Incidentally, the posts from Saturday were intended to be posted on my speculative economicsy ideas blog, and I only realized I had mis-directed them as I was posting about Uber (which could well have gone there as well, but was not intended for it). I've cross-posted them now, and if you found them particularly interesting perhaps you would find other things on that blog interesting as well; the things I post and the way I write are both a bit different on that blog than on this one.
Tuesday, December 16, 2014 :::
::: posted by dWj at 1:23 PM
Uber is taking more flak for its surge pricing, which obviously serves a purpose (and indeed, in my mind, is their purpose for existence) but is very unpopular in some circles, and I'm trying to think of ways of at least partially achieving the purpose that might be less unpopular. One suggestion I've seen is that Uber, which takes 20% of revenues (giving 80% to the driver), give all of the overage to the driver; when you have 4x pricing, Uber would get 5% of the fare paid. In basic economics at least, markets tend to be "efficient" at the point at which quantity is maximized, and I would point out that this scheme perfectly aligns Uber's (short-term) incentives with (short-term) "quantity" maximization, where "quantity" is measured in terms of the base fare of potential rides. It seems like it might at least improve their ability to communicate sincerity in the purpose of the price hike, vis-a-vis claims that they are "profiteering".
My own ideas fall into two categories, of which one is "double down" — "Look, people, the thing with Uber is that you can get service at some price if you really need it, and if you want unreliable but cheap service at those times, have at it" — and I don't know whether that would alienate a lot more potential customers that it would resonate with. Perhaps they've been as clear as they reasonably can about the whole "reliability" vs. "fixed stated price at which you can't get any service" trade-off for which they provide diversification among providers. It's possible more transparency, at least after the fact, about net demand would help; if people can see that there really were a lot of riders asking for rides at high prices and not that many drivers, perhaps the trade-off would be a little bit more concrete.
My other ideas run around the idea of making it look more like an auction, partly for the same reason of making the previous message more concrete — if you've been outbid for a scarce resource, you can bid higher or accept that you've been outbid — and perhaps give buyers a greater feeling of control, even if there is really no more or less control one way than the other. (They both, pretty much, give everyone as much control as the basic laws of mathematics allow.) A traditional auction requires that everyone in the auction wait until the auction is over before they can proceed, and the whole point here is quick, reliable service. I think Vohra (meaning Rakesh Vohra, though it's possible I'm actually thinking of Rajiv Vohra at Brown; they have similar research interests, and it's a while since I looked at this) has worked on auctions where time is an issue in this sort of way (people entering and exiting the market at different times). Another option is to have buyers of the service post offer prices that drivers can see and can choose to accept or not, possibly with suggestions by Uber as to what trade-off they're likely to see between a higher price and a quicker/more likely acceptance.
::: posted by dWj at 1:17 PM
Saturday, December 13, 2014 :::
There's an article from a few years ago theorizing that humans evolved "reasoning" as a way to argue [pdf link], and — I haven't yet read all of that article, but I haven't seen it note this yet — if you were to adopt the naive, non-cynical position that we reason [only] to figure out the correct answers and not [at all] to justify actions and positions taken for irrational reasons, there are some older split-brain experiments to contend with*. Mercier and Sperber in particular note that the sorts of cognitive biases we see tend to be those that facilitate justification rather than impede it; we pick a wrong answer that is easier to verbally justify rather than an answer that is right for sophisticated or nebulous reasons.
I note a recent article at the Harvard Business Review (with Cass Sunstein as one of the two authors) about group decision-making, and one of the passages that sticks out to me
The psychologists Roger Buehler, Dale Griffin, and Johanna Peetz have found, for example, that the planning fallacy is aggravated in groups. That is, groups are even more optimistic than individuals when estimating the time and resources necessary to complete a task; they focus on simple, trouble-free scenarios for their future endeavors. Similarly, Hal R. Arkes and Catherine Blumer have shown that groups are even more likely than individuals to escalate their commitment to a course of action that is failing—particularly if members identify strongly with the group. There is a clue here about why companies, states, and even nations often continue with doomed projects and plans. Groups have also been found to increase, rather than to lessen, reliance on the representativeness heuristic; to be more prone to overconfidence than individual members; and to be more influenced by framing effects.
With agents whose cognitive biases were not skewed toward wrong choices that are easy to justify to others, one might expect groups of such agents to have biases that are — for example, if you have a good "representative" to buttress your argument, you can explain your argument to others in a more effective way than if you could not, such that the group is more likely to reach a consensus around a decision supported by over-reliance on a representative than one that isn't. This is to say that one should naturally expect group decisions to be biased toward decisions that are easier to justify after the fact, and that this appears to involve an intensifying of the cognitive biases of individuals is evidence in favor of Mercier and Sperber's hypothesis.
