Thursday, September 30, 2010

Selfish Reasons for Immigration

This may have replaced drug legalization as my issue of most interest. You've heard the moral, historic, and economic reasons for and the honest concerns against increasing US immigration. Now here are some selfish reasons for it:
Immigrants will solve our housing crisis. One major reason why housing prices remain in the doldrums and sales remain slack is that there are simply too many houses for sale. The National Association of Realtors reported that in July, there were 3.98 million existing homes on the market, representing a 12.5-month supply at the current pace of sales.
Here's another:
Immigrants are needed to replenish the American workforce. While the American labor force continues to grow, the rate at which it grows has been slowing down for decades. The Bureau of Labor Services projects that by 2020, the growth rate will be just 0.4 percent per year, and by 2030 just 0.3 percent per year. Some of this is attributable to baby boomers moving into retirement homes, and some is attributable to declining birth rates.
And one more:
Immigrants make the economy better. Not only does the San Francisco Fed paper—written, appropriately, by an Italian economist, Giovanni Peri—argue that immigrants don't hurt the economy, it actually makes the case that immigrants are putting money in the pockets of native-born workers. Specifically, it says that "total immigration to the United States from 1990 to 2007 was associated with a 6.6 percent to 9.9 percent increase in real income per worker."
All of those talking about the need for a second stimulus should take my intro economics class. The best way to increase demand is to increase the number of demanders.

Related: In France at least, an increase in immigrants does not mean an increase in crime.

Wednesday, September 29, 2010

Takeaways from Predictably Irrational, Part II

I recently finished Dan Ariely's behavioral economics book, Predictably Irrational. You can read Dan's current writing at his blog. Here is part one in a multi-part series of my takeaways from the book. Here is the next part, focusing mostly on the different kinds of exchanges:

There are two worlds of interaction, the world of social norms and the world of market norms. An example of social norm is a friend helping a friend move a couch. Market norm would be hiring a professional mover.

There can be unexpected problems s in the world of market norms. It was the famous efficiency expert Frederick Taylor who said there is "hardly a competent workman can be found who does not devote a considerable amount of time to studying just how slowly he can work and still convince his employer that he is going at a good pace."

In fact, social norms can actually be more productive. There's a famous story (couldn't find a link) about an attempt to increase the amount of blood donation by paying givers. Surprisingly, less blood was donated. The good feelings that came with donating were replaced by a payment too low to compensate for the lost feelings.

The market and social worlds have a hard time existing together, because when combined the normal pattern of interaction become unclear. Remember my earlier post on loaning friends money? The example in the book was a story about a day care that charged a fine for parents for late pickups and actually got more late pickups (because people didn't feel guilty anymore). After they removed the charge, the late pickups increased even more (because people still didn't feel guilty and now didn't have to pay). Here's my earlier post on moral math.

However, gifts (not cash) can be a way to use market incentives within a social norm would. That's why blood donors get t-shirts and cookies. But be sure not to mention how much the goodies cost.

Another problem with market norms is they make you feel more self-reliant. Think about how helpful you are at home without pay, but how favors at work are bothersome. You assume other people are just as self-reliant as you making you less willing to help others.

This helps explain why businesses want to harness the power of social norms. It's why State Farm is a "good neighbor" and Johnson & Johnson is "the family company". It also helps explain why companies originally gave sick days, health insurance, and other employee perks. They are trying to make you loyal to them. The only problem is they expect you to treat them with the same loyalty. If you nickel and dime employees/customers after you've made them feel like family they treat you not like a greedy corporation, but a like a deceptive uncle.

These social norms are also important for the most valued members of our society. It would be expensive to pay people to run into burning buildings. Or to take down and armed mugger. Or to go to war. Yet firefighters, policemen, and soldiers are plentiful. It's not just because we pay them with money, but because we pay them with respect. They get parades, discounts, and drinks bought for them at bars.

I've always been skeptical of what Dan Ariely calls social norms in the marketplace, but this book showed me their value.

Tuesday, September 28, 2010

Preference Bidding

In any relationship there is always give and take. Some more than others. To form a lasting friendship you must be willing to do things you don't want to because it pleases the person you care about. Whether it's washing dishes or forfeiting your vote for a movie choice, resolving conflict is important for intimacy. However, when sacrifice is needed, who should make it? If we care about efficiency, which we do, then costs should be minimized. My brother-in-law, who recently wrote a guest post, once told me he and his wife would rank, one to ten, how much cared about the decision. The person with the larger number got their way. The only problem with this system is that the incentive to strategically inflate my preference, even unknowingly, is too strong. Instead, I suggest something more technical, a preference bid.

