Month: September 2010

Thaler Nudges the Brits (and the Swedes?) A "nudge unit" set up by David Cameron in the Cabinet Office is working on how to use behavioural economics and market signals to persuade citizens to behave in a more socially integrated way.

The unit, formally known as the Behavioural Insight Team, is being run by David Halpern, a former adviser in Tony Blair's strategy unit, and is taking advice from Richard Thaler, the Chicago professor generally recognised as popularising "nudge" theory – the idea that governments can design environments that make it easier for people to choose what is best for themselves and society.

Thaler is a good bet for the Nobel.  Hat tip Martin Ryan at Geary.

Assorted links

1. How good is Twitter at estimating the strengths of earthquakes?

2. Robin Hanson.

3. Markets in everything: DUI scooters.

4. Markets in everything: a waste of good lingerie (safe for work, actually).

5. Michael Cannon's theory of how to limit Medicare expenditures: "Larger vouchers would mean greater demand for medical care. Yet each producer group's incentive to lobby for a higher growth rate would be much less than their incentive to lobby to increase the prices Medicare pays them today."

Department of Unintended Consequences?

Researchers at the Highway Loss Data Institute compared rates of collision insurance claims in four states – California, Louisiana, Minnesota and Washington – before and after they enacted texting bans. Crash rates rose in three of the states after bans were enacted. The Highway Loss group theorizes that drivers try to evade police by lowering their phones when texting, increasing the risk by taking their eyes even further from the road and for a longer time.

The link is here and no I don't know what the controls are and how they adjusted for a possible time trend.

*Wall Street II*

It was not a great movie but it was better than I had been expecting and I am glad to have seen it.  Moral hazard was explained — well, and using that term – numerous times.  The central role of leverage behind the crisis was stressed, as were the political economy elements.  The movie was chock full of economics, to a remarkable degree, albeit in an unbalanced fashion, especially when it came to explaining "speculation."  The film very well captured the feeling of sick dismay which unfolded with the events of the financial crisis.  As an inside joke, they had a wonderful silent stand-in for Geithner.  In this movie men don't seem to care about women very much, not even for sex.  The Charlie Sheen cameo was my favorite moment, as it rewrites one's understanding of the first Wall Street movie and raises broader questions about the motivations of "good" people.  The female lead was flat; I suspect this was poor execution although a Straussian reading will attribute that to a brilliant savaging of her character.  I wished for a different ending.  A comparison with the parent film shows that New York has become less interesting.

Is there any economic basis to homophobia?

William Alexander Johnson asks:

I always make sure to read your blog, and a while ago a Marginal-Revolution-type question popped into my mind:

Is homophobia the only form of hatred that doesn't have an economic component?

As far as I can tell, most hatreds between different peoples are caused to a great extent by economic conflicts.  Whites vs. blacks in the U.S., Europeans vs. natives in former European colonies, Christianity vs. Judaism vs. Islam, locals vs. immigrants in countries across the world, animosity between different castes in India, and even killings of supposed witches in tribal societies all have very important economic dimensions.

But homophobia seems to have absolutely no economic component.  I've heard that homosexuals are on average a little more economically successful than heterosexuals, but I very seriously doubt that that has the slightest bit to do with anything.

I can't think of any other form of hatred so divorced from "rational" conflict, so to speak.

…What do you think?

Bryan Caplan predicts greater tolerance in the future and Andrew Sullivan sees positive trends.  I do favor both gay marriage and other advances in gay rights, but when I scan the evidence, I am a bit pessimistic.  The positive short-run momentum is clear, but what about the longer run?  I see the following:

1. Prejudice and bullying against gay individuals is often brutal and unreasonable and it is applied where there is no evidence of harm from gays.  The prejudice is often strongest among teenagers and young males, and it weakens somewhat with age and socialization.

2. Strong prejudices against gay men and women are found in every culture I know of, past or present.  And yet in many cases homosexuality "limits the competition," so to speak.  This potential gain finds little appreciation.

3. There is a common and sometimes strong "disgust reaction," especially to gay men.

4. We learn from John Boswell that high levels of gay tolerance, in antiquity, were followed by a counter-reaction and higher levels of prejudice.

5. Religion, conservative morals, and sexual traditionalism make periodic comebacks.

Looking at the overall pattern, I wonder whether many individuals have a natural, innate proclivity to dislike gay men and women and to feel discomfort with the entire idea of homosexuality, bisexuality too of course.  Those preferences are not universal and they can be mediated by positive social forces, but left to their own devices, they will periodically reemerge in strength.

The Economic Consequences of the Peace

Spiegel Online: Germany will make its last reparations payment for World War I on Oct. 3, settling its outstanding debt from the 1919 Versailles Treaty and quietly closing the final chapter of the conflict that shaped the 20th century.

…in 1953, West Germany agreed at an international conference in London to service its international bond obligations from before World War II. In the years that followed it repaid the principal on the bonds, which had been issued to private and institutional investors in countries including the United States.

Under the terms of the London accord, Germany was allowed to wait until it unified before paying some €125 million in outstanding interest that had accrued on its foreign debt in the years 1945 to 1952. After the Berlin Wall fell and West and East Germany united in 1990, the country dutifully paid that interest off in annual instalments, the last of which comes due on Oct. 3.

It is surprising that Germans are not more Keynesian.

