Sunday, November 9, 2014

Mastery by George Leonard

I finished reading Mastery: The Keys to Success and Long-Term Fulfillment by George Leonard.

The first sentence of the back cover sums up this book well: "Drawing on Zen philosophy and his expertise in the martial art of aikido, bestselling author George Leonard explains how the process of mastery will enable you to vault over the pitfalls of the quick fix to attain a higher level of excellence and a deeper sense of satisfaction."

The path to mastery, Leonard claims, is not linear; it's a bunch of plateaus with brief spurts of improvement.

People become frustrated on those plateaus, thinking they should be progressing, but aren't. In some cases, your output could actually be worse on a plateau just before you put it all together and get to the next level of mastery. The language Leonard uses reminds me a lot of Seth Godin's more recent The Dip. Godin's picture is different, but the language he uses to describe the dip is very similar to how Leonard describes the plateau.

The big point (once Leonard presents what the path to mastery looks like) is this: to achieve mastery, you have to love the plateau; you have to find joy in regular practice. "At the heart of it," he says, "mastery is practice. Mastery is staying on the path."

I found this book to be a nice description of how learning is not linear and self-improvement is hard. Mastery takes work, and you have to love that work, not just the end result.  In addition to emphasizing the importance of tools to improve your internal well-being and mindset (e.g. use visualization, maintain physical fitness, avoid drugs, negotiate with your own resistance to change),  I also appreciated Leonard's nod to to how external factors positively and negatively affect your path to mastery (e.g. quality of instruction, external motivation such as prizes). A lot depends on our own actions, but sometimes others' actions matter, too.

Wednesday, November 5, 2014

Money Well Spent

Americans spent about $7.4 billion for Halloween.

Americans spend about $7 billion dollars on potato chips annually.

Americans spent about $3.7 billion on the 2014 midterm elections.

There is a lot of money that gets "thrown away" on elections. But for less than the cost of Halloween, or less than the cost of our consumption of potato chips, Americans perpetuate elections that are free and fair enough that leaders and ruling parties from DC all the way down to your local ward voluntarily give up power when they are simply out-voted. That's money well spent.

Saturday, August 16, 2014

Sentences I Didn't Expect to See

From Ken Fisher's The Only Three Questions that Still Count: Investing by Knowing What Others Don't:
Finance Theory is quite clear the only rational basis for placing a market bet is if you believe somehow, some way, you know something others don't know. The only question that counts is: What do you know that others don't?... 
Markets are pretty efficient at pricing all currently known information into today's prices.... Instead, it's surprise that moves the markets (pages x-xi).
These are not sentences I was expecting to see in a book by a billionaire fund manager.

Thursday, August 14, 2014

Finally, Some Quality Ice Cream!

I love ice cream. However, the lack of high quality ice cream shops in Chicago baffles me. Do Chicagoans not like ice cream? Do we ship the good cartons out? Is the regulation of ice cream shops stifling? I am not even kidding.

I mean, look at this picture of one of the "best" options for ice cream in Chicago according to seriouseats:

Pro tip: If you have to smother your ice cream with cheap, sugary toppings to make it taste better, then it's not the best ice cream. (Not that I wouldn't eat a delicious banana split -- you just don't need the best ice cream to make one.)

Luckily, someone heard me scream for some quality ice cream. Jeni's, one of the top two brands in Columbus has opened its doors in the Chicago area last summer. Even better, the other one of the top two brands (another Ohio-founded and my personal favorite), Graeter's, is considering up to four locations in Chicago! I even saw a Graeter's ad for the first time over the weekend, so hopefully that is signalling a serious entry into the market. Graeter's is already in some grocery stores in the area, but just having one Graeter's ice cream shop would probably double the greatness of Chicago as a city.

I can't wait!

Tuesday, August 5, 2014

The Paradox of Choice?

Over a long weekend, I got a chance to visit my friends Tony and Shanna at their new home in Colorado. On Friday we had lunch at Half Fast Subs -- their menu is quite extensive!

The line moved quickly and I chose the N'Awlin's Shrimp Po-Boy. It sounded good and was also one of the specials of the day, so I didn't have to search the menu very long. It was a very good choice.

