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Writing naked puts a man at risk of ruin due to financial crash blossoms.
Stare at it a while before clicking through for the disentanglement. (You might want to read the MR post which inspired it.)
In sports, high-powered incentives separate the clutch performers from the chokers. At least that’s the usual narrative but can we really measure clutch performance? There’s always a missing counterfactual. We say that he chokes if he doesn’t come through when the stakes are raised. But how do we know that he wouldnt have failed just as miserably under normal circumstances? As long as performance has a random element, pure luck (good or bad) can appear as if it were caused by circumstances.
You could try a controlled experiment, and probably psychologists have. But there is the usual leap of faith required to extrapolate from experimental subjects in artificial environments to professionals trained and selected for high-stakes performance.
Here is a simple quasi-experiment that could be done with readily available data. In basketball when a team accumulates more than 5 fouls, each additional foul sends the opponent to the free-throw line. This is called the “bonus.” In college basketball the bonus has two levels. After fouls 5-10 (correction: fouls 7-9) the penalty is what’s called a “one and one.” One free-throw is awarded, and then a second free-throw is awarded only if the first one is good. After 10 fouls the team enters the “double bonus” where the shooter is awarded two shots no matter what happens on the first. (In the NBA there is no “single bonus,” after 5 fouls the penalty is two shots.)
The “front end” of the one-and-one is a higher stakes shot because the gain from making it is 1+p points where p is the probability of making the second. By contrast the gain from making the first of two free throws is just 1 point. On all other dimensions these are perfectly equivalent scenarios, and it is the most highly controlled scenario in basketball.
The clutch performance hypothesis would imply that success rates on the front end of a one and one are larger than success rates on the first free-throw out of two. The choke-under-pressure hypothesis would imply the opposite. It would be very interesting to see the data.
And if there was a difference, the next thing to do would be to analyze video to look for differences in how players approach these shots. For example I would bet that there is a measurable difference in the time spent preparing for the shot. If so, then in the case of choking the player is “overthinking” and in the clutch case this would provide support for an effort-performance tradeoff.
It has been suggested that Keynesian economics remains the best framework that we have for making sense of recessions, but that macroeconomic theory also needs to do a better job of incorporating the realities of finance. There may be a fundamental contradiction between these two suggestions.
In their book Microeconomics of Banking, Xavier Freixas and Jean-Charles Rochet noted that there was no microeconomic theory of banking before the 1970s. Banks and other financial intermediaries earn their profits by knowing more than depositors about the quality of borrowers’ investments. So an economic theory of banking requires an ability to analyze transactions among agents who have different information. Economists first developed such agency theories only around 1970, building on previous advances in game theory.
So John Maynard Keynes’s 1936 General Theory and other classic theories of macroeconomics were developed when there was no real economic theory of banking. Inevitably this limited the scope of their analysis. For example, if the 1933 Glass–Steagall Act of banking regulatory reform was essential for halting America’s catastrophic slide into the Great Depression, there would be no way to incorporate that fact into the analysis without an economic theory of banking.
An economic theorist who rereads the General Theory today may be struck by the absence of any serious analysis of how massive bank failures could have been involved in causing the Great Depression. In chapter 11, Keynes briefly discussed moral hazard in lending, but he had no analytical framework to use these insights, and they tended to get lost in the discussion.
But Keynes was a brilliant observer, even when he could not fit his observations into his theories. For a contrasting view on the role of banks, look at Keynes’s previous book, his 1930 Treatise on Money. Near the end of that book, in chapter 37, Keynes made the following observation:
“The relaxation or contraction of credit by the Banking System does not operate merely through a change in the rate charged to borrowers; it also functions through a change in the abundance of credit. If the supply of credit were distributed in an absolutely free competitive market, these two conditions, quantity and price, would be uniquely correlated with one another and we should not need to consider them separately. But in practice, the conditions of a free competitive market for bank-loans are imperfectly fulfilled. There is an habitual system of rationing in the attitude of banks to borrowers — the amount lent to any individual being governed not solely by the security and rate of interest offered, but also by reference to the borrower’s purposes and his standing with the bank as a valuable or influential client. Thus, there is normally a fringe of unsatisfied borrowers who are not considered to have the first claims on a bank’s favours, but to whom the bank would be quite ready to lend if it were to find itself in a position to lend more. The existence of this unsatisfied fringe allows the Banking System a means of influencing the rate of investment supplementary to the mere changes in the short-term rate of interest.”
There is an interesting suggestion here that even short-term loans might implicitly depend on long-term relationships between investors and financial intermediaries. Such an idea could be the basis for a theory of macroeconomic fluctuations in which bank failures could affect investment.
