Gambling on Science
In 1990 my colleague Robin Hanson wrote:
Imagine a betting pool or market on most disputed science questions, with
the going odds available to the popular media, and treated socially as the
current academic consensus. Imagine that academics are expected to "put up
or shut up" and accompany claims with at least token bets, and that
statistics are collected on how well people do….This would be an "idea futures" market, which I offer as an alternative to
existing academic social institutions.
More and more it looks like Robin was right on. Consider this story from the London Times:
WHEN Ladbrokes teamed up with New Scientist magazine
in August last year to offer odds on five great breakthroughs being made by
2010, it looked like a typical silly-season stunt.It is now expected to become a very expensive one. As soon as the book
opened, physicists began to put their money where their theories were and backed
themselves to find gravitational waves – ripples in space and time predicted by
Albert Einstein but not yet proven to exist.Alan Watson, of the University of Leeds, was astounded
to see odds of 500-1 on a discovery that he considered a matter of when, not if,
and promptly wagered £50.So many other scientists did likewise that by lunchtime Professor Jim Hough,
of the University of Glasgow, who leads a team seeking the waves, was allowed to
stake only £25 at odds that had fallen to 100-1. When his colleague Sheila Rowan
placed her bet in the early afternoon, the odds were down to 5-1, and when the
book was closed they were 2-1.
It’s amazing how far we have come since Robin proposed idea futures, especially given that the idea could have been implemented hundreds of years ago. But Robin’s vision is even more radical than betting markets. Robin proposes that betting markets can substitute for many of the funding arrangements that we use today. Consider the part of the quote I excised above:
Imagine that funding
agencies subsidize pools on questions of interest to them, and that
research labs pay for much of their research with winnings from previous
pools.
Imagine indeed! We are not there yet but the odds are increasing in Robin’s favor.
Review of File-Sharing Papers
Rufus Pollock draws the following conclusions from the literature on file-sharing:
The basic result is that online illegal file-sharing does have a
negative impact on traditional sales. The size of this effect is
debated, and ranges from 0 to 100% of the sales decline in recent
years, but a figure of between 20 and 40% would be a reasonable
consensus value (i.e. that file-sharing accounted for 20-40% of the
decline in sales not a 20-40% decline in sales).
Beyond this
basic result several other very interesting facts have emerged.First
is the differential impact of file-sharing on an artist depending on
their existing popularity. According to Blackburn who investigates this
issue the ‘bottom’ 3/4 of artists sell more as a consequence of
file-sharing while the top 1/4 sell less.Second is the first tentative estimates (by Waldfogel and Rob) of the
welfare consequences of file-sharing. Waldfogel and Rob’s dramatic
result is that file-sharing on average yields a gain to society three
times the loss to the music industry in lost sales.
The conclusion seems right to me – file-sharing increases social-welfare, so in theory a win-win solution is possible, but in practice the increase comes at the expense of music firms. See here for the blog post and here for a summary of each of the main papers in the literature.
Hat-tip to Cory Doctorow at Boing-Boing Blog.
Would Aspirin Be Approved Today?
I’ve often said that if aspirin were invented today it would not be approved by the FDA. Drug researcher Derek Lowe says I’m wrong – aspirin wouldn’t even make it out of the lab. Read the whole thing.
Thanks to Ted Frank for the pointer.
Tabarrok’s Offer
Pascal’s Wager came up at the great debate the other night and Bryan Caplan was kind enough to refer to my paper as the definitive refutation. Coincidentally, a reader in search of counsel on matters economic and theological writes to the Financial Times’s Dear Economist who replies by trying to take the vig out of my scam ministry!
The economist Alex Tabarrok points out that if there is even a tiny
chance that Pascal is right, a tiny chance of a tiny chance of a second
of infinite bliss is still infinitely valuable.Now, if you give
me all your money, I’ll intercede with God on your behalf and increase
your chance of going to heaven. Of course, there is only a tiny chance
that my intercession will help, but a tiny chance of infinite bliss is,
again, infinitely valuable.Please send your cheque via the FT, and quickly please – I’ve already given Professor Tabarrok all my cash.