Thursday, July 31, 2014

Popcorn Estimation

One thing I like to do when traveling out of Midway is to stop at Nuts on Clark for some popcorn. Today, the customer in line in front of me jovially asked the cashier:

"How much would a twenty-eight ounce bag cost? $600? I bet that guy would walk away with a lot of popcorn! But he would be really happy!"

I guess he didn't notice that a two pound bag of popcorn costs only $21.50.

I thought about mentioning that the one pound bag only costs $11.25 but he looked really happy buying two 8 ounce bags for $6 each. Maybe he was sharing. 

Friday, July 25, 2014

The Perfect Project? Or Plagiarism?

"Scientists were doing plenty of tests on them, but they just always assumed they were in the ocean," Lauren, now 13, tells NPR's Kelly McEvers. "So I was like, 'Well, hey guys, what about the river?' " (NPR)

"My lionfish research is going viral ... but my name has been intentionally left out of the stories, replaced by the name of the 12-year-old daughter of my former supervisor's best friend." ...
One can only hope that in a private conversation after that NPR interview, Lauren’s father had pointed out that, actually, the original idea for her “finding” had come from another scientist, one he’d known professionally, and that maybe they should mention Jud’s work in her next interview. However, as Lauren went on to perpetuate falsehoods in subsequent interviews, the adults in Lauren’s life seem to have fallen down on their job as teachers and role models. (The Atlantic)

We acknowledge Lauren Arrington in the paper twice. (Abaco Scientist)

I am going with... almost perfect project. It beats an endless line of potato batteries and baking soda volcanoes, right? If every science fair project was a replication or a mini-experiment based on an actual science paper, kids would LEARN A TON ABOUT SCIENCE!

Almost perfect, because it would have been better if the father had come in and helped everyone do such a high quality experiment teaching about the scientific process, and the father fell down a bit on the post-project PR. Also, the organizers should not have done this: "Lauren was given a strict set of rules by the science fair organizers. The most important one: Her fish could not die." I say, kill the fish (if you can!). Haven't they heard about WHY lionfish are such an active area of ecological study? A not-so-friendly reminder: do not release your non-native pets into the wild.

Friday, July 4, 2014

Happy Independence Day!

We, therefore, the Representatives of the united States of America, in General Congress, Assembled, appealing to the Supreme Judge of the world for the rectitude of our intentions, do, in the Name, and by Authority of the good People of these Colonies, solemnly publish and declare, That these United Colonies are, and of Right ought to be Free and Independent States... (The Declaration of  Independence)
It's a Fourth of July tradition of mine to read The Declaration of Independence and wear this ostentatious shirt:

At the end, The Declaration of Independence describes what the founders had in mind for what countries (or at least, the freed colonies) can do. "[T]hey have full Power to levy War, conclude Peace, contract Alliances, establish Commerce, and to do all other Acts and Things which Independent States may of right do." The Constitution outlines in the preamble what the goals of this country should be:
...form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defense, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity....
Then the rest of the Constitution outlines a system of limited government  to achieve those goals.

But, what is a country? It's a little nebulous because borders and regimes and constitutions change all the time; countries can be occupied or dissolved. Countries are endogenous, no matter how convenient it is for us to think of them as exogenous.

I like to think a country uses a common currency, enforces borders (trade of goods, movement of people may be restricted), and speaks a common language. A successful government of that country would then (using the common language) resolve disputes that arise from using a common currency, free trade, and unrestricted movement.

But, I'm not entirely happy with this answer. There is usually some element of a common culture. Most laws are legislating some kind of morality. We require a minimum amount of behavioral conformity from each other. Usually there is a military which defends the whole country, a system of justice, etc. But often these issues lead into "what should our country be?" rather than "what is a country?" It's hard to separate that out.

So, what should this country be? What is our place in the world? How can we strive to become a more perfect Union today?

Sounds like a good Fourth of July cookout discussion to me!

Further Reading:
The Declaration of Independence
The Constitution (The Archives kindly redlines where Amendments replace the original text.)

