The rise of randomized trials in economic research

by  Tyler Cowen in

Using randomized prospective trials in economic development policy is not new. Since the 1960s, the U.S. has occasionally implemented them to answer important practical questions in health care, welfare and education policy. By randomly splitting people into two groups, one of which receives an experimental intervention, researchers can set up potentially simple, unbiased comparisons between two approaches. But these evaluations typically cost hundreds of thousands to millions of dollars, largely putting them out of reach of academic researchers, says development economist Abhijit Banerjee of the Massachusetts Institute of Technology.

The emergence of cheap, skilled labor in India and other countries during the 1990s changed that, Banerjee says, because these workers could collect the data inexpensively. At the same time, nongovernmental organizations (NGOs) were proliferating and started looking for ways to evaluate their antipoverty programs.

In 2003 Banerjee and his colleagues Esther Duflo and Sendhil Mullainathan founded an M.I.T. institute devoted to the use of randomized trials, called the Poverty Action Lab. Lab members have completed or begun a variety of projects, including studies of public health measures, small-scale loans (called microcredit), the role of women in village councils, AIDS prevention, and barriers to fertilizer use. The studies typically piggyback on the expansion of an NGO or government program. Researchers work with the organization to select appropriate measures of the program’s outcome and hire an agency to collect or spot-check the data.

Here is the full story.  Here is the home page of Poverty Action Lab.  Here are their completed projects.  Here is the Primary School Deworming Project.  And on this Thanksgiving weekend, I once again express my gratitude for the link from www.politicaltheoryinfo.com.

Rational man

by  Tyler Cowen in

Thousands of pilgrims are pouring into the dense jungle of southern Nepal to worship a 15-year-old boy who has been hailed as a new Buddha.
    Devotees say that Ram Bomjon, who is meditating silently beneath a tree, has not eaten or had anything to drink since he sat down at his chosen spot six months ago.
    Witnesses say they have seen light emanating from the teenager’s forehead. "It looks a bit like when you shine a [flashlight] through your hand," said Tek Bahadur Lama, a member of the committee responsible for dealing with the growing number of visitors from India and elsewhere in Nepal.
    Photographs of Ram, available for about 10 cents from his makeshift shrine, have become ubiquitous across the region. "Far and wide, it’s the only topic of conversation," said Upendra Lamichami, a local journalist…

Ram’s mother, who is called Maya Devi, like the Buddha’s mother, acknowledges anxiety, particularly at mealtimes, but she tells herself: "God took him to the forest and I have faith that God will feed him."
    "He’s definitely got thinner," she said. "Early in the morning he looks sunken, like there’s no blood in him, but as the sun rises he seems to get brighter and brighter."

    He said no claim had emerged of Ram breaking his fast or moving, even to relieve himself.
    Santa Raj Subedi, the chief government official in Bara District, appealed to the capital, Katmandu, for assistance in dealing with the influx of visitors, and for a team of scientists to examine the case.
    Local doctors failed to reach a final conclusion, although they were allowed no closer than five yards from the boy mystic, declaring that they could confirm no more than that he was alive.

The fervor increased last week when a snake is said to have bitten Ram, and a curtain was drawn around him.
    After five days it was opened and he spoke. "Tell the people not to call me a Buddha. I don’t have the Buddha’s energy. I am at the level of rinpoche [lesser divinity]. A snake bit me but I do not need treatment. I need six years of deep meditation."
    Despite his protestations, "Buddha boy" is famous.
    A thriving market has grown in the once pristine forest, supplying pilgrims with everything from chewing tobacco and bicycle repairs to incense and religious amulets. The ground is covered with litter.
    A fence was built around Ram’s tree to prevent pilgrims from prodding him, then a second, and now a third is planned, as well as a bus park, leaving Ram at the center of an ever-growing circle of commerce.

Here is the link.

