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Poker players know that the eyes never lie. Indeed your eyes almost always signal your intentions for the simple reason that you have to see what you intend to do.
This is an essential difference between communication with eye movement/eye contact and other forms of communication. The connection between what you know and what you say is entirely your choice and of course you will always use this freedom to your advantage. But what you are looking at and where your eyes move are inevitably linked.
Naturally your friends and enemies have learned, indeed evolved to exploit this connection. Even the tiniest changes in your gaze are detectable. As an example, think of the strange feeling of having a conversation with someone who has a lazy eye.
Given that Mother Nature reveals such a strong evolutionary advantage for reading another’s gaze the question then arises why we have not evolved to mask it from those who would take advantage? The answer must be that it would in fact not be to our advantage.
With any form of communication, sometimes you want to be truthful and other times you want to deceive. The physical link between your attention and your gaze means that, for this particular form of communication you can’t have it both ways. Outright deception being impossible, at best Nature could hide our gaze altogether, say by uniformly coloring the entire eye.
But she chose not to. By Nature’s revealed preference, this particular form of honesty is evolutionarily advantageous, at least on average.
There’s only so much time in the day so we can’t talk about everything. Given the opportunity cost, ideas that are obviously bad aren’t worth talking about, even if you are someone who always considers both sides of every issue. This means that if you discuss an idea you demonstrate that you don’t think it’s obviously bad, even if what you conclude from your discussion is that the idea is obviously bad.
Now if I think that an idea is obviously bad and I hear a friend, or politician, or media outlet engage in a discussion of both sides of that issue, I conclude that they have the wrong priorities, even if they ultimately agree with me on the idea. Therefore, my friends, politicians who want my vote, and media who want me to listen to them will not even bring up ideas that I think are obviously bad. Even if I am wrong.
You can subscribe to a service and receive calls reminding you that you are awesome (ht MR).
You can probably think of people who would buy this service thinking it will bolster their self-esteem. You might even imagine that you yourself would get a little boost from having someone call you personally and tell you that you rock. But you probably think that this is leveraging some kind of behavioral, kludgy, semi-rational wiring in your personality and that you would quickly get de-sensitized to it.
But I disagree. I think that it would be a valuable motivator even for the most hyper-rational among us. Because it’s not a trick at all but really just a way to preserve mindsets over time. Suppose I tell you about something great I did. Then later on, when I am about to take on some challenge, like let’s say I am about to give a big lecture to an intimidating audience, you call me and remind me of the great thing I did. And you add your own interpretation of why it was great and how it shows that I am awesome. I don’t need to believe anything about your motivations, your reminder restores my brain to the state it was in when I myself was thinking about how great I am and why. And if your added color convinces me that you honestly agree with me then all the better.
Simply “writing it down” or memorizing the state of mind is not a perfect substitute. At a very minimum this is simply based on cost-minimization. Someone else is doing the remembering for me and that is worth something. But it’s even more than that.
If you have been following me it will come as no surprise that I have no trouble at all remembering what an stupendous guy I am and all the super-amazing feats of astounding splendifery I have accomplished in my life. Yet even with that overflowing supply of memories of greatness, I still get nervous in the face of a challenge. When that happens I have my daughter repeat something she once said to me at a minor moment of greatness: “you’re so smart daddy.” The memory of that moment is imprinted on the sound of her voice. That sound hooks into the vivid edges of my direct experience of the event. Immediately it’s “oh yeah, that’s how it’s done” and my perspective on the situation is totally new. And yet on the surface all she is doing is duplicating a memory that I had in there already.
Daughters are great, and not just for fueling your ego, but they cost more than $40 a month. By comparison, Awesomeness Reminders look like a pretty good deal.
They say you can’t compare the greats from yesteryear with the stars of today. But when it comes to Nobel laureates, to some extent you can.