In 1936, however, Keynes could not build a theory in which monetary policy could affect aggregate investment other than through its effect on the interest rate. His 1930 observation got lost in his subsequent analysis because it did not fit into his analytical framework. He had no way to answer the obvious question: If so many eager qualified borrowers are unable to get loans at the current interest rate, why don’t banks offer to lend to them at a higher interest rate? Today economists understand how such credit rationing can be derived from considerations of adverse selection or moral hazard in borrowing. The classic introduction to the subject is by Joseph Stiglitz and Andrew Weiss in 1981.
Facebook, Buzz, Reader, and other social networking sites all have one thing in common: if you like something then you get to like it. But you never get to dislike what you dislike. (Sure you can unlike what you previously liked, but just as with that other interest rate you are constrained by the zero lower bound. You can’t go negative.)
This kind of system seems to pander to people such as me who obsessively count likes (and twitter followers, and google reader subscribers and…) because for people like us even a single dislike would be devastating. With only positive feedback possible we are spared the bad news.
But after a while we start to get the nagging suspicion that the lack of a like is tantamount to being disliked. We put ourselves in the mind of each individual reader. If she liked it then she will like it. If she didn’t like it, she would like to dislike it but she can’t. So she’s silent. But then if she was neutral she now knows that by being silent she is going to be pooled with with the dislike haters. She doesn’t want to hurt my feelings so she likes. Kindhearted but cruel: now I know that everyone who didn’t like indeed didn’t like. It’s exactly as if there was a dislike button. Despair.
But wait. One wrinkle saves our fragile ego. Some people are just too busy to like. Or they don’t know about the like button. And who knows exactly how many people read the article anyway. So a non-like could be any one of these. Which means that kindhearted neutrals can safely stay on the sidelines and pool with these non-participants. A pool big enough to drown out the haters. Joyful noise! And as a bonus I get to know for sure that the likers are likers and not just patronizers.
Finally there’s the personal aspect, it’s flattering to see who likes. The serial likers keep me going. Especially this one regular reader who by amazing coincidence has the same name as me and who likes everything I write.
(drawing: emotional baggage from www.f1me.net)
Islam forbids suicide. Of the world’s three Abrahamic faiths, “The Koran has the only scriptural prohibition against it,” said Robert Pape, a professor at the University of Chicago who specializes in the causes of suicide terrorism. The phrase suicide bomber itself is a Western conception, and a pretty foul one at that: an egregious misnomer in the eyes of Muslims, especially from the Middle East. For the Koran distinguishes between suicide and, as the book says, “the type of man who gives his life to earn the pleasure of Allah.” The latter is a courageous Fedayeen — a martyr. Suicide is a problem, but martyrdom is not.
From an article in the Boston Globe on the psychology of suicide bombers.
When you reach a certain age, your friends start getting honors and you are invited to polite soirees. At aforementioned polite soirees, there are cheesy delights and sweet little dessert tarts. The sweet little desert tarts are tastefully arrayed on silver platters and you can easily pick one up and pop it into your mouth without touching any neighboring tarts. You daintily consume a little fruit tart.
The energizing sugar rush behind you, you turn to the cheesy delight. You are pleased that at this soiree, they have put out the delight out of all delights – the baked brie or the “brie en croute” as we call it at polite soirees. You head over and shove your way into the line for the warm cheesy delight. You are rather aggressive and push past a distinguished looking man that you recognize (too late!) as the new President of Northwestern University. You grin sheepishly and say, “Hi. I’m Rakesh Vohra.” You hope this throws him off the scent – even though your colleague Rakesh is balding and white-haired, at least he has the right skin tone. The President seems to make a mental note to dock your (or Rakesh’s) salary and turns away to talk to someone else.
You turn to the cheesy delight and as you pause to pick up bread your forward momentum, barely broken by the President, is brought to a grinding halt by a fundamental problem: To tong or not to tong. That is the question.
In other words, should you use the tongs – always provided at polite soirees – to pick up the bread or just stick your grubby hand into the bread basket? If you think like homoeconomicus, you decision is obvious: Unlike you, many other people followed the proper procedure and headed over to the cheesy delight before the little sweet dessert tarts. They have used the tongs before you and the supersized tweezers are covered in cheeky little germs just hopping with excitement at the prospect of giving you H1N1 for Christmas. If you stick your grubby hand into the bread basket, you avoid the tong devils but deposit your own cooties on a baguette slice that someone else will pick up. But you are homo economicus so you do not face any moral dilemma: Ignore the “negative externality” and stick your hand into the bread basket.
