Month: May 2015
John Nash, RIP
John Nash and his wife died yesterday in a car accident.
CNN: Nash, who won the Nobel Prize for Economics in 1994, was known for his work in game theory, and his personal struggle with paranoid schizophrenia. His life story inspired the 2001 Oscar-winning film “A Beautiful Mind” starring Russell Crowe and Jennifer Connelly as the Nashes.
Nash’s 27 page dissertation would eventually win him a Nobel prize in economics. Nash’s dissertation extended von Neumann and Morgenstern’s theory of games from cooperative, bargaining-type solutions to non-cooperative solutions in which each player is assumed to act in their self-interest and in so doing made the theory tremendously more relevant to economics, business, political science, and even theories of animal behavior and evolution.
Here is further background on Nash’s work in game theory. Here is the PBS documentary A Beautiful Madness with lots of links to interviews and further explanations of his work and influence.
*The Baltic: A History*
The author is Michael North, and this new and excellent book, when it comes to the earlier centuries, emphasizes the role of Swedes and Germans in shaping a region of prosperity and trade. The most interesting section (starts p.239) is about the 1920s, when the Baltic nations underwent a radical deindustrialization, due to their severing from the Russian empire. That is when they deviated from the Nordic economies, which for the most part continued their industrialization.
I also recommend Sverre Bagge, Cross & Scepter: The Rise of the Scandinavian Kingdoms from the Vikings to the Reformation. If nothing else, this book will make you wonder if the recent success of the Nordic nations are in fact so deeply historically rooted after all. As North (p.205) points out: “Industrialization arrived in all of these countries relatively late.” Tom Buk-Swienty’s 1864: The Forgotten War That Shaped Modern Europe is a good book on how and why Denmark lost so much territory to Prussia/Germany.
Sunday assorted links
From the comments, on the political implications of behavioral economics
The classical MU [differential marginal utility of money] argument has, in my view, been moderated by the findings of behavioral economics, namely loss-aversion. Taking from the higher-incomes to give it to the lower incomes may be negative utility as the higher incomes are valuing their loss at an exaggerated rate (it’s a loss), while the lower income recipients under value it.
Many on the Left are too quick to grab on to the findings of behavioral economics as a critique of neoclassical economics, but while they often do point away from simplistic free-market views, they do not necessarily point towards left-wing solutions. They are just as likely to point to non-market conservative views.
For example, isn’t it another consequence of the asymmetry of the utility function with respect to the status quo (loss aversion) that social mobility destroys utility? I mean, if the tide is lifting all boats, then you can argue that it’s still better for everyone (the libertarian view), but if your utility function is heavily rank-based (a standard left-wing view) and you accept loss-aversion from the behavioral literature, then social mobility is suspect from an utility point-of-view.
This sounds shockingly old-school conservative when we discuss our own societies (“why should the children of the poor compete with my kids for a place in a good university? they have lower expectations, after all, State U is a step up for them. My kids, on the other hand, would be crushed if they had to go to their safety school”), but is quite acceptable when discussing international inequalities (“it doesn’t morally matter that people in Mexico have much less material wealth, their society has lower expectations”).
That is from Luis Pedro Coelho.
From the comments, on dissimilation
http://mentalfloss.com/article/58515/why-colonel-spelled-way
“Colonel” is pronounced just like “kernel.” How did this happen? From borrowing the same word from two different places. In the 1500s, English borrowed a bunch of military vocabulary from French, words like cavalerie, infanterie, citadelle, canon, and also, coronel. The French had borrowed them from the Italians, then the reigning experts in the art of war, but in doing so, had changed colonello to coronel.
Why did they do that? A common process called dissimilation—when two instances of the same sound occur close to each other in a word, people tend to change one of the instances to something else. Here, the first “l” was changed to “r.” The opposite process happened with the Latin word peregrinus (pilgrim), when the first “r” was changed to an “l” (now it’s peregrino in Spanish and Pellegrino in Italian. English inherited the “l” version in pilgrim.)
After the dissimilated French coronel made its way into English, late 16th century scholars started producing English translations of Italian military treatises. Under the influence of the originals, people started spelling it “colonel.” By the middle of the 17th century, the spelling had standardized to the “l” version, but the “r” pronunciation was still popular (it later lost a syllable, turning kor-o-nel to ker-nel). Both pronunciations were in play for a while, and adding to the confusion was the mistaken idea that “coronel” was etymologically related to “crown”—a colonel was sometimes translated as “crowner” in English. In fact, the root is colonna, Italian for column.
