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Monday assorted links

by on October 16, 2017 at 12:43 pm in Uncategorized | Permalink

A few of you have asked about Trump decertifying the Iran deal.  I think it is a big mistake, keeping in mind the old chess maxim “The threat is stronger than the execution.”  If we slap them, they slap us back by doing something like, say, green-lighting the Iraqi invasion of Kurdistan.  Whatever next level of escalation we might consider, I don’t think it would do us much good.

That said, I find most defenses of the Iran deal shocking in their naivete or perhaps self-deception.  The deal didn’t do much good in the first place, and came to pass because the Europeans weren’t going to uphold the previous sanctions anyway.  As it stands, the Iranians continue to enrich uranium and develop and test long-range missiles, and they could buy a bomb from North Korea as quickly as it would take to deliver the package.  Furthermore, they still support terrorism on a large scale, talk gleefully about the destruction of Israel, and in general their citizenry favors the idea of the government having nuclear weapons.  They simply decided that a slower path toward nuclear weapons, rooted in stronger international economic relations, was in their national interest.  However much you think they have or have not violated the formal terms of the treaty, they’re using the treaty to get a better, richer, and more stable version of nuclear weapons.  Israel and Saudi Arabia, the two countries that don’t have the luxury of wishful thinking on these issues, understand this quite well.

The thing is, Trump’s action won’t change any of this, and will only make us seem less reliable, should someday further action be required.  It is a foolish, high time preference move, but those who support it — Trump included — often have a better understanding of the underlying realities than do the critics.

Sunday assorted links

by on October 15, 2017 at 2:13 pm in Uncategorized | Permalink

I hardly expected the movie to be so drenched in Tarkovsky (“The Zone” and Solaris, maybe a bit of The Sacrifice), and the now-famed sex scene draws from Bergman’s Persona.  Overall, the colors and palette were stunning, and the use of sound was as impressive as in any movie, do see this one in IMAX.  It hardly makes any concessions to the Hollywood vices of this millennium and indeed much of the Tysons Corner audience seemed to be baffled.

Think of the main plot line as showing a world where the Christ miracle is inverted and what that would have to mean for everything else.  Much of the plot is sprawling, some of the references are too heavy-handed or scattered (Moses and the Dalai Lama and Kafka and Star Wars 1-2 are thrown in for good measure, and few will grok the Galatians reference), and the whole thing could have been fifteen minutes shorter.  Still, this is a worthy sequel to one of the best movies of the 1980s or is that the 1990s?  Carla Juri steals the show, and furthermore it resolves the main plot puzzle of the original Blade Runner rather economically.

Also on the plus side, Adam Driver does not appear in this movie.

During much of the 1982-2001 period, the Western world seemed to be moving in a very favorable direction, indeed most of Asia too.  Over time, Westerns intellectuals and commentators came to expect triumphant feelings and relatively low levels of stress.

9/11, the financial crisis, and now Brexit/Trump/populism/nationalism have upset this feeling.  The level of stress is now especially high in part because it was, not long ago, especially low.  The contrast is difficult for us to stomach, and comparisons with say Richard Nixon or Andrew Jackson help only a little.

In the postwar era, running up through the 1980s, the objective level of stress was much higher than today.  The risk of nuclear war was pretty high, overt racism was much more common, the safety net was much weaker, and it was far from clear that so much of the world would develop economically or become democratic.  Yet all this came right after the easily-remembered stress of World War II, and so it felt like a relief nonetheless.

As a kind of coincidence, memories of World War II wore off just as stress-relieving positive events were kicking into full gear.  That gave America an especially long period of low stress, unprecedented by historical standards.

We are not used to feeling as much stress as we do today.  Yet even in the optimistic scenarios in my predictions, the level of stress today is relatively low compared to what we can rationally expect for the next few decades.

