Friday, October 10, 2014

The Nuances and Imperfections of Neoclassical Economic Rationality

Consider this cartoon. It’s funny but it also represents a leading criticism of neoclassical economics.


The wrong lesson to draw is that neoclassical economics is false. Instead we should learn that it is nuanced, which this comic illustrated, and that it is imperfect, which is what Daniel Kahneman’s book is all about. Both lessons can be learned from psychology, and both lessons have been generally neglected by economists.

I think these kinds of psychological experiments actually do not exhibit any imperfection of the neoclassical model of human behavior. Instead it is a mistake of the economist (or cartoon writer) to apply it in a nuanced way. The question we have to ask the woman who won’t accept $5 is, “what would you be losing by taking the money?” Neoclassical model says, “something worth more than $5” the irrational model says, “something worth less than $5 or nothing”. Feelings of dignity, fairness, or pride are all answers we can insert into the model in order to make sense of the woman’s behavior. There are more values at play than money which the experiment does not apply controls for in order to determine how rational or irrational the subject is being.

By the way, I suspect most people wouldn’t give up much more than $5, indicating that these ethereal values are really skin deep. Even the neoclassical model applied in an un-nuanced way captures 90% of what’s going on.

Human value is more nuanced than dollars and cents, and in contrast to cartoonish depictions of economists, they recognize this. No economist believes that people should always take the highest wage job. They know that it is “rational” to take a lower paying job in exchange for better working conditions for example. Economists don’t treat money like it only matters, but that it always matters. The problem is when we get into the nitty gritty and the values become very subtle, as moral intuitions generally are, they become easy to ignore.

Although the cartoon doesn’t speak to it, the neoclassical model does have genuine flaws. People do make systematically irrational decisions. But people also make systematically rational decisions So the correct solution is not to discard the rational model, but to fit it into a broader framework which captures the ways in which human beings predictably act rationally and irrationally.

Friday, October 3, 2014

Checks and Balances–sounds good but how does it work?

I would like to hear a clear articulation of how the ever popular "checks and balances" are supposed to work - even just as a political theory. It's so commonly referred to, but never do I hear about the actual mechanics of it. When someone says, "we have (or are supposed to have) checks and balances", I always think, "okay, what are they?"

Separation of powers do not equal checks and balances. Each power individually can remain unchecked and unbalanced, and they can aggregate into a wholly unchecked and unbalanced system. One must explain how the system checks and balances itself - how the three branches check and balance each other instead of having three unchecked unbalanced branches doing separate but unchecked and unbalanced things. Even if it’s not functional, a theoretical model would do.

Maybe there is such a theory. I don’t know. What I know is that “checks and balances” are a major tool of popular political rhetoric while being totally content-less substantively.

Saturday, September 27, 2014

Literature Review of Safety and Health Effects of Organic

The Inst. of Food Technologists has issued this Scientific Status Summary to update readers on the organic foods industry.

This review discusses the differences between organic foods and conventional foods with respect to food safety and nutritional composition and makes clear that several qualitative differences exist.

Organic foods and conventionally grown foods are not the same. However, the health tradeoffs are not all on the side of organic, and maybe not even generally.

it is premature to conclude that either food system is superior to the other with respect to safety or nutritional composition. Pesticide residues, naturally occurring toxins, nitrates, and polyphenolic compounds exert their health risks or benefits on a dose-related basis, and data do not yet exist to ascertain whether the differences in the levels of such chemicals between organic foods and conventional foods are of biological significance.

The specifics are interesting.

Wednesday, August 27, 2014

The Devil is in the Pumpkin Spice

Starbucks just launched it’s Pumpkin Spice Latte and I’m very excited about it. As a Starbucks Barista, I dump Pumpkin Spice into just about every drink I consume at work. So it’s a shame when I see a meme like this making the rounds:


This kind of thing doesn’t pass the sniff test for me. but I’m happy to see other people actively disproving these hyped up health scare stories. Compound Interest is one of them:


You might notice that Compound Interest didn’t respond to several accusations that FoodBabe made. Being non-organic, non-vegan, containing pesticide residues, and made from GMOs are not criticisms when it comes to actual science. So these criticisms only appeal to people who are already sold on weirdo health pseudo-science.