Meanwhile, French switched back to “colonel,” in both spelling and pronunciation. English throws its shoulders back, puts its hands on its hips and asks, how boring is that?
The persistence of Italian musical and entertainment traditions
There is a new paper by Karol Jan Borowiecki, published in Oxford Economic Papers:
I investigate the consequences of long-run persistence of a society’s preferences for cultural goods. Historical cultural activity is approximated with the frequency of births of music composers during the Renaissance and is linked with contemporary measures of cultural activity in Italian provinces. Areas with a 1% higher number of composer births nowadays show an up to 0.29% higher supply of classical concerts and 0.16% more opera performances. Classical concerts and opera performances have also rather bigger audiences and obtain greater revenues in provinces that have been culturally active in the past. Today, those provinces also exhibit a somewhat lower supply of other forms of entertainment (e.g., sport events), thereby implying a tantalizing divergence in societies’ cultural preferences that is attributable to events rooted in the past. It is also shown that the geography of composer births is remarkably persistent over a period of seven centuries.
For the pointer I thank Ben Southwood.
Thanks to Ramez Naam!
Thanks to Ramez Naam for excellent guest blogging this week! Ramez’s homepage is here and his Amazon page here.
Triple Differencing Bikes in India
In 2007 in an effort to increase the number of girls enrolled in school the government of Bihar in India gave each schoolgirl of age 14 a bicycle. The excellent Karthik Muralidharan and co-author Nishith Prakash set out to discover whether the program was effective. To jump to the conclusion they found that the program increased the enrollment of girls by 41% reducing the gender gap by almost half.
The reason for this post, however, is not the result–important as it is–but the two videos the International Growth Center made to explain Muralidharan and Prakash’s research methods. The first video explains the background of the research and then gives a very elegant explanation of triple-differences as an estimation strategy.
The second video explains that the researchers still weren’t completely happy that they had truly identified a causal effect (or perhaps the referees were not completely happy) so they hit on a complementary approach, looking for a dose-response relationship. With the collection of more data Muralidharan and Prakash were able to ask whether the program was more effective for the students who were neither so close nor so far from the school that a bicycle wouldn’t make a difference. Indeed, the program was most effective for students who lived at bicycle-relevant distances.
These videos are an interesting peek at some of the questions economists ask and the methods they use to answer those questions. The videos would be excellent for classroom use–challenge your students after the first video to come up with potential problems with the triple difference method and see if they can identify another research design that would address these problems!
Addendum: Here are previous MR posts on Karthik Muralidharan’s important research program.
Saturday assorted links
1. This one has something to with Richmond, otherwise I don’t know how to title it.
2. Do innovators find it easier to justify bad behavior?
3. Are New Jerseyans more flammable than other people? Or something else?
4. Erik Angner, Well-Being and Economics; among other things, a good look at how cardinal utility and interpersonal comparisons overlap with work in post-Sen welfare economics.
The economy in Pakistan is indeed improving
The recent terror attack in Karachi won’t help any, but still the news is looking up, from The FT:
The IMF has acknowledged that Pakistan averted a balance of payments crisis in 2013 and managed to stabilise its foreign reserves. This week Standard & Poor’s, the credit rating agency, raised the outlook for its B minus rating from stable to positive, while Moody’s last month raised its outlook to stable from negative — albeit for a Caa1 rating, which puts it one notch above Greece.
With liquid foreign reserves having grown almost fourfold in the past year to $12.5bn, a figure equivalent to about three months of imports, Mr Wathra has less cause for concern about the stability of the rupee than some of his predecessors.
The recent plunge in the price of crude has seen the cost of oil imports fall to $9.7bn in the nine months to March, down from just over $11.2bn a year earlier, according to central bank figures.
Falling oil prices have also helped lower the fiscal deficit to an expected 5 per cent of gross domestic product in the year to June, down from above 8 per cent just over two years ago. And the country’s GDP is forecast to grow by about 4 per cent this year, following a similar rise last year.
You may recall my earlier post on Pakistan being an undervalued economy, more here too. It still is.
Friday assorted links
2. Kevin Warsh on optimal committee design for the FOMC.
3. Economics of the craft beer industry.
4. How urban barbecue technologies are developing.
5. Which is a denser city: Los Angeles or Beijing? By the way, more than half of Beijing’s residents live far from the city center, beyond the fifth ring road.
Can We Network (and Augment) the Human Brain?