* Human speech is primarily located in one hemisphere of the brain, though the other hemisphere can read and understand writing; human subjects whose hemispheres had been separated for medical reasons had, for the purposes of the experiment, written instructions shown to the non-speech hemisphere, whereupon they performed an action, whereupon the subject was asked why s/he had performed the action, and a perfectly confident and absolutely false answer was given.
::: posted by dWj at 3:50 PM
In late September and early October, my son was with his grandmother, and I had more of a chance to spend evenings reading books that I didn't think were related to my dissertation. In particular, I read books on human evolution, and to various extents related prehistoric anthropology and the like, and gain a new appreciation of the importance of in-group/out-group distinctions.
I have been aware for some time of an idea among monetary theorists that money is in some ways a substitute for what game-theorists call "monitoring" — in particular, a 1998 JET article by Kocherlakota (who is now president of the Minneapolis Fed) shows that a particular class of models has the same sets of equilibrium outcomes if you put money into the models, but agents are essentially ignorant of the history of play, as if there is no money in the models, but agents are perfectly informed at each stage as to what everyone did at every previous stage. More recently Randall Wright at Penn State (though I have no academic publications to cite here) has emphasized this substitutability, and in particular has emphasized that tight groups (a fortiori families) tend not to use money to intermediate favor exchange, but with some informal sense of whether members are shirking or being especially pro-social and various social sanctions to respond to them. In fact, it seems likely that, in richer environments than Kocherlakota's, perfect monitoring is likely to work better than money, and it seems plausible that monitoring works well-enough in tight groups (but poorly enough outside of them) that money is less useful than monitoring in those groups (but better than (almost) nothing outside of them).
My synthesis and slight extension of these ideas is to suggest that we use money with our outgroup; further just-so stories follow. For example, there is a social psychology a literature about money triggering an anti-social mindset, which I can tie to the idea that we associate "money" with "out-group". Perhaps more interesting for purposes closer to my dissertation, though, is "repugnance", the only major threat to market function in the list that Roth (2008) provides that my dissertation proposal did not discuss. While I would certainly not claim to explain all repugnances — as Roth notes, they vary too much in space and time for one to expect a particularly simple universal deep theory — at least some of them can be explained as situations in which in-group and out-group constructs are being conflated or boundaries are being breached. It has been customary, for example, for gifts of cash to be viewed as at least somewhat uncouth in contexts that call for gifts; perhaps giving cash signifies that you consider the recipient to be out-group. Similarly, this goes to one of Roth's examples, that it is okay to bring wine to a dinner party but not to offer the hosts an equivalent amount of cash. Prostitution may constitute an exchange of something that should be in-group for something that should be out-group, and indeed if one accepts for the moment that there is or was an accepted practice of men paying for a woman's dinner and expecting sex in return in a "dating" situation, one may be able to draw the line between this and prostitution in the same way — that it is okay for me to acquire a bottle of wine or a meal from someone in our out-group, and then give that to a member of my in-group (with the expectation that, at some point in some context, I will be the recipient of a gift, and the recipient will be a giver), but that giving money, whether explicitly or implicitly in "exchange" for something, is inappropriate.
There are some caveats to note. In a modern large society, the in-groups and out-groups are blurred in a way that they largely are not in bands of 50 people in the savannah. There are people who are somewhat in-between, but there is also a non-transitivity; my good friend might have a good friend whom I don't particularly know, such that it might be reasonably clear that my friend conceptualizes each of us as clearly "in-group" and we consider him the same, but consider each other clearly "out-group". Also, to clarify, my mental model of in-group "gift-exchange" involves less obvious direct quid-pro-quo than the buy-a-meal-for-sex transaction noted above; I imagine contributions being less bi-lateral and more multi-lateral, but also that when a contribution is made, even if a single recipient receives most or all of the benefit, that it is not known when or in what form any anticipated reciprocity would be made, even if it did come back directly to me. It may even be that direct quid-pro-quo transactions themselves have a bit of an out-group feel to them, even if they don't involve abstract money.