The Nobel committee is just like a kid with a bag of candy. Every day (year) he has to decide which piece of candy to eat (to whom to give the prize) and each day some new candy might be added to his bag (new candidates come on the scene.) The twist is that each piece of candy has a random expiration date (economists randomly perish) so sometimes it is optimal to defer eating his favorite piece of candy in order to enjoy another which otherwise might go to waste.
The empirical question we are then left with is to uncover the Nobel committee’s underlying ranking of economists based on the awards actually given over time. It’s not so simple, but there are some clear inferences we can make. (Here’s a list of Laureates up to 2006, with their ages.)
To see that it is not so simple, note that just because X got the prize and Y didn’t doesn’t mean that X is better than Y. It could have been that the committee planned eventually to give the prize to Y but Y died earlier than expected (or Y is still alive and the time has not yet arrrived.)
When would the committee award the prize to X before Y despite ranking Y ahead of X? A necessary condition is that Y is older than X and is therefore going to expire sooner. (I am assuming here that age is a sufficient statistic for mortality risk.) That gives us our one clear inference:
If X received the prize before Y and X was born later than Y then X is revealed to be better than Y.
(The specific wording is to emphasize that it is calendar age that matters, not age at the time of receiving the prize. Also if Y never received the prize at all that counts too.)
Looking at the data, we can then infer some rankings.
One of the first economists to win the prize, Ragnar Frisch (who??) is not revealed preferred to anybody. By contrast, Paul Samuelson, who won the very next year is revealed preferred to kuznets, hicks, leontif, von hayk, myrdal, kantorovich, koopmans, friedman, meade, ohlin, lewis, schulz, stigler, stone, allais, haavelmo, coase and vickrey.
Outdoing Samuelson is Ken Arrow, who is revealed preferred to everyone Samuelson is plus simon, klein, tobin, debreu, buchanan, north, harsanyi, schelling and hurwicz (! hurwicz won the prize 37 years later!), but minus kuznets (a total of 25!)
Also very impressive is Robert Merton who had an incredible streak of being revealed preferred to everyone winning the prize from 1998 to 2006, ended only by Maskin and Myerson (but see below.)
On the flipside, there’s Tom Schelling who is revealed to be worse than 28 other Laureates. Leo Hurwicz is revealed to be worse than all of those plus Phelps. Hurwicz is not revealed preferred to anybody, a distinction he shares with Vickrey, Havelmo, Schultz (who??), Myrdal (?), Kuznets and Frisch.
Paul Krugman is batting 1,000 having been revealed preferred to all (two) candidates coming after him: Williamson and Ostrom.
Similar exercises could be carried out with any prize that has a “lifetime achievement” flavor (for example Sophia Loren is revealed preferred to Sidney Poitier, natch.)
There’s a real research program here which should send decision theorists racing to their whiteboards. We deduced one revealed preference implication. Question: is that all we can deduce or are there other implied relations? This is actually a family of questions that depend on how strong assumptions we want to make about the expiration dates in the candy bag. At one extreme we could ask “is any ranking consistent with the boldface rule above rationalizable by some expiration dates known to the child but not to us?” My conjecture is yes, i.e. that the boldface rule exhausts all we can infer.
At the other end, we might assume that the committee knows only the age of the candidates and assumes that everyone of a given age has the average mortality rate for that age (in the United States or Europe.) This potentially makes it harder to rationalize arbitrary choices and could lead to more inferences. This appears to be a tricky question (the infinite horizon introduces some subtleties. Surely though Ken Arrow has already solved it but is too modest to publish it.)
Of course, the committee might have figured out that we are making inferences like this and then would leverage those to send stronger signals. For example, giving the prize to Krugman at age 56 becomes a very strong signal. This would add some noise.
Finally, the kid-with-a-candy-bag analogy breaks down when we notice that the committee forms bundles. Individual rankings can still be inferred but more considerations come into play. Maskin and Myerson got the prize very young, but Hurwicz, with whom they shared the prize, was very close to expiration. We can say that the oldest in a bundle is revealed preferred to anyone older who receives a prize later. Plus we can infer rankings of fields by looking at the timing of prizes awarded to researchers in similar areas. For example, time-series econometrics (2003) is revealed preferred to the theory of organizations (2009.)