Water of Life
While most countries are committed to increasing access
to safe water and thereby reducing child mortality, there is little consensus
on how to actually improve water services. One important proposal under discussion
is whether to privatize water provision. In the 1990s Argentina embarked
on one of the largest privatization campaigns in the world, including the privatization of local water
companies covering approximately 30 percent of the country’s municipalities.
Using the variation in ownership of water provision across time and space generated
by the privatization process, we find that child mortality fell 8 percent in
the areas that privatized their water services and that the effect was largest (26 percent) in the poorest areas. We check the robustness of these estimates using cause-specific mortality.
While privatization is associated with significant reductions in deaths from
infectious and parasitic diseases, it is uncorrelated with deaths from causes
unrelated to water conditions.
That is the abstract to a very important paper, Water for Life: The Impact of the Privatization of Water Services on Child Mortality, by Sebastian Galiani, Paul Gertler and Ernesto Schargrodsky in the February 2005 issue of the JPE. (free working paper version).
In theory, water services are not an easy thing to privatize well because of natural monopoly problems and because some of the benefits of clean water are externalities. In practice, however, governments in developing countries do such a poor job at providing water that there are large potential gains to privatization even given such problems.
See also Tyler’s post Will the Middle East run out of water? for more on where water privatization may have benefits.
The Treaty of Tripoli
In the late 1790s the US was having difficulty with Muslim pirates in the waters off Northern Africa. After some difficulty, a treaty was signed in 1796 with the Bey of Tripoli promising friendship, trade and an end to hostilities. The 11th article of the treaty provides a remarkable contrast between how these sorts of issues were handled by the founders and how they are handled today. It reads:
As the government of the United States of America is not in any sense
founded on the Christian Religion; as it has in itself no character of
enmity against the laws, religion or tranquility of Musselmen; and as
the said States never have entered into any war or act of hostility
against any Mehomitan nation, it is declared by the parties that no
pretext arising from religious opinions shall ever produce an
interruption of the harmony existing between the two countries.
The Treaty was read aloud in the Senate and approved unanimously. In his proclamation John Adams said, "I John Adams, President of the United States of America, having seen
and considered the said Treaty do, by and with the advice consent of
the Senate, accept, ratify, and confirm the same, and every clause and
article thereof." The treaty was published in a number of leading newspapers. It never aroused any opposition.
The Mansion Wars
John Tierney had an excellent column on "mansionization" in yesterday’s NYTimes (I am cited). Unfortunately, it’s behind the great wall (which I predict will be down within 6 months) but here are some key grafs:
In the town where I live, a once placid Washington suburb, the mayor has just sent out a letter asking the natives to stop throwing eggs at each other’s homes. Such is life on the front lines of the anti-mansionization war….
My first impulse was to side with the mansionizers [because]…of my knee jerk libertarian reaction to the moralizers…Who were they to control other people’s property?…But when I talked to housing experts, they pointed to another message from the market… A majority of new homes in rapidly growing urban areas are in communities governed by private homeowners assocations that impose much stricter rules than governments do.
Some people chafe at the restrictions [but] Amanda Agan and Alexander Tabarrok…found that a home in the Virginia suburbs of Washington that was part of a private community typically sold for 5 percent more than a similar home nearby not governed by a homeowners association…
[M]ost people apparently want aesthetics to be regulated – not by politicians at the city or county level, but by homeowners in the neighborhood. That’s why the developers of private communities write constitutions that give so much power to the homeowners associations…Those founding fathers learned by trial and error that empowering local busybodies is the best way to maximize home values and minimize strife.
Aesthetic and other rights held by homeowner assocations and condominiums are a relatively new but rapidly growing type of property, the private but collective property right. Figuring out the best form for these rights will be an evolutionary process but one that is greatly aided by the fact that developers and homeowners have the same incentives – to make the home as valuable as possible.
Addendum: Art Woolf points me to the Rutland Herald which has Tierney’s column in full.
Torture, terrorism, and incentives
President Bush, Dick Cheney and others who support the use of torture by the United States and its agents usually rely on the ticking time bomb argument. Sometimes torture is necessary to prevent a greater evil. I accept this argument. If my kid were kidnapped and the suspect was refusing to talk, I’d want Vic Mackey to do the questioning.
