A blog about economics, politics and the random interests of forty-something professors
If you were the President of the United States and, on camera, you were asked
If there is an uprising in Saudi Arabia the likes of which we have seen in Tunisia, Egypt, and Libya, will the United States stand by the protestors and ask the regime to leave?
how would you answer?
When a pet owner decides to give up a pet for adoption or breed more pets, he is callously ignoring the implications for other potential pets. The pet he gives up for adoption crowds out a home for another animal. The pet exerts a negative externality on other potential pets. The decision-maker – i.e. the pet owner – does not take this externality into account and there is overproduction of pets. Excess pets are euthanized.
When a tomato farmer sells more tomatoes, he is callously ignoring the welfare of other tomato farmers. The tomatoes he sells crowd out a home for other tomatoes. But we think the market for tomatoes in principle works quite well.
Why of your fat cat couch potato not like a tomato? In a new publication, Coate and Knight answer this question. In the tomato market, there is a market price for tomatoes. Each tomato producer is small and his output does not affect the price. But there is a market price for pets and neither buyers nor sellers of pets affect the price. So what’s the big difference?
Tomatoes you are bored with or cannot support financially do not have to be euthanized. Stray tomatoes do not wander the city, scavenging rotten meat from trash cans. Pet euthanasia imposes an external cost that the pet owner does not pay. Stray pets must be caught by public services. There is no easy way to charge the pet owner for these costs. If there were, pets would be like tomatoes. But pet owners can avoid euthanasia fees by dumping unwanted pets as strays. Coate and Knight argue that this “moral hazard” problem makes it impossible to effectively deal with the externality created by pet owners. Hence, there is overproduction of pets.
What is to be done? Taxation of pet ownership is one solution. Subsidies for spaying are another. Dog licenses act as a tax. But cat owners face no government imposed barrier to acquisition of a furry friend. There must be serious overproduction of cats. We all know cats generate more allergies than dogs – another negative externality. This is serious
Obama has made an effort to improve healthcare. Hopefully he or whoever replaces him will take up pet – particularly cat – overpopulation in the next term.
The Texas legislature is on the verge of passing a law permitting concealed weapons on University campuses, including the University of Texas where just this Fall my co-author Marcin Peski was holed up in his office waiting out a student who was roaming campus with an assault rifle.
This post won’t come to any conclusions, but I will try to lay out the arguments as I see them. More guns, less crime requires two assumptions. First, people will carry guns to protect themselves and second, gun-related crime will be reduced as a result.
There are two reasons that crime will be reduced: crime pays off less often, and sometimes it leads to shooting. In a perfect world, a gun-toting victim of a crime simply brandishes his gun and the criminal walks away or is apprehended and nobody gets hurt. In that perfect world the decision to carry a gun is simple. If there is any crime at all you should carry a gun becuase there are no costs and only benefits. And then the decision of criminals is simple too: crime doesn’t pay because everyone is carrying a gun.
(In equilibrium we will have a tiny bit of crime, just enough to make sure everyone still has an incentive to carry their guns.)
But the world is not perfect like that and when a gun-carrying criminal picks on a gun-carrying victim, there is a chance that either of them will be shot. This changes the incentives. Now your decision to carry a gun is a trade-off between the chance of being shot versus the cost of being the victim of a crime. The people who will now choose to carry guns are those for whom the cost of being the victim of a crime outweigh the cost of an increased chance of getting shot.
If there are such people then there will be more guns. These additional guns will reduce crime because criminals don’t want to be shot either. In equilibrium there will be a marginal concealed-weapon carrier. He’s the guy who, given the level of crime, is just indifferent between being a victim of crime and having a chance of being shot. Everyone who is more willing to escape crime and/or more willing to face the risk of being shot will carry a gun. Everyone else will not.
In this equilibrium there are more guns and less crime. On the other hand there is no theoretical reason that this is a better outcome than no guns, more crime. Because this market has externalities: there will be more gun violence. Indeed the key endogenous variable is the probability of a shootout if you carry a gun and/or commit a crime. It must be high enough to deter crime.
And there may not be much effect on crime at all. Whose elasticity with respect to increased probability of being shot is larger, the victim or the criminal? Often the criminal has less to lose. To deter crime the probability of a shooting may have to increase by more than victims are willing to accept and they may choose not to carry guns.
There is also a free-rider problem. I would rather have you carry the gun than me. So deterrence is underprovided.
Finally, you might say that things are different for crimes like mugging versus crimes like random shootings. But really the qualitative effects are the same and the only potential difference is in terms of magnitudes. And it’s not obvious which way it goes. Are random assailants more or less likely to be deterred? As for the victims, on the one hand they have more to gain from carrying a gun when they are potentially faced with a campus shooter, but if they plan make use of their gun they also face a larger chance of getting shot.
NB: nobody shot at the guy at UT in September and the only person he shot was himself.
Yuliya Tymoschenko, a former prime minister of Ukraine, wrote in Al Jazeera that Egyptians should learn from the disappointments that followed Ukraine’s 2004 Orange Revolution. She advises that democracy is not made by elections alone, and that a strong civil society is needed to protect a new democracy from being hijacked by elements of the old regime who only pretend to embrace democratic norms. But she also describes civil society as an intricate and mysterious entity that evolves over decades, if not centuries.
This advice is good, but it is also a call for social scientists to develop a deeper and more precise understanding of what is needed from civil society, if we are to understand the essential factors for successful democratic development. It is not enough to advise Egyptians or Ukrainians to go back and have a century or two like England around 1600 before they attempt to build a democracy. We must try to identify the essence of what is needed from civil society and how it can be most directly developed where it is lacking.
It may be instructive to consider an example from Maye Kassem’s discussion of civil society in her insightful book on Egyptian Politics. Kassem describes how opposition groups, in their efforts to acquire some autonomy from state domination under the Mubarak regime, cooperated to gain positions of leadership in professional organizations. This process was tolerated by the government until the Cairo earthquake of 1992. But then the Doctors’ and Engineers’ Syndicates, under leadership from the Muslim Brotherhood, provided conspicuously better assistance to earthquake victims than the official government relief agencies. In response, new laws were decreed to give the government greater control over such professional syndicates.