In a preference bid (my terminology) each side will make an offer of a favor to the other in exchange for getting their way. I'll let you pick the movie, if you buy the popcorn. I'll wash dishes, if you take out the trash. And so on. This will ensure they are backing up what they say. This is done all the time. Unless of course, you combine the two ideas I've mentioned. Instead of letting your friend rank how much they care with a unprovable number, offer them a favor exchange. Be sure to offer something that would signal they care more than you. If they accept, then go with their preference. Now here's the twist. Don't actually make them do what they agreed to. It wasn't about exchanging favors, it was about determining how much they cared. Now you know, so there is no reason to go any further.

In repeated games there may be an incentive to cheat, now knowing they won't actually have to do what they offered. To prevent this you could randomly make them do the favor offered. By say calling a coin flip or rolling a die and seeing if it lands on the month they were born. That should be enough for them to bid properly, but not actually have to do you favors (which like money exchanges could ruin friendships). The other obvious option is to always sacrifice your own preferences for those you care about. My concern is that passion fatigue may actually ruin a relationships more than not getting your way. Perhaps a balance of the two is ideal.

Monday, September 27, 2010

Takeaways from Predictably Irrational, Part I

Continuing my survey of popular economics books, I recently finished Dan Ariely's Predictably Irrational: The  Hidden Forces That Shape Our Decisions. You can read Dan's current writing at his blog. Here is first of my takeaways from the book, focusing mostly on understanding value:

The best way to see what's wrong with your culture is to ask someone who is outside of it. Sadly, everyone we know is in our culture.

Dan Ariely's original interest came from a traumatic experience he in a burn ward. The story, as well as some of his experiments, can be heard in his TED Talk.

Figuring out how much we value things can be difficult, so often we compare it to other similar items to create a "relative value". Although this can be helpful, it often does not match our real value. This is shown perfectly in Jeff Monday's visual comparison (earlier dating example).

Because of this valuation problem, often we don't know what we want until we see it in context. Perhaps this is what advertising does. We see a iPhone being used and understand better how it can help us in our everyday life. Here are my earlier thoughts on advertising.

Another way we try to deal with the complexity of valuing things, is stick to our past decisions. This means our first impression matters a lot. Habits are like peer pressure, but with ourselves. Sometimes our original impression isn't based on any real information. Here's an example from the book on how just writing your Social Security number can impact how much you are willing to pay.

A psychological flaw of supply and demand: The price at which we demand a product is influenced by the original price we see it being supplied. The two are not completely independent from each other.

One of the most basic economic assumptions, the law of demand, states that as price goes up, consumers buy less. How much of that is not based on rational trade offs, but instead on the memory of the initial price paid?

As a business, one way to get people away from their past decisions is to create a new category. Give them a product they've never had to decide on before and they'll have "relative value".

If that's how we buy products, maybe it's also how we pick careers. We have an uncle who's an electrician who then inspires (or more accurately models) us to be one too. This can help explain why generational poverty is so hard to escape.

I've posted about money's diminishing effect on happiness. Here's a quote from H.L. Mencken to clarify: "a wealthy man is one who earns $100 a year more than his wife's sister's husband." To make it easier, just live in a poor neighborhood.

Something I've been wondering for a long time: Is the famous Tom Sawyer whitewashing story actually possible? Can you convince people something is fun if they naturally wouldn't think so?

Another possible irrationality is our unbalanced tastes for gain and loss. Getting $5 brings a certain amount of happiness, but losing $5 hurts more. In economics this is called loss aversion.

This fear of loss makes us prone to prefer things that have no perceived possibility of loss. This i why we are attracted to the word "free". This attraction isn't always rational. In one experiment participants were offered a high quality candy for 16¢ and a low quality for 1¢. On average, a slight majority preferred to the nicer, more expensive candy. Next participants were offered a high quality candy for 15¢ and a low quality for free. Even though the price difference was the same, now a majority of people choose the lower quality candy.

Sunday, September 26, 2010

Emptying the Bottle: Late-September '10 Links

Here is a list of the worthwhile sites I've Bookmarked recently:
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Saturday, September 25, 2010

Revisiting Reality TV Game Theory

Last week the New York Times sponsored Freakonomics blog was gracious enough to quote part of my Bachelor Pad Game Theory post. Not only did I appreciate the extra couple hundred hits, I got some great comments from the loyal Freakonomics readers. One of them mentioned a similar situation in a British reality TV show called Golden Balls. Here's how it works:

I mentioned in my original post that I thought the glances exchanged by the Bachelor Pad contestants were important for their ability to trust each other. In the video above, and in other examples online, it seems a lot of exchange between contestants doesn't improve the likelihood of sharing. In fact in a study done on the British game show, contestants were not more likely to cooperate if their opponent was expected to cooperate. Overall, 45% of contestants in the study cooperated and apparently higher stakes slightly decreased the chances of cooperation, unless the contestant's occupation requires a trustworthy reputation.

