Wednesday assorted links
My Conversation with Daniel Kahneman
Here is the transcript and audio, a rollicking time was had by all. We covered what you would expect us to have covered. Here is one bit:
COWEN: And that people want to maximize their overall sense of how their life has gone — do you think that is ultimately Darwinian roots? Why is that the equilibrium? Happiness feels good, right?
KAHNEMAN: Yeah, happiness feels good in the moment. But it’s in the moment. What you’re left with are your memories. And that’s a very striking thing — that memories stay with you, and the reality of life is gone in an instant. So memory has a disproportionate weight because it’s with us. It stays with us. It’s the only thing we get to keep.
COWEN: If you think of your own life, have you maximized happiness or the overall sense of how your life has gone?
KAHNEMAN: Neither.
[laughter]
COWEN: Neither. Citations?
KAHNEMAN: No.
And on his new project:
KAHNEMAN: I’ll tell you where the experiment from which my current fascination with noise arose. I was working with an insurance company, and we did a very standard experiment. They constructed cases, very routine, standard cases. Expensive cases — we’re not talking of insuring cars. We’re talking of insuring financial firms for risk of fraud.
So you have people who are specialists in this. This is what they do. Cases were constructed completely realistically, the kind of thing that people encounter every day. You have 50 people reading a case and putting a dollar value on it.
I could ask you, and I asked the executives in the firm, and it’s a number that just about everybody agrees. Suppose you take two people at random, two underwriters at random. You average the premium they set, you take the difference between them, and you divide the difference by the average.
By what percentage do people differ? Well, would you expect people to differ? And there is a common answer that you find, when I just talk to people and ask them, or the executives had the same answer. It’s somewhere around 10 percent. That’s what people expect to see in a well-run firm.
Now, what we found was 50 percent, 5–0, which, by the way, means that those underwriters were absolutely wasting their time, in the sense of assessing risk. So that’s noise, and you find variability across individuals, which is not supposed to exist.
I enjoyed this particular exchange:
COWEN: Do you think of low intelligence as yet a third independent source of error? Or is that somehow subsumed in bias and noise?
KAHNEMAN: You mean plain stupidity?
[laughter]
COWEN: In some cases.
And this:
COWEN: A society such as Argentina that relies so heavily on psychoanalysis — as a psychologist, do you see that as bias? Is it a placebo? Is there a placebo effect in psychoanalysis?
KAHNEMAN: You seem to attribute . . . You seem to think that I think of bias all the time.
[laughter]
COWEN: I can’t imagine why. That’s my bias.
KAHNEMAN: It’s like thinking of sex all the time. I really don’t think of bias that much.
Finally:
COWEN: Some questions about psychologists outside of what you’ve worked on, but maybe related — Freud. What do you think of Freud’s body of work? And has it influenced you at all?
Definitely recommended, and you will find cameo appearances by Michael Nielsen and Daniel Gross.
*Scouting and Scoring: How We Know What We Know About Baseball* (scouting bleg)
The role of reports and bureaucracy in the quantification of baseball prospects is a story that has long been obscured by a romantic notion of what scouts do and who they are. Outside of scouting memoirs, only a handful of book-length studies of scouts exist, none of which take scouting tools and training as the central topic. Scouts actively participate in their own mischaracterization. Its possible to read entire memoirs of scouts without ever learning about the need to fill in a report, let alone how it is done.
That is from the forthcoming book — quite interesting — by Christopher J. Phillips. Not surprisingly, this book also discusses “scouting the scout.”
And so I ask you readers, what are the best things to read about scouts, scouting, and the scouting process?
*The Economist* picks eight young top economists
They are:
Ms Dell and her Harvard colleagues Isaiah Andrews, Nathaniel Hendren and Stefanie Stantcheva; Parag Pathak and Heidi Williams of the Massachusetts Institute of Technology…Emi Nakamura of the University of California, Berkeley and Amir Sufi of the University of Chicago Booth School of Business…
Mr Pathak and his co-authors have compared pupils who only just made it into elite public schools with others who only just missed out, rather as Ms Dell compared villages on either side of the Pentagon’s bombing thresholds. The study showed that the top schools achieve top-tier results by the simple contrivance of admitting the best students, not necessarily by providing the best education. Ms Dell and her co-author showed that bombing stiffened villages’ resistance rather than breaking their resolve.
Ms Williams has exploited a number of institutional kinks in the American patent system to study medical innovation. Some patent examiners, for example, are known to be harder to impress than others. That allowed her to compare genes that were patented by lenient examiners with largely similar genes denied patents by their stricter colleagues. She and her co-author found that patents did not, as some claimed, inhibit follow-on research by other firms. This suggested that patent-holders were happy to let others use their intellectual property (for a fee).
Here is the article, it is an interesting piece.
