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These are my thoughts and not those of Northwestern University, Northwestern Athletics, the Northwestern football team, nor of the Northwestern football players.
- As usual, the emergence of a unionization movement is the symptom of a problem rather than the cause. Also as usual, a union is likely to only make the problem worse.
- From a strategic point of view the NCAA has made a huge blunder in not making a few pre-emptive moves that would have removed all of the political momentum this movement might eventually have. Few in the general public are ever going to get behind the idea of paying college athletes. Many however will support the idea of giving college athletes long-term health insurance and guaranteeing scholarships to players who can no longer play due to injury. Eventually the NCAA will concede on at least those two dimensions. Waiting to be forced into it by a union or the threat of a union will only lead to a situation which is far worse for the NCAA in the long run.
- The personalities of Kain Colter and Northwestern football add to the interest in the case because as Rodger Sherman points out Northwestern treats its athletes better than just about any other university and Kain Colter is on record saying he loves Northwestern and his coaches. But these developments are bigger than the individuals involved. They stem from economic forces that were going to come to a head sooner or later anyway.
- Before taking sides, take the following line of thought for a spin. If today the NCAA lifted restrictions on player compensation, tomorrow all major athletic programs and their players would mutually, voluntarily enter into agreements where players were paid in some form or another in return for their commitment to the team. We know this because those programs are trying hard to do exactly that every single year. We call those efforts recruiting violations.
- Once that is understood it is clear that to support the NCAA’s position is to support restricting trade that its member schools and student athletes reveal year after year that they want very much. When you hear that universities oppose removing those restrictions you understand that whey they really oppose is removing those restrictions for their opponents. In other words, the NCAA is imposing a collusive arrangement because the NCAA has a claim to a significant portion of the rents from collusion.
- Therefore, in order to take a principled position against these developments you must point to some externality that makes this the exceptional case where collusion is justified.
- For sure, “Everyone will lose interest in college athletics once the players become true professionals” is a valid argument along these lines. Indeed it is easy to write down a model where paying players destroys the sport and yet the only equilibrium is all teams pay their players and the sport is destroyed.
- However, the statement in quotes above is almost surely false. Professional sports are pretty popular. And anyway this kind of argument is usually just a way to avoid thinking seriously about tradeoffs and incremental changes. For example, how many would lose interest in college athletics if tomorrow football players were given a 1% stake in total revenue from the sale of tickets to see them play?
- My summary of all this would be that there are clearly desirable compromises that could be found but the more entrenched the parties get the smaller will be the benefits of those compromises when they eventually, inevitably, happen.
The NRA successfully lobbied to stop gun control legislation. Several Democrats sided with Republicans to defeat it. But the NRA seems to have spent more than necessary to defeat the measures because they failed by more than a one-vote margin. It would have been enough to buy exactly the number of Senators necessary to prevent the bill from progressing through the Senate, no more than that.
But in fact the cost of defeating legislation is decreasing in the number of excess votes purchased. If the NRA has already secured enough votes to win, the next vote cannot be pivotal and so the Senator casting that vote takes less blame for the defeat. Indeed if enough Senators are bought so that the bill goes down by at least two votes, no Senator is pivotal.
Here’s a simple model. Suppose that the political cost of failing to pass gun control is c. If the NRA buys the minimum number of votes needed to halt the legislation it must pay c to each Senator it buys. That’s because each of those Senators could refuse to vote for the NRA and avoid the cost c. But if the NRA buys one extra vote, each Senator incurs the cost c whether or not he goes along with the NRA and his vote has just become cheaper by the amount c.
For the Vapor Mill: What is the voting rule that maximizes the cost of defeating popular legislation?
Imagine a genie which randomly imposes across-the-board budget cuts unless Congress votes to stop them before they happen. This would be a good genie.
Its easy to blame the other side for not coming to an agreement. The genie’s cuts will happen because both sides will blame the other for not reaching an agreement to stop them. This is different than proposing and approving of cuts yourself because you would get the blame for that.
And of course a random genie is blameless.
It’s not a first-best genie. The cuts are random and across the board. But because of the asymmetry of blame they wouldn’t happen otherwise.
Sadly its not even a real genie so the cuts never happen. But Congress and President Obama have now learned how to replicate the genie: impose the cuts on a future congress. From the point of view of the future congress the previous congress is essentially a random genie.
The previous congress, not being an actual genie, nevertheless avoids blame because everyone expects the next Congress to do the sane thing and replace the sequester with something sensible.
All we can hope now is that the current Congress looks at this sequester “debacle” and concludes that in order to make it work as intended the next time the threatened cuts have to be even bigger.
There are two actions, A and B, and there are two observable types of people L and R. Everybody is the same in the following sense: for any single individual either A or B is the optimal action but which one it is depends on an unknown state of the world.
But in another sense people are heterogeneous. It is common knowledge that in the state of the world where A is best for people of type L then B is best for people of type R. And in the other state its the other way around. Each person observes a private signal that contains information about the state of the world.
Acting in isolation everybody would do exactly the same thing: pick the action that is best according to their belief (based on the private signal) about the state of the world. But now embed this in a model of social learning. People make their choices in sequence and each observes the choices made by people who went before.
