A Valuable Asset in Your Intellectual Portfolio is Not the Same as a Good Guide

2 David_J_Balan 21 August 2011 09:29PM

Haven't posted in quite a while.

 

Suppose you have a big, complicated question that you're not sure of the answer to, and you want to seek an adviser to guide you. One kind of adviser is someone whose opinion, by your lights, constitutes strong evidence regarding the answer; on the basis of that opinion alone you are prepared to substantially update your beliefs. Of course you may profit from further discussion beyond just hearing the adviser's opinion on the big question: since the question is complicated, hearing his or her reasoning or evidence on different elements of the big question may be valuable, but the point is that there are some advisers for whom just knowing their ultimate judgment moves the needle a lot for you. Such people might be termed "good guides."

But there may be other potential advisers whose ultimate opinion on the big question you don't credit much at all, but who you think might still have valuable insight into some important element of the question. A good example for me is "Chicago School" Industrial Organization Economics. It's members had some insights that are absolutely true and important ("one monopoly profit" and related ideas), and that the people who I would have regarded as my "good guides" had I been around at the time did not have before them. No analyst who does not understand those insights can be a good analyst, and no analysis that ignores them can be correct. But simply knowing what an orthodox Chicago School economist thinks about some big question would move me very little. They are a valuable part of my "intellectual portfolio" (to use a phrase favored by Brad DeLong) and I would be a fool to dismiss them. But they are only providers of valuable input, not good guides.

I think the distinction between these two types of advisers is often missed. If you believe my example (if not, substitute one of your own, the point of this post is not to debate IO), there are a bunch of expert economists (Chicago School types) who should have fancy prestigious professorships, and whose arguments should be given careful consideration; and there are another bunch of expert economists who should have fancy prestigious professorships, whose arguments should be given careful consideration, and whose advice should be heeded. Leave aside the practical difficulty of knowing which is which if you are, say, a reporter or a policy-maker. The point is that there should be two buckets for two different types of prestigious advice-giver, but we only really have one.

Hayekian Prediction Markets?

9 David_J_Balan 15 February 2010 11:50PM

I think I basically get the idea behind prediction markets. People take their money seriously, so the opinions of people who are confident enough to bet real money on those opinions deserve to be taken seriously as well. That kid on the schoolyard who was always saying "wanna bet?" might have been annoying but he also had a point: your willingness or unwillingness to bet does say something about how seriously your opinions ought to be taken. Furthermore, there are serious problems with the main alternative prediction method, which consists of asking experts what they think is going to happen. Almost nobody ever keeps track of whose predictions turned out to be right and then listens to those people more. Some predictions involve events that are so rare or so far in the future that there's no way for an expert to accumulate a track record at all. Some issues give experts incentives to be impressively wrong rather than boringly right. And so on. These are all good points, and they make enough sense to me to convince me that prediction markets deserve to be taken seriously and tested empirically. If they reliably produce better predictions than the alternatives, then they deserve to win the day.*

But there is a particular claim that is made about prediction markets that I am skeptical of. It starts with the well-known idea, usually associated with Friedrich on Hayek, that a major virtue of free markets is that there is all kinds of useful information spread out in local chunks throughout the economy, which individuals can usefully exploit but a central planner never could, which is reflected in market prices, and which in turn cause resources to be allocated efficiently. It then goes on to argue that prediction markets have a similar virtue. As an example, suppose there's a prediction market for a national election, and you happen to know that Candidate X is more popular in your little town than most people think. There's no way that some faraway expert could have known this or incorporated it into his or her prediction in any way, but it gives you an incentive to bet on Candidate X, which causes your local information to be reflected in the prediction market price. Lots and lots of people doing the same thing will cause lots and lots of such little local pieces of information, which couldn't have been obtained any other way, to also be reflected in the market price.

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How Much Should We Care What the Founding Fathers Thought About Anything?

-3 David_J_Balan 11 February 2010 12:38AM

A while back I saw an interesting discussion between U.S. Supreme Court Justices Stephen Breyer and Antonin Scalia. Scalia is well known for arguing that the way to deal with Constitutional questions is to use the plain meaning of the words in the Constitutional text as they would have been understood at the time and place they were written.* Any other approach, he argues, would amount to nothing more than an unelected judge taking his or her personal political and moral views and making them into the highest law of the land. In his view if a judge is not taking the answer out of the text, then that judge must be putting the answer into the text, and no judge should be allowed to do that.** One illustrative example that comes up in the exchange is the question of whether and when it's OK to cite foreign law in cases involving whether a particular punishment is "Cruel and Unusual" and hence unconstitutional. In Scalia's view, the right way to approach the question would be to try as best one could to figure out what was meant by the words "cruel" and "unusual" in 18th century England, and what contemporary foreign courts have to say cannot possibly inform that question. He also opposes (though somewhat less vigorously) the idea that decisions ought to take into account changes over time in what is considered cruel and unusual in America: he thinks that if people have updated their opinions about such matters, they are free to get their political representatives to pass new laws or to amend the Constitution***, but short of that it is simply not the judge's job to take that sort of thing into account.

