Monthly Archives: June 2011

In Favor Of Flogging

Suggest adding the whipping post to America’s system of criminal justice and most people recoil in horror. But offer a choice between five years in prison or 10 lashes and almost everybody picks the lash. What does that say about prison? … Never in the history of the world has a country locked up so many of its people. … Not even the most progressive reformer has a plan to reduce the prison population by 85 percent.  I do: Bring back the lash. Give convicts the choice of flogging in lieu of incarceration. …

Corporal punishment, said one early advocate of prisons, was a relic of “barbarous” British imperialism ill-suited to “a new country, simple manners, and a popular form of government.” … State by state, starting with Pennsylvania in 1790, … corporal punishment was struck from the criminal code. The idea was that penitentiaries would heal the criminally ill just as hospitals cured the physically sick. It didn’t work. … Of course some people are simply too dangerous to release — pedophiles, terrorists and the truly psychopathic, for instance. But they’re relatively few in number. … Incarceration destroys families and jobs, exactly what people need to have in order to stay away from crime. (more)

Yup. The US spends vast sums to affirm its myths of greatness, such on arms to affirm our saving the world from nazis, communists, etc. and on med to affirm our gift of modern med to the world. You might hope we’d give up eventually as myths become obviously wrong, but this prison myth, that we are kind because we won’t flog, has lasted for two centuries in the face of consistently contrary evidence, and gives no signs of abating.  Could our military and med myths last that long?

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More Natural Hypocrisy

Back in April I posted on a video which suggested:

Most people believe that redistributing money within a nation is good, but that redistributing GPA within a school is bad, and if asked why these should be treated differently, have little to say. My point isn’t to say one can’t come up with reasons to treat these differently. … My point is that most people can’t think of such reasons, making it pretty unlikely that such reasons are the cause of their opinions.

Here’s a related video:

This new video suggests that most people think school and professional affirmative action is good, but that sports affirmative action is bad, and if asked why these should be treated differently, have little to say.  Hat tip to Mungowitz, who seems to agree:

I was amused to see the kids struggle with making ANY of the above [valid] arguments. The video does a good job of showing how our “support” for aff-action is a religion, not a considered conclusion.

Alas, what Mungowitz counts as valid rationales for treating these differently are pretty weak:

1. If anything, coaches already try to find white players.
2. … “Racism” is directed at the societal minority, which is NOT white people. …
3. Performance in sport (as in music, and the military) is objective. … But academics … are more subjective. A bad time in the 40 yard dash means you are slow. A bad SAT score could mean all sorts of things. …
4. Basketball is the key sport among urban populations, many of whom are black. Hockey, swimming, lacrosse much less so. This is sorting, not racism.

If the idea is to discourage discrimination in general, then we should entertain the possibility that whites could sometimes be victims of discrimination. And if it is valid to explain differing sport outcomes by noting that basketball is more popular than hockey in “urban populations,” it should also be valid to posit that math is less popular there, say relative to sport, to explain worse math outcomes. Finally, SAT tests seem to me as objective as typical basketball tryout routines.

The question is what evidence is sufficient to create a presumption of discrimination. In education, the main evidence usually offered is unequal education outcomes. But if that evidence is sufficient, then unequal sports outcomes should lead us to presume discrimination in sports as well.

Remember that we only have laws against discrimination by employers or schools, not by employees or students, and not at all regarding friends and romance. We aren’t trying to generally reduce discrimination – we are trying to achieve something far more specific.

I suspect this all is more about status than discrimination. That is, people feel we have made a decision to raise (certain types of) status for certain groups. And while one way to raise such status is to reduce related unequal outcomes that disfavor those groups, another way to raise their status is to allow and even encourage unequal outcomes that favor those groups. So while we are happy to presume that disfavoring unequal outcomes are “discrimination” to be prevented and compensated, we are also happy to overlook unequal outcomes that favor the group whose status we are trying to raise.