How realistic is it to directly send data in and out of the brain? That is the core scientific innovation underlying my novels. From a longer piece in which I discuss neurotechnology. (The Ultimate Interface: Your Brain):
Neural implants could accomplish things no external interface could: Virtual and augmented reality with all 5 senses (or more); augmentation of human memory, attention, and learning speed; even multi-sense telepathy — sharing what we see, hear, touch, and even perhaps what we think and feel with others.
What’s actually been done in humans?
In clinical trials today there are brain implants that have given men and women control of robot hands and fingers. [..] More radical technologies have sent vision straight into the brain. And recently, brain scanners have succeeded in deciphering what we’re looking at.
In animals, we’ve boosted cognitive performance:
In rats, we’ve restored damaged memories via a ‘hippocampus chip’ implanted in the brain. Human trials are starting this year. [..] This chip can actually improve memory. And researchers can capture the neural trace of an experience, record it, and play it back any time they want later on.
In monkeys, we’ve done better, using a brain implant to “boost monkey IQ” in pattern matching tests.
The real challenges remain hardware and brain surgery:
getting even 256 channels in generally requires invasive brain surgery, with its costs, healing time, and the very real risk that something will go wrong. That’s a huge impediment, making neural interfaces only viable for people who have a huge amount to gain, such as those who’ve been paralyzed or suffered brain damage.
Quite a bit of R&D is going into solving those hardware and surgery problems:
Researchers across the world, many funded by DARPA, are working to radically improve the interface hardware, boosting the number of neurons it can connect to (and thus making it smoother, higher resolution, and more precise), and making it far easier to implant. They’ve shown recently that carbon nanotubes, a thousand times thinner than current electrodes, have huge advantages for brain interfaces. They’re working on silk-substrate interfaces that melt into the brain. Researchers at Berkeley have a proposal for neural dust that would be sprinkled across your brain.
You can read the whole thing here:The Ultimate Interface: Your Brain.
*Ukraine: What Went Wrong With It and How to Fix It*
That is the new Anders Aslund book, and it is instructive throughout. Here are a few things I learned:
1. 80 percent of Ukrainian youth receive higher education of some kind.
2. Ukraine has the world’s highest rate of pension expenditures as a share of gdp, at about 18 percent, circa 2010. Most of that is old age pensions, and that is for a population with a relatively short lifespan, 68.5 years, 122th in the world according to UNDP.
3. At the time of publication, Ukraine’s public expenditures stood at 53 percent of gdp.
4. “Ukraine is running out of money…” OK, that one I already knew.
5. “No economy has fared as poorly in peacetime as Ukraine did from 1989 to 1999. For a decade, Ukrainian GDP plummeted by a total of 61 percent, according to official statistics.” Some of this, however, was offset by the growth of black markets.
6. Crimea is no longer included in Ukraine’s formal measure of gdp, although Donbas is still included.
Why does the American economy seem to slow down each first quarter?
This very good Justin Wolfers piece outlines some possible explanations, for instance:
For those not keeping track, it boils down to two camps: economists who blame first-quarter weakness on idiosyncratic factors versus those blaming mismeasurement.
The weather would be one — but not the only — possible idiosyncratic factor.
I wonder, however, if a third class of explanation perhaps should be in play. It is well-known that economies undergo relatively strong “seasonal cycles,” most notable a major contraction in the first quarter, following the boom of the holiday season. Might this seasonal contraction interact with the real economy in a different way than before the Great Recession? Perhaps negative economic momentum, even when expected, chills other drivers of economic activity more than it used to. This could arise from complementarities, increasingly important thick market externalities, signal extraction problems combined with greater fearfulness, or perhaps it is revealing information about the fragility of risk premia. Other mechanisms may be operating as well — can you think of any?
In other words, those first-quarter slumps are real, not idiosyncratic, and also not mismeasurements, but still they are (all other things being equal) likely temporary.
This is just a hypothesis, do you have any ideas about how to test it?
Life working in a nail salon
Luo Yufeng, who has worked in the salons for four years, reports:
Q. What are your thoughts on the New York manicure industry in general?
A. I think it’s fine. Many of my friends have been doing the work for more than 10 years, and they generally think it’s better than working in restaurants. The difference between a manicurist and her boss is not clear-cut. An ordinary worker can start in a nail salon to learn the techniques, and, after three or five years, she can pay around $30,000 to buy a salon and become a boss herself. I found this highly inspiring. Even when I was cursed or when my customers found fault with me, my heart was still full of hope, because one day I could become a boss, too.
The interview is interesting throughout. By no means do I think her account is the whole story, but relatively few people will see this interview, on the NYT Sinosphere blog, and nail salons have been a topic of discussion as of late. A discussion of life in the Vietnamese countryside would be illuminating as well.