The Bottom Line: There is clear advice here for those hoping to win the prize this year, and those who actually do. If you do win the prize, for your acceptance speech you should start by doing pushups to prove how virile you are. This signals to the world that you were not given the award because of an impending expiration date but that in fact there was still plenty of time left but the committee still saw fit to act now. And if you fear you will never win the prize, the sooner you expire the more willing will the public be to believe that you would have won if only you had stuck around.
A California Classic. Totally delicious. Three distinct phases of the palette. Fruit at first: Strawberry but also Cherry, like a Burgundy. That leaves to be replaced by acid and then finally a long, spicy finish. Lots of Clove and Pepper.
Wish it was a bit lower in alcohol – I hard a hard time waking up this morning!
I believe this wine was one of the original Rhone Rangers – California’s attempt to replicate Rhone style wines. It’s way cheaper ($30 approx.) than a good, reliable CdP and there is considerable complexity and none of the usual fruity, oaky availability of usual California style wines.
- Most family home videos are boring. You film your kid doing something, like tying his shoes for the first time. It seems really exciting the first time, but years later you’ve seen your kid do that every day for years. The video is boring but it’s entertaining to notice things in the background like “hey remember when our yard looked like that before the landscaping?” So the best home videos are of things that are boring now because you currently do them all the time. Someday you will no longer be doing them and the video will bring back memories.
- “Jack of all trades, master of none.” The causality actually goes in the opposite direction than the phrase is usually intended to mean. (Take it from me.)
- Can someone explain to me why I want a ceiling fan to cool my room? The hot air is near the ceiling. I would rather it stay there. Storn, are you reading this?
- Like any other measurement, the “hawkeye” electronic line judge in tennis has confidence intervals. When the human judge calls it in, and the hawkeye’s point estimate is one millimeter out, why does the hawkeye trump?
- For any album there is a finite number N of listenings before it grows on you. All album reviews should begin by stating the smaller of the following two numbers: N or the number of times the reviewer listened to the album (before giving up.)
- Nature gives men a powerful urge for sex with a lexicographic preference for quantity of mates over quality. But when it comes to our sons having sex the preference completely reverses. But both are means to the same end: passing on genes. Puzzle.
Watch the ad and then go to 1.10 minutes for the Simpsons’ prediction….
If Twitter bans the sale of usernames then they take away any incentive to squat. But is the commitment credible?
While Twitter tries to work out how to make money, a Spaniard has sold his username on the site for a six-figure sum.
In 2007 Israel Meléndez set up a Twitter account under his first name. This year he was approached by the state of Israel, which wanted to buy @Israel from him for a quantity of dollars that, he told Spain’s Público newspaper, included “five zeroes”.
The sale went through despite Twitter’s stated policy of preventing username squatting and Meléndez, who runs adult websites for a living, said Twitter itself had advised the Israeli government on how this could be done.
“All the business of getting in contact with Twitter was done by them [Israel],” Meléndez said. “I never saw any emails [between them] and Twitter never contacted me, but if the @Israel account is open and working I imagine it means that Twitter had no problem with the transaction.”
Cell phone use increases the risk of traffic accidents right? But how do we prove that? By showing that a large fraction of accidents involve people talking on cell phones? Not enough. A huge fraction of accidents involve people wearing shoes too.
I thought about this for a while and short of a careful randomized experiment it seems hard to get a handle on this using field data. I poked around a bit and I didn’t find much that looked very convincing. To give you an example of the standards of research on this topic, one study I found actually contains the following line:
Results Driver’s use of a mobile phone up to 10 minutes before a crash was associated with a fourfold increased likelihood of crashing (odds ratio 4.1, 95% confidence interval 2.2 to 7.7, P < 0.001).