This story puts the focus on one essential factor that institutions of civil society can provide: an independent supply of people who have good reputations for providing public services. From the perspective of economic theory, we easily see how the supply of such reputations can be vital for democratic competition. Voters are unlikely to hold corrupt leaders accountable in democratic elections if they believe that alternative candidates would be as bad or worse. More generally, economists understand that market competition may fail to reduce suppliers’ profits when there are high barriers against new competitive entrants, and this insight can be applied to political competition (where political profit-taking is called corruption). Autonomous public-service organizations allow new leaders to develop the reputations that they need to compete for the voters’ trust, thus facilitating new competitive entry into the political arena.
So the key question to ask is: what is the best way for a newly democratic nation to increase its vital supply of individuals who have good reputations for using resources responsibly in public service? The obvious place to look is in subnational governments for provinces and cities, where independently elected political leaders could demonstrate their qualifications to compete for offices at higher levels. An elected mayor or governor who provides better public services than the established national leaders can become a strong competitive candidate for president or prime minister in the future.
Unfortunately Ukraine’s Constitution does not allow such opportunities for independent local leaders to prove themselves below the national level. In the governments of Ukraine’s provinces (oblasts) and major cities, executive authority is exercised by governors and mayors who are appointed and dismissed by the national President. Such centrally appointed officials have no incentive to serve the public better than the leader on whom their jobs depend. If Ms. Tymoschenko truly wants to build a stronger system of democratic competition in Ukraine, she might start by proposing a constitutional amendment to allow locally elected councils to choose their own governors and mayors.
If the new leadership in Egypt wants to maintain a political system in which national leaders are protected from serious competition from below, then they may be expected to craft a similar constitution that allows a President or Prime Minister to control state power at all levels. But even under old regime, Egypt’s Constitution promised (in Article 162) that popularly elected local councils would be gradually formed and given local governmental authority. If the leaders of the new regime are serious about promoting competitive democracy in Egypt, they could do well by fulfilling this promise and writing a new constitution that devolves a substantial share of power to separately elected provincial governments. Supporters of democracy in Egypt should watch carefully what they do on this dimension.
My daughter’s 4th grade class is reading a short story by O. Henry called The Two Thanksgiving Day Gentlemen. (A two minute read.) In about an hour I will go to her class and lead a discussion of the story. Here are my notes.
In the story we meet Stuffy Pete. He is sitting on a bench waiting for a second gentleman to arrive. We learn that this is an annual meeting on Thanksgiving day that Stuffy Pete is always looking forward to. Stuffy Pete is a ragged, hungry street-dweller and the gentleman who arrives each year treats him to a Thanksgiving feast.
But on this Thanksgiving, Stuffy Pete is stuffed. Because on his way to the meeting, he was stopped by the servant of two old ladies who had their own Thanksgiving tradition. They treated him to an even bigger feast than he is used to. And so he sits here, weighed down on the bench, terrified of the impending arrival.
The old gentleman arrives and recites this speech.
“Good morning, I am glad to see that the vicissitudes of another year have spared you to move in health about the beautiful world. For that blessing alone this day of thanksgiving is well celebrated. If you will come with me, my man, I will provide you with a dinner that should be more than satisfactory in every respect.”
The same speech he has recited every year the two gentlemen met on that same bench. “The words themselves almost formed an institution.”
And Stuffy Pete, in tearful agony at the prospects replies “Thankee sir. I’ll go with ye, and much obliged. I’m very hungry sir.”
Stuffy’s Thanksgiving appetite was not his own; it now belonged to this kindly old gentleman who had taken possession of it.
The story’s deep cynicism, hinted at in the preceding quote, is only fully realized in the final paragraphs which contain the typical O. Henry ironic twist. Stuffy, overstuffed by a second Thanksgiving feast collapses and is brought to hospital by an ambulance whose driver “cursed softly at his weight.” Shortly thereafter he is joined there by the old gentleman and a doctor is overheard chatting about his case
“That nice old gentleman over there, now” he said “you wouldn’t think that was a case of almost starvation. Proud old family, I guess. He told me he hadn’t eaten a thing for three days.”
Social norms and institutions re-direct self-interested motives. Social welfare maximization is then proxied for by individual-level incentives. But they can take on a life of their own, uncoupled from their origin. This is the folk public choice theory of O. Henry’s staggeringly cynical fable.
Check out Michael Chwe’s book Folk Game Theory: Strategic Analysis in Austen, Hammerstain, and African American Folk Tales. It’s a study of game theory in the context of literature and of literature through the lens of game theory. But it’s more than that. Each of the stories in the book illustrates what happens out of equilibrium.
The fox gets tricked by the rabbit because the fox has not understood the strategic motivation behind the rabbit’s actions. The master pays the price when he underestimates the slave. A folk tale is an artificially constructed scenario which purposefully takes the characters off the equilibrium path in order to teach us to stay on it.
By recovering a “people’s history of game theory” and gaining a larger understanding of its past, we enlarge its potential future. Game theory’s mathematical models are sometimes criticized for assuming ahistorical, decontextualized actors, and indeed game theory is typ- ically applied to relatively “neutral” situations such as auctions and elections. Folk game theory shows that game theory can most inter- estingly arise in situations which are strongly gendered or racialized, with clear superiors and subordinates. By looking at slave folktales, we can see how the story of Flossie and the Fox is a sophisticated discus- sion of deterrence. We can see from Austen’s heroine Fanny Price that social norms, far from protecting sociality against the corrosive forces of individualism, can be the first line of oppression. We can see from Hammerstein’s Ado Annie how convincing others of your impulsive- ness can open up new strategic opportunities. Folk game theory has wisdom which can be explored just as traditional folk medicines are now investigated by pharmaceutical companies.
