Monthly Archives: April 2013

Why Play Concert Piano?

Concert pianist James Rhodes on the nobility of his lifestyle:

I went a little extreme – no income for five years, six hours a day of intense practice, monthly four-day long lessons with a brilliant and psychopathic teacher in Verona, a hunger for something that was so necessary it cost me my marriage, nine months in a mental hospital, most of my dignity and about 35lbs in weight. … My life involves endless hours of repetitive and frustrating practising, lonely hotel rooms, dodgy pianos, aggressively bitchy reviews, isolation, confusing airline reward programmes, physiotherapy, …

And yet. The indescribable reward of taking a bunch of ink on paper … and emerging a few days, weeks or months later able to perform something that some mad, genius, lunatic of a composer 300 years ago heard in his head while out of his mind with grief or love or syphilis. … And I did that. I do it, to my continual astonishment, all the time. (more; HT Pete Boettke)

For me, he then ruins it with his ending:

The government is cutting music programmes in schools and slashing Arts grants as gleefully as a morbidly American kid in Baskin Robbins. So if only to stick it to the man, isn’t it worth fighting back in some small way? So write your damn book. Learn a Chopin prelude, get all Jackson Pollock with the kids, spend a few hours writing a Haiku. Do it because it counts even without the fanfare, the money, the fame and Heat photo-shoots that all our children now think they’re now entitled to because Harry Styles has done it. … Suicide by creativity is something perhaps to aspire to in an age where more people know Katie Price better than the Emperor concerto.

Alas knowing that it is usually easier to motivate people to be against someone than for something, Rhodes doesn’t stop at saying his life is hard but satisfying to him. He also suggests we share his anger that others do not financially subsidize his favored arts, and that other kinds of musicians get more attention.

Me, I can admire his dedication, but I can’t see much net social value from subsidizing his favored art over others, via money or status, or even from so subsidizing art in general. I can see the point of subsidizing innovation, at least innovation that can accumulate to benefit many future generations. But by great practice getting nearly as good as the best at intuitively understanding a 300 year old composer? How can that accumulate? Pop music at least somewhat more clearly accumulates over generations, though it isn’t clear that’s a net gain over the losses from fighting for top pop status.

Just because something is impressive, even at a very deep visceral level, doesn’t make it worth subsidizing.

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Estonia Talk Friday

This Friday I’ll speak on Em Econ at TEDx Tallinn 2013, in Estonia. You can apparently see it online if you organize and register a “live simulcast event.” A few talks from prior years are online to watch, but I have no idea if my talk will become one of those.

Added: Slides, Video.

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False Flag Forecasts

As admitted by the U.S. government, recently declassified documents show that in the 1960′s, the American Joint Chiefs of Staff signed off on a plan to blow up American airplanes (using an elaborate plan involving the switching of airplanes), and also to commit terrorist acts on American soil, and then to blame it on the Cubans in order to justify an invasion of Cuba. (more; see also)

One in seven people are convinced that the U.S. government was involved in a conspiracy to stage the September 11 attacks which killed nearly 3,000 people. A survey, which interviewed 1,000 people in the UK and the same number in the U.S., found that 14 per cent of Britons 15 per cent of Americans think the past administration was involved in the tragedy. (more from ’11)

More from ’08:

whobehind911

Such conspiracies aren’t always, or even usually, uncovered eventually, but such uncovering does happen often enough to make it seem socially useful to have betting markets on such questions.

Yes, such markets would have to be long term, and might need to be subsidized. And they might need to be housed in a reasonable distant and independent nation, like New Zealand.

But such market odds might offer an independent and reasonably reliable source to which doubters could turn when they weren’t sure how much weight to put on conspiracy theories vs. their skeptics. If you doubted who was behind the 9-11 attacks, wouldn’t it be great if you could turn to a betting market to better calibrate your doubts?