Then, you are brought to a stop again, this time by a major “Aha” moment. Your shove into the line and all your procrastination is causing much grumbling in the cheesy delight queue. But you’re not even aware of this because you’ve had a huge epiphany: Following the recommendation of homo economicus is also the right thing to do from the perspective of society’s objective of minimizing germ transmission. You guess that Adam Smith must have had a similar experience when the idea of the “invisible hand” hit him just before he was about to tuck into his haggis and scotch.
You reason as follows: When you stick your hand into the bread basket, you might not even hit another bit of bread other than your own. Even if you aim misses because of the two glasses of champagne you drank on an empty stomach, you’re only going to hit a few other slices of ever staler bread. While if you use the tong, you are guaranteeing that the long line of people behind you get to experience your lack of good hygiene. It is better for everyone if you stick your hand in the bread basket.
Your face disfigured by an angelic smile, confident your are doing the right thing for once, you follow the route Immanuel Kant himself would take and finally consume some cheesy delight. You turn around to see the President looking at you as if you’re some kind of animal. You wipe your cheese covered hand on your jeans and grasp his. You say, “Call me Ricky.” You run out before your cover is broken.
A white bank robber in Ohio recently used a “hyper-realistic” mask manufactured by a small Van Nuys company to disguise himself as a black man, prompting police there to mistakenly arrest an African American man for the crimes.
Congratulations Jeff!!! NU is lucky to have you.
You hear this a lot in Chicago. “We are having a cold snap because there is a low-pressure system over the Midwest and a high-pressure system to the North. This causes windy conditions which brings cold air down from Canada.”
This sounds better than just saying “it’s cold today” but I can’t tell if it really is saying anything more than that. First of all, as I have said before the following two statements are equivalent, at least empirically:
- The air is colder than usual
- The air was blown here from some place colder than here.
So telling me that the air came from Canada isn’t telling me much more than I already knew, it’s cold. But the extra bit here seems tautological at an even deeper level because these two statements:
- The air is blowing from down Canada
- There is high pressure in the North and low pressure here
appear to be literally the same thing. Why else would the air move from position A to position B if it were not due to pressure imbalances?
Is meteorology really just like finance? (“Stocks fell today because of bearish investors”) Or is there a non-circular way of explaining my frozen toes that just doesn’t fit into a 30 second weather report?
(drawing: glooming from http://www.f1me.net)
“Sometimes it seems that they only understand the language of force. We have learned from history that the appeasement of an aggressive adversary can be a disastrous mistake, with our concessions only encouraging further attacks on our communities. To deter them from attacking us, we need armed strength, and our leaders must demonstrate the resolve to use it when necessary.” What should we say to someone who describes the Israeli-Palestinian conflict in these terms?
A game theorist is trained to look at conflict problems from both sides, assuming that people on both sides are rational and intelligent. I have tried to write the above quote as one that many Israelis and Palestinians might consider a fair description of their situation, symmetrically identifying themselves as “we” and the other side as “they”, but the symmetry of this view is probably not common knowledge. In particular, many may not understand the other side’s fear of appeasing an aggressive adversary. Such misunderstanding can undermine hopes for peace.
In the above quote, the response to our armed strength that “we” seek from “them” is, in a word, appeasement. We want them to appease us. But why should they not fear that concessions to us could encourage our greater ambitions, inviting further invasion of their communities? And if the demand for armed vigilance on each side is matched by a fear of appeasement on the other side, how can the two sides ever escape from the long war of attrition?
We must think more carefully about the logic of deterrent strategies. Our strategy to deter potential adversaries must have two parts: a threat that we will fight them if they attack us, and a promise that we will be good restrained neighbors if they accommodate us. The difference between our threat and our promise is what encourages them toward accommodation. For our deterrent strategy to be effective, our potential adversaries must understand and believe both the threat and the promise.
Failing to credibly communicate the threat is naive appeasement. Our potential adversaries must not think that we are the weak type of people, who lack resolve to respond forcefully against aggression. To prove that we are not weak may require costly signals of our resolve, many of which have become too familiar: sending out young men on deadly missions against the other side.
But deterrence can fail also if we do not credibly communicate a promise that differs from the threat. If they believe that we are an aggressive type, who cannot restrain ourselves from invading their communities further at any feasible opportunity, then they will feel driven to seek militant leaders against us, and then we will be locked in conflict with them.
How can we demonstrate to them that we are not such an aggressive type? This is a very serious question, because everyone knows that aggressors may try to mask their intentions with honeyed words of peace. The point is not to convince ourselves of our own moral purity; the goal is to convince our adversaries that they can safely make peace with us.
We can effectively signal our restraint by articulating clear strategic limits that verifiably constrain our actions in the conflict, and by showing real understanding and respect for justice as our adversaries see it. Credibly communicating our promise of restraint to a suspicious adversary can be a long and difficult process, but it is an essential part of effective communication in the language of force.