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Women Enforce Norms

It seems women are more in the role of enforcing social norms:

While there is ample evidence of a society-wide cooperation norm, it is not as clear who upholds this norm. In the present paper, we investigate whether there are gender differences with respect to norm enforcement. We let 1403 subjects play games of punishment and reward, individually or in groups with varying gender composition. Broadly, the results indicate that there are no clear gender differences: men are about as inclined as women to punish norm-breakers. However, behavior is context-dependent: men acting among other men are less inclined to uphold a cooperation norm than are women, or men in gender-mixed groups. (more)

A self-protective goal increased conformity for both men and women. In contrast, the effects of a romantic goal depended on sex, causing women to conform more to others’ preferences while engendering nonconformity in men. Men motivated to attract a mate were particularly likely to nonconform when (a) nonconformity made them unique (but not merely a member of a small minority) and when (b) the topic was subjective versus objective, meaning that nonconformists could not be revealed to be incorrect. These findings fit with a functional evolutionary model of motivation and behavior, and they indicate that fundamental motives such as self-protection and mate attraction can stimulate specific forms of conformity or nonconformity for strategic self-presentation. (more)

It isn’t clear how innate is this female norm emphasis, but if innate then female nature probably deserves more of the credit for enabling the farming revolution, and also probably more of the blame for hindering the industrial revolution.

Added 16June: One more:

Why do men have more lenient ethical standards than women? … Whereas men’s ethicality judgments were affected by the identification manipulation, women’s judgments were not. … Fixed [achievement] beliefs predicted lower ethical standards, particularly for men. In combination, these findings suggest men are more pragmatic in setting ethical standards than women. (more)

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Left vs. Right Dictators

Me on Thursday:

Any process that ignorant voters could use to decide who to trust on [banking] regulations could also be used by ignorant consumers to decide which banks to patronize. Since banking consumers have far stronger incentives to choose well on banks than voters have to choose well on politicians, how can it help to replace a possibly quite severe ignorant banking consumer problem with an even more severe ignorant voter problem?

Surprisingly to me, many commenters argued that voters do not control banking regulators – regulators are an autonomous force that choose according to their own reasons. And most who said this seemed to think it a good thing. I’d guess, however, that they wouldn’t be as eager for autonomous regulators in these five areas:

  1. An autonomous police with power to decide who was a criminal, with little oversight from juries, etc.
  2. An autonomous state religion with power to declare God’s will, and to punish those who violate God’s will.
  3. An autonomous military with power to decide when we go to war with whom, and using what methods.
  4. An autonomous “morals” agency responsible for defining and punishing sexual perversion.
  5. An autonomous censor that can ban any “unhealthy” or “misleading” books, movies, music, etc.

Why do so many support “benevolent dictator” autonomous regulators in banking, product safety, workplace safety, schools, medical devices and drugs, etc., but not in the above five areas? One explanation: traditional (i.e., farmer) societies had these five “conservative” types of regulators, and more modern (i.e., forager) societies were proud to have overthrown or constrained them in the process of becoming modern. New “liberal” types of regulators that lower the status of businesses seem much less problematic to those who see liberal-minded folks as intrinsically more trustworthy than conservative-minded folks.

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OB, Now With Votes

The main feedback I get on posts is comments. Sometimes I’m puzzled that a favorite post of mine gets very few comments, and I’m not sure if that is because others didn’t like it or just didn’t have anything to say about it.  So now, you can vote on posts, to signal your interest without needing to say something in particular about a post. Let the feedback begin.

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Rich Happy Individualists

In the last week I found three top academic journal articles on how the key difference between societies today is whether they emphasize conformity to social rules/norms, or individual initiative and responsibility. Poor scared societies tend toward a farming-style big-on-rules approach that today makes people less happy and also innovate and grow more slowly. But more secure comfortable societies tend toward a forager-style reduced rules and more individualism approach that leads to happiness and faster innovation and growth.