Saturday assorted links

by on October 14, 2017 at 4:21 am in Uncategorized | Permalink

Friday assorted links

by on October 13, 2017 at 12:29 pm in Uncategorized | Permalink

Thursday assorted links

by on October 12, 2017 at 11:45 am in Uncategorized | Permalink

Wednesday assorted links

by on October 11, 2017 at 11:52 am in Uncategorized | Permalink

Tuesday assorted links

by on October 10, 2017 at 1:47 pm in Uncategorized | Permalink

1. Who’s complacent?: wine-infused coffee exists.

2. “Across a range of policy settings, people find the general use of behavioural interventions more ethical when illustrated by examples that accord with their politics, but view those same interventions as more unethical when illustrated by examples at odds with their politics.”  Link here.

3. Microfoundations for the endowment effect?

4. After plastic surgery, three Chinese women are stuck at the South Korean airport.

5. Chinese scientists can identify you by your walk.  And China’s AI awakening.

6. David Brooks on Thaler (NYT).

7. Markets in everything, bulk discount edition.

Further assorted links

by on October 9, 2017 at 4:12 pm in Uncategorized | Permalink

This is a prize that is easy to understand.  It is a prize for behavioral economics, for the ongoing importance of psychology in economic decision-making, and for “Nudge,” his famous and also bestselliing book co-authored with Cass Sunstein.

Here are previous MR posts on Thaler, we’ve already covered a great deal of his research.  Here is Thaler on Twitter.  Here is Thaler on scholar.google.com.  Here is the Nobel press release, with a variety of excellent accompanying essays and materials.  Here is Cass Sunstein’s overview of Thaler’s work.

Perhaps unknown to many, Thaler’s most heavily cited piece is on whether the stock market overreacts.  He says yes this is possible for psychological reasons, and this article also uncovered some of the key evidence in favor of the now-vanquished “January effect” in stock returns, namely that for a while the market did very very well in the month of January.  (Once discovered the effect went away.)  Another excellent Thaler piece on finance is this one with Shleifer and Lee, on why closed end mutual funds sell at divergences from their true asset values.  This too likely has something to do with market psychology and sentiment, as the same “asset package,” in two separate and non-arbitrageable markets, can sell for quite different prices, sometimes premia but usually discounts.  This was one early and relative influential critique of the efficient markets hypothesis.

Another classic early Thaler piece is on a phenomenon known as “mental accounting,” for instance you might treat a dollar in your pocket as different from a dollar in your bank account.  Or earned money may be treated different from money you just chanced upon, or won that morning in the stock market.  This has significant implications for predicting consumer decisions concerning saving and spending; in particular, economists cannot simply measure income but must consider where the money came from and how it is perceived by consumers, namely how they are performing their mental accounting of the funds.  Have you ever gone on a vacation with a notion that you would spend so much money, and then treated all expenditures within that range as essentially already decided?  The initial piece on this topic was published in a marketing journal and it has funny terminology, a sign of how far from the mainstream this work once was.  It is nonetheless a brilliant piece.  Here is more Thaler on mental accounting.

Thaler, with Kahneman and Knetsch, was a major force behind discovering and measuring the so-called “endowment effect.”  Once you have something, you value it much more!  Maybe three or four times as much, possibly more than that.  It makes policy evaluation difficult, because as economists we are not sure how much to privilege the status quo.  Should we measure “willingness to pay” — what people are willing to pay for what they don’t already have?  Or “willingness to be paid” — namely how eager people are to give up what they already possess?  The latter magnitude will lead to much higher valuations for the assets in question.  This by the way helps explain status quo bias in politics and other spheres of life.  People value something much more highly once they view it as theirs.

This phenomenon also makes the Coase theorem tricky because the final allocation of resources may depend quite significantly on how the initial property rights are assigned, even when the initial wealth effect from such an allocation may appear to be quite small.  See this Thaler piece with Knetsch.  It’s not just that you assign property rights and let people trade, but rather how you assign the rights up front will create an endowment effect and thus significantly influence the final bargain that is struck.

With Jolls and Sunstein, here is Thaler on a behavioral approach to law and economics, a long survey but also constructive piece that became a major trend and has shaped law and economics for decades.  He has done plenty and had a truly far-ranging impact, not just in one or two narrow fields.

