The Interpersonal Sunk-Cost Effect

Christopher Olivola
Psychological Science, forthcoming

Abstract:

The sunk-cost fallacy — pursuing an inferior alternative merely because we have previously invested significant, but nonrecoverable, resources in it — represents a striking violation of rational decision making. Whereas theoretical accounts and empirical examinations of the sunk-cost effect have generally been based on the assumption that it is a purely intrapersonal phenomenon (i.e., solely driven by one’s own past investments), the present research demonstrates that it is also an interpersonal effect (i.e., people will alter their choices in response to other people’s past investments). Across eight experiments (N = 6,076) covering diverse scenarios, I documented sunk-cost effects when the costs are borne by someone other than the decision maker. Moreover, the interpersonal sunk-cost effect is not moderated by social closeness or whether other people observe their sunk costs being “honored.” These findings uncover a previously undocumented bias, reveal that the sunk-cost effect is a much broader phenomenon than previously thought, and pose interesting challenges for existing accounts of this fascinating human tendency.

Via the excellent Kevin Lewis.

Barter history teaching markets in everything?

The governments of Myanmar and Israel signed an agreement on Monday that will promote Holocaust education in Myanmar and allow each country to determine how it is depicted in the other’s history textbooks.

The agreement provides for a variety of joint initiatives that feature in standard agreements Israel has signed with other countries, such as encounters between educators and students from both countries and joint study trips. The two countries will also “cooperate to develop programs for the teaching of the Holocaust and its lessons of the negative consequences of intolerance, racism, Anti-Semitism and xenophobia as a part of the school curriculum in the Republic of the Union of Myanmar.”

Here is the unusual story, via a retweet from the excellent Chris Blattman.

Tuesday assorted links

1. Gary Marcus with a critical appraisal of Deep Learning.

2. Short Faroe Islands video.  And underwater tunnels revolutionize the Faroe Islands.  And postal service in the Faroe Islands: “Kristina runs a small guesthouse on the island. She tells me how her children, the last to leave the island, “kept the postal service in business” with their eBay and Amazon purchases.”  Recommended.

3. The Oxymoron Museum.

4. I’m cramming for finals by watching someone else study (WSJ).

5. How rapidly is China catching up in science?

Alesund notes

Alesund, Norway is one of the most beautiful small cities in Europe.  The setting is picture-perfect, and much of the architecture was redone in 1904-1905 in Art Nouveau style, due to a fire that burned down the previous wooden structures.  The Art Nouveau murals in the town church deserve to be better known.

Image result for alesund norway

This time around, Norway seems vaguely affordable.  The food is “good enough,” especially if you like cod.  Dark chocolate ice cream is hard to come by.  Driving to the puffins takes 3-4 hours, though they are not always to be seen.

The stochastically best book to read on each country

A while back I requested random recommendations from readers about the best books to read about particular countries.  I call them “stochastically best” because I have some faith in your judgments, yet without really trusting you one whit.  Here is one of the two very last installments in that series, taken and collated from comments you all have submitted:

…or Australia it’s still Year of the Angry Rabbit:Bill Bryson’s Down Under for a casual read on an outsider’s perspective or Phillip Knightley’s Australia: A Biography of a Nation, Russell Ward, The Australian Legend

Turkey? I liked Crescent and Star by Stephen Kinzer.

I liked Hugh Pope’s Sons of the Conquerors: The Rise of the Turkish World

Norman Stone wrote a very readable short history of Turkey.

For the Philippines, either “In Our Image” by Karnow or “Touch Me Not” by Rizal

I thought this book on Cambodia was fantastic: Cambodia’s Curse: The Modern History of a Troubled Land. The author won a Pullitzer Prize for his reporting on the Khmer Rouge.

On Myanmar: “Blood, Dreams and Gold: The Changing Face of Burma” by Richard Cockett

Indonesia…etc. for… Indonesia (Elisabeth Pisani)

I second this opinion. Pisani was illuminating for me.

For Thailand: “Thailand’s Political History: From the Fall of Ayutthaya to Recent Times” by B. J. Terwiel is a fresh look. Many of the other books I have read follow the same boiler-plate narrative that’s been published for decades. His work also brings to light some unique source material that is valuable to the discussion.