There are many dimensions to this question . Let me focus on just one – collective decision-making.
Say there are two well-defined groups, A and B, in the division doing related but different work. Group A cannot judge collective decisions on hiring, investment etc that impinge on Group B and vice-versa. But the members of Group A certainly have opinions on how they should hire, fire and invest in their own group and so does Group B. Suppose the two groups vote together on all decisions within the division even if they mainly concern one group and not the other. There are two polar cases.
The members of each group have near common values and want pretty much the same thing. Then voting by each group on its own decisions aggregates information. The uninformed group should abstain. And if there are collective decisions that must be made at the division level, there is no need to break the group up.
At the other extreme, suppose for instance there is serious disagreement in Group A – there are significant private values. The members of Group B also get weak signals of the best decision for Group A. There is also a seniority ranking over the members of Group A. If the members of Group B continue to abstain on all Group A decisions, then information is still aggregated.
But there is another possibility. Members of Group B want to curry favor with senior members of Group A. These senior members are involved in lots of firm level decisions and it is important to have them on board. Then, another equilibrium can develop. When Group B member think the senior members of Group A are wrong, they abstain. They think their signals are too weak to overrule Group A members. But if they think the senior members of Group A are right, they vote enthusiastically along with them. Career concerns screw up voting in the division. This division should be broken up.
By asking a hand-picked team of 3 or 4 experts in the field (the “peers”), journals hope to accept the good stuff, filter out the rubbish, and improve the not-quite-good-enough papers.
…Overall, they found a reliability coefficient (r^2) of 0.23, or 0.34 under a different statistical model. This is pretty low, given that 0 is random chance, while a perfect correlation would be 1.0. Using another measure of IRR, Cohen’s kappa, they found a reliability of 0.17. That means that peer reviewers only agreed on 17% more manuscripts than they would by chance alone.
That’s from neuroskeptic writing about an article that studies the peer-review process. I couldn’t tell you what Cohen’s kappa means but let’s just take the results at face value: referees disagree a lot. Is that bad news for peer-review?
Suppose that you are thinking about whether to go to a movie and you have three friends who have already seen it. You must choose in advance one or two of them to ask for a recommendation. Then after hearing their recommendation you will decide whether to see the movie.
You might decide to ask just one friend. If you do it will certainly be the case that sometimes she says thumbs-up and sometimes she says thumbs-down. But let’s be clear why. I am not assuming that your friends are unpredictable in their opinions. Indeed you may know their tastes very well. What I am saying is rather that, if you decide to ask this friend for her opinion, it must be because you don’t know it already. That is, prior to asking you cannot predict whether or not she will recommend this particular movie. Otherwise, what is the point of asking?
Now you might ask two friends for their opinions. If you do, then it must be the case that the second friend will often disagree with the first friend. Again, I am not assuming that your friends are inherently opposed in their views of movies. They may very well have similar tastes. After all they are both your friends. But, you would not bother soliciting the second opinion if you knew in advance that it was very likely to agree or disagree with the first on this particular movie. Because if you knew that then all you would have to do is ask the first friend and use her answer to infer what the second opinion would have been.
If the two referees you consult are likely to agree one way or the other, you get more information by instead dropping one of them and bringing in your third friend, assuming he is less likely to agree.
This is all to say that disagreement is not evidence that peer-review is broken. Exactly the opposite: it is a sign that editors are doing a good job picking referees and thereby making the best use of the peer-review process.
It would be very interesting to formalize this model, derive some testable implications, and bring it to data. Good data are surely easily accessible.
(Picture: Right Sizing from www.f1me.net)
Schelling on dealing with threats:
“[I]f the person to be threatened is already committed, the one who would threaten cannot deter with his threat, he can only make certain the mutually disastrous consequences that he threatens.”
With “person” equal to professor and “the one” equal to student, Schelling adds:
“At Yale the faculty is protected by a rule that denies instructors the power to change a course grade once it has been recorded.”
Does Yale still have this rule? The threatener can apply a threat at a higher university level and not directly at the professor. Ideally, the threatener’s parents – the ones who sign the checks – can apply the threat. Then the rule will be changed and you can turn your attention back to the professor.
You receive an email with a question asking for advice or a suggestion or an opinion. To give a full answer you would have to take some time to think. You are a little busy and you would rather not give it too much thought but there is a second consideration that leads you to give the quick and dirty answer right away. The longer you wait the longer they will know you thought about it and the more credence they will give your answer. Not to mention that more of your reputation will be at stake if you are assumed to have thought carefully.
Still, some issues are important enough to give thought to. But how much? The same tradeoff is there, but now the characteristics of the correspondent matter. Every additional second you spend thinking allows you to make a slightly more thoughtful answer but also increases what he expects of you. If he is very sharp, he will be read your reply and possibly see deeper into the question than you did making you look bad. The gap only gets bigger the longer you wait. If he is less sharp, every second tilts the balance in your favor.
All of this is predicated on him knowing just how much time you spent on the question. You want to manipulate this by establishing a reputation for rapid-fire responses. Then if you wait a day but still give a lousy answer, he will put it down to you just having been busy for day before giving your usual top-of-your-head reply. Indeed you want everyone to think you are busier than you are.
Then along comes instant messaging, facebook, etc speeding up communications. You are expected to have seen the message sooner so its harder to pretend you were unavoidably delayed. On the plus side though now you can more easily commit to being busy. Just friend everyone. Your feed is so cluttered up with babble that these really important questions credibly get lost in the shuffle. He can directly see how overloaded you are.
So the value of your marginal friend is equal to the incremental publicly observed distraction she creates.
In economic theory, the study of institutions falls under the general heading of mechanism design. An institution is modeled as game in which the relevant parties interact and influence the final outcome. We study how to optimally design institutions by considering how changes in the rules of the game change the way participants interact and bring about better or worse outcomes.