Related Posts:
Enumerated Powers and the Commerce Clause
Trial by Jury and The Electoral Jury (David Hagen)

Tuesday, June 17, 2014

Money Isn't Everything (Congressional House Race Edition)

Last week, David Brat defeated the House Majority Leader in a primary. And Brat only had just about $200,000 and two paid staffers to do it. I was absolutely shocked the primary turned out this way.

While there is some good academic research showing that neither incumbent wealth nor incumbent spending have large effects on electoral outcomes, and large war chests do not deter quality candidates from competing, it's nice to have a vivid, recent example showing that money isn't everything.

Tuesday, June 3, 2014

How to Pick 'Em

March Madness may be over, but the FIFA World Cup is just beginning, providing yet another chance to start up an office pool!

To put it politely, the US is not favored to win. Regardless, in your office pool, should you bet on the US winning it all, for love of country? You're going to be rooting for them in every game, right?

Go ahead and root. But, don't bet on the US. It gives you a better chance of winning the pool and partially hedges against the possibility of future patriotic disappointment.

Unless, of course, one of the reasons you watch sports is for the vicarious thrill of victory and agony of defeat. Then, by all means, amplify those feelings by betting on your home team.

Saturday, May 31, 2014

The Book on Inequality You Should Be Reading

Escapes leave people behind, and luck favors some and not others; it makes opportunities, but not everyone is equally equipped or determined to seize them. So the tale of progress is also the tale of inequality.... 
This book is about the endless dance between progress and inequality, about how progress creates inequality, and how inequality can sometimes be helpful -- showing others the way, or providing incentives for catching up -- and sometimes unhelpful -- when those who have escaped protect their positions by destroying the escape routes behind them. 
That is from The Great Escape: health, wealth, and the origins of inequality by Angus Deaton.

Saturday, May 10, 2014

Could the Financial Crisis Have Been Prevented?

"Our task was first to determine what happened and how it happened so that we could understand why it happened."
    -- The Financial Crisis Inquiry Report

"The greatest tragedy would be to accept the refrain that no one could have seen this coming and thus nothing could have been done. If we accept this notion, it will happen again.... This is our collective responsibility. It falls to us to make different choices if we want different results."
    -- The Financial Crisis Inquiry Report

"... there are known knowns; there are things we know that we know. There are known unknowns; that is to say, there are things that we now know we don't know. But there are also unknown unknowns – there are things we do not know we don't know."
    -- Donald Rumsfeld

Your First Game of Fluxx

Have you ever played the card game Fluxx? It has only one rule: draw one card, play one card. This is how the game goes for new players:

New Player: Ok, then. My hand is Keeper: Love, Keeper: Cookies, and Goal: 5 Keepers. Ok, so now I know there are Keepers and Goals, and I can win if I play "Goal: 5 Keepers" and five Keepers. Looks like if I keep drawing Keepers, I can win! I play Cookies.

On my next turn, I draw "Goal: All You Need is Love. You win if your only Keeper is Love." Oh, no! If I knew this was a Goal of the game, I would have played Love first. By playing Cookies I have prevented myself from winning with this card! My friends snicker. Oh, well. Next time we play, I'll know to play Love as my first Keeper when I have a chance.

It's my third turn. My friends have played two other types of cards, Actions and New Rules. So now I know there are Keepers, Actions, New Rules, and Goals. I am informed by a verteran that those are the only card types in the game. Great. Now I am getting a sense of how this plays. I draw... "Creeper: Death. You must play this card immediately. This card prevents you from winning the game."

What? What? What? Everyone is surprised. The veteran (of version 1.0) checks the rules. Sure enough, we are playing Fluxx v 3.0. Creepers have been added as a type. What a disaster! We didn't know these kind of horrible things awaited us! What could happen in version 4.0?

The Creeper No One Saw Coming

"A risk that was little appreciated before 2007 was that JP Morgan and BNY Mellon could face large losses if a counterparty such as Bear defaulted during the day."
    -- The Financial Crisis Inquiry Report

“The Federal Reserve realized far too late the systemic danger inherent in the interconnections of the unregulated over-the-counter (OTC) derivatives market and did not have the information needed to act.”
    -- The Financial Crisis Inquiry Report

The financial crisis was the Creeper no one saw coming. It's the unknown unknown. Before that, September 11th was the Creeper no one saw coming. Before that, the tech bubble was the Creeper no one saw coming. Every crisis seems different.