That is the theory. Today we learned that Israel has resisted intense American pressure to freeze expansions of its settlements in the West Bank. It is hard to see this decision as a signal of restraint. Indeed, it seems just the opposite. In rejecting its strongest ally’s interpretation of the legal limits on its expansion, Israel seems to have given a costly signal of an inability to restrain expansionist forces in its political system. Nobody can enter into a treaty without confidence that the other side will accept a mutually agreed interpretation of its limits under the treaty. As a costly signal that reduces the other side’s willingness to make peace, this decision may be less stark than missiles from Gaza, but it is only a matter of degree.
We dress like students, we dress like housewives
or in a suit and a tie
I changed my hairstyle so many times now
don’t know what I look like!
Life during Wartime, Talking Heads
Mr C. is the new C.E.O. of your firm, Firm C. He was head of operations at one of your competitors Firm A. He was passed over for promotion there and had to exit to get to the C Suite. You wonder about the wisdom of your Board: Why would they choose someone who rejected for the top job by their own company? You subscribe the “Better the Devil you know, than the Devil you don’t” principle. If your firm appoints an internal person to the top job, at least you know their flaws and can adapt to them. This principle also applies at Firm A. So, if they rejected the Devil they know, he must be a really terrible Devil or, to put it in tamer economic terms, a “lemon.”
But you are also aware of the counter argument: Real change can only be achieved by an outsider. Mr C said some smart things in the interview process and so you are happy to give him the benefit of the doubt. You are expecting Mr C. to define a mission for Firm C, a mission that everyone can sign on to. Of course, to persuade everyone to work hard on the vision it has to be a “common value” – something everyone agrees is good – not a “private value” – something only a subgroup agrees is good. In this regard, Mr. C surprises you – he makes a big play that Operations are the most important thing in a successful firm. “Look at H.P. and Amazon,” he says. “They don’t actually make anything, just move stuff around efficiently and/or put in together from parts they buy from other firms. We need innovation in Operations not fundamental innovation in our product line.”
You are shocked. Your firm has R and D Department that has produced amazing, fundamental innovations. Innovative ability is sprinkled liberally throughout your firm in – it is famous for it. It is a core strength of Firm C. Why would anyone want to destroy that and focus on Operations? What should do you do? In times of trouble, you have a bible you turn to – Exit, Voice and Loyalty by Albert Hirshman
Should you give voice to your concerns? The last CEO ignored you and the new CEO might give you more attention so you had thought that you might talk to him. But your first impressions are bad and something you might say might be misinterpreted and lead to the opposite conclusion in the mind of the new CEO. Talking is dangerous anyway. You might be identified as a troublemaker and given lots of terrible work to do. Better to keep quiet and blend in with the crowd.
Is loyalty enough to keep you working hard anyway? Your firm is not a non-profit and, given the CEO plans to quash innovation, it is basically going to produce junk. Why should anyone be loyal to that?
You are drawn inexorably to Hirshman’s last piece of advice: exit. This is hard during the Great Recession – there are few jobs going around. You will be joined by all those who can exit from your sinking ship C so you have to move fast….
To use the justice system most effectively to stop leaks you have to make two decisions.
First, you have to decide what will be a basis for punishment. In the case of a leak you have essentially two signals you could use. You know that classified documents are circulating in public, and you know which parties are publishing the classified documents. The distinctive feature of the crime of leaking is that once the documents have been leaked you already know exactly who will be publishing them: The New York Times and Wikileaks. Regardless of who was the original leaker and how they pulled it off.
That is, the signal that these entities are publishing classified documents is no more informative about the details of the crime than the more basic fact that the documents have been leaked. It provides no additional incentive benefit to use a redundant signal as a basis for punishment.
Next you have to decide who to punish. Part of what matters here is how sensitive that signal is to given actor’s efforts. Now the willingness of Wikileaks and The New York Times to republish sensitive documents certainly provides a motive to leakers and makes leaks more likely. But what also matters is the incentive-bang for your punishment-buck and to deter all possible outlets from mirroring leaks would be extremely costly. (Notwithstanding Joe Lieberman.)
A far more effective strategy is to load incentives on the single agent whose efforts have the largest effect on whether or not a leak occurs: the guy who was supposed to keep them protected in the first place. Because when a leak occurs, in addition to telling you that some unknown and costly to track person spent too much effort trying to steal documents, it tells you that your agent in charge of keeping them secret didn’t spend enough effort doing the job you hired him to do.
You should reserve 100% of your scarce punishment resources where they will do the most good, incentivizing him (or her.)
(Based on a conversation with Sandeep.)