But when the new leaders in Egypt sit down to design a new constitution for the country, standard mechanism design will not be much help. That’s because all of mechanism design theory is premised on the assumption that the planner has in front of him a set of feasible alternatives and he is desigining the game in order to improve society’s decision over those alternatives. So it is perfectly well suited for decisions about how much a government should spend this year on all of the projects before it. But to design a constitution is to decide on procedures that will govern decisioins over alternatives that become available only in the future, and about which today’s Constitutional Congress knows nothing.
The American Constitutional Congress implicitly decided how much the United States would invest in nuclear weapons before any of them had any idea that such a thing was possible.
Designing a constitution raises a unique set of incentive problems. A great analogy is deciding on a restaurant with a group of friends. Before you start deliberating you need to know what the options are. Each of you knows about some subset of the restaurants in town and whatever procedure the group will use to ultimately decide affects whether or not you are willing to mention some of the restaurants you know about.
Ideally you would like a procedure which encourages everyone to name all the good restaurants they know about so that the group has as wide a set of choices as possible. But you can’t just indiscriminately reward people for bringing alternatives to the table because that would only lead to a long list of mostly lousy choices.
You can only expect people to suggest good restaurants if they believe that the restaurants they suggest have a chance of being chosen. And now you have to worry about strategic behavior. If I know a good Chinese restaurant but I am not in the mood for Chinese, then how are you going to reward me for bringing it up as an option?
When we think about institutions for public decisions, we have to take into account how they impact this strategic problem. Democracy may not be the best way to decide on a restaurant. If the status quo, say the Japanese restaurant is your second-favorite, you may not suggest the Mexican restaurant for fear that it will split the vote and ultimately lead to the Moroccan restaurant, your least favorite.
Certainly such political incentives affect modern day decision-making. Would a better health-care proposal have materialized were it not for fear of what it would be turned into by the political sausage mill?
I am in Miami (or more precisely Coral Gables) to teach in Kellogg’s Miami Executive Program. Instead of flagging a cab and heading over to Gloria Estefan’s beach restaurant for lunch, I am glued to the internet checking the NYT website every few minutes to see what’s going on in Egypt.
Like all dictators who manipulate elections to stay in power, Mubarak invoked the Constitution to justify delaying and limiting the transfer of power. It seems laughable to invoke a constitution that has been ignored for decades to use it as an excuse for justifying anything. But I guess it is important.
As far as I can tell from my Hyatt vantagepoint, Mubarak has stepped down and has headed to his home in Sharm el-Sheik. He has handed over power to the army and his Vice President. Yesterday, Mubarak did pretty much the same thing but stayed as President and devolved powers up to the limits allowed by the Constitution. There was a danger than when the protestors calmed down, he would return to power. But it seems he can to something very similar from Sharm al-Sheikh, returning to power once the protests have subsided.
There is a key difference: In the former case, he can invoke his constitutional authority to return to power and in the latter, his return would be extra-constitutional as he would have stepped down. Even though the Constitution is cheap talk, it is a coördination device for the army. The leader the guns support will return to power. They are less likely to support Mubarak after he has formally stepped down. So, all the constitutional garb was relevant after all. It remains to be seen how the army will behave over the next few days. I will not be going to Gloria’s restaurant at all on this trip I suspect.
Following up on the Trivers-Willard hypothesis. The evidence is apparently that promiscuity, a trait that confers more reproductive advantage on males than females, is predictive of a greater than 50% probability of male offspring. A commenter claimed that there is a bias in favor of male offspring when the mother is impregnated close to ovulation and wondered whether the study controlled for that. A second commenter pointed out that there is no reason to control for that because that may be exactly the channel through which the Trivers-Willard effect works.
So now put yourself in the shoes of the intelligent designer. Suppose you are given that promiscuity is such a trait. You are given control over the male-female proportion of offspring and you are designing the female of the species. What you want to do is program her to have male offspring when she mates with a promiscuous male. But you cannot micromanage because there is no way to condition this directly on the promiscuity of the mate. The best you can do is vary the sex proportions conditional on biological signals, for example the date in the cycle.
How would you do this? Of all the “states of the system” that you can condition on, you would find the one such that conditional on having sex in that state, the relative likelihood that her partner was the promiscuous type was maximized. You would program her to increase the proportion of male offspring in those states.
Is sex close to ovulation such a signal? I don’t see why. But we could think of some that would qualify. How about the signal that he is delivering a small quantity of sperm? The encounter lasted longer than usual, this is the first time she had sex in a while, these sperm have not been seen before, etc…
(Regular readers of this blog will know I consider that a good thing.)
The fiscal multiplier is an important and hotly debated measure for macroeconomic policy. If the government spends an additional dollar, a dollar’s worth of output is produced, but in addition the dollar is added to disposable income of the recipients who then spend some fraction of it. More output is produced, etc.
It’s hard to measure the multiplier because observed increases in government spending are endogenous and correlated with changes in output for reasons that have nothing to do with fiscal stimulus.
Daniel Shoag develops an instrument which isolates a random component to state-level government spending changes.
Many US states manage pensions which are defined-benefit plans. Defined benefits means that retirees are guaranteed a certain benefit level. This means that the state government bears all of the risk from the investments of these pension funds. Excess returns from these funds are unexpected exogenous windfalls to state spending budgets.
With this instrument, Daniel estimates that an additional dollar of state government spending increases income in the state by $2.12. That is a large multiplier.
The result must be interpreted with some caveats in mind. First, state spending increases act differently than increases at the national level where general equilibrium effects on prices and interest rates would be larger. Second, these spending increases are funded by windfall returns. The effects are likely to be different than spending increases funded by borrowing which crowds out private investment.
According to the Trivers-Willard Hypothesis, individuals possessing a trait which improves the reproductive success of males more than females will be more likely to give birth to male offspring than to female offspring. I came across a study that claims to support the hypothesis where the trait in question is promiscuity.