Economics of Speeding Tickets

I once heard an economist describe a speeding ticket as a speeding tax. You speed to save time and in exchange you pay a fee. It's certainly not how the issue is usually described, but it is technically true. It rang even more true when I came across a company, TicketFree, that offered ticket insurance. You pay an annual fee in exchange for being reimbursed for a fixed amount on moving violations. Though this raises moral hazard concerns, the idea reveals what I initially mentioned. Speeding isn't a moral issue, it's an economic one. This was shown even more clearly when recently a Nevada gubernatorial candidate suggested allowing citizens to pay $25 a day to drive up to 90 mph. He predicts it would help raise $1 billion a year in new state revenue. As unusual as this is, I'm not sure it's much different than what is currently happening. You speed you pay. Instead, you pay you speed.

Friday, September 24, 2010

Y Laugh Marathon and Dual Duel Weekend

Tomorrow begins the Dirty South Improv Theater's 9th Annual Y Laugh Benefit to support the YMCA scholarship fund. It starts at 7pm Friday and goes for 24 hours, ending 7pm Saturday. I'll be performing my regular slot at 10:30pm with Mister Diplomat. I'll also be playing soon after at 12:30am with my team, the theater's longest running Harold team, The 708. The shows continue all night with a core 7 company members (not me) playing the entire 24 hours. You can stop in to see a show for $10, or pay $15 to stay all night (and morning and night again) long. Either way it all goes to help youth go to summer camp.

The other big news is my recently created duo team, Suggestion Box, is moving on to the Dual Duel (that's two versus two) finals. Audience suggestions and votes got me and the always funny John Reitz this far. Come out Saturday night at 9:30 to take us to victory. The second half of that set features PT Scarborough's one man show where he overdubs the dialogue, effects, and soundtrack of a movie he's never seen before (video here). If you can't make it this weekend, there are shows every Thursday, Friday, and Saturday at the theater. So stopping watching TV on you're couch and come watch live shows in a chair!

Thursday, September 23, 2010

Living Under Libertarianism

Ever since it was recommended to me, I've been following the Planet Money blog. With all the talk of Democratic socialist takeover and Tea Party libertarian revolution, they've decided to interview both sides. Here's their interview with a socialist. Although I disagree with almost all of his conclusions, his reasoning is surprisingly interesting. Here's the interview with some libertarians:

Wednesday, September 22, 2010

Takeaways from SuperFreakonomics, Part II

I just finished reading the popular economics book SuperFreakonomics, the sequel to the book I recently posted about Freakonomics (Part II). The subtitle is "global warming, patriotic prostitutes and why suicide bombers should buy life insurance". You can read their current writings at the Freakonomics blog. Here is Part I of my takeaways and here is the second and final part:

Often a sick or elderly person will die soon after an expected major event (Christmas, anniversary, reunion). This may explain why Thomas Jefferson and John Adams both died on July 4th, 1826, exactly fifty years after the Declaration of Independence was signed. In that case, I'm throwing a get together at my house on July 4th, 2076.

Case for selfishness: A parent is more likely to be visited in a nursing home if they have an inheritance to give. Unless of course, they only have one child.

Case for unselfishness: Americans give away 20% of GDP. That's $300 billion a year.

Another case for selfishness: The American tax code is one of the most generous for charitable donations. Is this a way to publicly fund efficient social welfare?

Motorcyclists who don't wear helmets are called "donorcyclists" by doctors who work in the ER.

I can't figure out where this quote comes from originally, but I think it describes the thought process of many economists: "Sure it works in practice, but does it work in theory?"

Just because an idea is simple doesn't mean it's not valuable. Here's two examples from the book: suppression for hurricanes and StratoShield for global warming . Sometimes the short cut is the best route.

For children over 2, car seats are no better than seatbelts at preventing serious injury or death.

The president most famous for his large government programs, FDR, privately funded and start the March of Dimes which helps discover the polio vaccine. This is part of the reason his face now appears on the dime.

Global warming science reminds me of Macroeconomics (earlier). Here's an article critical of the book's climate science. I don't know enough about the subject to comment further.

Asking people to change their action by the goodness of their heart will not work. Ever.

