Keeping your eye on the electoral ball

by  Tyler Cowen in

I have some tips for keeping track of who is most likely to win a presidential election.  You all know about the prediction markets, here are a few other mental categories which I find useful.  There is real evidence for them, but I can’t pretend they all command a consensus in the political science literature.  I do, however, think they are true, in part because they are consistent with my underlying views of human behavior:

1. People tend to overreact to the news of the moment in predicting a winner, don’t make this mistake.  Ultimately election outcomes are determined by the fundamentals of the comparison.  For instance if you wish to argue that Hillary Clinton will still be the Democratic nominee, just ponder all those Latinos and blue collar workers out there.  They’re not responding to most of the cues analyzed by the net roots bloggers.  For any forecast you make, imagine yourself telling it to the guy sitting next to you at the West Virginia K-Mart, and see if it passes his laugh test.

2. Party disunity predicts an electoral loss; if you are a Democrat you should worry about this.  It remains to be seen how deep the Republican squabbles will run.  Read the work on Martin P. Wattenberg on this question, of course party disunity can either be a cause of loss or a symptom of other problems.  The state of the party (just like market prices) also aggregates information.

3. The swing voters in the American citizenry don’t really trust the Democrats with foreign policy and won’t anytime soon, whether this is rational or not.  Signs that the election will center around the economy help the Democrats.  Signs that the economy will focus on foreign policy help the Republicans.

4. When a woman or an African-American or a former first Lady is running for President, that is a huge issue in the minds of voters, whether anyone admits it or not.

There is reasonable though not decisive academic evidence for points #2 and #3.  #4 is of course a wildcard, and #1 I have never seen tested; a study might find mean-reversion in the betting markets, I do not know.  Based on this list, I am still thinking that most people are underestimating the chances of a Republican President (the ascendancy of John McCain is starting to reverse this tendency), noting that #2 and #4 are working for my view, but #3 is working against it, at least at the moment.

Wining about Neuroeconomics

by  Alex Tabarrok in

Neuroeconomics has promise but many of the early results leave me cold.  A forthcoming paper in PNAS, Marketing
actions can modulate neural representations of experienced pleasantness (subs. required), has all the usual cute pictures of brain scans (see here, if you care) which are used to make the following conclusion. 

Our results show that increasing the price of a wine increases
subjective reports of flavor pleasantness as well as
blood-oxygen-level-dependent activity in medial orbitofrontal cortex
[mOFC], an area that is widely thought to encode for experienced
pleasantness during experiential tasks.

In short, a $90 bottle of wine tastes better than a $10 bottle of wine even when it is the same wine.  But why not just ask people which wine they like best, as many previous studies have done?  How exactly does a picture of the wine-addled brain add to our knowledge?  Are we really so concerned that people would lie about their experiences that we need to put them into a 3 million dollar fMRI scanner to read their brains?   (I wonder if this paper was NSF funded.)

Moreover, the lessons that people are drawing from this study are absurd.  One common response, for example, is "It’s a marketing expert’s dream; if you want people to like your product more, charge a higher price."  Uh huh.  And what happens when every winery raises its price, will we all purchase more wine?

Living in a market economy the association in the brain between price and quality is constantly reinforced so it’s not surprising that sometimes the brain can "jump the gun" in expectation.  But don’t imagine that the association can be easily exploited for long.  Why do you think these sorts of studies always use wine?  Could it possibly be because most people can’t tell the difference between a cabernet and a merlot let alone between higher and lower quality wine?   But try telling people that a $5,000 car is $45,000 and let’s see if the medial orbitofrontal cortex
lights up with experienced
pleasantness.

Thanks to Ted Frank for the pointer.

Brains, minus the vat

by  Tyler Cowen in

…across the eons of time, the standard theories suggest, the universe can
recur over and over again in an endless cycle of big bangs, but it’s
hard for nature to make a whole universe. It’s much easier to make
fragments of one, like planets, yourself maybe in a spacesuit or even –
in the most absurd and troubling example – a naked brain floating in
space. Nature tends to do what is easiest, from the standpoint of
energy and probability. And so these fragments – in particular the
brains – would appear far more frequently than real full-fledged
universes, or than us. Or they might be us.