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Diagnosis Futures

From ’97 to ’99 I was a RWJF Health Policy Scholar (at UC Berkeley), and my final project and presentation was on what I called “treatment futures”, i.e., the idea of using decision markets to forecast treatment-conditional health outcomes for individual patients. I proposed:

  1. At major treatment decision point, post sanitized medical record & options to web.
  2. Subsidize [betting] markets estimating treatment-conditional outcomes (e.g. lifespan).
  3. Anyone can trade or add treatment options.
  4. Market estimates inform treatment choice.
  5. Outcome determines market asset values.

I also posted on this in ’07. Yesterday I learned that a new startup, CrowdMed, is spending $1.1M to try a related idea. They will have ordinary people “bet” on particular patient diagnoses. I put “bet” in quotes because they only bet donations, and they don’t tell users how individual predictions, individual winnings, and consensus estimates on patients are related. That is apparently part of their patented secret sauce – you’ll just have to trust them.

A patient pays $200 to post their problem, and promises to eventually declare a “correct” diagnosis. Each player is given $5 to start, and can only spend winnings on donating to Watsi patients. So if after several years hard work, you do much better than average, and end up with $20, you might donate that much – woo hoo! Player incentives to diagnose correctly are diluted further by the fact that they only predict what the patient will say is their diagnosis, not the true diagnosis. And players don’t get to look at a full medical history, just a few paragraphs of description.

Patients mainly pay for possible diagnoses to suggest to their doctor to consider, diagnoses that players believe might find supporting evidence, if only the patient’s doctor would consider them. So patients have to believe that their doctor will believe that these volunteer amateur detectives have useful diagnosis suggestions to pursue, ones the doctor would not have otherwise considered. Seems a pretty high bar to me.

My conditional forecasting concept could help patients even if patient doctors don’t believe in it, but it does require players to wait longer to find out if they win. And I think that players deserve a much higher fraction of the patient payments than this startup seems willing to give them — I expect CrowdMed incentives are way too weak. Many seem to have decided that the big idea in “crowd-sourcing” is getting amateurs to do for free what you’d otherwise have to pay professionals to do. Me, I think you usually need to pay good money to get good info, even when you do it right.

Added 3p: The CrowdMed founder replies in the comments; I respond also.

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In Praise Of Ads

As Katja and I discussed in our podcast on ads, most people we know talk as if they hate, revile, and despise ads. They say ads are an evil destructive manipulative force that exists only because big bad firms run the world, and use ads to control us all.

Yet most such folks accept the usual argument that praises news and research for creating under-provided info which is often socially valuable. And a very similar argument applies to ads. By creating more informed consumers, ads induce producers to offer better prices and quality, which benefits other consumers.

This argument can work even if ads are not optimally designed to cram a maximal amount of relevant info into each second or square inch of ads. After all, news and research can be good overall even if most of it isn’t optimally targeted toward info density or social value. Critics note that the style of most most ads differs greatly from the terse no-nonsense textbook, business memo, or government report that many see as the ideal way to efficiently communicate info. But the idea that such styles are the most effective ways to inform most people seems pretty laughable.

While ad critics often argue that ads only rarely convey useful info, academic studies of ads usually find the sort of correlations that you’d expect if ads often conveyed useful product info. For example, there tend to be more ads when ads are more believable, and more ads for new products, for changed products, and for higher quality products.

Many see ads as unwelcome persuasion, changing our beliefs and behaviors contrary to how we want these to change. But given a choice between ad-based and ad-free channels, most usually choose ad-based channels, suggesting that they consider the price and convenience savings of such channels to more than compensate for any lost time or distorted behaviors. Thus most folks mostly approve (relative to their options) of how ads change their behavior.

Many complain that ads inform consumers more about the images and identities associated with products than about intrinsic physical features. We buy identities when we buy products. But what is wrong with this if identities are in fact what consumers want from products? As Katja points out, buying identities is probably greener than buying physical objects.

