Monthly Archives: July 2011

Idealizing Research

On Institutional Review Boards (= IRBs), I wrote in March:

It makes little sense to have extra regulation on researchers just because they are researchers. That mainly gets in the way of innovation, of which we already have too little.

To decide if academic studies are “ethical,” IRBs ask if the benefits of a proposed study to the world and to its subjects (= people studied) outweigh the risks to its subjects. And a standard rule is that financial payments to subjects do not count as benefits.

To an economist, this paternalism sounds pretty crazy. In the latest Bioethics, Alan Werthmeimer agrees. First he notes that no explicit arguments are offered for this “money isn’t benefit” rule:

Although the standard view has become a virtual mantra in research ethics, no [official] document contains an argument in its defense. … The scholarly literature also contains little defense of that view. For example, [an] important article … [says] ‘otherwise simply increasing payment or adding more unrelated services could make the benefits outweigh even the riskiest research.’

So Werthmeimer makes up seven reasons:

  1. A subject might think that having the money to purchase a big screen TV makes it sensible for him to accept certain medical risks. … IRBs should not incorporate such impoverished conceptions of a person’s interests into their decisions.
  2. IRBs are not well positioned to determine how much weight to assign to the benefit of payment as compared to risk.
  3. The standard view [is] a way to provide extra insurance that payment does not constitute an undue inducement.
  4. [Otherwise,] it would allow IRBs to approve risky research with economically vulnerable populations so long as investigators are prepared to pay subjects enough.
  5. The physician’s role is to advance the patient’s medical interests, and not her interests, writ large. And perhaps much the same could be said for the relationship between IRBs and subjects.
  6. Society may prefer that research not be viewed as an economic transaction and it may symbolize its commitments by not allowing such values to intrude on the assessment of risks and benefits.
  7. It is crucial that the public believe that research subjects are not abused or exploited. … Whereas society accepts with a relative yawn the fact that people incur job related injuries or deaths as coal miners, fishermen, and off-shore oil service workers, society seems to react with great intensity to research related injuries and deaths.

I hope you can imagine my incredulous stare. This goes way beyond sometimes overruling certain judgements because you think people sometimes make particular mistakes. Here regulators basically presume that all wanting of money is illicit and not to be counted. Reason #7 seems to me closest to the truth – the idea appears to be to preserve an ivory-tower image of research as a high pure far ideal thing not to be sullied if possible by money motives. Which if you think about it isn’t that far from the common medical ideal, that cost should not be a factor in medical decisions.


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Respect Forecast Accuracy

The topic at Cato Unbound this month is “What’s Wrong with Expert Predictions.” Dan Gardner and Philip Tetlock’s lead essay points out a puzzling lack of interest in forecast accuracy:

Corporations and governments spend staggering amounts of money on forecasting, and one might think they would be keenly interested in determining the worth of their purchases and ensuring they are the very best available. But most aren’t. They spend little or nothing analyzing the accuracy of forecasts and not much more on research to develop and compare forecasting methods. Some even persist in using forecasts that are manifestly unreliable. … This widespread lack of curiosity … is a phenomenon worthy of investigation.

My response essay considers this puzzle. The editor summarizes:

Robin Hanson argues that most people aren’t interested in the accuracy of predictions because predictions often aren’t about knowing the future. They are about affiliating with an ideology or signaling one’s authority. … He suggests that one way to make predictions more accurate might be to lift both the social stigma and legal prohibitions against gambling.

Key quotes:

Even if disinterest in forecast accuracy is explained by forecasting being only a minor role for pundits, academics, and managers, might we still hope for reforms to encourage more accuracy? …

Hope … mainly comes from the fact that we pretend to care more about forecast accuracy than we actually seem to care. We don’t need new forecasting methods so much as a new social equilibrium, one that makes forecast hypocrisy more visible to a wider audience, and so shames people into avoiding such hypocrisy. …

It isn’t enough to devise ways to record forecast accuracy—we also need a new matching social respect for such records. Might governments encourage a switch to more respect for forecast accuracy? Yes: by not explicitly discouraging it!

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Coworker vs. Class Envy

Almost half of all workers in the U.S. “are either contractually forbidden or strongly discouraged from discussing their pay with their colleagues.” … Researchers … found that employees who know what their peers make—especially if their salaries are below median earnings—were more dissatisfied with their jobs than their peers who knew nothing. (more)

Imagine a national law banning citizens from talking about each other’s income. Similar to the way firm rules against discussing coworker incomes raise job satisfaction, a law against discussing citizen incomes would also probably make people more satisfied. Yet I predict that if such a law were actually passed, a huge public outcry would spell political disaster for supporting politicians. People would wail about the horrors of totalitarianism and suppressing class consciousness, and call for revolution if needed to repeal it.