Michael King’s “A Penguin History of New Zealand”

The Search for Modern China, China – Age of Ambition by Evan Osnos

RE: #17 China Chinese History: A New Manual; Fourth (2017 “bluebook”) or Fifth Editions (2015 “greenbook”) by Endymion Wilkinson

Yeah, and for a more contemporary take, the late great Richard Baum’s Great Courses lecture series (2010), Fall and Rise of China, completes the picture (Still noting that Tyler speaking of books, Baum’s lectures are so elegant, that the transcripts serve as a wonderful book.). All and all, Endymion’s work is the best out there in the Chinese scholarship community.

If you collected all of Simon Leys essays on China that would be a very insightful book on the country – mostly touching on culture and politics. Beautifully and memorably written too. Simon Leys seems to me one of the most under-rated essayists of recent decades.

Pakistan, Breaking the Curfew by Emma Duncan

The Old Social Classes and the Revolutionary Movements of Iraq by Hanna Batatu.

India: the Idea of India, Subaltans & Raj: South Asia since 1600, Richard Lannoy : The Speaking Tree

Does anyone have any opinion of India After Gandhi by Ramachandra Guha?

For India, one of my favourite books is “India: A History” by John Keay. It focuses much more on historical facts and events without passing judgement. I believe it is an extremely good and unbiased summary of Indian history from the Indus Valley Civilization to modern India.

While I haven’t found any properly good book that covers South India history, “A History of South India” by K.A. Nilakanta Sastri and “A Concise History of South India: Issues and Interpretations” by Noboru Karashima do address this topic.

I am on a Tamim Ansary kick, so I’ll propose “Games Without Rules” for Afghanistan.

Daniel Tudor’s “Korea: The Impossible Country” is a good read, which has chapters dedicated to antiquity and its influence on modern (South) Korea but mostly does concentrate on how the country is now and recent history. Tudor recommends “The Koreans,” since updated as “The New Koreans,” by Michael Breen, and “The Two Koreas” by Robert Carlin as “two foundational texts.” Barbara Demick’s “Nothing to Envy” is a fascinating book about what life in North Korea is like for ordinary North Koreans.

Burma / Myannmar: The River of Lost Footsteps

Haiti: Dubois’ Aftershocks of History? (though you’d know better)

Here are previous installments in the series.

Why is there no lead-homicide connection in Eastern Europe?

Children growing up in former communist CEE countries during the 1980s were subjected to horrific amounts of industrial pollution, including extreme levels of prolonged lead exposure. Since lead is theorized to be a primary culprit in exacerbating violent crime, you would assume there would be a sizeable discrepancy in the homicide rate between, say, former East Germany and West Germany, or Western Europe and Eastern Europe as a whole. But the difference in the homicide/violent crime rate is negligible, with many former communist CEE countries having a lower homicide rate than Western Europe. I suspect the same is true when comparing the rate of mental disorders, which is another malady that is supposedly influenced by exposure to high levels of industrial pollution.

https://object.cato.org/sites/cato.org/files/serials/files/cato-journal/1992/11/cj12n2-2.pdf

That is from commentator Aurel at SSC.

Blockchains and the Opportunity of the Commons

Tyler asks which goods and services are most likely to be bought and sold on a blockchain that is paid for with token issuance and appreciation?

  1. The services with high mark-ups? Low mark-ups?
  2. Big consumer bases?
  3. Well informed and well coordinated consumer bases?
  4. “Influencer” consumer bases, in the Gladwellian sense?
  5. “Trivial” consumer bases, that you don’t mind risking?
  6. Some other properties?

I will go with 6. Blockchains and tokenization are a way to incentivize the creation of a commons. A commons is an unowned place, platform, or protocol that helps people to meet, communicate and transact. Commons underlying modern life include TCP/IP, SMTP, HTTP, GPS and the English language. We don’t see these commons clearly because they are free, ubiquitous and, like air, taken for granted. What we do see are platforms like Airbnb, Uber and the NYSE and places to meet and communicate like OkCupid, Twitter, Facebook and YouTube. What blockchain and tokenization offer is the possibility of creating commons to replace all of these services and much more.

As the examples of AirBnb, Facebook and YouTube indicate, it’s possible for private firms to create platforms that serve the same purposes as a commons but these platforms are not a commons since they are privately owned. Private ownership is great but not without tradeoffs. Bill Gates hinted at one problem when he defined a platform:

A platform is when the economic value of everybody that uses it, exceeds the value of the company that creates it.