Science:

[Researchers] found that societies exposed to contemporary or historical threats, such as territorial conflict, resource scarcity, or exposure to high levels of pathogens, more strictly regulate social behavior and punish deviance. These societies are also more likely to have evolved institutions that strictly regulate social norms. At the psychological level, individuals in tightly regulated societies report higher levels of self-monitoring, more intolerant attitudes toward outsiders, and paying stricter attention to time …

The substantial variation in religious involvement among nations can be explained, in large part, by perceived levels of security. Religion thrives when existential threats to human security, such as war or natural disaster, are rampant, and declines considerably in societies with high levels of economic development, low income inequality and infant mortality, and greater access to social safety nets.

American Economic Review:

The individualism score … measures the extent to which it is believed that individuals are supposed to take care of themselves as opposed to being strongly integrated and loyal to a cohesive group. The individualism component loads positively on valuing individual freedom, opportunity, achievement, advancement, and recognition; and negatively on valuing harmony, cooperation, and relations with superiors. … The individualism-collectivism dimension is the central cultural variable that matters for long-run growth. Other cultural variables may of course affect other aspects of economic behavior and economic performance, but they do not appear to robustly influence long-run growth.

Journal of Personality and Social Psychology:

What is more important: to provide citizens with more money or with more autonomy for their subjective well-being? … [We] examined national levels of well-being on the basis of lack of psychological health, anxiety, and stress measures. Data are available for 63 countries, with a total sample of 420,599 individuals. … Individualism was a consistently better predictor [of well-being] than wealth, after controlling for measurement, sample, and temporal variations. … Wealth may influence well-being only via its effect on individualism. …

Among the more traditional and collectivistic societies, increases in individualism were associated with increased levels of negative well-being. Among more individualistic European societies, increasing individualism was associated with increasing well-being. …

The only study-level variable that significantly predicted mean state anxiety was whether the population was composed of students (vs. general population). Students had significantly higher state anxiety means. Both greater wealth and greater individualism were associated with less anxiety, when entered individually. When entered together, only individualism remained significant, but wealth was not significant.

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Paying To Harass?

Data on claims of sexual harassment … are used to calculate the first measures of sexual harassment risks by industry, age group, and sex. Female workers face far higher sexual harassment risks. On balance, workers receive a compensating wage differential for exposure to the risk of sexual harassment. … The … wage difference between a job with zero sexual harassment risk and a job with the mean sexual harassment risk is … about 25 cents per hour for women, and … about 50 cents per hour for men. (more)

So it seems people can roughly estimate how their chances of being harassed varies with their age and the industry they work in. This appears to influences their willingness to work in such industries, and thus the wages they command in those industries. This all suggests that we are seeing supply and demand at work — on average harassed people are paid for the harassment the expect to suffer, and in fact paid more than their cost. Much like prostitutes who voluntarily accept money for sex, on average workers may voluntarily accept a risk of harassment because they see the added wage as worth more than the added cost of suffering harassment.

The above study didn’t look at the harassers, only at the harassed. That is, it looked at how female wages vary with the rate at which females are harassed, and at how male wages vary with the rate at which males are harassed. But if one did look at the harassers, instead of the harassed, I’d guess that the harassers accept a lower wage for the opportunity to harass, a wage cut that is larger for ages and jobs where harassment is more feasible. In fact, I’d guess this wage cut also varies with the desirability of the people available to harass, just as the wage premium to the harassed probably varies with the undesirability of the harassers.

If these wage changes were the only effect of harassment, there would be no economic reason to oppose harassment – harassers would be paying the harassed an agreeable fee, and no one else would be effected. What if others were effected, but only the firm’s customers, suppliers, investors, or other employees? If firm managers had strong enough incentives to maximize profits, then in the absence of other relevant market failures the firm would internalize the problem. Thus it would make economic sense to let each firm’s management decide whether or not to allow harassment in their firm.

If these conjectures are true, then laws prohibiting sexual harassment do not make the world a richer place. They likely exist instead as ways for voters and politicians to signal their anti-harassment and anti-employer values to each other. Note that we have no laws against sexual harassment in religion, clubs, music, parties, and other recreational activities. As with anti-discrimination laws, it is only employers who are constrained.