(Think about that for a second.)
Here’s something we could try. Compare the time trend of accident rates for the overall population of drivers with the same trend restricted to deaf drivers. We would want a time period that begins before the widespread use of mobile phones and continues until today. Presumably the deaf do not talk on cell phones. So if cell phone use contributed to an increase in traffic risk we would see that in the general population but not among the deaf.
On the other hand, the deaf can use text messaging. Since there was a period of time when cell phones were in widespread use but text messaging was not, then this gives us an additional test. If text messaging causes accidents, then this is a bump we should see in both samples.
Anyone know if the data are available? I am serious.
Each brain-damaged person got a wad of play money, and instructions to gamble on 20 rounds of coin tossing (heads-you-win/tails-you-lose, with some added twists). Other people who had no such brain lesions got the same money and the same gambling instructions.
The brain-damaged gamblers pretty consistently ended up with more money than their healthier-brained competitors. The researchers speculate that when “normal” gamblers encounter a run of unhappy coin-toss results, they get discouraged and become cautious – perhaps too cautious. Not so the people with brain-lesion-induced emotional disfunction. Encountering a run of bad luck, they plough on, undaunted. And then enjoy a relatively handsome payoff. At least sometimes.
This article from Not Exactly Rocket Science discusses an experiment studying “competition” between the left and right sides of the brain. Subjects in the experiment had to pick up an object placed at different points on a table and what was observed was which hand they used depending on where the object was. The article makes this observation in passing.
they always used the nearest hand to pick up targets at the far edges of the table, but they used either hand for those near the middle. Their reaction times were slower when they had to choose which hand to use, and particularly if the target was near the centre of the table.
This much is expected, but it supports the idea that the brain is choosing between possible movements associated with each hand. At the centre of the table, when the choice is least clear, it takes longer to come down on one hand or the other.
I stopped there. Because while this sounds intuitive, there is another intuition that points squarely in the opposite direction. When the object is in the center of the table, that’s when it matters least which hand you use, so there is no reason to spend extra time thinking about it. Right? So…when you have competing intuitions you need a model.
You have to take an action, say “left” or “right” and your payoff depends on the state of the world, some number between -1 and 1. You prefer “right” when the state is positive and “left” when the state is negative and the farther away from zero is the state, the stronger is that preference. When the state is exactly zero you are indifferent.
You don’t know the state with perfect precision. Instead, you initially receive a noisy signal about the state and you have to decide whether to take action right away (and which action) or wait and get a more accurate signal. It’s costly to wait. For what values of the initial signal do you wait? Note that in this model, both of the competing intuitions are present. If your initial signal is close to zero, it is likely that the true state is close to zero so your loss from choosing the wrong action is small. Thus the gain from waiting for better information is small. On the other hand, if your initial signal is far from zero, then the new information is unlikely to affect which action you take so again the gain from waiting is small.
But now we can compute the relative gain. And the in-passing intuition quoted above is the winner.
Consider two possible values of the initial signal, both positive but one close to zero and one close to +1. In either case if you don’t wait you will take action “right.” Now consider the gain from waiting. Take any state x and let’s consider the scenario where waiting would lead you to believe that the state is x. If x is positive then you would still choose “right” and waiting would not gain anything. So fix any negative x and ask what would the gain be if waiting led you to believe that the state is x. The key observation is that for any fixed x, this gain would be the same regardless of which of the initial signals you had.
So the comparison then just boils down to comparing how likely it is to switch to x from the two different initial signals. And this comparison depends on how far to the left x is. Signals very close to -1 are much easier to reach from an initial signal close to zero than from an initial signal close to 1. And these are the signals where the gain is large. On the other hand, for x’s just to the left of zero (where the gain is small), the relative likelihood of reaching x from the two initial signals is closer to 50-50.
Formally, unless the distribution generating these signals is very strange, the distribution of payoff gains after an initial signal close to zero first-order stochastically dominates the distribution of payoff gains when you start close to 1. So you are always more inclined to wait when your initial signal is close to zero.