Yet most who work at firms with no-salary-talk rules are probably ok with it. Few refuse to apply for jobs at such firms, or even demand substantially higher salaries to work there. In fact, there’s a decent case to make that people are on average willing to accept lower salaries to work at such firms. After all, if not such policies would cost firms more in salaries, with few obvious compensating benefits.

This example highlights how differently we act in workplaces vs. national political forums. When talking national politics we refuse to compromise on key ideals that we hardly care about in workplaces. Voting is indeed a far fest, while we submit hyper-farmer style to domination at work.

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My Freak On Again

A few weeks ago I posted on appearing at the end of a Freakonomics radio show on “The Folly Of Prediction.”  I now appear at the end of another Freakonomics radio show, this one on “Hey Baby, Is That a Prius You’re Driving?”, i.e., on signaling:

Managing our appearance is actually a lot of what we humans do. Trying to understand, business, trying to understand jobs, school, even medicine. If you don’t realize that people are trying to manage their image, you miss out on a lot of what’s going on.

I elaborate on how we economists signal:

Economists like to point out there’s almost no chance that your vote is going to determine an election. So one of the things an economists like to do to show off that they’re clever economists is to not vote and to say to everybody, hey I’m smarter than all the rest of you!  See, I understand that by voting, it’s not going to make any difference, anyway. And we do a little of that too often. Say, you might not tip at a restaurant because you say, you know I’m never come back to this restaurant again.  And so economists often think like that, they think through the strategy and they go out of their way of maybe being rude or a little thoughtless, in usual language, in order to show, hey I understand the strategy of this. I’ve got to admit, I do that sometimes. I tip at restaurants, I’ll tell you that, but still—

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Grace-Hanson Podcasts

Katja Grace was in town recently, so she and I took the opportunity to start an occasional podcast series. Here are the first two episodes:

  1. Signaling
  2. Idealism

Alas we recorded the second one outside, with odd distracting noises, perhaps the wind.

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School Signal Investing

Tyler Cowen and Bryan Caplan have been arguing about the signaling theory of education. Bryan’s latest is here, Tyler’s here. Tyler cites two recent empirical papers which estimate that “signaling accounts for one-third of the educational wage premium.” Such papers generally try to predict later income as a function of schooling years and quality, plus other covariates. Today I want point out two bits of “armchair econ” data that complicate such discussions.

Datum #1: Pretty much no one cared about the grades I got before tenth grade.

As long as my grades weren’t very low, I was consistently promoted to the next level. If I got into special classes for gifted students, that was based on IQ tests, not grades. Colleges later cared about my high school GPA, but not about any earlier GPAs. So since no one was watching my earlier grades, they couldn’t possibly be signals right?

Not so fast. Assume for the sake of argument that employers want high GPA grads of good colleges entirely for signaling reasons – students never learn anything useful for future jobs, but merely show innate abilities. But also assume that it takes years of training and effort for kids with high innate ability to learn to do well in school. Given these assumptions third grade schooling is entirely an investment in a signal to later show employers. GPAs then only help kids see how well they are learning school stuff, which will later help them send a good signal. So even though no signaling is happening in third grade, everything third grade students do might be an investment in later signals.

Datum #2: When I visit private firms, people there often mention the prestigious degrees they have.

Yes, they may do this more often for academic visitors, but the point remains. Firms want to impress customers, suppliers, investors, etc. with the quality of their employees, and hiring graduates from prestigious schools helps them signal such quality. Hiring such graduates can also help a manager to impress his bosses, potential employees, and sister divisions about the quality of his employees. Thus even once a boss has determined the “real” productivity of his or her employer, he or she should still be willing to pay extra for employees with prestigious degrees.

Furthermore, people in business signal to each other all the time. In fact, most of the on-the-job business learning that employees do after college, such as how to dress well, how to give presentations, how to write memos, how to talk with clients, etc. might be skills that are mainly useful to signal innate features to bosses, co-workers, clients, etc. So employers might pay more for students with prestigious degrees because such degrees show an ability to learn how to later send good business signals. And this extra pay for top degrees could be entirely an investment in signaling, even if after hiring someone no one ever knew of or mentioned their degrees, and even if schooling makes students better able to please employers.

Bottom line: If much of human interaction is signaling, then much of human investment is in ways to better signal. Businesses that signal are also willing to invest in better signals. The fact that attending school seem to cause changes in students that employers are willing to pay for does not show that school isn’t all about signaling.