More quotes from the study:

Sexual harassment rates … [vary] by sex and major industry, as well as the percent female in the industry. … Women are at a greater risk of sexual harassment in male-dominated industries. … The male rate is not correlated with the female rate. …

Additional variables included in the regressions are a constant, potential work experience, potential experience squared, years of education, and indicator variables for occupation, race, Hispanic ethnicity, married, government employer, union or employee association, full-time employment, metropolitan location, and region. (more)

Added 10a: This paper reviews the state of the art in estimating compensating wage differentials.

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Dreamtime Finance

In 1956, John Kelly introduced his “Kelly criteria” betting strategy: bet on each possible outcome in proportion to (your estimate of) that outcome’s chances of winning, regardless of the betting odds offered. More generally, a Kelly rule invests in each possible asset in proportion to its expected future payout, regardless of current asset prices. For example, if you estimate land will be worth 30% of world wealth in the distant future, you put 30% of your investments into land today, regardless of today’s land prices.

It turns out that the Kelly rule is close to the optimal long run investment plan, i.e., the one that would win an evolutionary competition. The exact best strategy would consider current prices and expected future price trajectories and carefully choose investments to max expected growth, i.e., the expected log of a distant future portfolio. But Kelly’s rule is far simpler, gets better than average growth regardless of state, time, or prices, and approaches the exact best strategy as good strategies come to dominate prices. In fact:

A stock market is evolutionary stable if and only if stocks are [price] evaluated by [Kelly rule] expected relative dividends. Any other market can be invaded in the sense that there is a portfolio rule that, when introduced on the market with arbitrarily small initial wealth, increases its market share at the incumbent’s expense. (more)

(More on evolutionary finance here, here, here, here; see especially this review.) We’ve had big financial markets for at least a century. Has that been long enough for near-optimal strategies to dominate? Not remotely. John Cochrane explains just how bad things are:

We thought returns were uncorrelated over time, so variation in price-dividend ratios was due to variation in expected cash flows. Now it seems all price-dividend variation corresponds to discount-rate variation. We thought that the cross-section of expected returns came from the CAPM. Now we have a zoo of new factors. … For stocks, bonds, credit spreads, foreign exchange, sovereign debt and houses, a yield or valuation ratio translates one-for-one to expected excess returns, and does not forecast the cash flow or price change we may have expected. In each case our view of the facts have changed 100% since the 1970s. …

All of these facts and theories are really about discount rates … and risk premiums. None are fundamentally about slow or imperfect diffusion of cash-flow information, i.e. informational “inefficiency.” Informational efficiency isn’t wrong or disproved. Efficiency basically won, and we moved on. When we see information, it is quickly incorporated in asset prices. … Informational efficiency is much easier for markets and models to obtain than wide risk sharing or desegmentation, which is perhaps why it holds more broadly. (more)

Got that? Finance prices today do a great job of aggregating info – relative prices between similar assets are great predictors of relative payouts. But when it comes to broad price aggregates, such as stocks in general or land in general, price changes basically reflect crazily-changing values. While in markets dominated by near-optimal traders, prices would only change when expected future payouts changed, in fact aggregate prices changes have almost no relation to matching future payouts changes. For example, land prices change plenty (as in the recent real estate bubble), but aggregate land price changes say almost nothing about future land rents.

I’ve talked before about how our era is a rare extreme “dreamtime,” with fast change and behavior quite out of equilibrium with evolutionary selection pressures. We not only have dreamtime fertility, i.e., far fewer kids per couple than selection would favor, we also have crazy-price dreamtime finance. This allows a relatively clear prediction of the future: finance will eventually “equilibrate.” Either the world will coordinate to block the creation of investment funds following near Kelly rules that reinvest most gains, or financial prices will eventually come to be dominated by such near-Kelly funds.

Once dominated by near-Kelly funds, finance prices will no longer suffer huge crazy booms and busts, like the recent dotcom boom or real-estate crash. Furthermore, interest rates should fall dramatically — future returns will no longer be discounted intrinsically, but only for opportunity cost reasons.