Human activity accounts for only 2% of global carbon dioxide. There may even be some benefits to extra carbon dioxide (crops grow faster). It's also possible that instead water vapor is the primary cause of global warming.

The cleaner air, although certainly desirable, may also increase global temperatures by allowing more sunlight through the atmosphere.

A rising ocean from global warming isn't mostly from melting ice caps, it's from a heating ocean (water expands when it warms).

Solar panels may actually increase global temperature because they absorb heat.

Knowing and doing are two different things, especially when pleasure or pain is involved.

In the continuing series, Difference Between Humans and Animals, I've been collecting a list of ways that we humans differ from the rest of the animal kingdom. Here's one way we are alike: In a story mentioned in the book and detailed in this New York Times article, monkey's can be taught to use money (following the traditional rules of supply and demand), counterfeit money, and even rob the experimental bank and the profits to buy sex.

Tuesday, September 21, 2010

Restorcession Continues

It's all over the news. The recession is over, but people are still feeling it's effects. There are even polls, especially on local news, asking people whether they think the recession is over or not. The only problem is, it's not an opinion, it's a fact. But that doesn't change 10% unemployment and less than 0.5% economic growth. The economy isn't recessing, but it isn't growing much either. For most people, whether we are technically in a recession or not matters very little. What really matters is when the economy comes back to it's regular growth rate, around 3%. So what I propose is another name for economic declines, not a recession, but a restorcession. It's not over until the economy is fully restored to it's predecline state.

Good Reason for Bad News

It's become common knowledge that crime has decreased in America, but the news reports of crime have increased. This is why the first half of that sentence may surprise many. So if news simply delivers what we want to, why deliver so much bad news? Here's a thought from Swiss writer Alain de Botton:
Newspapers are being read all around. The point is not, of course, to glean new information, but rather to coax the mind out of its sleep-induced introspective temper. To look at the paper is to raise a seashell to one's ear and to be overwhelmed by the roar of humanity. Today there is a story about a man who fell asleep at the wheel of his car after staying up late into the night committing adultery on the Internet -- and drove off an overpass, killing a family of five in a caravan below. Another item speaks of a university student, beautiful and promising, who went missing after a party and was found in pieces in the back of a minicab five days later. A third rehearses the particulars of an affair between a tennis coach and her thirteen year-old pupil. These accounts, so obviously demented and catastrophic, are paradoxically consoling, for they help us to feel sane and blessed by comparison. We can turn away from them and experience a new sense of relief at our predictable routines; we can be grateful for how tightly bound we have kept our desires, and proud of the restraint we have shown in not poisoning our colleagues or entombing our relations under the patio.
So I was right, it's about control.

Monday, September 20, 2010

Takeaways from SuperFreakonomics, Part I

I just finished reading the popular economics book SuperFreakonomics, the sequel to the book I recently posted about Freakonomics (Part II). The subtitle is "global warming, patriotic prostitutes and why suicide bombers should buy life insurance". You can read their current writings at the Freakonomics blog. Here the first part of my takeaways:

Whether it's books or business, you are battling the lethargy that comes with success.

While there are exceptions to every rule, it's important to understand the rule to understand the exception.

Per mile, drunk walking is 8X more dangerous than drunk driving for the intoxicated person.

In India, over half of men (and women) said domestic abuse against women is justified in some cases. However, in houses that had TV's, women were given more respect. They also had a lower birthrate (important for women's autonomy and health).

In an average year, there are about four fatal shark attacks in the world. Here are some statistics. Is the human fear of sharks our most irrational fear?

Understanding small things is important to understanding big things.

If the government wants to ban something (think prostitution or drugs), perhaps it should focus on buyers, not sellers. If you remove the current suppliers, more will arrive (watch The Wire). If you remove the consumers, the current suppliers will leave.

The price of prostitution has fallen dramatically in the wake of the sexual revolution. To put it plainly, there is more "free" sex to be had.

30% of unpaid sex from prostitutes went to police officers. It's true, in most cases prostitutes are more likely to have sex with a cop then be arrested by them.

The female college conundrum: Get more education to make more money. Yet, now that you have this education, you can marry a man with even more money. Now you are more likely to stay on home with kids. Sounds like a case for missionary dating.

Men and women, Ceteris paribus, perform similarly on most tests. However, if you pay them for right answers, men will outperform women. Does this mean it is efficient to pay men more than women?

Mastery is a result of "deliberate practice", not inherent skill. So do what you love or you'll never enjoy the process of getting good at it (earlier).

