The Friedman-Savage piece starts with an obvious puzzle: why do people both buy lottery tickets and insurance against losses?  That would seem to make them both risk-loving and risk-averse at the same time.  The proffered answer is simple: part of the utility function is concave, and part is convex.  Across the lower range we wish to play it safe, but above a certain margina we are willing to take gambles (by the way, here is some evidence, and why it might follow from market constraints).

For years this approach rubbed the "foundationalist Tyler" the wrong way.  "Surely there is a more general approach which will allow us to derive both behaviors from a few axioms concerning risk and utility.  We can’t just postulate arbitrary shifts in the curve across the utility space.  Maybe both parts of the curve follow from the "temporal resolution of uncertainty," that missing variable from so much of expected utility theory.  The Friedman-Savage approach will someday be seen as a diversion from the path which led to truth."

Many articles explored these routes, most notably Mark Machina’s 1982 piece on generalized expected utility theory.  None of them caught on.  A subsequent dose of empirical and experimental work indicated that behavior toward risk is strongly context-dependent.  Neuroeconomics implied that different decisions in fact may stem from different parts of our brain, thereby challenging the assumption of a unified agent.  Probably there is no overarching approach to all of the so-called violations of expected utility theory.  People simply behave differently toward risk in different situations.

In other words, Friedman and Savage were ahead of their time.  This is no accident, but rather it stems from Milton’s wise pragmatism, and from his general lack of interest in foundations.  He also never explained "why people hold money," or "what money really is," yet he charged ahead with monetary theory and indeed monetary policy.  The monetary foundationalists have been just as unsuccessful as the utility foundationalists.

Wuhan, my hometown in Central China, plans to sell the right to name streets, bridges, public plazas and high-rise buildings to businesses in exchange for money the municipal government desperately needs to make up for a "funding shortage in government operations."

Here is the story, and thanks to Petras Kudaras for the pointer.

Robert Tagorda sends along a story of governments doing the buying rather than the selling:

State leaders have tried for years to get more minority and low-income high school students to take tougher classes. One group Thursday proposed an eye-opening idea: Pay students to take the classes.  The Minnesota Private College Council called on the state to spend $50 million a year to pay eligible high school students who take and pass college-prep classes.

Alex once blogged on Roland Fryer, and paying students to get better grades.

Here.

How about cities without any traffic signs or lights?:

European traffic planners are dreaming of streets free of rules and
directives.  They want drivers and pedestrians to interact in a free and
humane way, as brethren — by means of friendly gestures, nods of the
head and eye contact, without the harassment of prohibitions,
restrictions and warning signs…Ejby, in Denmark, is participating in the experiment, as are Ipswich in England and the Belgian town of Ostende.

The logic?

It may sound like chaos, but it’s only the lesson drawn from one of the
insights of traffic psychology:  Drivers will force the accelerator down
ruthlessly only in situations where everything has been fully
regulated.  Where the situation is unclear, they’re forced to drive more
carefully and cautiously.

Some towns are even looking to abolish the distinction between roads and sidewalks.  Here is the full story, can any of you report on these experiments?  And if you are looking for your "Germany fact of the day," the country has 648 different and valid traffic signs.

Thanks to John Durant for the pointer.  And here is Dan Klein on skating rinks.

Someone I was talking to — no I can’t tell you who — claims that the answer is to enjoy casual or anonymous sex.

Now this is not my field of expertise.  The claim was that picking people up in the suburbs, and driving to one of the homes for sex, is difficult.  MapQuest is not immediately handy for good directions, there are two cars in play, at least one of the persons may be drunk, and there is a trust issue of being trapped in some weird suburban cul-de-sac, surrounded only by sleeping, catatonic soccer moms with no one to hear you scream for help, etc.

In a city, on the other hand, there is walking and the metro or subway.  An emergency exit is easier, and cars need not come into play at all.

I have never lived in an American city, only Freiburg, Germany and Wellington, New Zealand.

Noble readers, is this true?  Do be analytical, facts are fine but I am not interested in risque comments per se.

Leo Melamed writes:

I asked him [Friedman] whether he would endorse–when Bretton Woods collapsed–the concept of futures contracts in foreign exchange.  Without hesitation, Dr. Milton Friedman embraced the concept and authored a study in December 1971 which became the intellectual foundation for the birth of currency futures.  It was not a major treatise, hundreds of pages long with footnotes and a bibliography.  The world-renowned economist stated all he needed to say in just 11 pages.  His paper, entitled "The Need for Futures Markets in Currencies," provided us with academic authenticity of the highest magnitude to prove that our theory was a viable necessity.  As I often stated, "Professor Friedman gave my idea the credibility without which the concept might never have become a reality."  For with Dr. Friedman’s paper in hand, I was able to convince government officials, bank presidents and the CME brokerage community that the idea had merit.

This is an excellent illustration of Alex’s point that Milton was an entrepreneurial economist.  Here is more. 

Milton had been right all along that flexible exchange rates were entirely workable.  He was wrong in underestimating their volatility through periodic, and possibly inexplicable, "long swings" in the levels.  Oddly, his mistake on this point probably enabled currency futures and options to be even more successful than he had expected.

Addendum: Here is Greg Mankiw on Milton, here is Arnold Kling.  Here is a link fest at PrestoPundit.  Here is a misleading piece on Milton as friend of big government; just ask Roger Douglass, Vaclav Havel, or many others.

Econoblog.