In fact, if we are doing it right, EVERY crisis will be the Creeper no one saw coming because all the horrible things we saw coming were prevented! That's an encouraging thought. If each crisis was always exactly the same, I would be very concerned. If we've seen this EXACT same thing before, why aren't people doing anything differently this time around?

Sometimes there is literally nothing you can do about shocks that hit the economy. A hurricane is devastating to a city's economy. But could you have prevented it? Should you even try?

In fact, there may not be a need for government policy changes at all after a crisis. Rational actors will adjust. The unknown unknown became known. Hedge funds and banks don't WANT to lose money. They will anticipate that Creeper now. If they can do something to prevent the crisis from happening again, they will. Banks won't mismodel the probability of default on mortgages in the same way again.

Of course, sometimes, actors can't adjust, or the crisis was caused by institutional failures, or simply changes in the economy, and that's where government policy changes may help.

We could invest more in research to prevent future crisis that we don't know about yet. We can take stands on how the black box of the economy works. We can try new policies that upend entire sectors and see what happens. But that is potentially costly. How much do we trade off other stuff in order to investigate or attempt to control unknowns we can't even quantify (they are the unknown unknowns, remember, not the known unknowns).

It's a tough question.

Sunday, March 30, 2014

It's Tax Time!

I prepared my income taxes this weekend. Every year I think: "Taxes should not be this confusing -- and why do we tax income rather than consumption, anyway?"* 

At least this year I join the ranks of millions who will be getting a refund check from the government rather than writing a check to the government. That should make me happy, right? 

WRONG! Getting a refund check when you've had wages withheld is a BAD THING. It means the government held more of your money as collateral for your taxes than you even owed! And held it without interest. Granted, interest is at historic lows, so it doesn't really matter that much this year, but still; it's the principle of the thing!

* If you are looking for a great read about taxes, I recommend Taxing Ourselves: A Citizen's Guide to the Debate over Taxes by Slemrod and Bakija. Actually, this one is just a great read, period.

Monday, March 10, 2014

Macroeconomic Fables

I finished reading The Undercover Economist Strikes Back: How to Run -- or Ruin -- an Economy by Tim Harford. His first book in the series, The Undercover Economist, is amazing. If you read one pop econ book, that's the one to read. Let's just say that Strikes Back felt a little rushed and a little thin in comparison. The question and answer format did not sit well with me, either. However, there were a couple of great macroeconomic fables included.

The Island of Yap

If you think you know what money is ("whatever is used as a medium of exchange, unit of account, and store of value"), think again after reading about the "money" used on the Island of Yap (an actual island -- not the fake ones that economists usually make up).

Sadly, there is one description of how modern money and banking came to be that is still vastly under-appreciated and did not make the cut into Harford's book: Adam Smith's digression concerning banks of deposit, particularly concerning that of Amsterdam, The Wealth of Nations, Book IV, Chapter 3, Sections 12-29. The gist of that excerpt is this: Because people "clipped" metallic coins, merchants did not always know what the coins were actually worth. Banks backed by cities sprung up to vouch for the coin, storing it in a vault, issuing "bank money" guaranteeing it's worth, and charging depositors interest and a warehouse fee. Banks took away the uncertainty in the value of the payment and provided easier methods of payment (bank money is easier to transport than sacks of gold); that was the value they added to society. What's interesting about the bank of Amsterdam is that it did not lend out money; it kept 100% reserves. That's why depositors had to pay a fee. It's negative interest on those saving accounts! The upside? No bank runs.

It's just a small step from the process described by Smith to a central bank with an empty vault. As the Island of Yap and our modern economy based on fiat currency shows, it's not necessarily important for money to have "intrinsic" worth in order to be valued as a medium of exchange, unit of account, or store of value. Everyone just has to believe it.