Tuesday assorted links
Trends and major issues to watch for in 2019
That is the topic of my latest Bloomberg column, here is the fourth of the four major issues I list:
How will India’s intellectual space evolve?
Many Western outsiders used to root for a particular Indian brand of Anglo liberalism to assume increasing importance in the political and intellectual life of India. While this has always been a minority viewpoint, it has had prominent representatives, including Ramachandra Guha, who just published a major biography of Gandhi. But these days, this perspective is dwindling in influence, as is old-style Bengali Marxism and other ideas from the left. It’s not just Hindu nationalism on the rise, rather India seems to be evolving intellectually in a multiplicityof directions, few of them familiar to most Americans. In India, history ain’t over, and further ideological fragmentation seems to be the safest prediction. Note that ideas are very often a leading indicator for where a nation ends up.
Since India may become the world’s most populous country and biggest economy by mid-century, this one is a dark horse candidate for the most important issue of the year.
I also consider China, Ethiopia, Trump, Brexit, and the NBA title.
Rational self-medication
We develop a theory of rational self-medication. The idea is that forward-looking individuals, lacking access to better treatment options, attempt to manage the symptoms of mental and physical pain outside of formal medical care. They use substances that relieve symptoms in the short run but that may be harmful in the long run. For example, heavy drinking could alleviate current symptoms of depression but could also exacerbate future depression or lead to alcoholism. Rational self-medication suggests that, when presented with a safer, more effective treatment, individuals will substitute towards it. To investigate, we use forty years of longitudinal data from the Framingham Heart Study and leverage the exogenous introduction of selective serotonin reuptake inhibitors (SSRIs). We demonstrate an economically meaningful reduction in heavy alcohol consumption for men when SSRIs became available. Additionally, we show that addiction to alcohol inhibits substitution. Our results suggest a role for rational self-medication in understanding the origin of substance abuse. Furthermore, our work suggests that punitive policies targeting substance abuse may backfire, leading to substitution towards even more harmful substances to self-medicate. In contrast, policies promoting medical innovation that provide safer treatment options could obviate the need to self-medicate with dangerous or addictive substances.
That is a new NBER working paper by Michael E. Darden and Nicholas W. Papageorgge.
Does school spending matter for child outcomes?
It seems it does, here is an excerpt from the conclusion of a new C. Kirabo Jackson paper on this question:
The recent quasi-experimental literature that relates school spending to student outcomes overwhelmingly support a causal relationship between increased school spending and student outcomes. All but one of the several multi-state studies find a strong link between spending and outcomes – indicating that money matters on average. Importantly, this is true across studies that use different data-sets, examine different time periods, rely on different sources of variation, and employ different statistical techniques. While one can poke holes in each individual study, the robustness of the patterns across a variety of settings is compelling evidence of a real positive causal relationship between increased school spending and student outcomes on average. However, an examination of single-state studies suggests that, on average, money matters, but that this is not always so in all settings or in all contexts.
And this:
To better understand why some studies find positive impacts while others do not, an examination of the few studies that are not positive is instructive. Three out of the seven papers that are not significant involve Title I spending, and three out of the seven involve capital spending. Given that 6 out of 7 of the studies that find no significant impact (86%) involve particular spending types may suggest that while overall budget increases may improve outcomes, increased funding tied to particular uses may not. In particular, the evidence is consistent with capital spending and Title I spending being less predictably effective than spending in general.
Here is an earlier and related paper on whether school spending cuts matter.
The actuarial code of conduct, with David Wright
David posts:
While my interview guests are getting settled in I occasionally ask them to read out some of the actuarial code of conduct and we discuss it. I’m assembling those clips into some content for my paid actuarial continuing education channel which all actuaries should check out (and get those CE credits before year-end!).
When I did this with Tyler my little warmup act turned into an impromptu Conversations with Tyler where we explore what it means to be an actuary and whether he and I might start a competitor organization! We end with a discussion of fronting and I missed an opportunity to talk about fronting can enable competition among insurers but that will have to wait for another day!
Listen to the (10 min) clip here!
There is also a transcript at the link. For some time now I’ve believed that the best podcasts would be the pre-podcast discussions held right before the podcast proper starts.
Monday assorted links
1. Henry on Tom Lehrer and IDW.
2. 536 A.D. sucked (Icelandic volcano at fault?).
3. Few people are trapped in filter bubbles.
4. The battle to control your mindfulness (WSJ).
5. “Not a single company has borrowed money through the $1.2tn US high-yield corporate bond market this month. If that drought persists, it would be the first month since November 2008 that not a single high-yield bond priced in the market…” Here is more from the FT.
Mid-level urban average is over?
Forty years ago, Nashville and Birmingham, Ala., were peers. Two hundred miles apart, the cities anchored metropolitan areas of just under one million people each and had a similar number of jobs paying similar wages.