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Disclosure vs. Bans: Reply to Robin Hanson

6 David_J_Balan 04 January 2010 01:09AM

A little while back I wrote a post arguing that the existence of abusive terms in credit card contracts (such as huge jumps in interest rates for being one day late with a payment) do not satisfy the conditions for standard economic models of asymmetric information between rational agents, but rather are trickery, pure and simple. If this is right, then the standard remedy of mandating the provision of more information to the less-informed party, but not otherwise interfering in the market (the idea being that any voluntary agreement must make both parties better off, no matter how strange or one-sided the terms may appear, so any interference in contracts beyond providing information will reduce welfare), is not the right one. There is no decent argument that those terms would appear in any contract where both parties knew what they were doing, so if you see terms like that, the appropriate conclusion is that someone has been screwed, not that Goddess of Capitalism, in her infinite-but-inscrutable wisdom, has uncovered the only terms that, strange as they may seem to mere mortals, make a mutually beneficial contract possible. The goal is to get rid of those terms, and the most direct way to do that is simply to prohibit them. There are some good reasons to be reluctant to have the government go around prohibiting things, so mandatory disclosure might still be a good policy (though the Federal Reserve has investigated this and concluded that it isn't), but the goal would be to use the disclosures to eliminate the abusive terms. There is no justification for the standard economist's agnosticism about whether the terms are good or not: they're bad and the only question is how best to get rid of them.

Robin Hanson left some comments to that post, in which he made the point that since people voluntarily choose these terms, they must like them and so prohibiting them would have to mean protecting people against their will. I answered that while I'm enough of a paternalist to be willing, under some circumstances, to impose limited protections on people even if those people would oppose them, that I didn't think that was an issue here, as I would guess (though I have no proof), that the Federal Reserve's recent decision to ban certain credit card practices was probably very popular, even (especially?) among the people who are harmed by those practices. Robin's reply, as I understand it, is that this may be true, but since people can't simultaneously want to accept credit cards with those terms and at the same time favor banning those terms, it must be the case that they either don't understand the terms of the credit card contracts or they don't understand the effects of the ban. Somewhere there must just be some missing information, and therefore we must be back where we started, with the problem being a lack of information that could be resolved by providing more information.

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Mandating Information Disclosure vs. Banning Deceptive Contract Terms

21 David_J_Balan 20 December 2009 08:55PM

Economists are very into the idea of mutually beneficial exchange. The standard argument is that if two parties voluntarily agree to a deal, then they must be better off with the deal than without it, otherwise they wouldn't have agreed. And if the terms of that deal don't harm any third parties,* then the deal must be welfare-improving, and any regulatory restrictions on making it must be bad.

One objection to this argument is that it's not always clear what is and what is not "voluntary." I once has a well-published economist friend argue that there are no gradations of voluntariness: either a deal was made under some kind of compulsion or it wasn't. I asked him if he would be OK letting his then pre-adolescent son make any schoolyard deal he wanted as long as it was not made under any overt threat, and I think (but am not totally sure) that he has since backed off this position. So there is an argument for purely paternalistic restrictions on freedom of contract. 

Another objection, one which economists tend to take more seriously, relates to information. Specifically, there is the idea that maybe one party to the contract is not fully informed about its terms. For this reason, many economists are willing to entertain policies by which firms are required to disclose certain information, and to do so in a way that is comprehensible to consumers. So for example we now have "Schumer boxes" that govern the ways in which credit card companies present certain information in promotional materials. This seems to many people to be a reasonable remedy: if the problem was that one side of the transaction was ignorant, then a regulation that eliminates that ignorance, while at the same time not interfering with their freedom to engage in mutually beneficial exchange, must be a good thing.

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Morality and International Humanitarian Law

2 David_J_Balan 30 November 2009 03:27AM

International humanitarian law proscribes certain actions in war, particularly actions that harm non-combatants. On a strict reading of these laws (see what Richard Goldstone said in his debate with Dore Gold at Brandeis University here and see what Matthew Yglesias had to say here), these actions are prohibited regardless of the justice of the war itself: there are certain things that you are just not allowed to do, no matter what. The natural response of any warring party accused of violating humanitarian law and confronted with this argument (aside from simply denying having done the things they are accused of doing) is to insist that their actions in the war cannot be judged outside the context that led to them going to war in the first place. They are the aggrieved party, they are in the right, and they did what they needed to do to defend themselves. Any law or law enforcer who fails to understand this critical distinction between the good guys and the bad guys is at best hopelessly naive and at worst actively evil.

What to make of this response? On the one hand, the position taken by Goldstone and Yglesias can't strictly be morally right. No one really believes that moral obligations in a war are completely independent of whatever caused the war in the first place. For example, it can't but be the case that the set of morally acceptable actions if you are defending yourself against annihilation is different from the set of morally acceptable actions if you (justifiably) take offensive action in response to some relatively minor provocation.