So why do so many say they hate ads if most accept ad influence and ads add socially-valuable info? One plausible reason is that ads expose our hypocrisies – to admit we like ads is to admit we care a lot about the kinds of things that ads tend to focus on, like sex appeal, and we’d rather think we care more about other things.

Another plausible reason is that we resent our core identities being formed via options offered by big greedy firms who care little for the ideals we espouse. According to our still deeply-embedded forager sensibilities, identities are supposed to be formed via informal interactions between apparently equal allies who share basic values.

But if we accept that people want what they want, and just seek to get them more of that, we should praise ads. Ads inform consumers, which disciplines firms to better get consumers what they want. And if you don’t like what people want, then blame those people, not the ads. Your inability to persuade people to want what you think they should want is mostly your fault. If you can’t get people to like your product, blame them or yourself, not your competition.

Added 10a: Matt at Blunt Object offers more explanations.

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Social Network Hypocrisy

This paper proposes that networks can act as covers which allow actors to participate in markets while maintaining a plausible excuse that they are not. Such covers are most valuable to actors in long-term relationships, as those who are already employed or in a long-term romantic relationship should not be seen as participating in the market for a new relationship. Data in support of this view are provided on the basis of fieldwork and large dataset from a social on-line network with a global presence. Results show that men in relationships and with large on-line networks are more like to look at women they do not know. In contrast, single men with large networks are more likely to look at women they do know. Implications for network theories as they pertain to organizations are explored. (more)

Now, is anyone surprised?

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Rituals Understood?

Tyler linked to this excellent blog post, which summarizes an apparently even more excellent book, Randall Collins’ Interaction Ritual Chains from 2004 (chapter 1 here), which I’ve just ordered and plan to read with relish:

Collins starts with the idea of a situation of co-presence, or really any physical gathering. A situation of that sort turns into a ritual when those physically present focus their attention on specific people, objects, or symbols, and are thereby constituted as a distinct group with more or less clear boundaries. Collins stresses that he wants us to see ritual “almost everywhere.” …

A ritual, for Collins, is basically an amplifier of emotion. … A successful ritual generates and amplifies motivating emotions. … Perhaps Collins’ most controversial claim is the idea that we are basically emotional energy “seekers”: much of our social activity can be understood as a largely unconscious “flow” along the gradient of maximal emotional energy charge for us, given our particular material resources and positions within the … set of ritual situations available to us. Our primary “motivation” is the search for motivation. … Motivation is simply a result of emotional amplification in ritual situations. …

Rituals charge symbols, objects, and persons with value (or, in the case of unsuccessful rituals, drain them of value) that then circulate in other rituals (in “chains” of interaction rituals) and in “private” settings (in secondary rituals). … Once an object or an idea is “charged” by rituals, it can serve to temporarily reinforce the identities of group members and motivate them to act in accordance with what they take to be the group’s values, even when the group is not gathered together. …

Ritual is prior to belief: belief “in” a cause, or a leader, or a god, or anything of the sort is primarily attachment to particular symbols of group membership that have been charged with value by powerful rituals, and should tend to decay in the absence of rituals “recharging” these symbols. Collins suggests that a week is a good estimate of the half-life of the emotional charge of most symbols; hence the weekly services of churches or the weekly frequency of many intimate rituals. …

How do successful rituals manage to amplify emotion and produce sacred objects and symbols? … Emotional charge or motivational energy is built up from entrainment: the micro-coordination of gesture, voice, and attention in rhythmic activity, down to tiny fractions of a second. Think of how in an engrossing conversation the partners are wholly attuned to one another, laughing and exhibiting emotional reactions simultaneously, keeping eye contact, taking turns at precisely the right moments, mirroring each other’s reactions; or how a sports event, a sermon, or a concert produces emotional energy through the rhythmic synchronization of the fans or congregants in call and response, or simply in dance. Or consider sexual acts, to which Collins devotes a long and very interesting chapter. (more)

This is close to the sort of model I was playing with while puzzling over rituals recently, and has been very thought-provoking to me over the last few days – this really does offer a lot of insight from simple and plausible assumptions.

