Archive for the ‘Society’ Category
Must Read Paper On Overconfidence
Via the indispensable Tyler Cowen, a new paper from Johnson and Fowler explores whether overconfidence is, in fact, adaptive. They show that it it is under some very reasonable assumptions. They model competition for resources as a two-player game and then analyze the evolutionary dynamics of populations playing this game.
The basic result is that overconfidence is beneficial in proportion to two factors: (1) the size of the payoff relative to the cost to play and (2) uncertainty about competitor capabilities. There are two optimal strategies for a population, overconfidence (which minimizes unclaimed resources) and underconfidence (which minimizes conflict costs). Unbiased self-perception is always dominated by these strategies. However, an overconfident person can successfully invade an underconfident population while the reverse is not true. So overconfidence is the stable solution.
The direct implication is that resources get destroyed. It is optimal for an individual to be overconfident, but then he ends up fighting with other overconfident individuals, which imposes costs. If you think about it for a minute, this is a pretty important fundamental problem. All of the big societal decisions we face have potentially big payoffs (or avoidance of costs), but it’s really unclear who has the best expertise to make a recommendation. So we get a bunch of “experts” telling us they are absolutely right.
Note that if it is public knowledge how “good” someone is, the “overconfidence premium” goes to zero. This is why forcing experts to make public predictions is so important. Then you can figure out how good they really are.
Must Read Article on Farming
Some of you may recall my post Organic Farming Harms the Environment. As I wrote, one of the things that bugs me about organic proponents is that they act as if there are no tradeoffs. I don’t understand much about farming, but I do understand something about how economic activity works. I presume that modern farming has responded to market pressure and evolved to optimize along many different dimensions. I’m pretty sure you can’t magically improve along one dimension without sacrificing along another dimension.
Thus, I was not surprised to read this article (hat tip to Tyler Cowen at Marginal Revolution) on modern farming by an honest to goodness family farmer. It is full of good examples of the tradeoffs I suspected were lurking. For instance, by using herbicides, farmers reduce the need to till, which is a major source of soil erosion. Hog crates and turkey cages may seem inhumane, but they prevent sows from killing piglets and turkeys dying from drowning. Crop rotations that decrease the need for synthetic fertilizer increase the amount of water needed to produce the desired crop.
Read the whole thing. It reinforced my confidence in the general rule of trying to avoid legislating solutions. Send pricing signals by allocating resource rights and taxing negative externalities. Then let the market do its optimization.
Organic Farming Harms the Environment
One of things I object to about mainstream environmentalists is that they act as if there are no tradeoffs. For example, they simultaneously promote organic farming, argue for biodiversity , and lobby for more open space. Personally, I think the second and third are very important. In my value system, they are are very close to terminal goals. Which is why I avoid organic foods.
Reason has a short interview with Norman Borlaug that nicely sums up the tradeoffs required by organic farming. There is literally nobody who understands modern agriculture better. The bottom line is that if the US tried to produce today’s agriculture output with 1960s era technology, we would need on the order of 1 million square miles of additional farmland (assuming that the marginal productivity of the land decreases somewhat as you bring less productive ares into play). That’s a swath 1000 miles by 1000 miles. That’s about 1/3 the land area of the contiguous 48 states.
Replicate this calculation all over the world and you’d have massive deforestation and habitat destruction. Remember the unintended slashing and burning rainforests to plant oil palms for subsidized biodiesel? Now multiply that by 10. No thanks.
Two Books On Cognitive Science You Should Read
As I mentioned in this post, one of the three primary planks of my worldview is that, “…the human brain is a woefully inadequate decision making substrate.” I started adopting this posture in graduate school and have refined it with constant input from the cognitive psychology and neurobiology literature over the years. Luckily, you don’t have to put in that kind of time. Simply go out and read Rational Choice in an Uncertain Worlds by Hastie and Dawes and The Accidental Mind by Linden.
Two Sociology Books You Should Read
As you’ve probably figured out by now, I prefer to base decisions on statistically significant evidence. However, in order to gather such evidence, you must have hypotheses in the form of testable models. If the models you try to test are divorced from reality on the ground, your results will be useless no matter how statistically significant.