Intellectual megalomaniacs deserve attention

by  Tyler Cowen in

Among contemporary writers, perhaps no one deserves a retrospective anthology at midcareer as much as William T. Vollmann, whose staggering rate of production has made it all but impossible to keep up with him—just blink and it seems he has brought out yet another doorstop. Since his debut novel, You Bright and Risen Angels: A Cartoon, appeared in 1987, he has completed four outsize installments of his magnificent Seven Dreams project, a "symbolic history" related through novels that stretch back in time to the first Norse incursions into Greenland and Newfoundland, and portray the clashes of European colonizers and their descendants with indigenous North Americans. He has also published The Atlas, a collage of dispatches from some of the world’s riskiest locales; An Afghanistan Picture Show, or, How I Saved the World, a memoir of sorts recounting his 1982 trip in search of mujahideen at war with the Soviets; Europe Central, just out this spring, a collection of fictionalized portraits that explore the lives of intriguing and often morally ambiguous figures who lived under the twin totalitarian evils of Stalinism and Nazism, with emphasis on the war years; and five books, set in the present, that have emerged from his abiding fascination with prostitutes, mostly, along with a supporting cast of urban-underbelly types. Alternately hard-edged and lyrical, lurid and incandescent, Vollmann’s visions of contemporary life—especially in Whores for Gloria and the monumental Royal Family, in which he’s forged a phantasmagorical urban realism to chronicle San Francisco’s lower depths—are shot through with brutality, yearning, and fever-dreams that fuse squalor and transcendence.

As extensive as this listing of works is, it falls well short of encompassing the full cyclone of Vollmann’s creativity, which also includes poems, reviews, occasional pieces, and even numerous "book objects," which feature his own artwork along with contributions by collaborators such as photographer and friend Ken Miller. At the core of his oeuvre, though, is what he himself describes as his life’s work, some twenty years in the making, the seven-volume, 3,352-page treatise Rising Up and Rising Down: Some Thoughts on Violence, Freedom, and Urgent Means, first published by McSweeney’s in 2003 and reissued in a single-volume abridgment last year by Ecco Press. Toiling in a sweatshop of his own devising, clocking up to sixteen hours a day at his desk, the forty-five-year-old Vollmann has exacted a considerable toll on his body at a relatively young age. In his 1998 essay "Writing," considering his "swollen and aching fingers," he tells how "sometimes the ache oozes up to my shoulders, sometimes only to my wrists; once or twice I’ve felt it in my back. Poor posture, they say, or ‘repetitive stress injury,’ or possibly carpal tunnel. . . . Writing is bad for me physically, without a doubt, but what would I do if I stopped?"

Here is the longer and fascinating story.  Here is my previous post on Vollmann, and do offer comments if you have read his works.

Favorite business books

by  Tyler Cowen in

Steve Levitt in The Financial Times:

My favourite business book is A Whack in the Side of the Head by Roger Von Oech.  It certainly is not a traditional business book.  It is a book about how to generate ideas.  My view is that business people spend too little time trying to generate ideas and too much time making reports.  I always go back to this book when I am in a rut.

Stephen Dubner picked Thomas Schelling’s Choice and Consequence.

Gambling on Science

by  Alex Tabarrok in

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

by  Alex Tabarrok in

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.

Why doesn’t the health care market work so well?

by  Tyler Cowen in

I see a few candidate hypotheses:

1. Adverse selection in insurance markets.  In this view, outside of the corporate employment context, mostly the unhealthy — the "lemons" — show up to buy health insurance.

2. Poor information about the cost and benefit of different medical procedures and providers.  I am puzzled why we don’t have better institutions for evaluating providers and spreading this information to consumers.  Part of the problem is legal, part of the problem is measurement (doctors could dump near-hopeless patients to get better ratings), and part of the problem is that many people don’t want to know how good (read: bad) their doctor is.

3. Time consistency.  Ex ante, we are most worried about catastrophic health risk.  Ex post, most of the overinvestment in health care comes for victims of catastrophic health risk.  No set of institutions can square these dual perspectives satisfactorily.

4. Showing that you care.  This is Robin Hanson’s hypothesis.  You spend money senselessly on health care, mostly to show your wife you love her and the kids.

Believers in national health insurance tend to emphasize number one, which might be alleviated by forced mass pooling.  In contrast, I am skeptical that adverse selection is the significant problem. 

It is less clear that national health insurance could improve performance on number two.  People would remain underinformed.  Government might have less incentive to rip them off, but the implication would be that government provision is "lazier" in general.  Not a comforting thought.