Thaler’s “Nudge” idea, developed in conjunction with Cass Sunstein over the course of a major book and some articles, has led policymakers all over the world to focus on “choice architecture” in designing better systems, the UK even setting up a “Nudge Unit.”  For instance, one way to encourage savings is to set up pension systems for employees so that the maximum contribution is the default, rather than an active choice people must make.  This is sometimes referred to as a form of “soft” or “libertarian paternalism,” since choice is still present.  Here is Thaler responding to some libertarian critiques of the nudge idea.

I first encountered Thaler’s work in graduate school, in the mid-1980s, in particular some of his pieces in the Journal of Economic Behavior and Organization; here is his early 1980 manifesto on how to think about consumer choice.  I thought “this is great stuff,” and I gobbled it up, as it was pretty consistent with some of what I was imbibing from Thomas Schelling, in particular Thaler’s 1981 piece with Shefrin on the economics of self-control, a foundation for many later discussions of paternalism.  I also thought “a shame this work isn’t going to become mainstream,” because at the time it wasn’t.  It was seen as odd, under-demonstrated, and often it wasn’t in top journals.  For some time Thaler taught at Cornell, a very good school but not a top top school of the kind where many Laureates might teach, such as Harvard or Chicago or MIT.  Many people were surprised when finally he received an offer from the University of Chicago Business School, noting of course this was not the economics department.  Obviously this Prize is a sign that Thaler truly has arrived at the very high levels of recognition, and I would note Thaler has been pegged as one of the favorites at least since 2010 or so.  When Daniel Kahneman won some while ago and Thaler didn’t, many people thought “ah, that is it” because many of Thaler’s most famous pieces were written with Kahneman.  Yet as time passed it became clear that Thaler’s work was holding up and spreading far and wide in influence, and he moved into a position of being a clear favorite to win.

Here is Thaler’s book on the making of behavioral economics.  Excerpt:

…my thesis advisor, Sherwin Rosen, gave the following as an assessment of my career as a graduate student: “We did not expect much of him.”

Very lately Thaler on Twitter has been making some critical remarks about price gouging, suggesting we also must take into account what customers perceive as fair.  Here is his earlier piece about fairness constraints on profit-seeking, still a classic.

Thaler has written many columns for The New York Times, here is one on boosting access to health care.  Here are many more of them.  Here is “Unless you are Spock, Irrelevant Things Matter for Investment Behavior.”  Here is Thaler on making good citizenship fun.  He also told us that trading up in the NFL draft isn’t worth it.

Thaler is underrated as a policy economist, here is an excellent NYT piece on the “public option” for health insurance, excerpt: “…instead of arguing about whether to have a public option, argue about the ground rules.”

His last pre-Nobel tweet was: “The web site is using lots of . Advertised rates include cashing in of “points”, cancellation policies not salient if bad…”

A well-deserved prize and one that is relatively easy to explain, and most of Thaler’s works are easy to read even if you are not an economist.  I would stress that Thaler has done more than even many of his fans may realize.

Monday assorted links

by on October 9, 2017 at 12:31 am in Uncategorized | Permalink

Sunday assorted links

by on October 8, 2017 at 12:37 pm in Uncategorized | Permalink

That is the topic, here is the abstract:

Many rumors convey information about potential danger, even when these dangers are very unlikely. In four studies, we examine whether micro-processes of cultural transmission explain the spread of threat-related information. Three studies using transmission chain protocols suggest a) that there is indeed a preference for the deliberate transmission of threat-related information over other material, b) that it is not caused by a general negativity or emotionality bias, and c) that it is not eliminated when threats are presented as very unlikely. A forced-choice study on similar material shows the same preference when participants have to select information to acquire rather than transmit. So the cultural success of threat-related material may be explained by transmission biases, rooted in evolved threat-detection and error-management systems, that affect both supply and demand of information.

The piece is by Timothy Blaine and Pascal Boyer.  Of course this is one of the very best tips to know to understand what is actually happening on an Op-Ed page or your Twitter feed.  See through it, yes you can.

For the pointer I thank the excellent Kevin Lewis.