Standard herding logic tells us that L’s and R’s will polarize and choose the opposite action even if they get it completely wrong (with L’s choosing the action that is best for R’s and R’s choosing the action that is best for L’s)
(A reminder of how that works. Say that an L moves first. He chooses the action that looks the best to him say A. Now suppose the next guy is an R and by chance action B looks best to him. The third guy is going to look at the previous two and infer from their choices that there is strong information that the true state is such that A is good for L’s and B is good for R’s. This information can be so strong that it swamps his one little private signal and he follows the herd: choosing A if he is L or B if he is R. This perpetuates itself with all subsequent decision makers.)
In effect the L’s choose A just because the R’s are choosing B and vice versa.
The case of The Oscars:
“This is a preferential system. I’m putting Amour at No. 9 because I’m just pissed off at that film. Beasts of the Southern Wild is a movie that I just didn’t understand, so that’s my No. 8. Les Miserables goes in seventh place — it’s not just the most disappointing film of the year but the most disappointing film in many years. Above that I’m putting Silver Linings Playbook, which is just a “blah” film. Django Unchained will go into my fifth slot — it’s a fun movie, but it’s basically just Quentin Tarantino masturbating for almost three hours. Next up is Life of Pi because of how unique it is and for holding my attention up until its irritating ending. Argo is gonna go in third place, but I don’t want it to win because I don’t think it deserves to win and am annoyed that it is on track to win for the wrong reasons. Actually, come to think of it, do we have to put a film in every slot? Because what I want is for my best picture choice to have the best possible shot, so why even give any support to the others? [He has his assistant call the Oscar voting helpline, finds out that voters can leave slots blank and promptly removes all of the aforementioned selections.] I’m basically OK with one of two films winning. Lincoln is going in my second slot; it’s a bore, but it’s Spielberg, it’s well-meaning, and it’s important. Zero Dark Thirtyis my No 1.”
Vote: (1) Zero Dark Thirty, (2) Lincoln, (3) [blank], (4) [blank], (5) [blank], (6) [blank], (7) [blank], (8) [blank], (9) [blank]
Read the whole article for the inside view of Oscar balloting, including beating the shit out of Ann Hathaway, spinnng the iPhone, and filleting the neighbor’s dog.
Gatsby grip: Alex Frankel
Its called Nostra Culpa and its a 16 minute 2 act opera dramatizing the exchange on Twitter between Paul Krugman and Estonian President Toomas Ilves about that country’s austerity program. Robert Siegel interviewed the librettist and composer on NPR yesterday:
SIEGEL: I would sort of have expected you to have written this for a tenor and a baritone. But unexpectedly, for me at least, the two characters – Paul Krugman and President Ilves of Estonia – are both sung by the same mezzo-soprano.
BIRMAN: Right. Well, the mezzo-soprano is somebody I’ve worked with before and she’s, I think, one of the greatest talents in Estonia as a dramatic singer. And my idea – my sort of inspiration to set these words was not so much to make some kind of argument, but to have the singer portray the people themselves who are stuck in this – between these two sides.
SIEGEL: Now, one writer observed that the entire exchange between Krugman and Ilves consisted of a 70-word blog post with chart, and then four tweets. Puccini had a lot more to work with when he sat down to write “Tosca,” let’s say.
BIRMAN: Well, one could write an opera, a full-length two-hour opera, using just this content, in my opinion. Because, in a way, why is the story interesting? To me it’s interesting because we have been discussing this ever since 2008, 2009 – what to do and how to get out of this, and we’re still not out. And the story is being written as we go.
The opera has its debut on April 7 in Estonia.
As budget negotiations get underway with the threat of sequestration looming, it’s worth recalling a basic lesson from game theory.
Consider two parties in the same vehicle speeding towards a cliff. The one who concedes, i.e. chickens out and steers the car out of danger, is the loser. Winning is better than losing but either is better than driving off the cliff. Finally, time is valuable: if you are going to concede, you prefer to do it earlier rather than later. Still you are prepared to wait if you expect your rival will concede first.
In equilibrium of this game, unless someone concedes right away there is necessarily a positive probability that they will go over the cliff.
The proof is simple. Consider player 1 and suppose his strategy is not to concede immediately. Then we will show 1′s strategy is such that if 2 never concedes there is a positive probability that 1 will also never concede and they will drive off the cliff together. To prove it, suppose the contrary: that 1′s strategy will eventually concede with probability 1 (if 2 doesn’t concede first). If that is 1′s strategy then 2′s best reply is to wait for 1 to concede. In equilibrium 2 will play such a strategy and the outcome will therefore be that 1 is the loser with probability 1. But if 1 is going to be the loser for sure anyway he should have conceded immediately. That’s a contradiction. We have shown that if 1 does not concede immediately then his strategy will allow the car to drive off the cliff with positive probability. The exact same argument applies to 2. Thus in equilibrium, if the game begins without an immediate concession there is a positive probability they will plunge from the cliff.
The average voter’s prior belief is that the incumbent is better than the challenger. Because without knowing anything more about either candidate, you know that the incumbent defeated a previous opponent. To the extent that the previous electoral outcome was based on the voters’ information about the candidates this is good news about the current incumbent. No such inference can be made about the challenger.
Headline events that occurred during the current incumbent’s term were likely to generate additional information about the incumbent’s fitness for office. The bigger the headline the more correlated that information is going to be among the voters. For example, a significant natural disaster such as Hurricane Katrina or Hurricane Sandy is likely to have a large common effect on how voters’ evaluate the incumbent’s ability to manage a crisis.