- Submitted with no implied approval and simply as an exquisite example of a rhetorical takedown by someone apparently deeply scarred by whoknowswhat. (This doesn’t mean that all other sordid links lacking this disclaimer are submitted with implied approval. Thank you for the cake, now I will eat it too.)
- Mobius comic strip
- Reading Playboy to the blind.
- Soap operas and unknown soldiers.
- Pine-nut mouth. Clues from Denmark.
- “We shared a cab, you hit me in the face.”
I double-checked to make sure it wasn’t April 1 when I saw this story in the Independent:
The Queen asked ministers for a poverty handout to help heat her palaces but was rebuffed because they feared it would be a public relations disaster, documents disclosed under the Freedom of Information Act reveal.
Royal aides were told that the £60m worth of energy-saving grants were aimed at families on low incomes and if the money was given to Buckingham Palace instead of housing associations or hospitals it could lead to “adverse publicity” for the Queen and the Government.
Check out their request.
And why you should too.
There is a painful non-convexity in academic research. Only really good ideas are worth pursuing but it takes a lot of investment to find out whether any given idea is going to be really good. Usually you spend a lot of time doing some preliminary thinking just to prove to yourself that this idea is not good enough to turn into a full-fledged paper. Knowing that most ideas are unlikely to pan out there is an incentive not to experiment on new projects.
Blogging bridges that gap in a way I didn’t expect when I started. Blogging means that half-baked ideas have scrap value: if they are not publishable you can at least write about them on the blog. This means that you are more likely to recoup some of those costs of experimentation and you undertake more projects ex ante.
So, readers, don’t thank me for blogging (not that I thought you had any good reason too.) I thank you for wading through the scraps.
Mayor Daley will step down as Chicago Mayor after over two decades in office. His campaign coffers are full and his popularity is high and yet Daley the Younger will voluntarily leave office after serving a slightly longer term than Daley the Elder. We can ascribe lofty reasons for his departure but at Cheap Talk we usually focus on the basest of human motives: rational self-interest.
First, if Daley had decided to run again, I’m assuming he would have been re-elected easily with no candidate coming close to him popularity. His voluntary departure signals that there is some hidden problem that’s going to be trouble in the next term. It could be trouble for Daley alone, the private value case, such as an affair, some personal corruption or something of that sort. And there is a prime candidate for this scenario: Daley’s wife has cancer and he may rightly want to concentrate on her welfare. So, the private value case is possible. In the opposite scenario, there is some issue that will affect anyone who becomes Mayor, the common value case. There is an obvious candidate for this scenario too: the City of Chicago is in deep financial trouble and the next Mayor will have to sort that out. Forget the glamourous public projects like Millenium Park, greening the city etc. There will be nitty-gritty fights with unions to renegotiate pension deals, cutbacks, layoffs and protests.
Not only will that be painful but re-election will be hard. Voters will blame the next Mayor for everything that goes wrong whether it’s is his fault or not. The next Mayor will be a one term Mayor.
So, Rahm should spend a few years at some investment bank, making millions in a few short years – just like he did last time around. He can build his political machine and run for Mayor the next time around.
The never-enigmatic Presh Talwalker analyzes the strategic bobbling occasionally effected by the heads of Indians.
I have personally witnessed this maneuver in two contexts which fall outside of the categories Presh identifies in his post.
- Indian students asking me a question and getting an answer. The ensuing head-bobble has always suggested to me something like “of course. obvious. so obvious in fact that the thundering stroke of clarity is making my head roll around.” I have also noticed that on these occasions the bobble is contagious. The Indian student sitting next to the questioner bobbles sympathetically.
- Indian classical music. The tabla player, say, will bobble just after a rapid-fire phrase. There might even be a sound emitted. It’s something like “Chella.” The whole display says something like “Behold, the rhythm is so frenetic that it is rebounding back through my arms and neck and dissapating through the top of my head. Chella.”