Not anymore. The population of the Nashville area has roughly doubled, and young people have flocked there, drawn by high-paying jobs as much as its hip “Music City” reputation. Last month, the city won an important consolation prize in the competition for Amazon’s second headquarters: an operations center that will eventually employ 5,000 people at salaries averaging $150,000 a year.
Birmingham, by comparison, has steadily lost population, and while its suburbs have expanded, their growth has lagged the Nashville area’s. Once-narrow gaps in education and income have widened, and important employers like SouthTrust and Saks have moved their headquarters. Birmingham tried to lure Amazon, too, but all it is getting from the online retail giant is a warehouse and a distribution center where many jobs will pay about $15 an hour.
That is from Ben Casselman (NYT), interesting throughout. Ben is yet another example of just how good the Times is at talent selection…
Measures of cultural distance
A new paper with many authors — most prominently Joseph Henrich — tries to measure the cultural gaps between different countries. I am reproducing a few of their results (see pp.36-37 for more), noting that higher numbers represent higher gaps:
Distance from the U.S.
Algeria: 0.15
Australia: 0.03
Brazil: 0.07
Canada: 0.02
China: 0.17
Ecuador: 0.12
Egypt: 0.24
Ethiopia: 0.14
Georgia [the country]: 0.15
Hong Kong: 0.09
Indonesia: 0.19
Japan: 0.11
Malaysia: 0.12
Nigeria: 0.15
Switzerland: 0.06
Egypt is the most distant, then Yemen, with Canada as the closest.
As for cultural distance from China, we have:
Great Britain: 0.20
Hong Kong: 0.09
Japan: 0.14
Russia: 0.09 (not *so* far away)
Taiwan: 0.10
Vietnam: 0.06
Overall the numbers show much greater cultural distance of other nations from China than from the United States, a significant and under-discussed problem for China. For instance, the United States is about as culturally close to Hong Kong as China is.
Sunday assorted links
2. Facial boarding.
3. Erik Torenberg free lunch list.
4. “In 2016, Marriott Hotels, which had 19 hotel brands, merged with Starwood, which had 11. They didn’t abolish any brands in the merger, and so the company faced a challenge: How to explain to customers, or even to its own employees, what makes all 30 of these brands different from each other.” Here is more from Josh Barro.
5. New Egyptian tomb discovered, what else to come?
6. Daniel Gross podcast on Pioneer and talent discovery, with Erik Torenberg.
Deconstructing cultural codes
As I continue to do Conversations with Tyler, more people ask me about “the Tyler Cowen production function.” Well, here is one piece of it I don’t think I’ve written about or talked about before. I’m going to bring you there in slightly long-winded fashion, long-winded for a blog post that is.
I’ve long been convinced that “matters of culture” are central for understanding economic growth, but I’m also painfully aware these theories tend to lack rigor and even trying to define culture can waste people’s time for hours, with no satisfactory resolution.
So I thought I would tackle this problem sideways. I figured the best way to understand culture was to try to understand or “crack” as many cultural codes as possible. As many styles of art. As many kinds of music. As many complex novels, and complex classic books, and of course as many economic models as well. Religions, and religious books. Anthropological understandings. I also learned two languages in my adult years, German and Spanish (the former better than the latter). A bit later I realized that figuring out how an economic sector works — if only partially — was really not so different from cracking these other cultural codes. For instance, once I spent three days on a boat (as keynote speaker), exclusively with people from a particular segment of the shipping trade. It was like entering a whole new world and every moment of it was fascinating.
Eventually it seemed to me that problems of management were themselves a kind of cultural code, each one different of course.
And travel was the most potent form of this challenge, every new place a new culture to be unraveled and partially understood, and how much time was there to do that anyway?
It is very time-consuming — years-consuming — to invest in this skill of culture code cracking. But I have found it highly useful, most of all for various practical ventures and also for dealing with people, and for trying to understand diverse points of view and also for trying to pass intellectual Turing tests.
I am not recommending this you at any particular margin, or at the margin I have invested in. But if you ask me about the Tyler Cowen production function, every now and then I will tell you.
Addendum: It occurs to me that the number and diversity of cultural codes is increasing much faster than the ability of any individual to track them, much less master them. In this regard, an understanding of matters cultural is always receding from us.
Alexa for animals
A peckish parrot has been caught ordering strawberries, a watermelon and even a water boiler through his foster owner’s electronic personal assistant.
Rocco, an African Grey, requested the items through an Alexa device while his minder was out of the home. Luckily, due to a parental lock, none of his attempted purchases went through.
Rocco, who lives with Marion Wischnewski in Berkshire, U.K., has attempted to order everything from kites and lightbulbs through Alexa since moving to her home. He also gets the device to tell him jokes and play his favorite tunes.
“I’ve come home before and he has romantic music playing,” Wischnewski told The Times of London. “He loves to dance and has the sweetest personality.”
Here is the story, via Michael Rosenwald.