For exactly this reason, an event like that is bad for the incumbent on average. Because the incumbent begins with the advantage of the prior. The upside benefit of a good signal is therefore much smaller than the downside risk of a bad signal.
As I understand it, this is the theory developed in a paper by Ethan Bueno de Mesquita and Scott Ashworth, who use it to explain how events outside of the control of political leaders (like natural disasters) seem, empirically, to be blamed on incumbents. This pattern emerges in their model not because voters are confused about political accountability, but instead through the informational channel outlined above.
It occurs to me that such a model also explains the benefit of saturation advertising. The incumbent unleashes a barrage of ads to drive voters away from their televisions thus cutting them off from information and blunting the associated risks. Note that after the first Obama-Romney debate, Obama’s national poll numbers went south but they held steady in most of the battleground states where voters had already been subjected to weeks of wall-to-wall advertising.
- Its socially valuable for the University of Michigan measure consumer confidence and announce it even if that is an irrelevant statistic. Because otherwise somebody with less neutral motives would invent it, manipulate it, and publicize it.
- Kids are not purely selfish. They like it when they get better stuff than their siblings. To such an extent that they often feel mistreated when they see a sibling get some goodies.
- Someone should develop a behavioral theory of how people play Rock, Scissors, Paper when its common knowledge that humans can’t generate random sequences.
- The shoulder is the kludgiest joint because there are infinitely many ways to do any one movement. Almost surely you have settled into a sub-optimal way.
- I go to a million different places for lunch but at each one I always order one dish.
Economists Andrew Healy, Neil Malhotra, and Cecilia Mo make this argument in afascinating article in the Proceedings of the National Academy of Science. They examined whether the outcomes of college football games on the eve of elections for presidents, senators, and governors affected the choices voters made. They found that a win by the local team, in the week before an election, raises the vote going to the incumbent by around 1.5 percentage points. When it comes to the 20 highest attendance teams—big athletic programs like the University of Michigan, Oklahoma, and Southern Cal—a victory on the eve of an election pushes the vote for the incumbent up by 3 percentage points. That’s a lot of votes, certainly more than the margin of victory in a tight race. And these results aren’t based on just a handful of games or political seasons; the data were taken from 62 big-time college teams from 1964 to 2008.
And Andrew Gelman signs off on it.
I took a look at the study (I felt obliged to, as it combined two of my interests) and it seemed reasonable to me. There certainly could be some big selection bias going on that the authors (and I) didn’t think of, but I saw no obvious problems. So for now I’ll take their result at face value and will assume a 2 percentage-point effect. I’ll assume that this would be +1% for the incumbent party and -1% for the other party, I assume.
Let’s try this:
- Incumbents have an advantage on average.
- Higher overall turnout therefore implies a bigger margin for the incumbent, again on average.
- In sports, the home team has an advantage on average.
- Conditions that increase overall scoring amplify the advantage of the home team.
- Good weather increases overall turnout in an election and overall scoring in a football game.
So what looks like football causes elections could really be just good weather causes both. Note well, I have not actually read the paper but I did search for the word weather and it appears nowhere.
The bottom line is that Boston fears scared Republicans won’t vote and Chicago fears confident Democrats won’t vote. And so, in this final stretch, Boston wants Republicans confident and Chicago wants Democrats scared. Keep that in mind as you read the spin.
In an patent race, the firm that is just about to pass the point where it wins the race and gets a patent has an incentive to slack off a bit and coast to victory. The competitor who is almost toast has an incentive to slack off as he has little chance of winning. But if the race is close, all firms work hard.
Elections are similar except the campaigns have the information about whether the campaign is close or not and the voters exert the costly effort of voting. Campaigns have an incentive to lie to maximize turnout so the team that’s ahead pretends not to be far ahead and the team that’s behind pretends the race is very close. As Klein says, no-one can believe their spin and no information can be credibly transmitted.
If they really want to influence the election, the campaigns have to take a costly action to attain credibility. For example, they can release internal polling. This gives their statements credibility at the cost of giving their opponent their internal polling data.
Lee Crawfurd emails me about events in Sudan. North and South Sudan have agreed to a price at which the North will supply oil to the South. On his blog, Roving Bandit, Lee writes:
So – whilst this seems like a good deal for North Sudan in the short run and a good deal for South Sudan in the long run, my main concern is the hold-up problem. What is stopping North Sudan ripping up the agreement in 3 years, demanding a higher cut, and just confiscating oil (again).
In his email he adds:
As it turns out, the South’s strategy is to resume piping oil through the North, but also to simultaneously build a pipeline through Kenya, giving them an extra option.
The fact that the North can hold up later makes it less likely that the North and South will invest and trade in their relationship now. This makes both the North and South worse off. For this difficulty to be resolved, the North has to be able to commit not to exploit the South in the future. But the Kenyan pipeline gives them this commitment power to some extent: If the North threatens to raise prices, the South can go the Kenya route. This means the North will not raise prices in the future and that is good for trade and the welfare of both parties. Paraphrasing the wrods of the great philosopher Sting, “If Someone Does Not Trust You, Set Them Free“.
One issue is that the South may overinvest in the pipeline to get more bargaining power. That could lead to inefficiency as the North then has bad incentives.