Obama has an interesting strategic decision to make about how to engage the Tea Party. If there is one power that the President has, even when he has lost momentum policy-wise, it is to control attention. How should he use this power in relation to the Tea Party?
Right now the Tea Party has few leaders, and none with any real power. Obama can essentially anoint a leader by picking him/her out of the crowd and engaging directly. For example, by personally responding in a press conference to some attack and addressing the Tea Partier by name. As the Tea Party tries to internally organize, a well-targeted salvo could throw a wrench in the works. On the other hand, it could backfire and provide them with a much-needed lightning rod.
He could frame the upcoming election as “sane, albeit perhaps incompetent Democrats” versus “nutty Tea Partiers.” By doing so he would raise the stakes for the Tea Party higher than they might want to make them. In its infancy, the Tea Party may not be ready for an up-or-out test.
Obama could be wisely waiting until after this election to make any move like this. It may even be that he and the Tea Party have a mutual interest in keeping their profile low for now. Because making this election out to be a test of the Tea Party’s fitness can only really have consequences in the event they fail to make a good showing. In that case, the Tea Party disappears and Obama loses a potentially valuable third-party threat in 2012.
Instead, if they tacitly agree to view the Tea Party as too young to be a big contender this November, they both keep their hopes alive in the event of defeat. Which of course means that the mainstream Republicans should have exactly the opposite incentive.
Now I am trying to figure out how this fits in with the story.
For the sake of argument let’s take on the plain utilitarian case for waterboarding: in return for the suffering inflicted upon a single terror suspect we may get information that can save many more people from far greater suffering. At first glance, authorizing waterboarding simply scales up the terms of that tradeoff. The suspect suffers more and therefore he will be inclined to give more information and sooner.
But these higher stakes are not appropriate for every suspect. After all, the utilitarian cost of torture comes in large part from the possibility that this suspect may in fact have no useful information to give, he may even be innocent. When presented with a suspect whose value as an informant is uncertain, these costs are too high to use the waterboard. Something milder is preferred instead like sleep deprivation.
So the utilitarian case for authorizing waterboarding rests on the presumption that it will be held in reserve for those high-value suspects where the trade-off is favorable.
But if we look a little closer we see it’s not that simple. Torture relies on promises and not just threats. A suspect is willing to give information only if he believes that it will end or at least limit the suffering. When we authorize waterboarding, we undermine that promise because our sleep-deprived terror suspect knows that as soon as he confesses, thereby proving that he is in fact an informed terrorist, he changes the utilitarian tradeoff. Now he is exactly the kind of suspect that waterboarding is intendend for. He’s not going to confess because he knows that would make his suffering increase, not decrease.
This is an instance of what is known in the theory of dynamic mechanism design as the ratchet effect.
Taken to its logical conclusion this strategic twist means that the waterboard, once authorized, can’t ever just sit on the shelf waiting to be used on the big fish. It has to be used on every suspect. Because the only way to convince a suspect that resisting will lead to more suffering than the waterboarding he is sure to get once he concedes is to waterboard him from the very beginning.
The formal analysis is in Sandeep’s and my paper, here.
Peter Cramton emailed a bunch of us today asking us to sign a comment he and others are submitting to a House Committee. There are many issues but one is related to an odd pricing rule proposed for buying equipment for Medicare.
Suppose Medicare needs x machines and wants to save money. They can run a simple procurement auction (or some variant) as follows: Suppliers submit bids and the lowest x bids are accepted and all are paid the highest accepted bid. This is similar to a market mechanism that spits out a market clearing price that all suppliers receive. Just like the market mechanism, all but the highest cost supplier get surplus at the market-clearing price. Is there some way to leave the suppliers with less rent and for Medicare to save more money? Unless Medicare knows the costs of production of the suppliers, the answer is basically “No”, under reasonable assumptions. Any mechanism has to leave low cost suppliers with information rent and the minimum rent is left by the market-clearing mechanism.