The Phillips Curve and the Lucas Critique

Outside of economics, and unfortunately, sometimes inside economics, as well, it's under-appreciated how important it is to understand what is generating the data. You can't just look at correlations and draw broad policy conclusions because the actors that are part of the system (you and me) are making choices in response to policy and those choices often depend heavily upon beliefs. That's what makes economics (especially macro) hard.

The Phillips Curve and the Lucas critique is covered in this one hour talk on the book. If you want to skip the introductory material, the talk starts at minute 7:00. In the response to Harford's talk, Alex Tabarrok pushes Harford about exactly the right things.

Honestly, in this case, the "movie" is better than the book.

Monday, March 3, 2014

Failing Well

Last week I read The Up Side of Down: Why Failing Well is the Key to Success, by Megan McArdle. It asks the question: How do we build a society that gives people the right incentives to keep failing and learning? It never struck me as overly rosy picture of failure, and it's a nice mix of summaries of academic work and McArdle's personal story.

There were four sections that really stood out for me.

Forager versus Farmer

I was totally unaware of this research, and it is pretty neat. How much people share with others is a function of the risk environment. If there is higher variance to the rewards for effort ("foraging"), then people are more likely to share with each other. If there is low variance to the rewards for effort ("farming"), people are much less likely to share with each other. One study McArdle highlights is this recent experiment by Kaplan, Schnieter, Smith, and Wilson. Here's a portion of the abstract:
‘Lucky’ individuals share food with ‘unlucky’ individuals with the expectation of reciprocity when roles are reversed. Cross-cultural data provide prima facie evidence of pair-wise reciprocity and an almost universal association of high-variance (HV) resources with greater exchange. However, such evidence is not definitive; an alternative hypothesis is that food sharing is really ‘tolerated theft’, in which individuals possessing more food allow others to steal from them, owing to the threat of violence from hungry individuals. Pair-wise correlations may reflect proximity providing greater opportunities for mutual theft of food. We report a laboratory experiment of foraging and food consumption in a virtual world, designed to test the risk-reduction hypothesis by determining whether people form reciprocal relationships in response to variance of resource acquisition, even when there is no external enforcement of any transfer agreements that might emerge. Individuals can forage in a high-mean, HV patch or a low-mean, low-variance (LV) patch. The key feature of the experimental design is that individuals can transfer resources to others. We find that sharing hardly occurs after LV foraging, but among HV foragers sharing increases dramatically over time. The results provide strong support for the hypothesis that people are pre-disposed to evaluate gains from exchange and respond to unsynchronized variance in resource availability through endogenous reciprocal trading relationships.
I really like how McArdle interprets this in a political context, too. In a modern society it is very hard to understand what other people do because of the amount of specialization ("Is he lucky or good?"). In the past, it was easy to determine the risk environment; today, it is hard. She writes:
When you see a liberal and a conservative hotly debating welfare policy, isn't this what they are arguing about? The liberal says "It's not their fault that they were born poor" and the conservative says "They could stop being poor if they waited to have kinds until they got married, worked full-time, and finished high school." Both statements are true. And so how you feel about poverty and social policy depends on whether you think that living in the American economy is mostly like being a big-game hunter, where rewards are largely dependent on luck, or whether it's like being a farmer, where rewards are mostly a function of effort.
The Dangers of Unemployment

It was nice to be reminded in this part of the book that in addition to the monetary and skill depreciation consequences of unemployment, unemployment is one of the few events in life were people underestimate its negative emotional consequences. Life satisfaction plummets and stays lower even 5 years later (on par with widows/widowers who never got over their grief), people withdraw from relationships, and they worry about their future.

The solution? Look for a job (more effort really does translate into more offers). In addition, have a system that emphasizes effort: set input (NOT output) goals, record your efforts, use a script, and surround yourself with people who are going through the same thing as you. If all else fails, revise downward your reservation wage and be willing to move.

Consistent Enforcement Matters

In an economic model of crime, the supply of crime decreases when you increase the expected punishment.  You can do this by increasing the probability that a crime is discovered (so it's punished more often) or by increasing the penalty that is applied when caught.