Another classic Williamsonian solution is to use hostages to support exchange. I don’t know enough about North and South Sudan to know what they might transfer that is of little value to the recipient and high value to the donor. This sort of solution has been attempted recently in the US in the debt reduction negotiations. Automatic cuts in defense (bad for Republicans) and entitlement expenditures (bad for Democrats) go into force in January if Republicans and Democrats do not agree in debt negotiations. This has not worked so far. First, this is because there are crazy types who are willing to send the country over the “fiscal cliff”. Second, this is because there is no commitment and the automatic cuts can be delayed by Congress and so they are not real hostages.
My memory is terrible but I vaguely recall papers relating to investment in changing outside options in hold up models. These would be the most relevant to the Sudan scenario.
Nate Silver’s 538 Election Forecast has consistently given Obama a higher re-election probability than InTrade does. The 538 forecast is based on estimating vote probabilities from State polls and simulating the Electoral College. InTrade is just a betting market where Obama’s re-election probability is equated with the market price of a security that pays off $1 in the event that Obama wins. How can we decide which is the more accurate forecast? When you log on in the morning and see that InTrade has Obama at 70% and Nate Silver has him at 80%, on what basis can we say that one of them is right and the other is wrong?
At a philosophical level we can say they are both wrong. Either Obama is going to win or Romney is going to win so the only correct forecast would give one of them 100% chance of winning. Slightly less philosophically, is there any interpretation of the concept of “probability” relative to which we can judge these two forecasting methods?
One way is to define probability simply as the odds at which you would be indifferent between betting one way or the other. InTrade is meant to be the ideal forecast according to this interpretation because of course you can actually go and bet there. If you are not there betting right now then we can infer you agree with the odds. One reason among many to be unsatisfied with this conclusion is that there are many other betting sites where the odds are dramatically different.
Then there’s the Frequentist interpretation. Based on all the information we have (especially polls) if this situation were repeated in a series of similar elections, what fraction of those elections would eventually come out in Obama’s favor? Nate Silver is trying to do something like this. But there is never going to be anything close to enough data to be able to test whether his model is getting the right frequency.
Nevertheless, there is a way to assess any forecasting method that doesn’t require you to buy into any particular interpretation of probability. Because however you interpret it, mathematically a probability estimate has to satisfy some basic laws. For a process like an election where information arrives over time about an event to be resolved later, one of these laws is called the Martingale property.
The Martingale property says this. Suppose you checked the forecast in the morning and it said Obama 70%. And then you sit down to check the updated forecast in the evening. Before you check you don’t know exactly how its going to be revised. Sometimes it gets revised upward, sometimes downard. Soometimes by a lot, sometimes just a little. But if the forecast is truly a probability then on average it doesn’t change at all. Statistically we should see that the average forecast in the evening equals the actual forecast in the morning.
We can be pretty confident that Nate Silver’s 538 forecast would fail this test. That’s because of how it works. It looks at polls and estimates vote shares based on that information. It is an entirely backward-looking model. If there are any trends in the polls that are discernible from data these trends will systematically reflect themselves in the daily forecast and that would violate the Martingale property. (There is some trendline adjustment but this is used to adjust older polls to estimate current standing. And there is some forward looking adjustment but this focuses on undecided voters and is based on general trends. The full methodology is described here.)
In order to avoid this problem, Nate Silver would have to do the following. Each day prior to the election his model should forecast what the model is going to say tomorrow, based on all of the available information today (think about that for a moment.) He is surely not doing that.
So 70% is not a probability no matter how you prefer to interpret that word. What does it mean then? Mechanically speaking its the number that comes out of a formula that combines a large body of recent polling data in complicated ways. It is probably monotonic in the sense that when the average poll is more favorable for Obama then a higher number comes out. That makes it a useful summary statistic. It means that if today his number is 70% and yesterday it was 69% you can logically conclude that his polls have gotten better in some aggregate sense.
But to really make the point about the difference between a simple barometer like that and a true probability, imagine taking Nate Silver’s forecast, writing it as a decimal (70% = 0.7) and then squaring it. You still get a “percentage,” but its a completely different number. Still its a perfectly valid barometer: its monotonic. By contrast, for a probability the actual number has meaning beyond the fact that it goes up or down.
What about InTrade? Well, if the market it efficient then it must be a Martingale. If not, then it would be possible to predict the day-to-day drift in the share price and earn arbitrage profits. On the other hand the market is clearly not efficient because the profits from arbitraging the different prices at BetFair and InTrade have been sitting there on the table for weeks.
David Axelrod, a senior campaign adviser for President Barack Obama’s reelection campaign, trash-talked Mitt Romney on Sunday, calling last week’s Republican National Convention “a terrible failure” and claiming Romney did not receive a polling bounce.
Presidential campaign staff are always saying stuff like that. How badly the other side is doing. Promoting polls that show their own candidate doing well and dissing polls that don’t. While that seems like natural fighting spirit, from the strategic point of view this is sometimes questionable strategy.
If you had the power to implant arbitrary expectations into the minds of your supporters and those of your rival, what would they be?
- You wouldn’t want your supporters to think that your candidate was very likely to lose.
- But neither would you want your supporters to think that your candidate was very likely to win.
- Instead you want your supporters to believe that the race is very close.
- But you want to plant the opposite beliefs in the mind of the opposition. You want them to think that the race is already decided. It probably doesn’t matter which way.