Our analyses of two large nationally representative samples, from the General Social Survey in 1994 and the National Longitudinal Study of Adolescent Health, confirm this prediction. Controlling for a large number of social demographic factors that might be expected independently to influence offspring sex ratios, unrestricted sociosexual orientation significantly increases the odds that the first child is a boy. One standard deviation increase in the unrestrictedness of sociosexual orientation increases the odds of having a son by 12-19%.
That seems like a large effect, if true. Chullo chuck: Barking Up The Wrong Tree.
A player who seeks to be aggressive against an opponent prefers to catch him by surprise and passive and not well-prepared. The chance that an opponent may attack by surprise makes a player cautious and well prepared and not passive. Hence, uncertainty about each player’s intentions can create a vicious cycle where everyone turns aggressive. This was the topic of last week’s class.
Next we study if communication can provide a route out of conflict. But the same incentives that generate conflict generate incentives for deception: whether a player intends to be aggressive or passive, he wants his opponent to be passive. Hence, he might always send the message that maximizes the probability that his opponent is passive but then cheap-talk is not effective and does not affect the equilibrium. An argument along these lines was made by Aumann in a Stag Hunt game.
We show that while deception occurs in equilibrium, it is still possible to transmit enough information to create less conflict. While players may always seek to minimize the probability their opponent is aggressive, they may also value information about his action so they can coordinate against it. If the trade-off between these two benefits is type-dependent in a conflict game with incomplete information, separating equilibria are possible and so is coordination on peace.
The ideas above relate to conflict and escalation, where it is known that aggression begets aggression. What if aggression may beget deterrence not escalation? For example, revealing weapons may create deterrence but trigger escalation. Revealing you have no weapons may reduce escalation but eliminate deterrence. In this situation it can be optimal to employ strategic ambiguity: neither reveal weapons if you have them, nor reveal you do not have them if you do not. Strategic ambiguity allows a player to employ “deterrence by ambiguity” as he may be armed behind the veil of ambiguity. He has less incentive to acquire arms as he can pretend to have arms even when he does not behind the veil of ambiguity. This reduction in arms proliferation can help all players not just the player employing ambiguity strategically.
Here are the slides.
I am a postalite, and not a blitzer. I am not good at coming up with ideas on demand and in the moment. Pretty much all of my work is based on waiting around passively for an idea to pop into my head. It happens in the shower, in the car, at 4:00 in the morning when I am awakened by the snow plow, etc. Whenever that happens I immediately send it to myself in an email.
Then a complicated system of tubes that I have set up routes that email to my Google Buzz feed, then my other blog, and finally to a mail folder where I keep all of these ideas archived. A typical auto-email looks like this:
—– Original Message ——–
Subject: Album of the summer Date: Wed, 18 Aug 2010 10:02:56 -0700 From: jeffrey ely <jeffely@northwestern.edu> To: post@cheepthoughts.posterous.com Tmbg flood Grownup now sounds like kids Snorkeling You're such a great Parker daddy Guy teaching daughter to surf The day it all came together Old man learning new tricks
Which has the bare outline of a post I never wrote about my experiences surfing this past summer, and being an old man learning new things at the same time my kids are learning new things.
I send myself about 4 of these per day on average, although most of them are just links to stuff on the web I might write about. People also send me links and I just forward them right away.
Every morning I go through my archive to find something I want to write about (If people have liked it on Google Buzz then I know its a go for the blog.) I try to keep it in mind all day and work on what I can say about it and how to write it. This allows me to take advantage of idle moments throughout the day to do most of the writing. Ideally, by the time I sit down to write (usually just before going to bed at night) I have a good outline and the only thing left to do is find the right words.
(Ron Siegel took this photo of the car cemetery on Chicago’s Lake Shore Drive in last week’s blizzard.)
Celebrity-Yogis like Bikram Choudry claim copyright of certain sequences of Yoga postures. That’s kinda like Wilt Chamberlain patenting his favorite, ehem, postures; but while the Kama Sutra has yet to establish priority, India’s Traditional Knowledge Library is placing all known yoga asanas into the public domain.
Nine well known yoga institutions in India have helped with the documentation. “The data will be up online in the next two months. In the first phase, we have videographed 250 ‘asanas’ — the most popular ones. Chances of misappropriation with them are higher. So if somebody wants to teach yoga, he does not have to fight copyright issues. He can just refer to the TKDL. At present, anybody teaching Hot Yoga’s 26 postures has to pay Choudhury franchisee fee because he holds copyright on them,” Dr Gupta added.
Fez flip: BoingBoing
You go around saying X. There are some people who agree with X and others who disagree. Those who agree with X don’t blink an eye when you say X. Those who disagree with X tell you X is wrong.
At some point you have to rethink whether you agree with X. You have a bunch of definitive signals against X but the signals in favor of X are hard to count. You have to count the number of times people didn’t say anything about X. You are naturally biased against X.
Eventually you change your mind and go around saying not-X. Repeat.
You are reorganizing your firm. There are many legacy employees the old CEO was too weak to fire. They are inefficient and incompetent but their connection to the old CEO – an insider – kept their jobs safe. You were hired from the outside and feel no particular affection for the old guard. There is one employee Mr X who is high up. He is terrible at his job but has survived by using his charm and by buttering up the customers. Sometimes he went too far. You hear rumors of “liasons” between your staff and the customers. Also, there were inappropriate exchanges of gifts. While nothing was strictly illegal, if news gets out, your firm will look bad and business will suffer.
You want to sack Mr X. Your problem is that he knows too much: if you fire him, he threatens to go to the press and tell them everything he knows. This would be a catastrophe. One thing can save you: what is bad for you is also bad for him. Mr X played no small part in the sleazy business he threatens to reveal. He’ll have a hard time getting a new job if he spills the beans. Even if he gets a new job, stabbing is old boss in the back will make his new boss worry if he can trust Mr X. It seems you are safe.