Apparently many funds today do now follow near Kelly rules:

The claim has been made that well-known successful investors including Warren Buffett and Bill Gross use Kelly methods. (more)

So the main barrier seems to be fund ability and inclination to reinvest most gains. As I wrote a year ago:

Many folks would be willing to create trusts that accumulated funds long after their death and then paid distant descendants (perhaps indirectly) to do things like remember their ancestor’s name, pray to his gods, etc. Unless stolen, such funds would eventually come to dominate the world economy and dramatically lower interest rates. With lower interest rates … businesses and governments would have far stronger incentives to attend to the interests of distant future folks, such as via global warming policies. But we in fact refuse to enforce a great many such long term deals. (more)

In a large decentralized world, however, I doubt this barrier will stand. Nor can I see why it should. I for one welcome our new financial overlords. Seriously.

I wonder if anyone could estimate how long it should take Buffett/Gross size Kelly funds to dominate finance prices. More Kelly rule details from that review: Continue reading "Dreamtime Finance" »

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Congress Sells Secrets?

Compared to ordinary investors, US Congress members get huge returns on their investments, presumably via their inside line on upcoming government actions. In particular, Congress gets inside info on upcoming US-backed coups, and someone has been trading lots on that info. Gee I wonder who …

Researchers examined 16,000 common stock transactions made by … 300 House representatives from 1985 to 2001, and found … portfolios based on congressional trades beating the market by about 6 percent annually. … A study of senators … five years ago found members of the higher chamber even better at beating the market — outperforming it by about 10 percent. … Members of Congress … [can legally] trade on non-public information. (more)

We estimate the impact of coups and top-secret coup authorizations on asset prices of partially nationalized multinational companies that stood to benefit from US-backed coups. Stock returns of highly exposed firms reacted to coup authorizations classified as top-secret. The average cumulative abnormal return to a coup authorization was 9% over 4 days for a fully nationalized company, rising to more than 13% over sixteen days. Pre-coup authorizations accounted for a larger share of stock price increases than the actual coup events themselves. (more)

We let Congress profit from insider trading that would be illegal for corporate executives. Even so, I doubt it is legal to trade stocks using top-secret info on planned coups, thereby leaking that info to the world. But I’ll bet Congress has been doing a big share of that leaking – who else has access to that info and needn’t fear prosecution for such misdeeds?

Good thing we are cracking down on insider trading by CEOs …

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Bad Boss Advice

An article titled “Horrible bosses, and how to deal with them”:

It makes no sense to let a perpetually difficult situation fester. Rather than sweeping your feelings and concerns under the rug, you need to approach your supervisor and work to build a more productive relationship. Confronting your boss may cause some trepidation and fear about putting your job in jeopardy, but in the long run, it will be better to lay your cards on the table and try to resolve the troubling relationship. Every relationship is a two-way street, and the fact is that unless supervisors receive some feedback, they won’t realize the effect they are having on you or your colleagues. …

Once you’ve considered your supervisor’s perspective, schedule time for an honest, direct and positive conversation. Let your manager know that you sometimes find work frustrating, and you would like to better meet and exceed his expectations. By staying calm and professional while also avoiding blaming your boss, you’ll discover new ways of working together. Be prepared to leave if necessary. (more)

My professional therapist wife thinks this is bad advice and so do I. Maybe if a boss seemed ok overall but unaware that something they did really bugged you, then maybe you might gently and privately point that out. But if you’d call a boss “horrible,” then probably he’s well aware about what you don’t like, or he will punish you for seeming to challenge his authority.

But notice how supporting this advice lets one affirm many ideals:

  1. We “stand up” to and resist dominators, and will support others who try.
  2. It is not our lowered status we object to, oh no, we have objective reasons to complain.
  3. When a boss and employee conflict, the boss not the employee is usually to blame.
  4. We don’t secretly trash talk people we don’t like, no, we act in full view of all.
  5. We are reasonable, and reasonable people sit down and talk about their problems.
  6. We assume everyone is reasonable until they clearly prove otherwise.

We often give and consume advice more to affirm our ideals than to usefully improve decisions.

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