All of this because you want to motivate your supporters and lure the opposition into complacency. If you are David Axelrod and your candidate has a lead in the polls and you can’t just conjure up arbitrary expectations but you can nudge your supporter’s mood one way or the other you want to play up the opposition not denigrate them.
Unless its only the opposition that is paying attention. Indeed suppose that campaign staffers know that the audience that is paying closest attention to their public statements is the opposition. Then right now we would expect to be hearing Democrats saying they are winning and Republicans saying their own campaign is in disarray.
The two political parties hold conventions to nominate their Presidential candidate. These are huge affairs requiring large blocks of hotel space and a venue, usually something the size of a Basketball stadium. That all requires a lot of advance planning and therefore a commitment to a date.
Presumably there is an advantage to either going first or second. It may be that first impressions matter the most and so going first is desirable. Or it may be that people remember the most recent convention more vividly so that going second is better. Whichever it is, the incumbent party has an advantage in the convention timing game.
The incumbent party already has a nominee. The convention doesn’t accomplish anything formal and is really just an opportunity to advertise its candidate and platform. The challenger, by contrast, has to hold the convention in order to formally nominate its candidate. This is not just to make formal what has usually been decided much earlier in the primaries. Federal law releases the candidate from using some campaign money only after he is formally nominated.
So the incumbent has the freedom to wait as long as necessary for the challenger to commit to a date and then immediately respond by scheduling its own convention either directly before or directly after the challenger’s, depending on which is more desirable. The fact that this year the Democractic National Convention followed immediately on the heel’s of the Republican’s suggests that going last is better.
I haven’t seen the data but this theory makes the following prediction. In every election with an incumbent candidate the incumbent party’s convention is either always before or always after the challenger’s. And in elections with no incumbent, the sequencing is unpredictable just on the basis of party.
What Brown can’t do for you – if you are a Democrat – is give you control of the Senate. From the last Public Policy Polling analysis of MA:
Things have been going Elizabeth Warren’s way in the Massachusetts Senate race over the last month. She’s gained 7 points and now leads Scott Brown 48-46
after trailing him by a 49-44 margin on our last poll. Warren’s gaining because Democratic voters are coming back into the fold. Last month
she led only 73-20 with Democrats. Now she’s up 81-13. That explains basically the entire difference between the two polls. There are plenty of Democrats who like Scott Brown- 29% approve of him- but fewer are now willing to vote for him. That’s probably because of another finding on our poll- 53% of voters want Democrats to have control of the Senate compared to only 36% who want Republicans in charge. More and more Democrats who may like Brown are shifting to Warren because they don’t like the prospect of a GOP controlled Senate.
Mitt Romney and Paul Ryan have proposed a plan to allow private firms to compete with Medicare to provide healthcare to retirees. Beginning in 2023, all retirees would get a payment from the federal government to choose either Medicare or a private plan. The contribution would be set at the second lowest bid made by any approved plan.
Competition has brought us cheap high definition TVs, personal computers and other electronic goods but it won’t give us cheap healthcare. The healthcare market is complex because some individuals are more likely to require healthcare than others. The first point is that as firms target their plans to the healthy, competition is more likely to increase costs than lower them. David Cutler and Peter Orzag have made this argument. But there is a second point: the same factors that lead to higher healthcare costs also work against competition between Medicare and private plans. Unlike producers of HDTVs, private plans will not cut prices to attract more consumers so competition will not reduce the price of Medicare. A simple example exposes the logic of these two arguments.
Suppose there are two couples, Harry and Louise and Larry and Harriet. Harry and Louise have a healthy lifestyle and won’t need much healthcare but Larry and Harriet are unhealthy and are likely to require costly treatments in the future. Let’s say the Medicare price is $25,000/head as this gives Medicare “zero profits”. Harry and Louise incur much lower costs than this and Larry and Harriet much higher. Therefore, at the federal contribution, private plans make a profit if they insure Harry and Louise and a loss if they insure Larry and Harriet. So, private providers will insure the former and reject the latter. Or their plans deliberately exclude medical treatments that Larry and Harriet might need to discourage them from joining. The overall effect will be to increase healthcare costs. This is because Harry and Louise get premium support of $50,00 total that is greater than the healthcare costs they incur now so they impose higher costs on the federal government than they do currently. Larry and Harriet will be excluded by the private plans and will get coverage from Medicare. This will cost more than $50,000 total so there will be no cost savings from them either. Total costs will be higher than $100,00 as surplus is being handed over to Harry and Louise and their insurance companies.
To deal with this cream-skimming, we might regulate the marketplace. It might seem to make sense to require open enrollment to all private plans and stipulate that all plans at a minimum have the same benefits as the traditional Medicare plan. Indeed, the Romney/Ryan plan includes these two regulations. But this just creates a new problem.
Suppose the Medicare plan and all the private plans are being sold at the same price. The private plans target marketing at healthy individuals like Harry and Louise and include benefits such as “free” gym membership that are more likely to appeal to them. Hence, they still cream-skim to some extent and achieve a better selection of participants than the traditional public option. (This is actually the kind of thing that happens in the current Medicare Advantage system. Sarah Kliff has an article about it and Mark Duggan et al have an academic working paper studying Medicare Advantage in some detail.) So total healthcare costs will again be higher than in the traditional Medicare system.