National health insurance does address numbers three and four, albeit in backhanded fashion.  Ex ante, people feel protected and the program is popular.  Ex post, such systems spend less money on the last six months of life than does the U.S. system.  The relevant denial of treatment is often invisible rather than a stern hand pulling the plug.   

The bottom line: Defenders of NHI place great stock on #1.  If #1 were significant, we could, at least in principle, use national health care to both lower costs and improve treatment. 

If #3 and #4 are the major problems, national health insurance provides benefits by restricting overinvestments in health care.  This is consistent with Europeans living longer and spending less on health care.  The U.S. maybe could replicate these benefits if a) we push out private insurance companies, b) we ration or abandon expensive procedures which don’t extend lives very much, and c) we adopt healthier lifestyles.

I am skeptical of #1, and I am not ready to bet on a), b), or c), much less all three at once.

China fact of the day — life insurance for bird flu

by  Tyler Cowen in

Some Chinese insurance companies are taking a big chance on the possible spread of avian influenza among humans as an opportunity to expand their business. Beijing Minsheng Life Insurance on November 7th was first to launch a policy that would pay the insured if they are infected by the H5N1 virus. Four days later, Shenzhen based Hua-an Property Insurance followed. The Hua’an policy costs 100 yuan for each 200,000 yuan of compensation. It is valid for a year for anyone aged 3 to 70. Analysts say the odds are that the two insurers will make money given what they consider is the low probability of a serious pandemic.

SimonWorld comments.  In my view, the business model captures pure profit.  If avian flu kills many humans, the company would in any case go bankrupt.  In the meantime it rakes in cash from "positive selection," which is the opposite of adverse selection.  Often the people who buy insurance are the super-safe ninnies, afraid they might not do something they were supposed to.  On the other hand, if you are still a chicken culler in China, you are probaby somewhat reckless, or too poor to buy life insurance.

Tabarrok’s Offer

by  Alex Tabarrok in

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.

How to get bigger tips

by  Tyler Cowen in

Scrawling a patriotic message on a restaurant tab is a great way to boost tips — at least in northern Utah.  Communications professors John S. Seiter of Utah State University and and Robert H. Gass of California State University at Fullerton instructed two waitresses to serve up four different types of bills to 100 diners at two local restaurants.

The servers wrote "United We Stand," and "God Bless America" or "Have a nice day" on the bills.  A control group received no personal note.

Patrons gave a 20 percent tip on tabs that included "United We Stand" but only 15 percent when they got no message at all.  The other two messages garnered slightly more than 15 percent, Seiter and Gass reported in a recent article in the Journal of Applied Social Psychology.

That is Richard Morin from The Washington Post, someday the link will show up here.  You can buy the article here.  Here is my previous post about tipping.

Why are UFO reports declining?

by  Tyler Cowen in

Just as our technology for finding and understanding UFOs improved dramatically, the manifestations of UFOs dwindled away. Despite forty-plus years of alleged alien abductions, not one scrap of physical evidence supports the claim that mysterious visitors are conducting unholy experiments on hapless victims. The technology for sophisticated photograph analysis can be found in every PC in America, and yet, oddly, recent UFO pictures are rare. Cell phones and instant messaging could summon throngs of people to witness a paranormal event, and yet such paranormal events don’t seem to happen very often these days. For an allegedly real phenomenon, UFOs sure do a good job of acting like the imaginary friend of the true believers. How strange, that they should disappear just as we develop the ability to see them clearly. Or perhaps it isn’t so strange.

Here is more.  I doubt if people have fewer delusions, so presumably they have moved into stories which cannot so easily be refuted.  This would include delusions about the future (e.g., extreme forms of transhumanism?), delusions about politics, and delusions about religion.  The demand for verification need not outrace the ever-powerful self-deception; "stamp the weasel" is never an easy game to win.  And sometimes too much stamping is counterproductive.  For all of the associated craziness, UFO delusions have been of a relatively harmless ilk.  They made people skeptical about government, drew viewers to science fiction movies, and the policy implications of belief in aliens (appoint another ambassador?) were consistent with fiscal responsibility.