What can Mr X do to make his threat credible? This is an classic problem in game theory and perhaps I have something new to say. But it cannot be better than what Schelling and Ellsberg said many years ago. For example, see the Theory and Practice of Blackmail by Daniel Ellsberg. Ellsberg identifies four strategies for the blackmailer: (1) commitment, (2) contracts with third parties, (3) uncertainty about payoffs and (4) cultivating a reputation for irrationality.
Mr X might give his evidence over to a lawyer and instruct him to release it should Mr X ever be fired. He might write a contract with a third party stipulating that he will pay a large fine to the third party if Mr X is fired and does not release the evidence. These solutions seem far fetched to Mr X. He has no wealth to hand over as a fine and anyway contracts can be renegotiated (e.g. The third party knows that he will not get paid in equilibrium. So Mr X and the third party could agree to write a new contract after Mr X is fired. The agree to small payment to the third party even if Mr X does not reveal the evidence.)
So, Mr X is left with the last two options which are quite related. He has to look either as if he enjoys a fight for its own sake or that he does not but is crazy enough to take actions against his own self-interest. The topic of many subsequent papers in game theory.
Ellsberg’s paper is the text of a lecture he gave to a general interest audience. It is an easy and fun read. Ellsberg offers a very clear definition of rationality as used in economics. The paper is notable for an aesthetic in game theory that it espouses: Game theory offers qualitative intuition and is not inherently quantitative. And it is an art not a science.
Here’s a broad class of games that captures a typical form of competition. You and a rival simultaneously choose how much effort to spend and depending on your choices, you earn a score, a continuous variable. The score is increasing in your effort and decreasing in your rival’s effort. Your payoff is increasing in your score and decreasing in your effort. Your rival’s payoff is decreasing in your score and his effort.
In football, this could model an individual play where the score is the number of yards gained. A model like this gives qualitatively different predictions when the payoff is a smooth function of the score versus when there are jumps in the payoff function. For example, suppose that it is 3rd down and 5 yards to go. Then the payoff increases gradually in the number of yards you gain but then jumps up discretely if you can gain at least 5 yards giving you a first down. Your rival’s payoff exhibits a jump down at that point.
If it is 3rd down and 20 then that payoff jump requires a much higher score. This is the easy case to analyze because the jump is too remote to play a significant role in strategy. The solution will be characterized by a local optimality condition. Your effort is chosen to equate the marginal cost of effort to the marginal increase in score, given your rival’s effort. Your rival solves an analogous problem. This yields an equilibrium score strictly less than 20. (A richer, and more realistic model would have randomness in the score.) In this equilibrium it is possible for you to increase your score, even possibly to 20, but the cost of doing so in terms of increased effort is too large to be profitable.
Suppose that in the above equilibrium you gain 4 yards. Then when it is 3rd down and 5 this equilibrium will unravel. The reason is that although the local optimality condition still holds, you now have a profitable global deviation, namely putting in enough effort to gain 5 yards. That deviation was possible before but unprofitable because 5 yards wasn’t worth much more than 4. Now it is.
Of course it will not be an equilibrium for you to gain 5 yards because then your opponent can increase effort and reduce the score below 5 again. If so, then you are wasting the extra effort and you will reduce it back to the old value. But then so will he, etc. Now equilibrium requires mixing.
Finally, suppose it is 3rd down and inches. Then we are back to a case where we don’t need mixing. Because no matter how much effort your opponent uses you cannot be deterred from putting in enough effort to gain those inches.
The pattern of predictions is thus: randomness in your strategy is non-monotonic in the number of yards needed for a first down. With a few yards to go strategy is predictable, with a moderate number of yards to go there is maximal randomness, and then with many yards to go, strategy is predictable again. Variance in the number of yards gained in these cases will exhibit a similar non-monotonicity.
This could be tested using football data, with run vs. pass mix being a proxy for randomness in strategy.
While we are on the subject, here is my Super Bowl tweet.
The MILLTs at Spousonomics are calling on spouses to look for Pareto improvements in our marital transactions. Paula offers this list for her husband on Valentine’s day.
1. Help with garbage night.
2. Join you in the 30-day meditation challenge.
3. Not remind you when you have to make up a work shift at the food coop.
4. Use my Petzl head lamp when I’m reading in bed and you’re already asleep.
5. Work on my tone of voice when I’m frustrated.
6. Pick my battles.
7. Entertain notion that my way isn’t the only way.
8. Try again to make braised pork shoulder.
9. Give Sonny & the Sunsets another chance.
10. Let things go.
I’m as keen on free lunches as the next guy (I’m looking at you Asher), but at the risk of throwing cold water on Paula’s Valentine’s Day overtures, let me bring a little dose of tradeoffs to this home economics lesson. First of all, Paula is shortchanging her generosity on many of these because very few of them are literal Pareto improvements. Garbage night? Who isn’t better off keeping their hands clean, not to mention taking a pass on the sub-freezing walk to the curb. And I am not sure what exactly a Petzl head lamp is but I’d be worried about waking up to the fragrance of molten hair after dozing off with one of those on.
No those are genuine sacrifices. Indeed Pareto improvements are pretty hard to come by even if you are otherwise a selfish pig. Especially if you are a selfish pig. Because as long as you are already doing everything that would make you better off, the only room left for Pareto improvements is spanned by the knife’s edge of indifference.
There is a second category represented on the list: proposals that take a long-run view. These are a bit more subtle. Give Sonny and the Sunsets another chance. This qualifies as a Pareto improvement even though the implicit suggestion is that Sonny and the Sunsets didn’t cast a warm glow the first time. If the clouds part for Paula the second time around then she and her husband are both better off. But again Paula’s pure self interest already takes care of this one so long as she’s thinking ahead. Anyway, if even Sonny and the Sunsets can grow on us after a few listenings then anything can. Why not just spend 30 days meditating? Oh wait…
And let’s not forget that a Pareto improvement has to make the other party better off, at least weakly. Given what we can all infer from the pledge itself, “Try again to make braised pork shoulder” seems to fail on that count.