Update: The Australian Government seems to agree. (cossack click: Sandeep)
One way players might play a game is by learning over time till they reach a best response to strategies they have observed in the past. If learning converges, then a natural hypothesis due to Fudenberg and Levine , is that it settles on a self-confirming equilibrium:
Self-Confirming Equilibrium (SCE) is a relaxation of Nash equilibrium: Each player chooses a best response to his beliefs and his beliefs are “correct” on the path of play. But different players may have different beliefs over strategies off the path of play and may believe that players’ actions are correlated. Nash equilibrium (NE) requires that players’ beliefs are also correct off the path of play, that all players have the same beliefs over off the path play and that players’ strategies are independent. As the definition of Nash equilibrium puts extra constraints on beliefs, the set of Nash equilibria of a game cannot be larger than the set of self-confirming equilibria.
There is no reason why learning based on past play should tell us anything about off path play. So SCE is a more natural prediction for the outcome of learning than NE. Finally, we come to college football!
The University of Oregon football team has been pursuing an innovative “off the path” strategy:
“Oregon plays so fast that it is not uncommon for it to snap the ball 7 seconds into the 40-second play clock, long before defenses are accustomed to being set. That is so quick that opponents have no ability to substitute between plays, and fans at home do not have time to run to the fridge.”
Opposing teams on defense are just not used to playing against this strategy and have not developed a best-response. So far they have come up with an import from soccer, the old fake an injury strategy. This has yielded great moments like the YouTube video above.
I am trying to relate this football scenario to SCE. SCE does not incorporate experimentation which is what the Oregon Ducks are trying so this is immediately inconsistent with SCE. But set that aside – even without experimentation, is the status quo of slower snaps and best responses to them an SCE? I think it is and that it is even consistent with NE.
Even in a SCE of the two player sequential move game of football, the offense has to hypothesize what the defense would do if the offense plays fast. Given their conjecture about the defense’s play if the offense plays fast, it is better for the offense to play slow rather than play fast. Their conjecture about the defense’s play to fast snaps does not have to be at a best response for the defense as this node is unreached. And the defense plays a best response to what they observe – slow play by the offense. So both players are at a best response and the offense’s conjecture about the defense play off the path of play can be taken to be “correct” as neither SCE nor NE put restrictions on the defense being at a best response off the path of play.
In other words, in two player games, a SCE is automatically a NE. From diagonalizing Fudenberg and Levine, it seems this that this is true if you rule out correlated strategies (but I am administering an exam as I write this so I cannot concentrate!). If I am right, the football example is consistent with SCE and hence NE. (In three (or more) player games, there can be a substantive difference between SCE and NE as different players can have different conjectures on off path play in SCE but not NE and this can turn out to be important.)
But the football experience is not necessarily a Subgame Perfect Equilibrium. This adds the requirement of sequential rationality to Nash equilibrium: Each player’s strategy at all decision nodes, even those off the path of play, has to be a best response to his beliefs and beliefs have to be correct etc. So, it may be that football teams on offense have been assuming there is some devastating loss to playing fast. First, it is simply hard to play fast and perhaps they thought it was easy to defend fast snaps. But since this was never really tested, no-one really knew it for a fact.
Now the Oregon Ducks are experimenting and their opponents are trying to find a best response. So far they have come up with faking injuries. Eventually they will find a best response. Then and only then will the teams learn whether it is better for the offense to have fast snaps or slow snaps. And then they will play subgame perfect equilibrium: the offense may switch back to slow snaps if the best response to fast snaps if sufficiently devastating.
For 4.6 billion years, the Sun has provided free energy, light, and warmth to Earth, and no one ever realized what a huge moneymaking opportunity is going to waste. Well, at long last, the Sun is finally under new ownership.
Angeles Duran, a woman from the Spanish region of Galicia, is the new proud owner of the Sun. She says she got the idea in September when she read about an American man registering his ownership of the Moon and most of the planets in the Solar System – in other words, all the celestial bodies that don’t actually do anything for us.
Duran, on the other hand, snapped up the solar system’s powerhouse, and all it cost her was a trip down to the local notary public to register her claim. She says that she has every right do this within international law, which only forbids countries from claiming planets or stars, not individuals:
“There was no snag, I backed my claim legally, I am not stupid, I know the law. I did it but anyone else could have done it, it simply occurred to me first.”
She will soon begin charging for use. I advise her to hire a good consultant because pricing The Sun is not your run-of-the-mill profit maximization exercise. First of all, The Sun is a public good. No individual Earthling’s willingness to pay incorporates the total social value created by his purchase. So it’s going to be hard to capitalize on the true market value of your product even if you could get 100% market share.