Therefore, if you’re interested in issues of poverty and race in the US, here are two ethnographies you should read. Gang Leader for a Day by Sudhir Venkatesh and Cop in the Hood by Peter Moskos. As sociology PhD candidates, both went out and actually became actors in poor black neighborhoods. Venkatesh hung out with a crack gang in a Chicago housing project and Moskos became a police officer in Baltimore’s roughest neighborhood.
I May Have Been Wrong About Macroeconomics
When I was an undergraduate studying macroeconomics, I came to the conclusion that it was pretty much total bullshit. Because I was in a co-terminal masters program, I was also studying graduate level decision theory, game theory, microeconomics, behavioral economics, and dynamic systems. In comparison, it seemed clear to me that macroeconomics was not a coherent study of a complex system.
Lately, Arnold Kling’s blog posts have been reinforcing this belief. However, we may both be wrong. Arnold studied and practiced macroeconomics in the late 1970s. Given the delay in propagating knowledge to the undergraduate level, that’s probably also what was taught in my late 1980s undergraduate textbook. However, Will Ambrosini observes that Arnold’s views are outdated and this is a problem with non-macro economists in general. He points to this essay and I find myself convinced that modern macroeconomics is a coherent study of a complex system.
I thought this might provide you some measure of comfort. If anyone wants me to summarize the particulars of why I changed my mind, let me know.
Society According to Kevin: Part 1
How Our Moral Compasses Fail Us
From the comments on my Introduction to this series, it appears I have discovered a controversial topic. Good. My first objective will be to illustrate why we cannot rely on moral compasses to guide society. After some thought, I have decided to break the topic of moral compasses into two posts: how they fail and why they fail.
Society According to Kevin: Introduction
I was recently having a conversation with a mutual friend of Rafe’s and mine. Like the two of us, he’s quite smart, well educated, and socially aware. I respect his thinking a lot. However, during the course of this conversation, it became clear to me that he holds what I think of as an overly moralistic view of human behavior.
From my perspective, it seemed like he thinks that people’s behavior is governed primarily by an internal moral compass rather than incentives. So if you want to change their behavior, you should redirect their moral compass rather than adjust their incentives. People who don’t adjust their behavior are defecting from society and should be sanctioned.
I encounter this view quite often in my social circle and this instance inspired me to write a series of posts to explain how I think things actually work. You’re free to disagree with me, of course. In fact, I expect most people to disagree with me. But I’ve thought rather hard about this issue and I’ll put my model up against the moralistic view when it comes to predicting a population’s average behavior or choosing an effective policy prescription.
I May Be a Credit Crunch "Denier" Too
As most of you already know, I am an anthropogenic global warming skeptic, aka “denier”. Well, a new paper by the Federal Reserve Bank of Minneapolis has turned me into a credit crunch skeptic too.
The maintstream narrative on why we need a bailout is that credit is “frozen”. We can’t just let the financial sector sort itself out because it provides the credit “grease” that lubricates the rest of the economy. The graphs in this paper make it pretty clear that the wheels of Main Street have plenty of grease. So it looks to me like the bailout is corporate welfare plain and simple. It also means that Paulson and Bernanke talking about how bad things are to justify the bailout may have actually exacerbated any real recession by magnifying the psychological salience of the crisis.
Financial Crisis Act III: The Flailing Response
As we saw in Act I and Act II, the current financial crisis was enabled by government interference in the housing and mortgage markets, then initiated by Wall Street’s willful blindness to systematic risk in the MBS market. Now we are observing the government’s flailing response.
First they bail out Bear Stearns. Then they let Lehman go bankrupt. But AIG gets a lifeline. On to a $700B bailout intended to purchase toxic MBSs. And most recently forcing several probably healthy banks to absorb $250B in government investment. Along the way, there were a bunch of changes to FDIC regulations and a see-sawing stock market.
You might be asking yourself, what the heck is going on here? The reason for all the flailing is that the government is attempting to implement a command and control solution to an extremely distributed problem.
Possible Insight 