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Rooting Hard for Overpriced M&Ms

4 David_J_Balan 28 November 2009 07:10PM

The other day I went to get some productivity-enhancement M&Ms from the candy machine at work. When I opened my wallet, I didn't immediately see a $1 bill. Then I looked some more and I found one, and I was happy! But of course that doesn't make any sense. If that bill hadn't been a $1, then it would have had to be a $5 or more, with an expected value of $5+, which is an amount that I certainly would not have paid for a bag of M&Ms, most excellent though they may be. This means that I preferred a bag of M&Ms to $1 (that's why I went to the candy machine in the first place), $1 to $5+ (I was happy when the bill turned out to be a $1), and $5+ to a bag of M&Ms (I wouldn't have bought them at that price). Not too surprising I guess, but still kind of weird.

Our House, My Rules

36 David_J_Balan 02 November 2009 12:44AM

People debate all the time about how strictly children should be disciplined. Obviously, this is a worthwhile debate to have, as there must be some optimal amount of discipline that is greater than zero. The debate's nominal focus is usually on what's best for the child, with even the advocates for greater strictness arguing that it's "for their own good." It might also touch on what's good for other family members or for society at large. What I think is missing from the usual debate is that it assumes nothing but honorable motives on the part of the arguers. That is, it assumes that the arguments in favor of greater strictness are completely untainted by any element of authoritarianism or cruelty. But people are sometimes authoritarian and cruel! Just for fun! And the only people who you can be consistently cruel to without them slugging you, shunning you, suing you, or calling the police on you are your children. This is a reason for more than the usual amount of skepticism of arguments that say that strict parenting is necessary. If there were no such thing as cruelty in the world, people would still argue about the optimal level of strictness, and sometimes the more strict position would be the correct one, and parents would chose the optimal level of strictness on the basis of these arguments. But what we actually have is a world with lots and lots of cruelty lurking just under the surface, which cannot help but show up in the form of pro-strictness arguments in parenting debates. This should cause us to place less weight on pro-strictness arguments than we otherwise would.*  Note that this is basically the same idea as Bertrand Russell's argument against the idea of sin: its true function is to allow people to exercise their natural cruelty while at the same time maintaining their opinion of themselves as moral.

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The Value of Nature and Old Books

7 David_J_Balan 25 October 2009 06:14PM

People have always had a religious or quasi-religious reverence for nature. In modern times, some people have started to see nature more as an enemy to be conquered than as a god to be worshiped. Such people point out that uncontrolled nature causes a tremendous amount of human suffering (to say nothing of all the misery that it causes other creatures), and that vast improvements to human welfare have largely been the result of us ceasing to love and fear nature and starting to control it.

There are several common responses to this. One response is that it is solipsistic for humans to measure the value of nature in terms of what is and is not good for us. This strikes me as right only insofar as it ignores the welfare of non-human creatures who have enough going on in terms of consciousness and/or sentience to matter; I think the objection would be without merit if one were to broaden the scope of concern to something like all creatures, present and future, capable of having experiences (who else is there to care about?). A  second response is that seeing ourselves as highly effective lords over nature leads to dangerous overconfidence, which leads to costly mistakes in how we deal with nature. This is a very fair point, but what it really amounts to is a claim that we shouldn't underestimate the enemy, not that the enemy is really a friend. Anyway, the solution to that problem is to become better rationalists and get better at being skeptical regarding our powers, not to retreat into quasi-mystical Gaia worship. A third response is that getting into a "conquer nature" frame of mind puts people into a "conquer everything" frame of mind and leads to aggression against other people. This might have merit historically, but that problem is also best confronted directly, in this case by more effectively promulgating liberal humanistic values.

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Chomsky, Sports Talk Radio, Media Bias, and Me

13 David_J_Balan 21 July 2009 12:57AM

Just about everyone knows that one of Noam Chomsky's big things is that he thinks the media are badly distorted away from the truth and toward the interests of the wealthy and powerful. Once a long time ago I read or heard either this quote from this interview or something like it:

"Take, say, sports -- that's another crucial example of the indoctrination system, in my view. For one thing because it -- you know, it offers people something to pay attention to that's of no importance. [audience laughs] That keeps them from worrying about -- [applause] keeps them from worrying about things that matter to their lives that they might have some idea of doing something about. And in fact it's striking to see the intelligence that's used by ordinary people in [discussions of] sports [as opposed to political and social issues]. I mean, you listen to radio stations where people call in -- they have the most exotic information [more laughter] and understanding about all kind of arcane issues. And the press undoubtedly does a lot with this."

Taking this quote along with the rest of the interview, the idea seems to be that that the default condition of most people is to have decent critical faculties unless someone takes the trouble to actively screw them up. So in contrast to their badly distorted ideas about politics, people tend to have sensible ideas about sports, since the powerful have no particular motive to distort those ideas (though they do have a motive to get people to think about sports instead of things that are important).

Leaving completely aside the merits of Chomsky's critique of the media or any of his other views, I have logged a pretty decent number of hours listening to sports talk radio and folks, I'm here to tell you that the quality of the discourse is generally mighty low.

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