Expected Punishment = (Penalty) x (Probability of Discovery)

If you can't increase the probability of discovery, you can still decrease crime by increasing the expected punishment by increasing the penalty (increased jail time for drug abusers, etc.). So when Megan begins talking about reforming the criminal justice system in a way that reduced the jail time of offenders, I roll my eyes and prepare to skim the rest of the chapter. She talks about how great HOPE is (a program in Hawaii) and how criminals love it, but then reveals what the program does:
It sends people to jail. Every single time they are caught violating a term of their probation, Judge Alm gives them at least a few days in the pokey.... Judge Alm's true innovation [is] catching as many probation violations as possible and punishing every one of them. 
I don't understand. How could punishing every violation be a radical new program that reforms the parole system? Am I missing something? Evidently, yes. The system in most places is not consistent punishment, but randomized draconianism. What's really going on is this:

Expected Punishment = (Penalty) x (Probability of Discovery) x (Probability of Enforcement)

where the probability of enforcement is low even conditional on being caught. So the "revolution" is lowering the penalty and increasing the probability of enforcement to 1 by eliminating discretion. Instead of 10 probation violations before getting any punishment then getting a multi-year jail term for being late to a hearing when your car battery dies, every violation comes with a sure, but smaller punishment.

Watch a PBS segment on the program here.

This seems so obvious, I can't believe it's not done everywhere!

Putting the "Moral" in Moral Hazard

The last chapter is on ease of bankruptcy and how letting people let go of their debt can be a good thing. What really stood out was the last section where McArdle focuses on culture.
[H]owever much abuse is in the system, the surprising thing is that there isn't more. At the height of the financial crisis a number of commentators actually cheered the possibility that millions of Americans would mail in their house keys to the banks holding their mortgages, forcing bankers to suffer the losses. In many instances they would be better off -- so why don't they do it? The answer is surprisingly simple: shame. They are too embarrassed. They don't want to be thought of as deadbeats.
Aside from the fact that some people who could pay did mail in their keys, the point stands. If people self-regulate their behavior and hold themselves to a higher personal standard, then bankruptcy can be more lenient for those who really need it without as much worry about inducing people to go bankrupt who don't really need it.

Resources devoted to fraud prevention, crime prevention, and related government services could be much lower if people just didn't commit as much fraud or crime. Culture really does matter.

Other Fun Stuff

Tuesday, February 18, 2014

Motivations of the One Percent

Greg Mankiw generated a lot of buzz with his defense of high earners recently. I think it's pretty good up until the last paragraph in which he claims:
Unlike the superheroes of “The Avengers,” the richest 1 percent aren’t motivated by an altruistic desire to advance the public good. But, in most cases, that is precisely their effect.
The problem I have with this conclusion is that Mankiw unnecessarily ascribes greedy motives to the one percent and implicitly ascribes generous motives to the 99 percent. Many 99 percenters vote for government handouts because they are greedy, regardless of their income. Many Defenders of the 99 percent are motivated by personal gain. Many one percenters are altruistic or want to improve the world, regardless of their income, and happen to be very good at what they do. The point isn't that competitive markets work because of greedy people, it's that they work in spite of greedy people. Competitive market economies are robust to greed.

Competitive markets reward people for providing goods and services that others need and want, such as labor. The information about what others need and want, and how badly, is contained in prices, such as wages. By participating in a competitive market, you could be helping people you don't even know exist! Providers are paid regardless of the personal motives for providing the product or service in the first place.

This "regardless" is where some people have problems. In a competitive labor market, Greedy Guy will make just as much as Altruistic Alice if they produce the exact same things. Motives don't matter. Rewards are based on doing good, not being good. You can't look at Greedy Guy's salary and tell if he is a good person or a bad person. Did he become a doctor to heal thousands or for the high salary, healing thousands along they way? Did Mr. Macy and Mr. Gimbel demand their companies provide better customer service out of a desire to improve people's lives or for profits?

Does it matter to those being helped?

Related Posts:

Christmas Spirit?
"Toward a Moral Economy"

Tuesday, January 21, 2014

AER: Replications?

Maniadis, Tufano, and List build on "Why Most Research Findings are False" in their new January 2014 AER article (older, ungated draft here) promoting the virtues of replicating experiments to an economics audience.