Characteristics that predisposes one to be a terrorist are similar to those that predispose one to vote (wealthy, high level of education, desire for political action). And as I shared before, it may be more effective than voting.

Moral norms change from generation to generation more than we like to think. Even life insurance was seen as an uncomfortable profit from the death of a loved one.

Sunday, September 19, 2010

Dealing With Other's Pain

So far I've been lucky. I've had very little loss in my life. So when I see others going through a crisis, the best response isn't always clear to me. Usual responses can vary between cliché sayings, shallow expressions of understanding, vague offers to help, or just helpless avoidance. A friend recently shared this article from the New York Times that says what I've heard my wife say before, be honest and be specific. Don't ask if there is anything you can do to help, the grieving don't always have the mental energy or patience to teach you how to love them. Instead, pick something that you think needs to be done (fix dinner, mow the lawn, drive their child to an appointment) and do it. The only responsibility of those in pain is to accept the help offered.

Saturday, September 18, 2010

Nudging Humans Toward Economists

I recently came across an article in the medical journal The Lancet about how economists try to understand humans:
Early in their engaging book, Nudge, Richard Thaler and Cass Sunstein draw a distinction between Homo economicus, a species whose members they refer to as “econs”, and real people, whom they refer to as humans. “Homo economicus can think like Albert Einstein, store as much memory as IBM's Big Blue, and exercise the willpower of Mahatma Gandhi. Really.” Real humans do indeed have cool, computationally gifted, far-sighted, and ethical minds, but these “econ” brains are constantly at war with their much older lizard brains, the “hot”, programmed-to-win, and action-oriented system that controls affect, that wants stuff, and wants it now.
Adam Smith called it "passion" and John Maynard Keynes called it "animal spirits". I might call it the struggle between reason and emotion. Admittedly economists makes a lot of assumptions when talking about human action, but as the article points out, that's mostly good:
Current mainstream economics has many defenders and it has many successes despite (or some would argue because of) ignoring the passions. Thinking of people as greedy calculators does pretty well in many situations. The idea that I know what is good for me (even if frequently wrong) seems like the right starting place, certainly compared with having other people decide what is good for me.
If citizens aren't always rational, certainly politicians aren't either. However, often governments and businesses manipulate choices just by forcing you to make one. Citing the popular economics book Nudge (blog here), the article suggests making the "best" choice easier:
The most important is the “Save more tomorrow” scheme, in which employees sign a contract that will automatically increase their saving rate next year, at which time no action needs to be taken. At the very least, this nudge shows how a clever understanding of human psychology can help design light-touch institutions that help people do what they want to do, with no limit on their freedom to choose.
I can appreciate frustration with my own decisions (remember my New Year's Resolutions). I can also appreciate small (emphasis on small) nudges for a passionate/spirited/emotional people. Economics ignores a lot of reality in order to find some truth. If we try to explain everything we end up explaining nothing. Economics has been expanding into other social sciences and now they are expanding back. As long as economics doesn't lose what has made it grow, perhaps this mix can help us learn more about ourselves.

Friday, September 17, 2010

Reflection is the Best Medicine

Good relationship advice from Dr Oz's wife:
Because dealing with conflict is a large part of any long-term relationship [I agree], you need to know how to air your differences productively. Too often an argument devolves into proving you're right—and as I've learned, being right is overrated. One way to tell if you're resolving your disputes in a civilized manner is to record your argument, and then play it back later. Did you fight fair, or did you come off like the Wicked Witch of the West? I once saw a video of a family vacation that captured a fight Mehmet and I were having in the background. I was so horrified by my venomous tone, I quickly erased the tape—but seeing that fight is still having a positive impact on our relationship.
Even more, if you know the fight is on film, you'll probably play nicer.

Thursday, September 16, 2010

Takeaways from Freakonomics, Part II

I finally got around to finishing the popular economics book Freakonomics, where "a rogue economist explores the hidden side of everything". You can read their current writing at the Freakonomics blog. You can find Part  I here. Here the last and second part of my takeaways, mostly about parenting and it's outcome:

The first couple of pages of the book make the now popular but still uncomfortable claim that the rise in abortions after Roe v. Wade in the 1970's led to a decrease in crime in the 1990's. Essentially, the unwanted babies were more likely to become criminals.

The American abortion statistics are shocking. In the first year after Roe v. Wade 750,000 women had abortions (1 for every 4 births). By 1980 the number was 1.6 million (1 for every 2.25 births). As of 2004, there have been 37 million abortions since Roe v. Wade.

The American story of abortion and crime is supported by a similar change in Romania.