Even worse, its a non-excludable public good. Which means you have to cope with a massive free-rider problem. As long as one of us pays for it, you turn it on, we all get to use it. So if you just set a price for The Sun, forget about market share, at most your gonna sell to just one of us.
You have to use a more sophisticated mechanism. Essentially you make the people of Earth play a game in which they all pledge individual contributions and you commit not to turn on The Sun unless the total pledge exceeds some minimum level. You are trying to make each individual feel as if his pledge has a chance of being pivotal: if he doesn’t contribute today then The Sun doesn’t rise tomorrow.
A mechanism like that will do better than just hanging a simple price tag on The Sun but don’t expect a windfall even from the best possible mechanism. Mailath and Postlewaite showed, essentially, that the maximum per-capita revenue you can earn from selling The Sun converges to zero as the population increases due to the ever-worsening free-rider problem.
You might want to start looking around for other planets in need of a yellow dwarf and try to generate a little more competition.
(Actual research comment: Mailath and Postlewaite consider efficient public good provision. I am not aware of any characterization of the profit-maximizing mechanism for a fixed population size and zero marginal production cost.)
[drawing: Move Mountains from http://www.f1me.net]
- Neologism of the moment: gate rape.
- When did you decide to be straight?
- Transcription errors in the Yale Anthology of Rap.
- Parkour for lazies.
- Nativity on Google StreetView.
- This just in: special bonus sordid link, courtesy of kottke.org. Painful flashback inducement machine.
Today Qatar was the surprise winner in the bid to host the FIFA World Cup in 2022, beating Japan, The United States, Australia, and Korea. It’s an interesting procedure by which the host is decided consisting of multiple rounds of elimination voting. 22 judges cast ballots in a first round. If no bidder wins a majority of votes then the country with the fewest votes is eliminated and a second round of voting commences. Voting continues in this way for as many rounds as it takes to produce a majority winner. (It’s not clear to me what happens if there is a tie in the final round.)
Every voting system has its own weaknesses, but this one is especially problematic giving strong incentives for strategic voting. Think about how you would vote in an early round when it is unlikely that a majority will be secured. Then, if it matters at all, your vote determines who will be eliminated, not who will win. If you are confident that your preferred site will survive the first round, then you should not vote truthfully. Instead you should to keep bids alive that will easier to beat in later rounds.
Can we look at the voting data and identify strategic voting? As a simple test we could look at revealed preference violations. For example, if Japan survives round one and a voter switches his vote from Japan to another bidder in round two, then we know that he is voting against his preference in either round one or two.
But that bundles together two distinct types of strategic voting, one more benign than the other. For if Japan garners only a few votes in the first round but survives, then a true Japan supporter might strategically abandon Japan as a viable candidate and start voting, honestly, for her second choice. Indeed, that is what seems to have happened after round one. Here are the data.
We have only vote totals so we can spot strategic voting only if the switches result in a net loss of votes for a surviving candidate. This happened to Japan but probably for the reasons given above.
The more suspicious switch is the loss of one vote for the round one leader Qatar. One possibility is that a Qatar supporter , seeing Qatar’s survival to round three secured, cast a strategic vote in round two to choose among the other survivors. But the more likely scenario in my opinion is a strategic vote for Qatar in round one by a voter who, upon learning from the round 1 votes that Qatar was in fact a contender, switched back to voting honestly.
Part I of BBC program:
Groovy Action At A Distance
Isaac Washington was so cool
That when he left his stateroom
He would set the door in motion
With the precise velocity
That in the time it would take
For the deceleration
To bring the locking mechanism
To a halt
An infinitessimal measure short
Of fully shut
He has walked
No, drifted,
Just far enough across the deck
At which distance
The radiant force of his
Cool
Was just enough to induce
The final click.
Obama’s favorite strategy is to be middle-of-the-road: don’t side with either Democrats or Republicans and hope both sides support a compromise plan. To do this effectively, it is important not to reveal your true preferences and maintain “strategic ambiguity” as clarity risks alienating one audience or the other. But if it is obvious that one side is not going to support you, you have to show your hand to get the other audience to buy in. Otherwise, no-one will support your policy and it will never pass. I mentioned that Obama already had to do this earlier this year with healthcare reform. Now an interesting article by Matt Bai points out that he faces a similar dilemma over debt reduction.
Mr. Obama has almost invariably sought to position himself halfway between traditionalism and reform, just as his vague notions of “hope” and “change” during the 2008 campaign were meant to appeal simultaneously to both disaffected independent voters and core progressives. And in virtually every case, he has satisfied pretty much no one….Since he isn’t willing to break publicly with liberals, independent and conservative voters tend to see him as a tool of the left. And since he generally won’t do exactly what the left wants him to do, he ends up with very little gratitude from his own party.