In particular, through a simple model they formalize that the probability that a declaration of a research finding (made upon reaching statistical significance) is true...
    1) declines the more surprising the result,
    2) is larger for larger samples,
    3) is decreasing in the number of researchers examining a phenomenon, and
    4) is decreasing in research bias.

As an example, they replicate a famous anchoring experiment (Ariely, Loewenstein, and Prelec QJE 2003)*. The replication yields much weaker results than the original study.

I am happy the AER decided to publish an article like this, but I wonder where the article would have been published if the authors had ONLY included the replication of the anchoring experiment? And what if the replication confirmed the original study, instead of questioning it? I bet it wouldn't be published in the AER or QJE.

Until replications are vetted and visible -- even the really boring ones that run the same experiment with different subjects and get qualitatively the same results -- replicating experiments (i.e. the lack of it) will be a problem.

One way the situation could be improved is for a journal, say the AER, to have a Replication section (even if it's online only) specifically for publishing replications of AER papers. Call it AER: Replications. Having a separate section or sister journal would serve two ends:
   1) There would be a place to publish replications and for people to look for them.
   2) Replications would be separate from "original" work. This way, replications aren't "taking the spot" of a "more interesting" or "goundbreaking" paper and universities could easily identify replications, as well. So for calculating tenure, for example, AER: Replications would be treated differently than AER. There is a precedent for this: AER: Papers and Proceedings is usually treated differently than AER.

Related Post:
How Science Goes Wrong

* An aside: There's a weird footnote in the MTL paper mentioning the data from ALP's 2003 experiment are "lost". For such an important, recent study, it's weird to me that the data could be lost.

Thursday, January 2, 2014

The End... of Light Bulbs (TFS, Part 12)

I am reading Thinking, Fast and Slow, by Daniel Kahneman. In this series I will summarize key parts of the book and supply some comments and reflections on the material.

Part V: Two Selves
Chapters 35-38, Conclusion


In addition to the "two systems" (fast System 1 and slow System 2), we have "two selves", the remembering self and the experiencing self. The experiencing self answers the question, "how is it, now?" The remembering self answers the question, "how was it, on the whole?" and usually makes decisions about repeating experiences. These decisions may conflict with what the experiencing self would want. The conflict comes from the remembering self's desire to "tell a good story" and "rating" experiences based mostly on the worst moment of the experience and what happened at the end of the experience. This leads to duration neglect.  

Kahneman reminds us that "how happy are you?", "how was it, on the whole?", and related questions are very difficult to answer. System 1 could be using biased heuristics to answer different, easier questions, instead, so it may be difficult to draw conclusions from this research.

Nevertheless, Kahneman issues some of his big takeaways from this literature:
  • "It is only a slight exaggeration to say that happiness is the experience of spending time with people you love and who love you." 
  • "Can money buy happiness? The conclusion is that being poor makes one miserable..." 
  • "The goals people set for themselves are so important to what they do and how they feel about it that an exclusive focus on experienced well-being is not tenable. We cannot hold a concept of well-being that ignores what people want. On the other hand, it is also true that a concept of well-being that ignores how people feel as they live and focuses only on how they feel when they think about their life is also untenable. We must accept the complexities of a hybrid view, in which the well-being of both selves is considered."
 Kahneman spends the conclusion criticising the "ideology" of "Chicago economics" (he calls out Milton Friedman and Gary Becker specifically), and strongly endorsing libertarian paternalism, behavioral economics, and the agenda outlined in Nudge.


My Thoughts:

I get confused by what people mean when they contrast "Chicago school" and the work of Thaler (of Nudge fame). He's also a Chicago economist. Oh well.

I support some aspects of libertarian paternalism (e.g. when picking a default option is unavoidable, you should pick one that is expected to be best for most people to ease the decision making process), but I don't like the term nudge or thinking about nudges as their own thing. "Nudges" are really just additional small regulations or rules. Instead of thinking about nudges, we should be asking, what is the right amount of regulation? or What is the right rule? Sometimes more is needed, sometimes less. Sometimes regulations and rules should just be different. How strong can a nudge be before it's not a nudge, anyway? "Nudge" seems more like PR than actual policy to me. It distracts from the real issues at hand: the goal and effects of regulations and rules. It's especially distracting when people have different goals and preferences regarding policy. Who can be against something labeled a mere nudge? No one!

