

It's still as-if economics, as meant by Friedman when he used that phrase, in the sense that people don't actually maximize complicated utility functions. But whereas it was ok to assume people are perfectly rational perfectly selfish actors when studying marketplaces (because they act as if they are, in those contexts), it's of course not ok to assume that when what you're trying to figure out is what makes people act different ways in different situations.

And all the sudden there is an explosion of possibilities to explore, and my job is hard.