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Policy Trial By Combat

It was once thought appropriate to settle legal disputes by combat – the winner of a physical fight won the case. This accomplished two key functions of a legal system: it clearly settled cases, and in a way that seemed legitimate to most observers. The fact that who won was poorly correlated with the truth of their claims mattered less.

Today we have better legal systems, but our policy debate system has a big element of trial by combat. I was reminded of this while reading The Infinite Resource by Ramez Naam, which he was nice enough to send me. Like many respected policy books, it is well written at a sentence and paragraph level, takes positions on important subjects, and is full of engaging and entertaining examples. The book makes many claims, illustrating them with simple plausible supporting arguments and detailed examples. Most of these claims are accepted by some relevant community of experts, and in fact I agree with most of them.

My problem with such books is this: little is said that is is original, and the arguments and examples given are mostly not the main reasons that relevant experts say are why they accept such claims. So experts shouldn’t change their beliefs on the basis of such a book. And if ordinary people knew this fact, they shouldn’t change their beliefs that much either, except as the prominence and acceptance of the book signals that experts agree with it.

But it is easy to see why such books are popular. Readers want to affiliate with impressive authors, and want to collect impressive sounding and unlikely-to-be-embarassingly-wrong examples and arguments with which to impress associates in conversation. So of course policy book authors compete to be eloquent and engaging while taking the sort of positions readers will find plausible and worthy of embracing. Given such a competition, the policy positions that gain the most public support are those, among the popularly plausible positions, that can attract the best writers. This is policy trial by writing combat.

Yes, if this is the game and you want your position to win, you want a good writer like Naam to write a book like his supporting your position. And yes you can infer something from the fact that such a person has been enticed to write such a book, and that the powers that be have endorsed it or at least not criticized it. But one could wish for another world where the popularity of policies was more strongly correlated with good arguments and evidence.

To illustrate my criticism, here is Naam on why the US should unilaterally tax carbon heavily:

I believe the United States should press ahead with adopting a carbon price and driving our emissions down by 80 percent by 2050, even if China and India don’t. Why? Three reasons.

First, we created this mess. Carbon dioxide lingers in the air for an average of 100 years before breaking down. …On that basis the rich countries are responsible for two-thirds of the heating of the planet that is happening today. …

Second, its in our best interests. Shifting away from oil and coal will shield us from recessions cause by global oil and coal price spikes. It’ll reduce the dollars we send to the Middle East and Russia. It’ll drive our long-term energy costs down by further fueling innovation in capturing the nearly endless supply coming from the sun. If we want energy independence, health economic growth, and long-term cheap energy, a carbon price is the way to go.

Third, the best way to get China, India, Brazil, and the rest of the developing world off of fossil fuels is to drive down the price of the alternatives. If it’s cheaper to produce electricity from solar and wind that it is from coal, if if that electricity can be supplied 24/7, then countries will switch. Make it cheaper, and they will come. And the best way to make it cheaper is to invest in R&D in those areas, and to shift business and consumer spending into them.

Here Naam takes a position that many experts have taken, and he gives plausible supporting arguments. But he doesn’t consider the contrary arguments that I find on net to undermine this position. Such policy books rarely consider contrary arguments – since such arguments usually require more sophisticated conceptual understanding to engage, most readers won’t want to hear about them unless they are especially likely to actually encounter such arguments when they pontificate on the subject.

FYI, here are the contrary arguments that persuade me. First, if rich countries should be blamed for hurting the rest of the world via past carbon emissions, they should be credited with helping much more via their past innovations. On net the world owes them, not vice versa. Second, it is bad economics to not buy the cheapest product that does what you need just because its price fluctuates. Paying steadily more for something else is a worse deal.