Speaking of nudges, the light bulb ban went into full effect yesterday. Supporters call it a nudge because it encourages people to conserve electricity and over time and if people aren't picking the more expensive bulb, they are obviously making a terrible choice harming themselves, their family, and the entire world. To me, this is not a nudge because it reduces choice. There is no opt out. I guess there is an opt out, but the opt out is too expensive: you could have stocked up on regular bulbs before the ban that last you a lifetime.

The light bulb ban is bad. Yes, people's electric bills will be lower with the new bulbs (assuming lifetime estimates are accurate), but you have to pay a higher upfront cost, the new bulbs look different, they don't always fit the same fixtures (which are expensive to replace), and they give off different types of light (maybe I just like certain types of light). And these are real costs to this ban, no matter what these people say. But, you say, these costs are really low! Really, how much do you care about having a nice yellow glow and paying less up front, anyway? Well, enough to not want to switch light bulbs!

Maybe people (me?) don't know about how great these bulbs are? But there is information on the front of the box tells them they will save money, how bright they are, the color, and the price. Maybe people don't know math or how to read? If that's the case, light bulb bans are not addressing the key problem here.

Even if people are stupid and that's okay because the government can force them to do what's in their best interest anyway (paternalism), what is the problem the ban solves? If levels of energy consumed is the concern (maybe because of global warming?), it's better to tax energy usage directly or use quotas or cap and trade to reduce overall consumption. Maybe there are cheaper or more preferred alternatives to lower energy usage, like turning off the lights in the house or turning off their computer or turning down the A/C (which actually uses orders of magnitude more power than a light bulb). For me, light bulbs are practically nothing in the grand scheme of energy usage (look at your electric bill next month and do the calculation for yourself; running one 100W bulb for 100 hours is 10 KWH and costs about one dollar and ten cents in Illinois). Let people choose! But I guess if people are dumb enough to buy the wrong bulbs they are probably dumb enough to choose to reduce electricity consumption on something that hurts them a lot rather than a little?

If you are concerned about the cost of electricity (and the poor's access to it), then why not consider expanding supply? Possibly by increasing offshore drilling, drilling in Alaska, or building more pipelines (all are restricted by federal regulatory bodies, keeping the cost of energy artificially high).

Supporting nuclear power and a place in Nevada to safely store the waste would address both global warming concerns of increasing energy supply (the "smoke" coming out of nuclear power plants is water vapor) and lower the cost of electricity by increasing supply. Again, federal regulations and indecision about where to store waste prevent the building of more nuclear plants.

The light bulb ban is more of a nuisance than an actual solution to an important problem.
Food for Thought

1) Kahneman likes poking fun at the standard modeling assumption that preferences are consistent and unchanging. However, he takes subjects' reports on "fairness" of outcomes, assumes stability, and derives policy implications from them. Can humans have inconsistent preferences, but consistent notions of fairness?

2) "Freedom has a cost, which is borne by individuals who make bad choices, and by a society that feels obligated to help them.... For adherents of [the Chicago school], freedom is free of charge."

Do you agree? How responsible should people be for themselves? If you "feel obligated to help" someone who is making a personal decision that physically only affects him, then does that decision harm you? Does that give you a right to stop him from making that decision? What if lots of other people "feel obligated to help," too? Does it matter if the action you take actually helps (or hurts) him?

3) Alice: "It is common knowledge that smoking is addictive, causes health problems, and makes one feel good. I will take up smoking." Bob: "It is common knowledge that smoking is addictive, causes health problems, and makes one feel good. I will prevent you from smoking." Cass: "It is common knowledge that smoking is addictive, causes health problems, and makes one feel good. I will make it hard for you to find cigarettes and make them more expensive so that you are nudged towards not smoking."

If smoking harms others (e.g. second hand smoke), how should that affect the community's decision on whether to ban it or tax it?

4) Could forcing people to use energy efficient light bulbs actually lead people to use more energy on light? (Hint: the answer is yes. Why?)