Then there’s the issue of narrow framing. Pareto efficiency for the household may entail violence against the rest of the world. Not reminding him about food co-op is nice but what about the poor slobs waiting for their food at the co-op? Heck why not replace this one with “Encourage you to pilfer more food from the co-op?”
The last set of proposals all relate to improving conflict resolution. Most appear superficially to be obvious Pareto improvements. Work on my tone of voice when I am frustrated. Paula is probably truly indifferent to how her own voice sounds when she’s frustrated, but I would bet that her husband has a clear preference. So this does seem to require a little more than pure self-interest to implement. “Let things go” is another.
But it’s for exactly this kind of household constitutional amendment that the logic of Pareto efficiency can be turned on its head. The concept of renegotiation in repeated games holds a key lesson. Marriage is a partnership that requires individual sacrifice in order to reach the efficient frontier. The temptation to cheat on the relationship must be deterred with the threat of moving below from the frontier as a reprisal. Once there it is tempting to re-negotiate back to the frontier. But as soon as we get used to doing that, the incentive keeping us at the frontier in the first place goes away.
Best not to “Let Go” so quickly, Paula. Sorry Mr. Paula. Try to have a Happy Valentine’s day anyway.
Actions speak louder than words. Anarchists seeking to spread revolution resort to extreme acts hoping to stir the sympathy of the general population. Would be change-agents differ in their favored instrument of provocation – assassination, bombings or general strike. They are united by their intrinsic lack of real power. They only way they can hope to achieve their ends is by persuading other players to react and indirectly give them what they want. As such, the “propaganda of the deed” in practiced typically by people on the fringe of society, not in the corridors of power. (See my paper The Strategy of Manipulating Conflict with Tomas Sjöström for illustrations of this strategy.)
But Mubarak has reached this lowly state even as President of Egypt. He has conspicuously lost popular support and tensions long suppressed have burst asunder for all to see. He has lost the support of “the people” and, perhaps even more importantly, the army. What can he do to get it back? The anti-Mubarak protestors have till recently refrained from looting and mob mentality has been notable for its absence. As long as that remains the case, the army and the people are siding with the anti-Mubarak protestors or largely staying out of the fray. Mubarak’s only hope is to get the people and the army to pick his side. He needs to energize the mob and trigger looting. That is his strategy. Police disappeared from the streets of Cairo a few days ago, inviting looters to run amok. That did not work. So, now he has employed pro-Mubarak “supporters” to fight anti-Mubarak protestors. Open fighting on the streets of Cairo, prodding the army to step in. The people scared of the outbreak of lawlessness turning to the strongman Mubarak to return some semblance of stability to the city and the country. This is where we are in the last couple of days. Another obvious strategy for Mubarak: Get his supporters to loot and pin it on the anti-Mubarak protestors. Not sure if that is happening yet.
What can be done to subvert the Mubarak strategy? For the protestors, the advice is obvious – no looting, no breakdown of law and order. The primary audience is the army and people – keep them on your side. For the Obama administration there is little leverage over Mubarak. I assume he has hidden away millions if not billions – cutting off future aid has little chance of persuading Mubarak to do anything. Again, the army is the primary audience for the Obama administration. Whichever side they pick will win. The army cares more about the cutoff of future aid than Mubarak. They have trained in US military schools and have connections here. The only leverage the Obama administration has is over the army and it is hard to tell how strong that leverage is.
This week I switched to models of conflict where each player puts positive probability on his opponent being a dominant strategy type who is hawkish/aggressive in all circumstances. This possibility increases the incentive of a player to be aggressive if actions are strategic complements and decreases it if actions are strategic substitutes. The idea that fear of an opponent’s motives might drive an otherwise dovish player into aggression comes up in Thucydides (“The growth of Athenian power and the fear this caused in Sparta, made war inevitable.”) and also Hobbes. But both sides might be afraid and this simply escalates the fear logic further. This was most crisply stated by Schelling in his work on the reciprocal fear of surprise attack (“[I]f I go downstairs to investigate a noise at night, with a gun in my hand, and find myself face to face with a burglar who has a gun in his hand, there is a danger of an outcome that neither of us desires. Even if he prefers to leave quietly, and I wish him to, there is a danger that he may think I want to shoot, and shoot first. Worse, there is danger that he may think that I think he wants to shoot. Or he may think that I think he thinks I want to shoot. And so on.”). Similar ideas also crop up in the work of political scientist Robert Jervis.
Two sided incomplete information can generate this kind of effect. It arises in global games and can imply there is a unique equilibrium while there are multiple equilibria in the underlying complete information game. But the theory of global games relies on players’ information being highly correlated. Schelling’s logic does not seem to rely on correlation and we can imagine conflict scenarios where types/information are independent and yet this phenomenon still arises. In this lecture, I use joint work with Tomas Sjöström to identify a common logic for uniqueness that is at work for information structures with positively correlated types or independent types. Our sufficient conditions for uniqueness can be related to conditions that imply uniqueness in models of Bertrand and Cournot competition.
With these models in hand, we have some way of operationalizing Hobbes’ second motive for war, fear. I will use these results and models in future classes when I use them as building blocks to study other issues. Here are the slides.
I am talking about world records of course. Tyler Cowen linked to this Boston Globe piece about the declining rate at which world records are broken in athletic events, especially Track and Field. (Usain Bolt is the exception.)
How quickly should we expect the rate of new world records to decline? Suppose that long jumps are independent draws from a Normal distribution. Very quickly the world record will be in the tail. At that point breaking the record becomes very improbable. But should the rate decline quickly from there? Two forces are at work.
First, every new record pushes us further into the tail and reduces the probability, and hence freqeuncy, of new records. But, because of the thin tail property of the Normal distribution, new records will with very high probability be tiny advances. So the new record will be harder to beat but not by very much.