Here is more, the piece also contains a serious scientific discussion of the possibility of reincarnation.

All of Beethoven for $125

by  Tyler Cowen in

That’s right, all of Beethoven, 87 discs.  Buy it here.  I’m not tempted, mostly because I already have multiple favorite versions and I am ultimately a big fusspot who can’t stand to hear lesser accounts of the master.  I was happy with the Bach box for $99 but he stands up to second-rate interpretations more readily and I never before owned the complete cantatas.  Still, some of you may find this a quick and cost-effective way to feel a sense of "Beethoven completeness."  But you’ll value the discs more if you buy them one at a time, or at least one box at a time.  Start with Quartetto Italiano doing the late string quartets, vol.1 is here.

Which countries have the best and worst flags?

by  Tyler Cowen in

Virginia Postrel directs us to this more-revealing-than-you-might-think question.  Look here.  But I cannot fathom their decision to rank the Gambian flag number one.  My personal favorites have long been Brazil ("Order and Progress", maybe you have to have been there) and Haiti, in part for the story of how they took out the white from the flag of France.  Japan and Switzerland are good too, iconic you might say.  The moon and star in the Turkish flag for a long time seemed cool to me.

Here are the losers, they are the most fun to look at.  The flag of Mozambique, with its AK-47, might come in last place.  The Falkland Islands flag is another lemon.

Here are the research papers of the Otago guy who evaluated the flags.  Here’s the guy’s grading system for the flags.

How economically important is an inspirational president?

by  Tyler Cowen in

Mark Thompson, a loyal MR reader, writes:

I’m wondering
if you would be willing to address the question of whether and how much
of an economic effect a President can have simply by making people feel
good about themselves.

Mark’s own answer is here.  I’ll say that the personality of the president matters most in models with multiple equilibria.  There can be a high-output equilibrium and a low-output equilibrium, and perhaps the mood and demeanor of the President can shift the country from one to another.  "Good morning, America!" etc.

But are these models true?  I’ve never seen general evidence for their applicability, although I recall Ronald Reagan’s smile and Jimmy Carter’s pessimistic sweater.  Furthermore GDP growth rates are statistically indistinguishable from a random walk (NB: in a test with low power), which doesn’t help these models either.  Since the temperament of the politician seems to persist over time, you would think that patterns in GDP would be more predictable than they are.  But they aren’t.

Note that if you buy into multiple equilibria models of business cycles, it is a matter of great importance when the Fed acts to stimulate the economy.  It would probably be too late now because the pessimistic mood already has set in.  But more vigorous action, say a few months ago, might have kept spirits high.  That’s if you buy into those models.

What have economists learned in the last year?

by  Tyler Cowen in

Here is my latest New York Times column, on four things that we have learned over the last year.  Here is the opening:

Harry S. Truman once said he wanted to talk to a one-armed economist, “so that the guy
could never make a statement and then say: ‘on the other hand.’ ” Yet
economic knowledge continues to progress in unexpected ways. Here are a
few of the things we learned in the last 12 months…

But to continue the lunchtime debate with some of my colleagues, the piece ends as follows:

Knowledge is a wonderful thing, but sometimes simply knowing what we
don’t know is a form of understanding. So beware the one-armed
economist; sometimes a good economist could use two or even three arms
or more.

I would make one modification to the tone of the piece: A number of days elapsed between the final draft and publication; I now estimate the probability of a recession higher than the rhetoric of this piece might to some people indicate.

If I were Ezra Klein

by  Tyler Cowen in

Just to define our terms, I take Ezra Klein to be a guy who believes that a single-payer system is clearly a good idea and that in the meantime government-provided universal health care coverage is far better than the status quo, albeit highly imperfect compared to single-payer systems. 