But it does not follow from the "ticking time bomb" argument that torture should be legal. The problem with making torture legal is that the government will abuse its powers. I do not trust the government, any government, to use this power responsibly. Leviathan must be heavily restrained, especially when it comes to torture.
Here is where economics can make a contribution. By making torture illegal we are raising the price of torture but we are not raising the price to infinity. If the President or the head of the CIA thinks that torture is required to stop the ticking time bomb then they ought to approve it knowing full well that they face possible prosecution. Only if the price of torture is very high can we expect that it will be used only in the most absolutely urgent of circumstances.
The torture victim faces incredible pain and perhaps death at the hands of his torturer. If these costs are to be born by the victim then we had better make damn sure that the benefits are also high and the only way we can do that is to make the torturer also bear some of the costs. Torture must not be cheap.
Cosby was Correct
In Debunking Cosby on Blacks Washington Post columnist Michelle Singletary attacks Bill Cosby for his speech last year to the NAACP.
Poor blacks are bad parents because they waste what little money they have
buying high-priced, brand-name shoes, Cosby chided.
"All this child knows is gimme, gimme, gimme," Cosby said, according to
a transcript of the speech. "They are buying things for the kid. $500 sneakers.
For what?"
Cosby was lauded by white conservatives and some blacks for being brave
enough to speak out. But like the price of sneakers that Cosby got wrong, he was
incorrect about much of what he said.…the comedian was rattling off
nonsense much like his Fat Albert character Mushmouth.
I was curious so I went to Table 2100 of the Consumer Expenditure Survey and found the following for 2003:
Average income of whites and other races: $53,292.
Average income of blacks: $34,485.
The survey then lists expenditures on a wide variety of goods from eggs and fish to books and televisions; to do a proper comparison we would have to correct for income and other demographic variables but some figures just jump out at you, including this:
Expenditures on footwear by whites and other races: $274
Expenditures on footwear by blacks: $440.
Chalk one up for the good Dr. Cosby.
Bad Statistics Lead to False Hope
Newspapers around the world are all agog with the story of a British Man, 25, ‘cured of HIV’; that headline from the normally reserved BBC. Scot is first in world to beat HIV says, (can you guess?), the Glasgow Sunday Mail. The more cosmopolitan, but doubly wrong, Medical News Today says, Man is Cured of AIDS. Other newspapers are reporting that doctors are "stunned," "mystified" and wondering whether this man holds the key to curing AIDS.
The story is pathetically simple once one gets past the headlines. A man tested positive for HIV, he took a lot of vitamins and just over a year later tested negative (several times). Now what are you going to believe that he cured himself of HIV or that the first test was wrong? HIV tests have high accuracy but when millions of people take these tests it’s an easy bet that there will be significant numbers of false positives.
It is even possible that in low-risk populations there will be more incorrect diagnoses than correct ones! Doctors may be stunned but to a statistician results like this are banal. Unfortunately, in about a dozen articles that I took a look at, many doctors were quoted (sadly, even the skeptical doctors were skeptical for the wrong reasons – they think the guy must still have HIV!) but not a single statistician. For the correct statistics see here or my earlier post, Why Most Published Research Findings are False, which analyzes a different application of the same idea.
Sex on the Margin
Sexual preferences are primarily biological in origin. But sexual choice is about preferences and constraints. Raise the price of sex with women and more men will choose to have sex with other men – that’s what happens in prisons.
In a remarkable paper, Andrew Francis (a graduate student at the University of Chicago) examines how AIDS has changed sexual choice. With admirable precision, Francis lays out the price of sex:
…it is thousands of times more likely that a male would get HIV having sex with a man than having sex with a woman. In terms of AIDS-related mortality, the expected cost of having unprotected sex once with a man is almost $2000, while the expected cost of having unprotected sex once with a woman is less than a dollar.
Thus AIDS changes the price of sex, do we observe changes in choice? Francis wants to be careful about causality so he uses a clever instrumental variables approach. He reasons that knowledge of AIDS and thus responsiveness to price is correlated with knowing someone who has AIDS and that knowing someone who has AIDS is exogeneous to other factors influencing sexuality. Unfortunately, it appears that he only has information on whether a relative has AIDS and genetic factors mean exogeneity is unlikely to hold. In fact, we would probably expect that simply knowing someone with AIDS is positively correlated with being homosexual (especially in 1992 when the survey was taken).