So the rate will decline and asymptotically it will be zero, but how fast will it converge to zero? Will there be a constant K such that we will have to wait no more than nK years for the nth record to be broken or will it be faster than that?
I am sure there is an easy answer to this question for the Normal distribution and probably a more general result, but my intuition isn’t taking me very far. Probably this is a standard homework problem in probability or statistics.
The Boston Globe piece is about humans ceasing to progress physically. The theory could shed light on this conclusion. If the answer above is that the arrival rate increases exponentially, I wonder what rate the mean of the distribution can grow and still give rise to the slowdown. If the mean grows logarithmically?
It is the second anniversary of this blog, as Jeff says. We are forever connected to Groundhog Day. Today, amazingly, the NYC groundhog predicted an early Spring. I hope he is right and his prediction also holds for the Midwest.
We have been blogging for two years now. When we turned 1 I started writing a sequence of posts on Why I Blog. Here’s a few of them. As a final why-thought I would like to say that while blogging often feels like shirking, in fact the number one reason that keeps me going when I start to worry I am running out of ideas is that this blog has proved to be a huge boon to my research.
Sandeep and I started writing Torture on this blog. Simply put, that paper would not exist if Cheap Talk did not exist. This post I wrote recently about overbooking set me thinking for a day or two and now, with ideas from Daniel Garrett and Toomas Hinnosaar, the three of us are writing a paper on it. These are the concrete products but there are many more benefits that are harder to measure but easily as important.
First, if you look at the tag vapor mill, you will find a trail of ideas that I have written down, each of which has the potential to be a real research project. A number of them I intend to work on when I have the time. Second, its a true cliche that writing about “the real world” makes you a better theorist. Sometimes you learn that crucial assumptions are too restrictive to explain a story. Sometimes you find a new appreciation of just how far they go. And not even the most prolific “applied theorists” get the opportunity to write as frequently and about the kind of wide-interest topics as a blogger gets.
Done with the why, onto the how. Blogging is a big commitment and you learn only very slowly how to do it efficiently. Given the amount of time I spend staring at a blank text editor I still have a lot to learn myself. But I’ll write a few things I picked up. For starters let me tell you how Sandeep and I started this blog because I think we did something smart that I would recommend to anybody who was thinking about jumping in.
We blogged to ourselves for about a month. It was a a real dress rehearsal: we used the WordPress blog that we are using now, we wrote posts about once a day, but nobody read them because nobody knew the blog existed. This was mainly to see what it would be like to try to write on a daily basis. If it looked like we wouldn’t be able to keep it going we would just call it off and nobody would know we were failures.
But when we finally decided that it was a go, it had a second benefit. Before going public, we archived all of the posts we had written already and scheduled them to be published a day at a time over the next several weeks. Here’s why this is such a great idea. Blogging requires momentum. Unless you are a highly unusual person, it is impossible to conjure up something to write about on a daily basis. Instead, what you do is collect ideas, allow them to percolate around in your head for awhile and then write them down when they are ripe. It takes months before there’s enough in the pipeline to keep you actively writing. Having a headstart gives you the lead time you need to reach that cruising speed.
(Drawing: Riding The Wave from www.f1me.net)
Self-Deception is a fascinating phenomenon. If you repeat a lie to yourself again and again, you start to believe it. You would think that the ability to deceive yourself would be constrained by data. If there is obviously available evidence that your story is false, you might stop believing it. Then, self-deception can only flourish when there is an identification problem. Once data falsifies competing theories, the individual is forced to face facts.
Reality is much more complex. Take the perhaps extreme case of John Edwards. The National Enquirer published a story reporting that Rielle Hunter was pregnant with John Edwards’s child. Edwards simply denied the facts. The Enquirer employed a psychologist to profile Edwards. S/he concluded:
“Edwards looks at himself as above the law. He has a compromised conscience — meaning he will cover up his immoral behavior at whatever cost to keep his reputation intact. He believes he is who his reputation says he is, rather than the immoral side, the truth. He separates himself from the immoral side because that person wouldn’t be the next president of the United States. He overcompensated for his insecurities with sex to feed his ego which feeds his narcissism.”
The most important part was the absolute certainty of the mental health professional that Edwards would continue to deny the scandal — almost at all costs.
“He will keep denying the scandal to America because he is denying the reality of it to himself. He sees himself only as the image he has created.”
How do you deal with a pathological deceiver/self-deceiver? The Editor collected photos and evidence of Hunter-Edwards liasons. He describes his strategy:
We told the press that there were photographs and video from that night. Other journalists asked us to release the images but I refused. Edwards needed to imagine the worst-case scenario becoming public. TheEnquirer would give him no clues about what it did and did not have…..
Behind the scenes we exerted pressure on Edwards, sending word though mutual contacts that we had photographed him throughout the night. We provided a few details about his movements to prove this was no bluff.
For 18 days we played this game, and as the standoff continued the Enquirer published a photograph of Edwards with the baby inside a room at the Beverly Hilton hotel.
Journalists asked if we had a hidden camera in the room. We never said yes or no. (We still haven’t). We sent word to Edwards privately that there were more photos.
He cracked. Not knowing what else the Enquirer possessed and faced with his world crumbling, Edwards, as the profiler predicted, came forward to partially confess. He knew no one could prove paternity so he admitted the affair but denied being the father of Hunter’s baby, once again taking control of the situation.
This strategy is inconsistent with the logic of extreme self-deception. Such an individual must be overconfident, thinking he can get away with bald-faced lies. Facing ambiguous evidence, he might conclude that the Enquirer had nothing beyond the odd photo it released. The Enquirer strategy instead relies on the individual believing the worst not the best. The two pathologies self-deception and extreme pessimism should cancel out…..there is some interssting inconsistency here.
One thing is clear: One way to eliminate self-deception is for a third-party to step in and make the decision. This is what Omar Suleiman, Barack Obama and the Egyptian army are doing to help Hosni Mubarak deal with his self-deception.
Cheap Talk 