If I were Ezra Klein, I would love Barack Obama and his willingness to drop the forced mandate idea.  But Ezra doesn’t seem to love Barack Obama for that.

I would think that Americans are a fairly libertarian people in some (selective) regards, and that we need to frame progress as "new and concession-laden, choice-friendly version of national health care."  I would know full well that lack of a mandate has efficiency problems, because otherwise people don’t sign up until they get sick and adverse selection makes it unprofitable to sell insurance.

But then, if I were Ezra Klein, I would think: "Ah, at that point there is no turning back.  Private health insurance companies will have to look to government for further financial aid.  This might even evolve into single payer someday, and that is probably the only way we would ever get there, given American Exceptionalism."  I also would think: "I [President Obama] can change my mind on the mandate later, if need be.  Only policy wonks follow the flip flops on such details.  And perhaps the mandate could be implemented indirectly — maybe at the state level, or framed in some other way — so that my hands are clean of apparent contradiction."  I also would think: "The mandate can’t force everyone to buy health insurance anyway — forced auto insurance mandates don’t always work — so the mandate by no means eliminates the adverse selection problem anyway."

Most of all, I would think that Democrats should not waste their energy fighting — prematurely I might add — intra-party battles over issues of mostly symbolic importance.

If I were Ezra Klein, I would think that only Barack Obama has the calm, reassuring manner required to lead America down a difficult and controversial path.  Only Barack Obama (and not Hillary Clinton) would enjoy a true honeymoon period as President, and maybe that is what is required to push through major health care reform.  Only Barack Obama would be seen as approaching this issue from a fresh start and without biases.

If I were Ezra Klein, I would worship at the shrine of Barack Obama.  I would send Barack Obama random postcards of love, affection, and yes money.

But I am not Ezra Klein, and I am not sending postcards to anybody.  Instead, I am sending you this blog post on "If I were Ezra Klein."

Addendum: If Ezra Klein were Ezra Klein.

Why isn’t legalized prostitution more popular?

by  Tyler Cowen in

Some of this was new to me:

An in-depth look at the legal brothel regime reveals
that while the system is preferable, it is stunted by unequal
bargaining power between the prostitutes and brothel owners owing to
collusive arrangements with local sheriffs. But since a regulated
brothel system, with all its faults, provides a safer environment for
prostitutes and their customers than prohibition while maintaining a
sufficient barrier between the prostitution activity and the community
to ameliorate citizen complaints, I ask why this system is not in use
in other jurisdictions, specifically Las Vegas, Nevada. Using
public-choice analysis, the paper concludes that lower employment costs
for casino and hotel owners due to kick backs received by hotel
employees from prostitutes and their customers, the interests of rural
governments to maximize revenues from tourism generated by brothels,
and the interest of Las Vegas legislators to portray the town as
family-friendly maintains the status quo of illegality.

Here is much more, hat tip to www.bookforum.com.  The author is Ashlie Warnick, to whom I once taught macroeconomics.

Addendum: Here’s something else on the same general topic, call it a new installment in Markets for Everything, hat tip to Freakonomics blog.

Markets in everything, food fight edition

by  Tyler Cowen in

Juniors Rachel Whitcomb, Elizabeth Soergel and Taylor Procida are among those who protested an offer last month by the principal of Wilde Lake High School to pay students to identify participants in a cafeteria food fight.

…an intense debate erupted within the Columbia
school community over whether administrators should reward students for
informing on misbehaving peers. Last month, the student newspaper, the
Wilde Lake Paw Print, published three columns by students critical of
the principal’s offer.

"I find the administration’s recent use of monetary incentives
considerably more frightening than a food fight," wrote editor
Katherine Driessen, a senior.

Have you wondered how corporate scandals can go on for so long?:

Philip Soergel, a parent who complained to Howard schools
administrators about the principal’s offer, said: "We were aghast. I
had never heard of this. Kids are getting these kinds of lessons in how
to tattle on one another."

Here is the story.  It seems no one has turned in the perpetrators, I guess the price isn’t very high.