The platform dilemma is that a company that controls a platform wants to maximize the company’s value rather than the economic value of everybody that uses it. Company value and social value are correlated but they are not the same. There are three problems. First, the company will want to grab up as large a share of the social value as possible. That’s ok for efficiency but not ideal for platform users who, because of network effects and coordination issues, may find that they need to use the platform even though it leaves them with only a small surplus. Second, the company may take actions that increase its value but reduce social value. On some margins, for example, Facebook and YouTube profit from advertising that reduces social value. The third problem is that in creating a platform where many people meet and transact, a small number of companies come to control and access more data than may be ideal. Big centralized data is worrying for libertarian reasons but also because big, centralized data is a honeypot for bad actors and hence insecure.

The first set of internet commons like TCP/IP and HTTP were created by government and independent researchers. The unique use-case of blockchains is that blockchains can be used to incentivize the creation of unowned platforms, i.e. commons. The creator of a blockchain need not control the blockchain and indeed can credibly commit not to control it. Thus, the creator of a blockchain can commit to never taking actions to maximize profit at the expense of social value and it can commit to never taking actions to redistribute more of the social value to itself. The blockchain creator, however, can be rewarded through token issuance. Moreover, since the value of the token and the social value of the blockchain are positively correlated the blockchain creator has strong incentives to create a commons that maximizes social value.

To give an example, LBRY–one of the blockchain firms that I advise–is a kind of YouTube on the blockchain. The protocol that LBRY has created is unowned. LBRY’s incentives are to create something that will maximize the value of both content creators and content consumers. The social value created could well exceed that of any owned platform and if LBRY earns a small share of this social value they will be well compensated. Token issuance and appreciation is what incentivizes the creation of the commons.

Creating a commons on the blockchain isn’t easy, however. Decentralized institutions are much more difficult to design than centralized institutions. Decentralized databases are a big advance but making them work at scale-size and speed is a challenge. Precisely because the blockchain is unowned the designers have to get much more correct, right out of the gate. Changing a commons on the fly, forking, is costly, disruptive and not always possible. All of this explains why in the history of the world almost all decentralized institutions, such as markets and language, were not designed but arose through evolutionary forces. Hayek called decentralized institutions spontaneous orders because he implicitly assumed that all such decentralized institutions were spontaneous, i.e. unplanned. Only in very recent years have economists and computer scientists developed the understanding and tools that are necessary to design decentralized orders–orders that are planned but not controlled. Today smart contracts on blockchains like Ethereum have the potential to create a sophisticated set of global common resources that will form the foundation for much of the economic and social structure of this century–this is the opportunity of the blockchain commons.

Vanilla is worth more than silver

The price of vanilla has hit a record high of $600 (£445) per kilogram for the second time since 2017 when a cyclone damaged many of the plantations in Madagascar, where three quarters of the world’s vanilla is grown. Silver by comparison currently costs $538/kg.

Demand for vanilla has kept the prices high, leading some ice cream manufacturers to cut back and even halt production of the flavour, sparking fears of shortages over the summer.

Here is the full story, and note this:

Replacement printer ink cartridges can cost between $8 and $27, depending on the type of printer you have. A single black ink jet cartridge from one major manufacturer can cost $23 for just 4ml of ink – enough to print around 200 pages.

Manufacturers argue they need to charge this to cover the loss they are selling the printer hardware at, together with the research and development they do on ink technology. But cut open an ink cartridge and you will see that most of the space inside is taken up with sponge, designed to help preserve and deliver the ink.

And when you are paying what works out to be around $1,733/kg of ink, you might be better off printing with pure silver instead.

Will Trumpian foreign policy prove permanent?

I see several elements of Trumpian foreign policy, noting this list is far from exhaustive:

1. Little if any emphasis on human rights.

2. There is no particular tendency to prefer to deal with the democracies, if anything the contrary (it is easier to do “funny” opportunistic deals with the autocrats, plus democratic citizens, especially in Western Europe, may not want their leaders to do deals with Trump).

3. Problems can pop up all over the place, there is nothing special about Europe, and Europe is irrelevant to many of the most important geopolitical struggles.

4. Allies, if that word even can be used, pop up on an opportunistic basis and then are rapidly discarded if need be, with no expectations of feelings really being hurt either.  Period-by-period maximization is more common than credibility or investing in relationships.

5. The doctrine of “maximum pressure.”  Trump has been trying this with North Korea, and to a lesser extent with China, although with inconsistencies in both cases.  This consists of dropping a lot of the diplomatic pretense and simply declaring that the U.S. will do everything possible to bring about some outcome, and then making some moves in that direction.