But there is an additional effect. Traditional competitive analysis would predict that one private plan or another will undercut the other plans to get more sales and make more profits. This is the process that gives us cheap HDTVs. The hope is that similar price competition should reduce the costs of healthcare. Unfortunately, competition will not work in this way in the healthcare market because of adverse selection.
Going back to our story, if one plan is cheaper than the others priced at say $20,000, it will attract huge interest, both from healthy Harry and Louise but also from unhealthy Larry and Harriet. After all, by law, it must offer the same minimum basket of benefits as all the other plans. So everyone will want to choose the cheaper plan because they get same minimum benefits anyway. Also by law, the plan must accept everyone who applies including Larry and Harriet. So, while the cheapest plan will get lots of demand, it will attract unhealthy individuals whom the insurer would prefer to exclude – this is adverse selection. Insurers get a better shot at excluding Larry and Harriet if they keep their price high and dump them on Medicare. This means profits of private plans might actually be higher if the price is kept high and equal to the other plans and the business strategy focused on ensuring good selection rather than low prices. An HDTV producer doesn’t face any strange incentives like this– for them a sale is a sale and there is no threat of future costs from bad selection.
So, adverse selection prevents the kind of competition that lowers prices. The invisible hand of the market cannot reduce costs of provision by replacing the visible hand of the government.
Embedded in a retrospective of James Q. Wilson. Its worth reading the whole thing, here is just one excerpt.
Call me unforgiving, but I can still remember sitting at Jim and Roberta Wilson’s dinner table in Malibu, California in January 1993 listening to Murray explain, much to my consternation and with Jim’s silent acquiescence, that social inequality is inevitable because “dull” parents are simply less effective at child-rearing than “bright” ones. (I rejected then, and still do, Murray and Herrnstein’s claim that profound social disparities are due mainly to variation in innate individual traits that cannot be remedied via social policy.) Neither can Glenn Loury in 2012 ignore what he failed to see in 1983: that Wilson and Herrnstein’s Crime and Human Nature—a book that sets out to lay bare the underlying bio-genetic, somatic, and psychological determinants of individuals’ criminal behavior—is an enterprise of dubious scientific value. The behavioral theories of social control that Wilson spawned—see, for instance, his 1983 Atlantic Monthly piece, “Raising Kids” (not unlike training pets, as it happens)—and the pop–social psychology salesmanship of his and George Kelling’s so-called “theory” about broken windows is a long way from rocket science, or even good social science. This work looks more like narrative in the service of rationalizing and justifying hierarchy, subordination, coercion, and control. In short, it smacks of highbrow, reactionary journalism.
By a vote of 218-208, the House Wednesday night backed an amendment that would bar the NSF from spending any of its 2013 funds on its political science program, which allocated about $11 million in peer-reviewed grants this year. Explaining the amendment on the House floor Wednesday evening, Flake said that given his colleagues’ reluctance to slash the agency’s overall budget — the House defeated his earlier amendment by a vote of 291 to 121 — Congress should ensure, “at the least, that the NSF does not waste taxpayer dollars on a meritless program.”
In hunting for programs that the government should not spend its precious dollars on, Flake said, “I can think of few finer examples to cut than the National Science Foundation’s Political Science Program.”
Here’s a list of apparently less fine examples that will live on:
Twitter users turned Sunday’s French presidential election into a battle between a green Hungarian wine and a red Dutch cheese in a bid to get round tough laws banning result predictions.
The #RadioLondres hashtag was the top France trend on Twitter during the first-round presidential vote, in homage to World War II codes broadcast to Resistance fighters in Nazi-occupied France from the BBC in London.
But French citizens have written a new codebook in a subversive bid to get round laws that mean anyone announcing vote predictions before polls closed at 8:00 pm (1800 GMT) could be fined up to 75,000 euros (100,000 dollars).
“Tune in to #RadioLondres so as not to know the figures we don’t want to know before 8:00 pm,” said one ironic tweet.
“Dutch cheese at 27 euros, Tokai wine at 25 euros,” read one tweet as poll percentage predictions were published abroad.
The thing is, this would still be prosecuted if perpetrated by broadcast media. So it wasn’t the code per se that allowed them to circumvent the law. So the questions are:
- Why is an in-spirit violation not prosecuted when carried out in a decentralized communication network?
- Would just nakedly forecasting the outcome also escape prosecution if done on Twitter? (As opposed to the usual things people nakedly do on Twitter.)
The pointer was from @handeh.
Reality shows eliminate contestants one at a time. Shows like American Idol do this by holding a vote. The audience is asked to vote for their favorite contestant and the one with the fewest votes is eliminated.
Last week on American Idol something very surprising happened. The two singers who were considered to have given the best performances the night before, and who were strong favorites to win the whole thing received among the fewest votes. Indeed a very strong favorite, Jessica Sanchez was “voted off” and only survived because the judges kept her alive by using their one intervention of the season.
The problem in a nutshell is that American Idol voters are deciding whom to eliminate but instead of directly voting for the one they want to eliminate, they are asked to vote for the person they don’t want eliminated. This creates highly problematic strategic incentives which can easily lead to a strong favorite being eliminated.
For example suppose that a large number prefers contestant S to all others. But while they agree on S, they disagree about the ranking of the other contestants and they are interested in keeping their second and third favorites around too.