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They’d Take The Million

A survey [in 1992] indicated that 46 percent of Americans would be unwilling to give up television for the rest of their lives in return for a million dollars. (more)

How much would someone have to pay you to give up the Internet for the rest of your life? Would a million dollars be enough? Twenty million? How about a billion dollars? “When I ask my students this question, they say you couldn’t pay me enough.” (more)

I believe that most people think they wouldn’t give up TV or the internet for a million. They might even actually reject such an offer if it came out of the blue with little time to consider. And I’m happy to admit people get a lot of value out of tv and internet relative to the price they now pay. But reframe this offer so that it has more time to generate social support, and no way would most people reject it.

At 5% interest, a million dollars pays ~$4000 a month. So let’s imagine offering people $4000 to give up TV or internet for one month, and then renewing the offer every month afterward – they could go on or off the plan at will. Furthermore, let the offer be made to every member of a median-income community of one thousand folks, all of whom know several other folks in the community. This community might be a neighborhood, a workplace, a church, etc.

Under these circumstances I predict that within ten years over 80% of them would be on the plan in any given month. First they’d see that the offer is real, and they’d also see all the fun their associates have splurging or quitting work and enjoying their leisure in non-tv/internet ways. Then they’d try it themselves and like it, and mostly stick with it.

Thus I think the survey questions above are quite misleading on the value people actually place on tv and internet. Misleading features of these survey questions:

  1. They require a sudden commitment regarding one’s entire future life, rather than giving people a chance to learn and adapt to this new possibility. Most people are commitment averse.
  2. They ask people to become weird, accepting an offer made to no one else, and leaving the familiar world of their associates’ options and actions.
  3. They put people in a far (vs. near) frame of mind and then ask them to affirm a high value on money. In far mode people are idealistic, and so think they care less about money.

Even today a million dollars is a lot of money, enough that most people would do a lot to get it.

Added 7p: Commenters are eager to declare they wouldn’t take the internet deal, and seem uninterested in my claim that 80% of median income folks would take the deal, which pays median household income (~50K$/yr) just to not use the internet. It seems important to many commenters’ identity to declare their allegiance to the internet, i.e., that without it they might as well shrivel up and die.

Added 12July: Tyler Cowen reviews the academic lit on willingness to pay for internet – its about 2% of income, or less than $100 a month.

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Beware Morality Porn

“Porn” stimulates strong sexual desire and satisfaction in ways detached from many of the contextual features that usually accompany such desire and satisfaction in real and praiseworthy sex. Critics complain that this detachment is often bad or unhealthy.

Metaphorical applications of this porn concept include food porn, gadget porn, shelter porn, and chart porn. “X porn” refers to stimuli that induce desires and/or satisfactions usually related to X, but detached in possibly unhealthy ways from context that ideally accompanies X. Food porn, for example, might entice you to eat foods with poor nutrition, or distract you from socializing while eating.

Of course how fair it is to call something “X porn” depends on how bad it is to desire X detached from some ideal context. For example, isn’t it ok to sometimes eat really tasty but unhealthy food, as long as you don’t do that too often? And what’s so wrong about loving cool-looking gadgets, even ones that aren’t very useful – everyone’s gotta have a hobby, right?  In fact, many use “X porn” terms not as criticism but to say they like a stimulation even though others may disapprove of its detachment.

But there’s one case where the “X porn” criticism seems to me especially solid: morality.  Let us call a stimuli “morality porn” if it gives people a strong desire to act morally, and a feeling of satisfaction of that desire, but without their actually acting morally. It seems an especially bad idea for people to feel moral, without actually acting moral.

For example, the Lord of the Rings movies are some of my favorites. They let viewers vicariously feel Frodo’s moral quandary – whether or not to sacrifice himself for the greater good – and then vicariously feel Frodo feeling good about himself for doing the right thing. Many war movies function similarly as morality porn.

But is this good? First it might be bad for people to feel good about their morality when they haven’t actually been moral – maybe this will make them feel like they’ve done enough when they’ve hardly done anything. Second, it is way too easy to imagine from the comfort of your seat that you would do the heroic thing in the situation on the screen, when in fact you would do no such thing.

Third, movie morality is often unhealthily detached from important moral context. For example, movies usually focus more on whether characters have the strength of will to do what is obviously right than on whether they have the wisdom to discern what is right. And movie characters rarely have to choose between the praise of associates and doing the right thing – key associates usually support doing the right thing.

I’m not saying all porn is bad, or even that any porn is bad. Or even that morality is good. But if I was going to worry about some sort of porn, I’d worry most about morality porn.

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Why Non-Profits?