::: posted by dWj at 3:28 PM
Tuesday, November 25, 2014 :::
If you feel obligated to read something about the recent goings-on in and around Ferguson, MO, Jonah Goldberg's comments last night and this morning seem reasonable, which of course distinguishes them from many others. Particularly
Of course, I also sympathize with the innocent people of Ferguson who have had their neighborhoods smashed up — not just the shop owners, though perhaps especially them, but also their natural patrons. I'd also like to say, with the usual caveat that the jury followed this a lot more closely than I did, that an inability even to get "probable cause" on anything surprises me, though I agree with Goldberg that having a trial with a more-or-less obviously unattainable "beyond reasonable doubt" standard, even if it would benefit the community (and I rather doubt it would), would be unjust; many of the loudest voices calling for suspension of justice here would in other cases give much better lip service to the idea that the rule of law should especially protect politically unpopular defendants from the mobs that would threaten them, and I advise those mobs that that's not a principle they would likely, in the long run, want to throw away. That Officer Wilson deserves justice is a point only more forcefully made by the argument that the criminal justice system is itself racist; he should be held responsible for his actions, but should not be the scapegoat for an institutionally racist system.
- One sympathizes with the Brown family. The loss of a son etc. in August can't have been easy, but being told that it wasn't anyone's fault is necessarily going to make it harder.
- The actions of the prosecutor seem defensible, even reasonable, but one can see the point of people who question them; he was almost certainly in a situation in which any course of action was going to be second-guessed by someone.
Update (7:47 EDT) I'll note, incidentally, that "wasn't anyone's fault" kind of takes in the following calculus: As a general principle, one should rob stores and/or hang out with robbers, punch police officers, or charge at police officers, and one probably improves one's odds of not getting shot by a police officer by avoiding those behaviors, and yet, as some people observe a bit incessantly, these behaviors do not merit death. Brown may well be more at fault here than the average driver who is "at fault" in a fatal car accident, but those are, for similar reasons, very frustrating as well; it's a high cost for what might in other circumstances seem like a minor slip.
::: posted by dWj at 5:01 PM
Thursday, November 13, 2014 :::
Without going back for details, let me recall that earlier this year Goldman Sachs and a client that I believe was a Portuguese bank got in a little bit of trouble for a deal they did. The Portuguese bank needed to improve its capital ratio, and one way of doing that would have been to sell some assets it owned; for various reasons, it didn't want to technically do that, but it did something economically equivalent. Its regulator, to its surprise and dismay, told it that this economically-equivalent-to-sale was not regulatorily-equivalent-to-sale, but there was a third economically-equivalent-to-sale arrangement that had even more closely related precedent to being regulatorily-equivalent-to-sale, so Goldman Sachs helped the bank convert its interim arrangement into the new one. The criticism to which the banks were then subject was that this conversion from the interim structure to the new structure was done for no economic purpose; it was solely an attempt to affect regulatory treatment.
Now, of course, that was true; it was more or less an attempt to help the regulators get the right answer, since they were previously making a distinction where there was no distinction to be made. One certainly gets the impression that going from the full, true ownership of the assets to the final state without the intermediate states wouldn't have raised any eyebrows. Further — wait, isn't the point of regulations that they're supposed to be complied with? There's no question here that the bank was, the whole way through the process, attempting to comply with the spirit of the regulation; the criticism seemed to be that, having satisfied the intent but not, according to the regulator, the letter, they then proceeded to satisfy the letter as well without any substantive change — but, again, that's because the substance had already been there. So this is just nuts.
Now, Jonathan Gruber, who has been an unwitting and bountiful source of delight for opponents of Obamacare this year, was recently found to have commented that some of the structure of the Obamacare legislation was not what he would have preferred, but was done for political reasons. He used words like "stupid" that are hard to cast as normatively neutral, but I kind of feel like, had he avoided that, he could have made points very similar to the points he made in a way that would have been more sympathetic, for reasons similar to the preceding bank story. If he had said, "You and I and John Roberts consider this to be equivalent to a tax, but there are people to whom it seems to be importantly different, so we had to cast it as a penalty," or "You and I consider the 'community rating' as equivalent to taxing young people and giving the money as a subsidy to old people, but there are people who get much more upset about one set-up than the other, so we used the set-up that they preferred rather than the one that seemed equivalent to us but more objectionable to them," there's some level on which that looks like common sense political horse-trading; if B gets you most of what you really want, and B is far preferable to other people than A is, you go with B over A, even if — especially if — they seem equivalent to you.
::: posted by dWj at 12:16 PM
Tuesday, November 11, 2014 :::
This in some ways is old news, but Vox has a write-up on a new working paper about charter schools in Texas, which finds that
exits from the sector, improvement of existing charter schools, and positive selection of charter management organizations that open additional schools raised average charter school effectiveness over time relative to traditional public schools.