The supporters of S have a problem: maintaining support for S is a public good which can be undermined by their private incentives. In particular some of them might be worried that their second favorite contestant needs help. If so, and if they think that S has enough support from others, then they will switch their vote from S to help save that contestant. But if they fail to coordinate, and too many of the S supporters do this, then S is in danger of being eliminated.
This problem simply could not arise if American Idol instead asked audiences to vote out the contestant they want to see eliminated. Consider again the situation described above. Yes there will still be incentives to vote strategically, indeed any voting system will give rise to some kind of manipulation. But a strong favorite like S will be insulated from their effects. Here’s why. An honest voter votes for the contestants she likes least. A strategic voter might vote instead for her next-to-least favorite. She might do this if she thinks that voting out her least-favorite is a wasted vote because not enough other people will vote similarly. And she might do this if she thinks that one of her favorite contestants is a risk for elimination.
But no matter how she tries to manipulate the vote it will be shifting votes around for her lower-ranked contestants without undermining support for her favorite. Indeed it is a dominated strategy to vote against your favorite and so a heavily favored contestant like S could never be eliminated in a voting-out system as it can with the current voting-in system.
The big event of this week in the U.S. will be the Supreme Court discussion of the Affordable Care Act aka “ObamaCare”, a supposedly derogatory nickname now embraced by the Obama campaign. At the heart of the fight is the so-called individual mandate which requires everyone to purchase health insurance. A related and important argument is that additional provisions, such as requiring coverage for individuals with preexisting conditions, become prohibitively expensive without the individual mandate. This is because, without the mandate, healthy individuals will not buy insurance till they become sick and this drives up costs of insurance companies. So, if the individual mandate is struck down, the argument goes, the court should also strike down the requirement that insurance companies cover individuals with pre-existing conditions.
I am not a lawyer but the main argument for canceling the individual mandate turns on whether the federal government has the right to penalize an individual if they do NOT take a certain action. There is plenty of precedent for taxing “action” but can the federal government tax “inaction”? Many amicus briefs have been filed but there are two key ones by economists.
David Cutler, who worked in the Obama administration, has filed one with many co-signatories (including Akerlof, Arrow, Maskin, Diamond, Gruber, Athey, Goldin, Katz, Rabin, Skinner etc.). They say there is no such thing as inaction. A conscious decision to forego healthcare is an action and hence under the purview of existing law. Foregoing insurance also affects outcomes largely by shifting costs to others and hence is not a neutral decision.
The other side of the argument is filed by Doug Holtz-Eakin with co-signatories inclusing Prescott, Smith, Cochrane, Jensen, Anne Krueger, Meltzer etc.) First, they argue that if an individual does not want to buy converage it must be because the costs outweigh the benefits. Second, they argue about the numbers, claming the costs imposed by the uninsured on the insured (“cost-shifting”) are far below the $43 billion estimated by the Government Economists and are more like $13 billion.
The first part of the Holtz-Eakin argument is, to me at least, odd. Uninsured individuals can get healthcare for free in the emergency room. Hence, they can get the benefits of healthcare -or at least healthcare in extreme circumstances – without the costs. So, of course for them the benefits are outweighed by the costs because they get the benefits anyway. The argument by Holtz-Eakin presumes that the individuals are not free-riding and so their private decisions fully reflect the costs and benefits but they do not. Then, the second part of the argument which admits there is cost-shifting going on basically makes the point I am making – if there is cost-shifting, there is free-riding and then individual’s decisions do not fully internalize costs and benefits.
There has to be a better argument against the individual mandate than this. I looked at Senator Rand Paul’s brief. The precedent for this case is a 1942 case involving an Ohio farmer who was exceeding his quota of wheat production. Footnote 6 caught my eye:
So infamous is the case, it has been set to music, to the
1970s tune of “Convoy”:
“His name was farmer Filburn, we looked in
on his wheat sales. We caught him exceeding
his quota. A criminal hard as nails. He said,
“I don’t sell none interstate.” I said, “That
don’t mean cow flop.” We think you’re
affecting commerce. And I set fire to his crop,
HOT DAMN! Cause we got interstate
commerce. Ain’t no where to run! We gone
regulate you. That’s how we have fun.”
Will this convince Justice Kennedy or is it cow flop?
Observers cite the possibility of a brokered convention as the only reason for Newt Gingrich to remain in the race for the Republican nomination. If Mitt Romney cannot accumulate a majority of committed delegates prior to the convention, then Newt’s delegates give him bargaining power, with the possibility of throwing them behind Rick Santorum or even forging a Santorum/Gingrich ticket.
But why wait for the convention? If Gingrich and Santorum can strike a deal why not do it right now? There are tradeoffs.
1. If all primaries awarded delegates in proportion to vote shares there would be no gain to joining forces early. Sending Newt’s share of the primary voters over to Rick gives him the same number of delegates as he would get if Newt collected those delegates himself and then bartered them at the convention. But winner-take-all primaries change the calculation. If Santorum and Gingrich split the conservative vote in a winner-take-all primary, all of those delegates go to Romney. Joining forces now gives the pair a chance of bagging those big delegate payoffs.
2. Teaming up now solves a commitment problem. If both stay in the race and succeed in bringing about a contested convention, the bargaining will be a three-sided affair with Romney potentially co-opting one of them and leaving the other in the cold.