6. Not worrying as much about the kind of diplomatic processes traditionally imposed by the State Department.  #2, #4, and #5 above often are more consistent with a kind of direct transactionalism than with the bureaucratization of foreign policy.

I now believe that, for better or worse, #1-6 are likely to survive in American foreign policy, with or without the reelection of Donald Trump.

Markets in everything

Meditation app Calm provides what it calls “bedtime stories for grown-ups” (an eclectic mix of lullabies, fairy tales, and short stories in audiobook form). But it’s now added highlights from the GDPR legislation to its roster, narrated aloud by former BBC radio announcer Peter Jefferson, who is famous in the UK for his readings of the Shipping Forecast — a nightly maritime weather report that’s cherished by non-maritime listeners for its repetitive and ritual qualities.

Jefferson doesn’t read the entire legislation (“which would take more than all night”), but he picks out more than half an hour of material, which is enough to send anyone to sleep. You can listen to an excerpt for yourself below, or download the app from Google Play or the App Store. Unfortunately, you have to pay to unlock the full GDPR reading (and a number of other Calm features), but you can test them all with a seven-day free trial.

Here is more, via the excellent Samir Varma.

Sunday assorted links

1. Very good Matina Stevis-Gridneff piece on the militarization of the Horn of Africa (WSJ).  Excellent visuals, too.

2. Will they find Frida Kahlo’s famous missing painting?

3. The polity that is California.

4. “These days, I find myself thinking more and more about issues of morality and character. In particular, I think that trying to emphasize social opinions rather than personal character does not work well.” That is Arnold Kling.

*Napoleon: Passion, Death and Resurrection, 1815-1849*

The bottom line here is that I ordered all of Philip Dwyer’s other books on Napoleon.  This one covers Napoleon’s time on St. Helena and how the memory of Napoleon was processed after his death, running up through the return of Napoleon’s body to France.  Here is one excerpt:

In 1840, the year of the return of Napoleon’s remains to France, thirteen or fourteen “Napoleons” were admitted to the insane asylum at Bicêtre in the south of Paris.  One can imagine that each of them considered the others to be made.  Of course, there had been people suffering from this kind of delusion even while he was still alive.  In 1818, at least five people were admitted to Charenton hospital believing they were Napoleon.  Now, however, Napoleon was being caricatured, right down to his temperament — ‘imperial’,  proud, haughty, abrupt, tyrannical, capricious, choleric.  The men (and one woman that we know of) who believed they were Napoleon always fit the same profile: they took themselves seriously, they gave orders and they demanded loyalty; in return they treated people with disdain.

Definitely recommended, surprisingly gripping throughout, you can buy it here.

New issue of Econ Journal Watch

Volume 15, Issue 2, May 2018

In this issue:

Do ghastly images much reduce smoking? A study published in Tobacco Control reports large impact from mandated graphic warning labels—pictures of disease, suffering, and death—on cigarette packages in Canada. Trinidad Beleche, Nellie Lew, Rosemarie Summers, and J. Laron Kirby raise empirical challenges and suggest that the reported impact is greatly exaggerated.

Colonial Maryland’s bills of credit: Fiat money, discounted securities, or something else? In Economic History Review, James Celia and Farley Grubb argue that the dollar-denominated bills of credit circulated at less than face value like discounted securities. Ron Michener offers evidence that they circulated at par with specie and were treated as interchangeable with specie dollars. Farley Grubb replies, disputing Michener’s reading of the evidence.

Another pathPatricia Saenz-Armstrong describes the history and current standing of liberalism in Peru, extending the Classical Liberalism in Econ, by Country series to 18 articles.

Dissing TMS: After Adam Smith died in 1790, The Theory of Moral Sentiments soon came to be disparaged and disregarded, and was largely forsaken all the way up to the late 1970s. Compiled here are quotations from 26 critics of TMS. The long train of ‘dissing’ is striking in light of our warm regard for TMS today. But have the criticisms ever been answered?

Esoteric instruction: Republished here by permission of University of Chicago Press is a chapter from Arthur Melzer’s landmark work Philosophy Between the Lines: The Lost History of Esoteric WritingThe chapter explains pedagogical esotericism, in which the author sparks the superior reader to work to find things beyond the exoteric.

EJW Audio: Patricia Saenz-Armstrong on Economic Liberalism in Peru