Jane Roe (real name Norma McCorvey), from Roe v. Wade, converted to Christianity later in life and is now a adamant pro-life supporter.

More police and harsh punishment for laws is the best and easiest way to reduce crime.

The Broken windows theory of policing and the benefits of capital punishment are not supported by any data.

There needs to be, though there may not be, a better way for unwanted children to succeed.

Low income names are often normal names with weird spellings. Think Destinee, Bobbie, Tiffanie, etc.

Name popularity often goes from upper class, to middle class, to lower class. It seems a name's popularity is a signal for success, but the signal gets weaker as it becomes more popular. Maybe I should copy what  Mark Zuckerberg calls his kids.

Bad parenting matters more than good.

Race makes no difference in achievement (earlier). It only happens to be correlated with other things that do (parent income/education, mother's age at birth, etc).

Surprisingly, single parenthood does not effect achievement at school. Neither do stay-at-home moms (though both probably has other impacts).

IQ of biological parents matter more than IQ of adoptive parents in early academic performance.

Parents often determine their children's possibility through genetics, but peers do most of the influencing (earlier).

Low achieving adopted children did fare better as adults compared to those who stayed in a low achieving household.

What parents are matters more than what parents do. However, what parents do can eventually effect who parents are.

Wednesday, September 15, 2010

Bachelor Pad Game Theory

In case you missed it, the first season of The Bachelor Pad just ended. It is a Survivor-style reality TV show on ABC. It features losing contestants from previous seasons of The Bachelor and The Bachelorette competing for $250,000. Every week a series of dates, challenges, and votes determined who would stay and who would go. This week it was narrowed down to a final "couple", Dave and Natalie. The winner between the two of them was to be determined by a psychological experiment.

Dave and Natalie were forced to go into separate rooms and decide whether they wanted to "keep" or "share" the final prize. If they both picked “share”, the money would be split evenly between them ($125,000 each). If only one picked “share” and the other "keep”, the keeper gets the entire prize ($250,000) and the other, we'll call them the weeper, gets nothing. If they both pick "keep", then neither gets the cash and it is split among the other losing contestants (about $14,000 each). Sound familiar? It should. It's the famous Prisoner's Dilemma.

Here's how the experiment is usually described. Two criminals are arrested without much evidence and so are put in separate rooms. Each prisoner is offered the same deal that if they confess before their partner in crime does, they will receive no punishment and the other will go to jail. If they both confess they will both go to jail. However, because there is not much evidence, if neither confesses, there is only a small punishment. In this situation, how should the prisoners act? Or back to our original story, what should Dave and Natalie do? A little game theory, or strategy accounting for others' strategy, should help:

As the matrix above shows, red player's best choice, no matter what the blue player does, is always to defect. The same is true for the blue player. So in our reality TV example, no matter what Dave chooses, Natalie is best off is she chooses to "keep" the money. The same is true for Dave. So did they act like the completely rational, completely self-interested, Homo economicus? No. In fact, both Dave and Natalie chose to split the money. I must admit, I would not have predicted that. However, I think I can explain why.

In the original Prisoner's Dilemma, the offer is made while both are separated. On the Bachelor Pad, the rules were explained while both contestants were sitting next to each other. Immediately they both made eye contact, as if to reassure each other of their relationship. If they were not allowed that moment, I'm not so sure the outcome would have been the same. Also, the original game takes place in a private interrogation room. The Bachelor Pad finale was watched by millions. Sometimes money isn't the only cost calculated. Overall show quality aside, it made for a pretty good ten minutes of television (watch here).

Hat tip to Lessons Learned Over Dinner (earlier).

Tuesday, September 14, 2010

Naming Your Blog

As someone who changed their original blog name to something else, this made me smile:
I told them I wanted my blog there to be called Free Beer. They laughed. I said, “No. Really.” I told them that the title of a blog only matters the first time you see it listed somewhere. After that the title is irrelevant—you go to a blog because of a good recommendation, not because of a good name.

Monday, September 13, 2010

Takeaways from Freakonomics, Part I

I finally got around to finishing the popular economics book Freakonomics, where "a rogue economist explores the hidden side of everything". You can read their current writing at the Freakonomics blog. Here is Part I of my takeaways, mostly the economics parts:

The book itself was created by an unlikely duo, willing to work together. Is this how you create something truly unique?

As computers get better at doing things humans used to do (play chess, marketing, copilots) will they ever write our non-fiction for us?

Economics begins (with Adam Smith) at the same time capitalism begins. The two are intertwined.

An idea from Adam Smith: Man's morality comes from our ability to think as an objective third party.