Arnold Kling questioned the value of non-profits:

A profit-seeking enterprise is more accountable, in that a profit-seeking business must satisfy consumers or else go out of business. Hence, it must provide something of value to its customers. On the other hand, if a non-profit fails to provide any benefit to its customers, it still might be able to obtain grants from the government or from donors.

Fabio Rojas responded:

Non-profits provide services that are not sustainable in a for-profit format. … The customers simply can’t pay for what might benefit them and “we” (the donors) have decided that these people need the service. The non-profit format is a way to handle donations to third parties in an organized and semi-public fashion. … Examples include services to poor children (e.g., Boys and Girls Clubs), women (e.g., battered women’s shelters) and immigrants (e.g., many religious groups donate time and services to poor immigrants). My intuition is that it would be hard for a profit oriented institution to help battered women or poor children. …

It’s signaling. Not only in the Hanson “I do this because I care” sense, but as a commitment to a specific issue. The people who run the local church organization for recent Mexican migrants have to show that they won’t bail in order to give shareholders a slightly higher return. Rather, by making their organization non-profit, they show an allegiance to a specific type of person, not their wallet.

Fabio suggests that the main function of non-profits is as intermediaries between those who want to donate and the deserving recipients they want to help. But the obvious question here is: why can’t non-profits give these deserving recipients vouchers for service at for-profit firms? Why do non-profits need to provide the services themselves? Remember that 51% of non-profit revenue goes to medical orgs like hospitals, and 14% to schools — vouchers are quite feasible for both of these kinds of services.

Admittedly, in some cases there are strong complementarities between the task of deciding who is a deserving recipient and actually providing services. This applies, for example, to service coordinators such as social workers, who evaluate aid candidates and suggest relevant services to them. But why must the services that coordinators coordinate be provided by non-profits?

Now there might be good reasons for customers to sometimes choose non-profit service providers. Such a choice might assure customers that advice being given is not overly influenced by profit motives. But this reason should apply to many sorts of customers all across the economy – there is no obvious reason to expect a correlation between people donors consider deserving of help and people who buy trustworthiness by buying from non-profits.

So why don’t the non-profits that donors use to distribute help usually give vouchers to recipients, vouchers valid at either non-profit or for-profit service providers? Once one has decided who needs what sort of help, why does it matter what kind or organizations provide that help?

I suspect that what is going on here is that non-profit donors and employees both dislike the idea of letting money to go for-profit firms, regardless of how much that might benefit aid recipients. They affiliate with non-profits in order to gain an image of “doing good” and substantial affiliations with for-profits in that process taints that image.

Added 5p: Several commenters pointed out that many prefer to volunteer time, and without money mediating between their time donation and the cause. That is, they don’t just want to work at whatever makes the most money and have that money used for the cause – they want to personally spend their time on the cause. This also seems to fit my basic theory – that the more money and profit are involved in the process, the more that taints the do-gooding image of their donation.

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The Great “Charity” Storm

Around 1800 in England and Russia, the three main do-gooder activities were medicine, school, and alms (= food/shelter for the weak, such as the old or crippled). Today the three spending categories of medicine, school, and alms make up ~40% of US GDP, a far larger fraction than in 1800. Why the vast increase?

My explanation: we long ago evolved strong feelings of respect for these activities, but modern context changes have allowed out-of-equilibrium exploitation of such feelings. Details:

1. Foragers who personally taught kids, cared for sick folks, and gave food/shelter to weak folks, credibly signaled their loyalty to allies, at least when such needy were allies. Weak group selection helped encourage such aid as ways to signal loyalty, in place of other possible loyalty signals. Humans eventually evolved deep feelings of respect for such activities.

2. Farmers inherited such feelings, and thus also gave social credit to those who donated money instead of time to promote these three classic charities. Rich farmer elites felt this more strongly, as they had more forager style attitudes. As such donations were less observable than forager help, farmer donors had weaker incentives to help. Also, the indirection often resulted in money being spend badly.

3. Industry era folk also inherited such feelings, strengthened by wealth. Voters today get social credit for supporting tax-funded activities that look similar to the three classic charities: medicine, school, alms — even though one can fake such signals without having the loyalty that such signals are seen as showing. That is, votes supporting spending taxes on medicine, school and alms are interpreted as showing loyal “caring” for one’s community, even though most of this spending is on typical voters, not those in special need, and even though one person’s vote doesn’t change outcomes. And even if a vote did change outcomes, paying via taxes doesn’t sacrifice personal income relative to local rivals, making this signal mostly “cheap talk.” Indirection continues to hurt effectiveness. All this creates a perfect storm of vast voter support for tax-funded medicine, school, and alms. So we can all feel fantastic about how caring we all are. Yeah us.

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