The one biggest criticism of the Pumpkin Spice is the one that everybody already knows. It is packed with sugar. Maybe it’s not a toxic level, but you’d probably be doing your body a favor by going easy on the autumn drink. On the other hand, we trade-off health for pleasure all the time, and that’s okay. Just be aware of the tradeoffs.

Total Peace Requires Anarchy. As much Peace as we can get Requires Minarchy

Libertarians have correctly pointed out that we can’t have peace without anarchy. Government is inherently violent, and uses violence to enforce its rules. A non-violent government would not fit our intuitions about what a government is at all. Rather it would be some sort of club. To take away violence is to make government lame and unable to continue. When we dream of world peace, or even domestic peace, we are dreaming of anarchy, necessarily.

Non-libertarians can properly rebut, “but we can’t have anarchy without peace!” If we had peace we wouldn’t need government. Peace must come first, then anarchy, because government violence against the violent is society’s mechanism for keeping violence from becoming out of hand. Once murder and rape rates drop to 0%, and we have assurance that it stays there because the heart of man has changed, then we can talk about anarchy.

Let me first say that I’m an anarchist, and I challenge the assumption that the only reason why society is not one great big riot is because of government. But lets leave that aside for a second.

What is interesting to me is how close to anarchy the non-libertarian rebuttal implies. It is basically what minarchists have been saying for a long time. Maybe violence against the violent is necessary, but how does that justify minimum wage laws? Or taxes spent on education? Or the legal drinking age? These are all situations where government is utilizing violence, not to prevent more violence, but to promote other values. If it were true that if we had peace we wouldn’t need government, then they would support government action only to the extent that it promotes peace, but no further.

Non-minarchists should come to terms with the reality that they do not want world peace. Violence is here to stay. Even if private sector violence ends, the public sector should still continue using guns and fists to promote certain values. Furthermore, if you really listen to what people believe would happen without so many non-peace promoting laws, they should admit that the wish for world peace would send the world spiraling into disarray. After all, if we had peace, who would build the roads?

Monday, August 25, 2014

Short Argument against the Ice Bucket Challenge

Awareness is a scarce resource. We can’t spend our attention on every single thing that matters. So we must allocate our attention to things that matter more, and less attention to things that matter less. ALS is so far down on the list of social ills that it really does not deserve our attention.

Other things far down on the list: school shootings and domestic terrorism.

Sunday, August 24, 2014

Does an Altruistic Model of Charity Predict Crowding Out?

From, “Does Welfare Spending Crowd Out Charitable Activity? Evidence from Historical England under the Poor Laws”

The theoretical foundation of crowding out is based on the traditional public good model of
charitable giving. Agents derive utility from a public good, in this case welfare provision or
the well-being of others, and regard their own and other agents' contributions to the public
good as perfect substitutes. This means the agent is purely altruistic, in that he is only
concerned with the total amount of welfare provided, such that the model predicts perfect
(i.e. dollar-for-dollar) crowding out between government provision of welfare and private
charity (see for example Warr 1982 or Bergstrom, Roberts and Varian 1986). However, since
the prediction of perfect crowding out is not empirically supported and the predicted level
of giving is unrealistically low, the model has been extended in several directions. One of
these extensions is the impure altruist model developed by Andreoni (1989 and 1990).2 Here,
agents are said to be impurely altruistic as they derive utility from their own contribution to
charity as well as the total level of welfare. One explanation could be that agents not only
care about the well-being of others but also wish to donate to charities `to do the right thing'
or `to do good'. This leads to a situation where crowding out is less than perfect, i.e. less
than one-for-one. Another explanation for less than perfect crowding out is, for example, a
signaling e ect of wealth from charitable giving, as in Glazer and Konrad (1996). However,
the predicted relation is still negative.