Those are the incentives in favor of a merger now. Working against is
3. A candidate has less control over his voters than he would have over his delegates. Newt endorsing Santorum does not guarantee that all of Newt’s supporters will vote for Rick, many will prefer Romney and others would just stay at home on primary day.
Gingrich and Santorum are savvy enough, and there is enough at stake, for us to assume they have done the calculations. Given the widespread belief that any vote for Rick or Newt is a really an anti-Romney vote, they surely have discussed joining forces. But they haven’t done it yet and probably will not, and this tells us something.
The huge gain coming from points 1 and 2 can only be offset by losses coming from point 3. Their inability to strike a deal reveals that the Gingrich and Santorum staffs must have calculated that the anti-Romney theory is an illusion. They must have figured out that if Gingrich drops out of the race what will actually happen is that Romney will attract enough of Gingrich’s supporters (or enough of them will disengage altogether) to earn a majority and head into the convention the presumptive nominee.
Newt and Rick need each other. But what they particularly need is for each to stay in the race until the end, collecting not just the conservative votes but also the anti-other-conservative-candidate vote in hopes that their combined delegate total is large enough come convention-time to finally make a deal.
Here is the abstract of a paper by Christian Roessler and Sandro Shelegia:
In Rome, if you start digging, chances are you’ll find things. We consider a famous complaint that justifies the underdeveloped Roman metro system: “if we tried to build a new metro line, it would probably be stopped by archeological finds that are too valuable to destroy, so we would have wasted the money.” Although this statement appears to be self-contradictory, we show that it can be rationalized in a voting model with diverse constituents. Even when there is a majority preference for a metro line, and discovery of an antiquity has the character of a positive option, a majority may oppose construction. We give sufficient conditions for this inefficiency to occur. One might think it arises from the inability to commit to finishing the metro (no matter what is discovered in the process). We show, however, that the inefficient choice is made in voting over immediate actions precisely when there is no Condorcet winner in voting over contingent plans with commitment. Hence, surprisingly, commitment cannot really solve the problem.
The problem is how to build a majority coalition in favor of digging. There’s no problem when the probability of an antiquity is low because then everyone who favors the Metro but not the antiquity will be on board. When the probability of an antiquity is high there is again no problem but now because you have the support of those who are hoping to find one. Rome’s problem is that the probability of an antiquity is neither low enough nor high enough.
I think this says something about flyouts in Junior Recruiting, and in turn it says something about how candidates should market themselves.
He was just promoted to Full Professor. It’s about time!
Models of costly voting give rise to strategic turnout: in a district in which party A has a big advantage, supporters of party A will have low turnout in equilibrium in order to make the election close. That’s because only when the election is close will voters have an incentive to turnout and vote, which is costly.
Looking at elections data it is hard to identify strategic turnout. Low turnout is perfectly consistent with non-strategic voters who just have high costs of voting.
Redistricting offers an interesting source of variation that could help. Suppose that a state has just undergone redistricting and a town has been moved from a district with a large majority for one party into a more competitive district. Non-strategic voters in that town will not change their behavior.
But strategic voters will have different incentives in the new district. In particular we should see an increase in turnout among voters in the town that is new to the district. And this increase in turnout should be larger than any change in turnout observed for voters who remained in the district before and after redistricting.
There are probably a slew of testable implications that could be derived from models of strategic turnout based on whether the new district is more or less competitive than the old one, whether the stronger party is the same or different from the stronger party in the old district, and whether the town leans toward or against the stronger party in the new district.
Candidates S and R are competing in the opposing party’s primary, and your candidate awaits the winner in the general election. Your candidate beats S in the general election with probability s and beats R in the general election with probability r<s. You would like S to win the primary since s>r. But S is currently the underdog, he beats R in the primary with only probability p. Should you spend money to help S?
Every percentage point you can add to S’s chance of winning the primary increases your candidate’s odds in the general election by s-r < 1.
(you win the general election with total probability ps + (1-p) r. an increase in p by one unit increases this probability by s-r.)
If you save your money for the general election, every percentage point you add to your own chance of winning raises your own chance of winning by, well, 1 percentage point.
- The same analysis goes through with any number of candidates in the primary. So you can add G and P and it won’t change anything.
- This is about the marginal value of influencing a 1 percent change in the election probabilities. That value is larger in the general election. But there may be differences in the marginal cost of influencing a primary versus the general.
- In particular, if the primary is a three-candidate race there may be a lumpy return on your investment. For example, if you increase s by a little bit that could cause G to drop out of the race and then hope that a big chunk of his probability of winning goes into increasing p.
- However, with G currently at about 3% probability at Intrade, at most you can get 3 times s-r. For this to outweigh the 1 you get from the general it must be that s-r > 33%
I have known Larry since the time I was on the junior job market and he was winding down a spectacular term as chairman of the BU economics department, having built a top-ten department out of nothing. Eight years later I spent a year as a faculty member at BU and again Larry was chairman. Everybody who has spent any time with Larry in a professional capacity agrees that he is a natural-born leader. He just has this quality that draws people from all sides to his. And he knows how to make an organization work. On top of all that he is great economist with world-leading expertise on the topics that would be most important for a President right now to know. I honestly can’t think of anybody I know personally who would make a better President than Larry. I might even vote for him.
Here’s his campaign web page. Via Tyler Cowen on Twitter.