If morality attempts to explain a perfect world, economics attempts to explain the real world.

An incentive is something small that changes something big.

There are three kinds of incentives: economic, social, and moral. All impact each other.

Real estate agents keep their own homes on the market for 10 days longer than average at a profit of 3% above average.

How to tell if what you're buying is really worth it. Are the descriptions vague and hard to prove or are they actually descriptive of the quality of the product.

Most drug dealers aren't rich. I've posted about this Freakonomics research before.

There are four meanful factors to job pay:
1) Number of other workers (available labor)
2) Number of possible workers (skills needed)
3) Unpleasantness of a job
4) Demand for the services provided

In 1987 when the IRS required the listing of social security numbers, not just names, of dependents, suddenly there were 7 million less children in America (1/10 of the total number of children).

Others' happiness makes us happy. So why don't I spend more time trying to make people happy?

Information is powerful. The KKK was partially taken from power by exposing the stupid secrets and privileges they enjoyed.

The lack of information produces fear.

Most people fear the unknown small danger more than the known large danger. Compare our fear of guns to our fear of swimming pools (3X as many children die in pools).

Good economic questions are unusual when proposed and obvious when explained.

Popular economics is figuring out what individuals have already figured out, just in reverse.

Sunday, September 12, 2010

Emptying the Bottle: Mid-September '10 Links

Here is a list of the worthwhile sites I've Bookmarked recently:
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Saturday, September 11, 2010

September 11, 2001 in Video

I'm never clear on how to memorialize tragic events. We don't want to forget them, but we also don't want to trivialize their memory. Here's how I chose to re-remember September 11th.

WARNING: This material is extremely shocking and graphic in nature. The footage at 6 minutes and 30 seconds is especially sobering.

Friday, September 10, 2010

Empowering Powerless Parents

I've been hearing a lot about this topic lately and have been meaning to discuss it. Luckily, Justin did the leg work for me:
Gladwell's article states that about half of the personality differences among people come from genes (received from their parents, obviously), and half come from the environment. Harris argues that the latter half is dominated by a child's social network, and points to evidence that children tend to model their behavior after their peers, not their parents, particularly when outside the home.
That sums up nicely what economist Bryan Caplan has been saying for a while. This also contradicts how many parents talk about their children. Often they only discuss the positive accomplishments of their family, seemingly praising them. My guess is what they are actually doing is praising themselves for doing such a good job parenting. Instead have kids and enjoy them. Don't worry so much about how they will turn out, you probably have less day to day influence than you think. That said, if the pressure isn't on parents, but on peers in school, perhaps I'm more responsible then I think in my classroom.

Related: Which economist parenting style do you prefer, Bryan Caplan or Steve Levitt?

Thursday, September 09, 2010

Energy Efficiency is Better, Not Greener or Cheaper

From the Scientific American:
The researchers looked at light consumption since the year 1700. Even though today's compact fluorescents are 500 times more efficient than candles and whale oil lamps, what we spend on overall lighting hasn't gone down. It's just increased proportionately to our wealth. For the past 300 years we've consistently spent just about seven-tenths-of-one-percent of our gross domestic product on artificial lighting.
When one factor changes, others will too. That's not to say light improvements aren't good, they just aren't necessarily going to help us spend less on them.

Wednesday, September 08, 2010

Harm of Ignorance

The very first day of my history class I tell the story of how Hitler convinced Germany that:
Jews were responsible for everything he did not like, including modern art, pornography and prostitution. Hitler also alleged that the Jews had been responsible for losing the First World War. Hitler also claimed that Jews, who were only about 1% of the population, were slowly taking over the country.
Perhaps I should also mention the harm of American ignorance:
But false belief in weapons of mass-destruction led the United States to a trillion-dollar war. And trust in rising home value as a truism as reliable as a sunrise was a major contributor to the catastrophic collapse of the economy. At its worst extreme, a culture of misinformation can produce something like Iran, which is run by a Holocaust denier.

Tuesday, September 07, 2010

Economics of Vintage Tees

What you are really buying:
The Ramones always sold a lot more T-shirts than records
Not music, but the image that music creates.

Monday, September 06, 2010

Quiet Resolutions

Last New Year's I made five public resolutions, attempting to diversify my risk of failing. One month later I admitted failure. Three months after that I posted that perhaps my ability to drop unattainable goals is actually good for my mental health. Well it turns out all that talk may have actually been counterproductive. According to entrepreneur Derek Sivers, talking about your goals actually makes you less likely to complete them. Much like the moral math I mentioned recently. Telling people your plans makes you feel good, even though you haven't done the hard work yet. The mind is tricked into thinking you've already completed the goal and you haven't even started. So next time I tell you what my resolutions are, doubt me.