But it seems that does not stop Medicare from trying! They are proposing a median pricing rule where the lowest x bidders are chosen but are paid the median of the x winning bids. This means the top 50% of bidders are not paid their submitted bids. This leads to many pathologies as the authors point out in their comment. First, the top 50% may simply refuse to supply and withdraw their bids (this is allowed under the present auction rules). Then Medicare will be left with less equipment than it needs. Or the suppliers may make a loss if they are forced to supply for one reason or another. This is not good for the long term financial health of the suppliers. Or they may game and shade their bid etc. etc.
Check out the comment for more detail. Peter is providing a public good and testifies in front of the House Committee on September 27. We’ll see what happens. If the median pricing rule stays in place despite Peter’s best efforts, expect to see (many!) papers working out equilibria of the procurement auction under that rule!
Two guys named David Pendelbury and Eugene Garfield use citation counts (combined with some other magic) to predict Nobel laureates. They claim success: they have“correctly predicted at least one Nobel Laureate each year with the exception of the years 1993 and 1996.” Granted, since they are picking 5 or so people in four fields (Chemistry, Economics, Physics, Medicine) that doesn’t seem like such a big deal.
But for the record, here are the predictions for Economics.
- Alberto Alesina for theoretical and empirical studies on the relationship between politics and macroeconomics, and specifically for research on politico-economic cycle.
- Nobu Kiyotaki for formulation of the Kiyotaki-Moore model, which describes how small shocks to an economy may lead to a cycle of lower output resulting from a decline in collateral values that creates a restrictive credit environment.
- John Moore for formulation of the Kiyotaki-Moore model, which describes how small shocks to an economy may lead to a cycle of lower output resulting from a decline in collateral values that creates a restrictive credit environment.
- Kevin Murphy for pioneering empirical research in social economics, including wage inequality and labor demand, unemployment, addiction, and the economic return of investment in medical research, among other topics
David K. Levine has written a white paper for the NSF proposing that they invest in large-scale simulated economies as virtual laboratories:
An alternative method of validating theories is through the use of entirely artificial economies. To give an example, imagine a virtual world – something like Second Life, say – populated by virtual robots designed to mimic human behavior. A good theory ought to be able to predict outcomes in such a virtual world. Moreover, such an environment would offer enormous advantages: complete control – for example, over risk aversion and social preferences; independence from well-meant but irrelevant human subjects “protections”; and great speed in creating economies and validating theories. If we were to look at the physical sciences, we would see the large computer models used in testing nuclear weapons as a possible analogy. In the economic setting the great advantage of such artificial economies is the ability to deal with heterogeneity, with small frictions, and with expectations that are backward looking rather than determined in equilibrium. These are difficult or impractical to combine in existing calibrations or Monte Carlo simulations.
My colleague Josh Rauh who is a pensions expert testified in the front of the Evanston City Council. You can read about his report here. I particularly enjoyed the little jokey exchange at the end:
‘Do we want to take action now and forge a financially responsible course?” If not, he [Josh Rauh] said, the City could just keep going in the present direction, “hoping that someone will bail us out. We could get state and federal bailout money.”
“Are we too big to fail?” asked Mayor Tisdahl.
“The City of Chicago is too big to fail,” responded Dr. Rauh; “the City of Evanston may not be. …
A guy sometimes says stuff that, for reasons completely mysterious to him, hurts a girl’s feelings. It comes out that she’s hurt and he desperately tries to explain. He didn’t mean it. He didn’t think she would interpret it that way. He was just talking. She’s taking it too personally.
He forgets to call, he misses important dates, he get stalled by unexpected commitments. She listens to all of his excuses.
He’s trying to convince her that he had the right intentions. You see, he thinks that relationships are all about moral hazard. He wants her to know that he’s trying hard, but mistakes get made.