This political no-man’s land, however, is about to become uninhabitable. The national debt is near the top of any list of voter concerns at the moment, and when his commission votes Friday on its final recommendations, Mr. Obama will be handed concrete and contrasting options for addressing it.
And sell them in January to take advantage of the January effect: the predictable increase in stock prices from December to January. Many explanations have been, the most prominent being a tax-motivated sell-off in December by investors trying to realize a capital loss before the end of the year. But here is a paper that demonstrates a large and significant january effect in simple laboratory auctions. Two identical auctions were conducted, one in December and one in January and the bidding was significantly higher in January.
In the first experimental test of the January effect, we find an economically large and statistically significant effect in two very different auction environments. Further, the experiments spanned three different calendar years, with one pair of auctions conducted in December 2003 and January 2004 and another pair of auctions conducted in December 2004 and January 2005. Even after controlling for a wide variety of auxiliary effects, we find the same result. The January effect is present in laboratory auctions, and the most plausible explanation is a psychological effect that makes people willing to pay higher prices in January than in December.
Sombrero swipe: Barking Up The Wrong Tree.
I’m trying to lose the extra Robiola-weight I acquired last year by all too frequent visits to Formaggio Kitchen. Jogging is boring and it is too cold for cycling so I have started to attend spinning classes. (Spinning is basically cycling on a stationary bike which has a weighted flywheel.) Today, the instructor split the nine of us in class into three teams of three and had us play a game.
At first, she said at least one team had to be standing and at least one sitting at any point in time. If this condition was not met, the instructor would choose one team and single them out for punishment. The punishment involved putting huge weight on the flywheel and pedaling hard. I believe this sort of varying speed and endurance regimen in known as Fartlek exercise – that was how it was described to us.
Standing is harder work – our team has one member who was particularly reluctant to stand. There is a free-rider problem and if it cannot be resolved, there is punishment. There is a Chicken-like flavor to the game: if two teams can somehow “commit” to sit, the third’s best response is to stand to escape a 1/3 chance of a big punishment. There are multiple pure strategy equilibria and an inefficient mixed strategy one.
But the Coase Theorem applied: Each team appointed a leader who would shout “stand” or “sit” and we rotated turns standing using thirty second intervals timed using the clock on the wall of the exercise room. No inefficient punishments and intertemporal transfers.
But there were errors, largely by miscommunication within a team as people got more tired and as the instructor kept on changing the rules and confusing everyone deliberately. The punishment is meant to be directed at team that mis-coordinated but this can be hard to determine. This makes the punishment a little random. One team blames the other for the punishment and can vindictively trick the other into a false move that can get them punished. Also, coming out of the punishment and coordinating again with the other teams is hard and can lead to another punishment cycle.
So, there were inefficiencies caused by bounded rationality/miscommunication and occasional bouts of vindictiveness. But at least in our little exercise room, things worked out and the Coase Theorem applied 99% of the time. It was remarked that perhaps similar exercises might be performed before the next round of global warming negotiations to give everyone the skills to get along.
Why do we get more conservative (little ‘c’) as we get older? Trying out new things pays off less when there’s less time left to benefit from the upside. That’s a simple story based on declining patience.
But there’s another reason which could kick in at middle age when there is still plenty of life left to live. Think of life as a sequence of gambles presented to you. They come with labels: gamble A, gamble B, …, etc. Every time you get the chance to try gamble A its a draw from the same distribution and you get more information about gamble A.
Suppose your memory is limited. What you can remember is some list of gambles that you currently believe are worth taking. When you have the opportunity to take a gamble that is on the list, you take it. When you are presented with a gamble that is not on the list you have a decision to make. You could try it, and if it looks good you can put it on your list but then you have to drop something else from your list. Or you can pass.
As time goes on, even though you don’t remember everything you once tried and then removed from your list, you know that there must have been a lot of those. And so when you are presented with an option that is truly new, you have no way of knowing that and your best guess is that you have actually tried it before and discarded it. So you pass.
(drawing: Stuck In Your Head from f1me.)
1. Wrigley Field restaurant owner to possible Afghan druglord.
2. Prince Andrew is following in his father footsteps according to this cable. Parts 13c and 14c are particularly good. The American Ambassador displays a dry sarcastic writing style which is quite engaging.
3. The New Machiavelli thinks the U.S. looks good.
4. The Guardian is quite Machiavellian.
What makes an actor a big box office draw? Is it fame alone or is talent required? Usually that question is confounded: it’s hard to rule out that an actor became famous because he is talented.
