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.

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.

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.

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.

Emptying the Bottle: Late-September '10 Links

Here is a list of the worthwhile sites I've Bookmarked recently:

• How to act rationally when paying a cover charge.
• Seth Godin humorously explains why so many things are broken [video].
• Our natural sleep schedule is split in two parts [video].
• Firm parenting makes a difference (earlier).
• Wikipedia's list of common misconceptions.
• Another intriguing audio turned video about the implications of charitable [video] (earlier).
• Economists wiegh in: Is This What a Recovery Feels Like?
• A third of people need government permission to do their job, even tour guides [video].
• Market trade-offs in home buying (earlier).
• Black-white gap in education, income, and unemployment, but not happiness [graphic].
• Beer distributors lobby against marijuana legalization.
• Stephen Colbert speaks to Congress about immigration. Again out of character. [videos].

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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.

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!

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:

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.