Indeed, Francis finds, as expected, that women who have a relative with AIDS are more likely to be engage in homosexual acts and identify as being homosexual. But Francis finds that men who have a relative with AIDS are significantly less likely to:
…have had sex with a man during the last sexual event…have had a male sexual partner in the last year… say they are sexually attracted to men…rate having sex with someone of the same gender as appealing…[or] think of themselves as homosexual or bisexual.
The tendency to greater homosexuality among women and less among men is exactly what the economic theory predicts given how AIDS affects the price of sex. Genetic and social factors will have greater difficulty resolving this bifurcation so I think Francis has the upper-hand on the argument, although there may be counter-arguments based on the gay-uncle theory).
Importantly, note also that Francis finds that not only is sexual choice malleable, as the prison story I opened with suggests, but so are sexual desire and identity. At least on the margin! (A point that non-economists are likely to miss.)
Thanks to Emily Oster for the pointer.
Is Religion Rational?
Is Religion Rational? The Economics of Faith is the title of a debate to be held between my colleagues Larry Iannaconne and Bryan Caplan. The debate will be on Wed. Nov. 16, 6:30 pm in the front ballroom of Student Union Building II at George Mason University-Fairfax. The debate is free and open to the public. I think it is going to be a great debate (I will moderate). Among the sorts of things to be discussed are:
Is religion rational, irrational, or distinct from rationality? What does economics have to say about religion? Why is religion demanded and supplied? What effect does religion have on economic, social and political outcomes? How does an understanding of religion affect our understanding of economics and politics?
Markets in Everything
Organic cigarettes. Henry Sicignano, American Spirit’s vice president of marketing, explains his purpose succintly:
"Our company’s greatest challenge – also
our greatest opportunity – is to expose smokers to our chemical-free,
all-natural tobacco products…"
I also liked this classic bit of statistical illusion:
With a market share of less than 1 percent
of the total U.S. cigarette business, Santa Fe is undaunted by the
behemoths that are their competition. "Natural American Spirit
cigarettes are the fastest growing brand in the United States,"
Sicignano reports.
(Groups which are small are often the fastest growing, also the fastest declining.)
Abortion Access and Risky Sex
Jonathan Klick (a co-author of mine) and Thomas Stratmann (a colleague at GMU) have written an interesting paper on abortion and risky sex among teenagers. From their conclusion:
Incentives matter. They matter even in activities as primal as sex, and they matter even among teenagers, who are conventionally thought to be relatively myopic. If the expected costs of risky sex are raised, teens will substitute toward less risky activities such as protected sex or abstinence. In addition to modeling the decision making processes of teenagers, this insight is important in other contexts as well. Many public policies can be improved by recognizing the sensitivity of teenage sexual decisions to costs and benefits.
We study one set of policies in this paper. We show that increasing the cost of abortion for teens lowers the insurance value of abortion. This induces teenage girls to avoid risky sex, which will likely have the effect of lowering pregnancy rates, abortion rates, and birth rates among this group of individuals. While these positive effects alone might not justify parental involvement laws, they presumably should not be ignored in the debate. Behavior is not static, and claims based on the assumption of static behavior are flawed.
Sponsor an African Business
Charitable organizations have long made it possible to sponsor a child in a poor country. Kiva lets you sponsor a business in a poor country.
By choosing a business on our website and then lending money online to
that enterprise, you can "sponsor a business" and help the world’s
working poor make great strides towards economic independence.
Throughout the course of the loan (usually 6-12 months), you can
receive monthly email updates that let you know about the progress
being made by the small business you’ve sponsored. These updates
include reports on loan repayment progress, photos of new capital
equipment, narratives on business growth and standard of living
improvements, and more. As loans are repaid, you will get your original
loan money back.
Kiva has recently been discovered by the web and so they are currently out-of-businesses to sponsor (which is a good sign), but it’s a great idea and I intend to sponsor a business as soon as one becomes available.
Thanks to Pablo Halkyard for the pointer.