The actors playing Harry, Ron, and Hermione in Harry Potter and The Deathly Hallows are most certainly famous, but almost certainly not because they are talented. They were cast in that movie nearly 10 years ago when their average age was 11. No doubt talent played a role in that selection but acting talent at the age of 11 is no predictor of talent at age 20. The fact that they are in Deathly Hallows is statistically independent of how talented they are.
That is, from the point of view of today it is as if they were randomly selected to be famous film stars out of the vast pool of actors who have been training just as hard as they from ages 11 to 20. So they are our natural experiment. If they go on to be successful film stars after the Harry Potter franchise comes to an end then this is statistical evidence that fame itself makes a Hollywood star.
Here’s Daniel Radcliffe on fame.
Responding to the flap about the Pope’s new stance on condom use by male protsitutes, Rev. Joseph Fessio, editor in chief of Ignatius Press which published the book in which the Pope is quoted provides this clarification:
But let me give you a pretty simple example. Let’s suppose we’ve got a bunch of muggers who like to use steel pipes when they mug people. But some muggers say, gosh, you know, we don’t need to hurt them that badly to rob them. Let’s put foam pads on our pipes. Then we’ll just stun them for a while, rob them and go away. So if the pope then said, well, yes, I think that using padded pipes is actually a little step in a moral direction there, that doesn’t mean he’s justifying using padded pipes to mug people. He’s just saying, well, they did something terrible, but while they were doing that, they had a little flicker of conscience there that led them in the right direction. That may grow further, so they stop mugging people completely.
Side topic: is the Catholic Church revealing that sin is a problem of moral hazard or adverse selection?
If your parents are not intellectuals then they don’t spend as much time trying to get you interested in ideas when you are a kid. So you are first exposed to them as an adult when you can appreciate the feeling of discovering ideas on your own. You are probably in college so you associate discovery with independence and counterculture.
If your parents are intellectuals they bore you to death as a kid with their lame ideas. By the time you are an adult and you can potentially appreciate them you are deprived of the chance to discover them for yourself. And anyway it all just reminds you of your parents.
Verifying this is our Thanksgiving Social Science project while surrounded by grandparents and their children and grandchildren. (Of course you can probably substitute “discovery of ideas” with just about anything and the logic is undisturbed. But on top of “Gardening is for losers because my loser Dad was always talking about his lame garden” there’s something extra having to do with the complementarity between the act of discovering the ideas and the ideas themselves.)
But it certainly awaits a behavioral treatment. Why do auctioneers talk like they are calling a thoroughbred race?
They talk like that to hypnotize the bidders. Auctioneers don’t just talk fast—they chant in a rhythmic monotone so as to lull onlookers into a conditioned pattern of call and response, as if they were playing a game of “Simon says.” The speed is also intended to give the buyers a sense of urgency: Bid now or lose out. And it doesn’t hurt the bottom line, either. Auctioneers typically take home from 10 to 20 percent of the sale price. Selling more items in less time means they make more money.
Readers of Q.J.E. will say Josh Angrist.
Readers to Freakonomics will say Steven Levitt.
Followers of the Nobel Prize will say (or try to say!), Trygve Haavelmo.
But it turns out, they should say Philip Wright. The identification (ha ha) was done by Jim Stock and Francesco Trebbi who report:
The earliest known solution to the identification problem in econometrics – the
problem of identifying and estimating one or more coefficients of a system of
simultaneous equations – appears in Appendix B of a book written by Philip G. Wright,
The Tariff on Animal and Vegetable Oils, published in 1928. Its first 285 pages are a
painfully detailed treatise on animal and vegetable oils – their production, uses, markets,
and tariffs. Then, out of the blue, comes Appendix B: a succinct and insightful
explanation of why data on price and quantity alone are in general inadequate for
estimating either supply or demand; two separate and correct derivations of the
instrumental variables estimators of the supply and demand elasticities; and an empirical
application to butter and flaxseed.
Stock and Trebbi have to do a lot of detective work because Sewall Wright, the great geneticist, was the son of Philip and people thought the son might have written Appendix B. But Stock and Trebbi do a fun econometric analysis of the text of Appendix B and compare it to Philip and Sewall’s other work (this is called stylometrics). They find that Philip must have written Appendix B.
(HT: Enrico Spolaore and Francesco Trebbi at NBER last week)
You may have noticed the line drawings I have been putting at the top of some posts recently. These are the work of Stephanie Yee and I found them on her blog f1me. I started noticing them in my Google Woody Buzz and something about them just clicked with me. When I started seeing connections with my blogging topics I had to ask her if I could use them on Cheap Talk and she graciously agreed. I think they are a great addition to the blog so let’s all cheer for Stephanie Yee’s playful artwork.
(Chickles: my word, don’t blame her. It rhymes with tickles, they are way more than doodles, and because she is not a dood.)
Cheap Talk 