Sunday, September 05, 2010

Emptying the Bottle: Early-September '10 Links

Here is a list of the worthwhile sites I've Bookmarked recently:
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Guest Post: Rethink Tithing

Brad Jones recently moved to North Africa with his wife and two children. He has agreed to share his thoughts on a discussion we had this summer about giving to the church. Oh and he's my brother-in-law.

If you go to church, you’ve probably heard that you’re supposed to give 10% of your money to them. That’s what a “good Christian” does, right? Well as I’ve studied this issue, the Bible never tells us to tithe to our churches, and Jesus actually criticizes some guys who were religiously giving a tenth of everything they owned.

The believers in the Old Testament were told to give a tenth of their crops and their cattle to the temple, but it’s a significant omission that Jesus doesn’t reinforce this command nor do any of the writers of the New Testament. My big reason for pointing this out is not because I believe that we’re off the hook in giving our money away, but instead to point out that the basis for why we should give has changed in a critical way.

Because of Jesus, lots of stuff has changed for us. The Bible says so. For instance, we don’t have to sacrifice animals to gain atonement for our sins like the people in the Old Testament – Jesus is the final sacrifice. And the Sabbath has been changed from Saturday to the first day of the week to celebrate the day of his resurrection. Many Old Testament laws are changed or fulfilled because Jesus was the climax of their purpose. The command to tithe was a command for us to be like God, who is the ultimate giver. And now that Jesus has come, we see the ultimate picture of sacrificial giving. Jesus gave 100% of himself. The Apostle Paul writes, “He became poor, so that we might become rich”. He died so that we might live. Jesus is modeling God’s desire for us to be generous givers. To think that still giving 10% of our income away is being obedient to God’s desire for us to be givers is like continuing to sacrifice animals and expecting them to atone for our sins. Jesus is a new standard for our lives – and a new standard for giving.

This is so much better, and more satisfying! The old tithing law is like paying rent; you just give a set amount to an exacting landlord. But Jesus is showing us a new way of giving. Jesus has said that we are his ambassadors who should invest our lives (money included) in ways that can change the world! We owe Jesus everything we have, so we have to spend every dollar wisely. Only give away your money to causes that are awesome! And we shouldn’t limit our giving to 10% of our money. The New Testament says we are to “bear one another’s burdens” and we shouldn’t expect to be able to do that unless we ourselves are burdened! If you’re not giving sacrificially, then you’re not giving like God does. Let Jesus be your model.

Tithing is a bad goal because it is an old law that we do out of duty. Good giving will come when we are focused on Jesus and not on a law. And the giving that flows out of our personal relationship with Jesus will be painfully sacrificial and shockingly joyful. Let him be your leader and use your head when giving your money away. The world is at stake and he has chosen you to represent him as his ambassador to the world.

Please contact me if you are interested in a guest post.

Friday, September 03, 2010

What Blogging Is All About

My economics students set up their own blogs this week and it just so happened that this last weekend was a great example of why. Good friend and fellow blogger, Justin Scott, recently posted a humble yet honest response to author Anne Rice's decision to leave the Christianity. Though she still professes belief in Christ, she has grown weary of the problems within the Church. Although Justin's post was very worthwhile, what came after was what I want to mention. Anne Rice personally gave a short reply. After that dozens of her readers commented, creating a vibrant discussion. I've posted on the benefits of blogging before, but this is a real world example of self-publishing bringing real publishing and their readers together.

Thursday, September 02, 2010

New Orleans, A Case in Government Development Failure

I posted a while back on why creating a business friendly environment is better than government trying to persuade specific companies with financial incentives. Post-Katrina New Orleans was promised 14.9 billion federal money to redevelop the city. Here's what has happened:
But five years after Congress passed the Gulf Opportunity Zone Act of 2005, more of the tax-free benefits have gone to the state’s powerful oil industry than to development in hard-hit areas. New Orleans has so far received a total of $55 million in bonds shared between eight projects—or less than 1 percent of the more than $5.9 billion issued statewide. None of the bonds issued for New Orleans projects went to development in hard-hit and still-struggling areas like the Lower Ninth Ward.
Whether you are an individual or group, getting government resources is complex and time consuming. So often only the well connected or large companies can gain access. The article linked suggests organizing the money better, but I'm skeptical of asking the same group to do the same job over again would have different results.

This article was brought to my attention by a friend. Always feel free to send any interesting links my way.