Macroeconomic faith

Pretty much everything in AS/AD is riding on the hypothesis that labor supply is highly elastic at the nominal wage and labor demand is reasonably elastic at the real wage. There is nothing for entrepreneurs to figure out–they will employ more workers as long as you can trick those workers into taking lower real wages.

That is Arnold Kling, here is more.  Many Keynesians like to poke fun at the RBC or rational expectations ideas of unemployed workers taking a "voluntary vacation" during a downturn.  Yet Keynesian theory has a no less serious problem, namely that workers take a "stupid voluntary vacation" during the downturn, due to their stubbornness on nominal wage cuts.  Reflation, if it comes, is doing no better for them in real terms than if they cried Uncle in the first place and simply lowered their wage demands.

The more dire a story you tell about the costs of unemployment, the more embarrassing the puzzle becomes on the side of positive economics.

Aggregate demand macroeconomics works in many cases and it almost always "works" (predicts well) when the macro forces are pointed toward destructive ends.  We are not sure why it works at all, or if it always works, and yet we see a great fervor of belief in it and a demonization of those who are skeptics.

On which issues will we become less moral?

Ross Douthat considers the hoary question of which current practices we will someday condemn, linking also to Appiah, who raised it, and Will Wilkinson.  Prisons, factory farming, immigration barriers, and abortion are among the nominations.  I would suggest an alternate query, namely which practices currently considered to be outrageous will make a moral comeback in the court of public opinion.  Torture and loss of privacy — in some of its forms at least — already seem to be on the rise, at least in terms of their acceptability in the United States.

What kind of moral status will "probabilistically causing natural disasters" have in the future?  What status does it have now? 

With rising health care costs and tight budgets in many countries, can we not expect euthanasia to rise in moral popularity?  Will the principles for cutting off care force us to transparently embrace some ugly moral principle, or will the ugliness be our lack of transparency and arbitrariness on these matters?

Preemptive warfare feels unpopular, because Iraq and Afghanistan have gone poorly, and because there have no more major successful terrorist attacks on U.S. soil.  I predict the idea will make a comeback.  Robot and drone warfare may become even more commonplace, as will targeting at a distance and selective cyberwarfare.  Those practices don't have to be wrong, but they could lead us to be morally cavalier about fighting a destructive war, even more than we are today.  By the way, the French seem pretty happy about the recent U.S. intensification of drone warfare in Pakistan, which is directed at stopping an planned attack in Europe.  

Tolerance of gay individuals and alternative lifestyles is at a historic high.  I would not endorse a crude "regression toward the mean" hypothesis, but we should at least try it on for size.  That tolerance is as likely to fall back as to progress.

Won't targeted genetic tests make abortion more popular and less sanctioned?  Rural India is already full of ultrasound clinics.  Won't the possibility of discrimination on the basis of genes (not many will refuse to do it, or make use of the information, if only implicitly) make discrimination more acceptable altogether?

On the bright side, totalitarianism and mass murder of one's civilian population have been out of style since the Nazis, the Soviets, and Mao.  In that sense we still can expect the future to be morally superior to the past.  But those gains were achieved some time ago.  If we capitalize them, and take them for granted, at the other margins I am not convinced that we are going to see lots of moral improvement over the next fifty to one hundred years.

Trolley Problem Biases

In one variant of the trolley problem a trolley is rapidly bearing down on the Trolley-problem-1 innocent five who can be saved but only by pushing a single fat man onto the tracks.  Do you push the fat man or not?  The question throws into stark relief the moral theories of consequentialism and deontology.

Now suppose the fat man is named Tyrone.  Does that change your answer?  What if the fat man is named Chip?

In The Motivated Use of Moral Principles (pdf) the authors show that self-identified liberals are more reluctant to sacrifice Tyrone than Chip despite prior agreement that race is irrelevant to moral questions of this kind.  Even more interesting when first presented with the Tyrone story liberals subsequently become less consequentialist even regarding Chip.  But when first presented with the Chip story they maintain consequentialism for Tyrone.  

On different questions, such as how consequentialist to be in military situations, self-identified conservatives swing back and forth in similar ways depending on whether Americans are attacking or being attacked.

Unfortunately, the authors don't present their statistical results in as clear a form as I would have liked (percentage changes would have been nice) so it's a little unclear how large the effect is.  Nevertheless, although the conclusion isn't surprising it's interesting to see these results even in as clean a context as one could ever hope for:

Rather than being moral rationalists who reason from general principle to specific judgment, it appears as if people have a “moral toolbox” available to them where they selectively draw upon arguments that help them build support for their moral intuitions. While the present studies do not imply that general principles never play a direct, a priori role in moral judgment, they do suggest that moral judgments can be influenced by social desires or motivations, and that moral principles can be rationalizations for other causes of the judgment. 

Hat tip Psychology Today.

*Berlin at War*

That's an excellent new book by Roger Moorhouse.  I found good material on virtually every page:

Heinz Knobloch was dispatched by his mother to a department store by the Hallesches Tor to buy something — anything — exempt from the rationing.  He managed to return with two tins of sardines.  He was lucky to have escaped with his booty intact: the new legislation against hoarding meant that some of the more punctilious shopkeepers were already insisting on opening all tins immediately upon purchase.

I also learned that many Berliners starting suspecting the Holocaust because of the rather efficient German postal system.  When letters would be sent to "ghetto inhabitants" on the Eastern front, often they would be returned with notice that the intended recipient had passed away.