And he can never figure out why this isn’t enough for her. But the reason is simple. For her, relationships are all about adverse selection. It’s not his actions per se, it’s what they reveal about his type. She’s perfectly willing to forgive his missteps, she believes him that he’s trying hard and that he didn’t know he was being a louse, but that’s precisely the problem. If he weren’t such a lemon he would know the right way to say things, she’d always be in his thoughts, and she’d always be his highest priority.
Plenty of government intervention means plenty of data – data that can be creatively exploited to study long-standing questions of political economy such as….
Do politicians vote based on ideology, constituent preferences or to get lots of cash from lobbyists to pay for the re-election campaigns?
“The Political Economy of the U.S. Mortgage Default Crisis” by Atif Mian, Amir Sufi and Francesco Trebbi (forthcoming in AER I believe) uses data on voting in Congress on the American Housing Rescue and Foreclosure Prevention Act AHRFPA and the Emergency Economic Stabilization Act EESA to study politicians’ voting behavior. AHRFPA supported mortgage holders who were financially distressed and EESA supported banks supplying them with liquidity. We can think of them as constituents and special interests. There is data on default rates in a district at the ideological level – you can see the default rate among Democrats and Republicans. There is data on contributions made by the financial industry to a candidate’s campaign war chest.
There is no variation in Democratic votes for AHRFPA so the paper studies Republican votes. The authors find that Republican politicians’ votes for the bill are correlated with the default rate of Republican constituents in their district. Moreover, if the district lies in a Presidential swing state and is more competitive,the response is stronger.
On the EESA, the authors find that campaign contributions by the financial industry are correlated with voting for the bill. Also, retiring politicians less likely to vote for the bill, even if they received campaign contributions from the financial industry in the past. Finally, the more ideological a politician is, the less likely he is to respond to these measures (ideology is measured on some scale that is usually employed in these studies).
Lots of interesting and provocative results. Lots of caveats and subtlety I cannot do justice to in this post. Take a look at the paper.
This morning I was on my own for breakfast so I looked around and saw heirloom tomatoes from the garden, a jar of artichoke hearts with a few left after last night’s chickpea salad, and chive oil which I made last week as a lobster marinade and have put to good use in various applications since.
So I made an omelette. (I am a devotee of the Alton Brown omelette method.) And then I ate it.
The season finale of Bachelor Pad featured a surprise twist. The share of the prize money would be decided by a “keep” or “share” Prisoners’ Dilemma-style game. $250,000 was at stake and the last standing couple, Dave and Natalie, could split the money if they both chose Share. If one of them chose “Keep” then he/she would take all the money for him/her-self. If they both chose “Keep” the $250,000 would be shared among all the contestants who were previously eliminated from the show.
What makes this game different from the Golden Balls game is that the decision to Share doubles as a signal to be a faithful partner in their post-show everlasting love.
The clip below is a bit long, but the highlight comes in the middle when the loser bachelor(ettes) give their game theoretic analyses while Dave and Natalie go into separate rooms to prove theorems.
Thanks to Charles Murry for the pointer.
Elton John and Bernie Taupin pose a classic conundrum:
It’s sad, so sad
It’s a sad, sad situation
And it’s getting more and more absurd
It’s sad, so sad
Why can’t we talk it over
Oh it seems to me
That sorry seems to be the hardest word
Elton must have done something in the recent past that requires an apology. He wants his partner to “make you love” him. What has he “got to do to be heard”?
So his entreaties are not being heard. Why? Elton has a credibility problem. He wants love whether or not he is truly sorry. If he gets a positive response from saying “sorry” whether he means it or not, he’ll just say it. It is, of course, cheap talk.
To make Elton’s apology credible, it has got to be hard or costly to say sorry. There has to be some loss of face, some blow to pride from saying sorry. But to make “sorry” truly credible, the cost of saying sorry has to be low if Elton is truly sorry and high if he’s not sorry at all. So, if Elton is having a hard time saying sorry, maybe he’s not really sorry?
Cheap Talk 