Third, it requires a coincidence of magnitudes for a big carbon tax and solar research subsidies to be a good selfish unilateral policy for the U.S., but not for smaller nations like China, India, and Brazil. If our best explanation for these smaller nations not unilaterally adopting big carbon taxes and subsidizing solar energy research is that they correctly expect to selfishly lose by such plans, even if the world overall gains, then we should guess the same is true of the US, which in PPP terms has only twice the GDP of China. The cutoff nation size for this being a selfishly good vs. bad policy would have to just happen to fall between the size of China and the US, and even then because we’d be near the cutoff it wouldn’t hurt us that much to pick the wrong policy. And Naam offers no arguments for why this cutoff just happens to fall in this range.

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Em Econ At Harvard

I’ll talk on Em Econ twice this week at Harvard:

Added: The Boston lockdown Friday moved the discussion to Saturday. I’ve added links to audio and slides.

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Real Real Estate Agents

A real-estate agent keeps her own home on the market an average of ten days longer [than she would for a client] and sells it for an extra 3-plus percent, or $10,000 on a $300,000 house. When she sells her own house, an agent holds out for the best offer; when she sells yours, she encourages you to take the first decent offer that comes along. (more)

Lecturing on incentives on Wednesday, I used the classic example of the bad incentives of real estate agents. They usually get a fixed percentage (3%) of the sale price, which mostly makes them want to close a deal as fast as possible, regardless of the sale price. This is bad for seller’s agents and positively perverse for buyer agents – they worse the deal they get for you, the more they get paid. And the scope for individual agent reputations is pretty limited, because most people only ever buy or sell a few houses in their lifetime, usually in geographically separated places.

Alex just posted on the continuing puzzle of why this fixed percentage doesn’t seem to respond to changing market conditions, arguing that neither monopoly nor signaling explains it, and suggests:

Part of the problem in the realtor market is that other realtors can easily discriminate against discount brokers by pushing their clients one way or the other. (more)

That may be why we won’t see something better soon, but my lecture prompted me to think about the still interesting question: what exactly would be a better contract between you and your real estate agent, one that would better align their interests with yours?

Searching I found this paper from 2000, which proposes that selling homeowners sell their home to the selling agent, but also give that agent an option to sell the home back at the same price, to give that homeowner an incentive to help sell. They make no suggestion about how to contract with a buyers agent.

Here is what I came up with after my lecture. On the sell side, have the homeowner sell a 20% stake in their house to the selling agent, for an agreed-on cash price. The homeowner might hold an auction to find the local agent willing to pay the highest price to take on this role. The agent turns that back into cash when the house actually sells, or if it doesn’t sell the agent can sell their 20% stake back for the same price they paid if they want to give up on the process for now. If the homeowner wants to give up on the process, a similar reverse sale would happen, but perhaps the homeowner should suffer a penalty, such as 10% of that price paid for the 20% stake.

On the buy side, I’d have the buyer agent agree to pay (20-X)% of the house purchase price to gain a 20% stake in the house at the time of the home purchase. The X% number would be the agent’s fee, which might be chosen by an auction among the local agents. Unless they could find someone else who agreed to buy this stake after the purchase, they’d have to hold on to it until the house is next sold. Perhaps for many years. Because the buyer would get to live in the house or rent it, while the agent would not, the homeowner would owe the agent 20% of some assigned rental price each month until the house was again sold. This rental price could come from a simple regression of rental prices on local home features. People would know this price wasn’t exactly right, but they could take deviations into account in setting the price X.

The 20% number in the above is obviously arbitrary. It is probably a better place to start than the 100% number in the other proposal I mentioned, being a less radical change from the status quo. But my proposal is really to have some percentage number like that, not the exact 20% number.

This proposal clearly requires the agents to take on more financial risk than they do today, and so would encourage them to organize into agent firms that jointly take on the risk together. But that seems pretty reasonable.

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