There are states in which charter schools are, on average, better than traditional public schools, and other states in which they are not; to a large extent the schools that succeed do so for different reasons, and those that fail do so for different reasons, and details of what makes a good school depend on local contexts. What works well as far as state-wide institutional rules, then, are allowing a lot of charter schools to open, especially where public schools have not been doing well, and closing them down if they don't do well. The reason they help public education in those states is because they make it easier to try something genuinely new when what is being done isn't working than do most traditional public school institutions. If they become a new way of trying something and not responding to the results, their benefits are at best severely circumscribed.
Shortly before the recent election, an organization asked school board candidates in my area a set of binary questions, among which was a question like "Do you support charter schools?" I have the impression that knee-jerk supporters of charter schools in states in which they are allowed to continue to fail are in fact the problem there; when a charter school is to be shut down, they rally to its defense, because they are pro-charter school. Other states miss out on potential benefits because the powers that be are knee-jerk anti-charter school; they insist that failing schools continue to fail in the same ways, or occasionally to fail in ways imagined by people with the same prejudices that led to the original failure.
When I see people arguing that we should raise or cut taxes for which the individual doesn't know the current tax levels, or who always support or always oppose management in every labor dispute, I become skeptical that this is a well thought-out position, and assign higher probability, in most contexts, to this person's having made a midbrain-level association between one thing as "good" and another as "bad". What I tend to dislike about asking politicians yes/no questions, or even putting too much stock in a Congressman's voting record (where, especially in the case of junior members of the House, yes/no decisions are a lot of what they get to do legislatively), is not merely that they ask the candidates to oversimplify, but that they have at their epistemological root the assumption that one should adopt a fixed answer to them, and that the actual content of actual questions is inessential.
::: posted by dWj at 12:34 PM
We all instantly recognize that it would be a disaster if we collectively decided that the way all cars should be purchased would be by having a job with a company that will provide you a car (with a tax break, and if you lose your job, you lose your car), and an insurer that will pay for gas and oil. Should you not be able to get a car that way, the government will buy you a car.
That point is, I would think, sufficiently obvious that you wouldn't read an article whose sole contribution is that, but I kind of liked this analogy for some reason.
Readers here may also be aware that
As the economist Robin Hanson wrote, "It has long been nearly a consensus among those who have reviewed the relevant studies that differences in aggregate medical spending show little relation to differences in health, compared to other factors like exercise or diet."
The reason for reading the article — or at least the first half or so of it — is for the case studies.
How can Singapore accomplish what must be referred to as, insofar as such things exist in the public policy realm, a miracle? The central design principle of the Singapore system is that it puts as many health decisions as possible in the hands of the consumer — and this includes having the consumer pay for his own decisions.
It is, to be sure, not a fully hands-off system; people are required to save money for health expenditures, Robin Hanson's point notwithstanding; it sounds, in fact, far more politically possible in the United States than a more hands-off system would.
::: posted by dWj at 7:56 AM
Monday, November 03, 2014 :::
Most Senate seats on the ballot this year were last contested in 2008, an extraordinarily strong Democratic year. House seats were last contested in 2012, a pretty good Democratic year. Most governorships were last on the ballot in 2010, an awful Democratic year.
So if the election goes about as polls predict, it would suggest that 2014 was way worse for Democrats than 2008 and somewhat worse than 2012 but somewhat better for them than 2010.
::: posted by dWj at 12:18 PM
Thursday, October 30, 2014 :::
I'm not, at this point in my life, particularly interested in staying up late on election night obsessing over returns; on top of that, I live on the east coast, and it gets late early here. Something could perhaps change between now and Tuesday, but right now I'm providing my rubric for next Tuesday night:
Update (Monday, 11:20 EST): Kentucky no longer even seems to be on the table; a McConnell loss at this point would be more seismic than anything I'm really considering above. I'm increasingly thinking it's unlikely that news sources will be "declaring" control of the Senate before I wake up Wednesday morning. If Kansas, Georgia, or North Carolina is called for the Republican, that would probably do it; if Democrats win Iowa and Colorado, that would probably do it for them. I think the best bet for a timely declaration is that voters in Georgia gravitate toward the major party candidates (or, more particularly, toward one of them or the other). I'm sure there's less correlation between senate races than between different states' electoral college races in a Presidential year, but I'd still be surprised to see someone exceed 50% in Georgia by enough of a margin for it to be called within hours of polls' closing and see enough other states break toward the other party to determine control of the Senate.
- If Kentucky goes to the same party as either North Carolina or New Hampshire, that party will control the Senate.
- If a winner (not a run-off) is declared in Georgia, the new Senator from Georgia will be in the majority party in the Senate.
- Iowa, Colorado, and Alaska all close their polls after (or at least very close to) my bedtime, and my staying up late at night will do very little to affect the outcome in any of those states.
::: posted by dWj at 11:19 AM