Author Archives: James Miller

Random vs. Certain Death

By James Miller · October 31, 2007 5:30 am · Comments (49)

Here is a moral puzzle in the spirit of Eliezer’s Torture vs. Dust Specks post.  It is directed to free market admirers.

A company has 100 employees.  It has the opportunity to make $1 billion but only if a task gets completed.  There are two ways of completing the task.

(1)  A specific employee, named John, must die.
(2)  Three of the 100 employees will be randomly chosen and killed.

The company can’t force its employees to take any actions, but it can bribe them.  John will not accept any amount of money to give up his life with certainty.  But all 100 employees would gladly risk a 3% chance of death in return for $5 million.  Consequently, the company intends to pay each employee $5 million and complete the task using option (2).

Now imagine that you are a government regulator who has the power to change what will happen.  You can:

(A) Forbid the company from completing the task.
(B)  Not interfere.
(C)  Force the company, and John, to complete the task by using method (1).  You could then force the company to give $5 million to each employee.

Assume that all 100 employees are exactly alike except that only John can complete the task by himself.  What should you do?  Does it matter if John was randomlly chosen right before the game started?

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Jewish People and Israel

By James Miller · September 29, 2007 6:00 am · Comments (60)

From David Bernstein at The Volokh Conspiracy:

"OUTRAGEOUS, IF TRUE: According to the Columbia Spectator, Barnard religion professor Alan Segal was asked by the university to provide a list of archeology experts to comment on the controversial tenure case of Nadia Abu El-Haj’s tenure–archeologists who ‘preferably’ were not Jewish. Segal quite properly refused, noting that religion ‘has nothing to do with what you say as a professional."

"El-Haj’s ‘scholarly’ work is premised on the idea that Jewish Israeli archeologists invented evidence of ancient Jewish settlement of the Land of Israel to justify Zionist claims to the land. Besides the issue of discrimination, which would be unthinkable in any other context related to any other group, the request to Segal seems like an implicit endorsement of her thesis, that Jewish archeologists cannot be trusted to be objective in their work related to Israel (which makes one wonder why the university would trust El-Haj, of Palestinian Arab origin, to be objective)."

If I were Nadia Abu El-Haj I would prefer, all else being equal, that Jewish people not be among those evaluating my scholarship for tenure.  So as not to be accused of anti-Semitism let me say that my mother and wife (although not my father or myself) are Jewish.  But based on my experience, Jewish people on average have a far more positive view towards Israel than non-Jewish people do.  El-Haj’s scholarship directly attacks Israel and so on average I would suspect that her scholarship would get a more favorable review from non-Jewish than Jewish archeologists.

In a world without bias the religion of El-Haj’s reviewers wouldn’t matter.  But we don’t live in such a world.  Given that this bias exists, it is rational to try to minimize the harm it might cause El-Haj.

Imagine that El-Haj’s research consisted of archeological evidence that she tried to use to disprove the historical accuracy of parts of the Koran.  Wouldn’t it be reasonable to try to avoid Islamic reviewers for her tenure case?

Religious beliefs often cause people to be bias towards those who attack such beliefs.  To deny this, or to assume that college professors are too professional to allow such bias to influence them, is silly.

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Bias Against Torture

By James Miller · August 25, 2007 6:00 am · Comments (77)

In many situations it would be better to impose a punishment of torture than imprisonment.  The fact that the U.S. justice system rejects torture as a punishment is the result of an anti-torture bias.

Torture has two benefits over imprisonment.  It’s cheaper for the state to impose and it doesn’t prevent the criminal from engaging in useful labors (such as parenting and working at a job) for long periods of time.   To determine who should be tortured as opposed to imprisoned we need to consider the benefits to society of imprisonment. 

Prison serves three purposes: deterrence, retribution and incapacitation.  Fear of prison deters many would-be criminals from committing crimes.  Fear of torture, however, could do likewise.  Imprisoning criminals can satisfy victims’ desires for vengeance and so make victims feel better.  Torturing criminals could, however, also satisfy victims’ desires for retribution.  Finally, prison prevents imprisoned criminals from attacking people who are not in prison.  The primary disadvantage of torture is that it doesn’t result in the incapacitation of criminals and so leaves them free to strike again.

Many convicted criminals, however, don’t pose a risk to society.  Men convicted of securities fraud, for example, are frequently barred from the stock market and so their freedom won’t endanger society.  Because of its far lower cost, the U.S. should torture rather than imprison criminals who don’t need to be removed from society.

Some would argue that it’s excessively cruel to torture criminals.  But both prison and torture impose costs on criminals.  Why is one type of cost crueler than the other?  If a convicted criminal is indifferent between receiving a certain type of torture or being imprisoned for a given period of time then why would it be excessively cruel to torture but not to imprison?

In the U.S. many prisoners face a significant chance of being raped by a fellow inmate.  This high chance doesn’t seem to bother many people, and is often the subject of jokes.  Yet our society considers it barbaric for a criminal justice system to deliberately torture criminals in ways that may well impose less physical and emotional costs than rape does.  I find these conflicting moral views about torture and imprisonment to be irrational.

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Investing In Index Funds: A Tangible Reward of Overcoming Bias

By James Miller · July 23, 2007 6:30 am · Comments (16)

On this blog Nick Bostrom once asked “What practical things does debiassing enable us to do?”  Well, investors who overcome overconfidence bias and invest in index funds earn much higher average returns than investors who think they can beat the market by investing in actively managed mutual funds.

Mutual funds buy stocks.  When you invest in a mutual fund you are essentially paying someone else to pick stocks for you.  For the purposes of this essay let’s consider mutual funds that buy stocks only in the S&P 500.  The S&P 500 consists of the 500 largest publicly traded U.S. stocks.

Actively managed mutual funds invest in stocks that they think will do well.  In contrast, index funds buy all stocks in proportion to each stock’s relative total value.  (Most of my savings are in S&P 500 index funds.)  Index funds, therefore, always turn in an average performance while actively managed funds try to beat the market average.

Actively managed mutual funds have higher fees than index funds because actively managed funds must pay people to research stocks.  Also, because they tend to engage in more trades, actively managed mutual funds are not as tax efficient as index funds. 
Consequently, it’s only worth investing in an actively managed fund if you think the fund will significantly beat the market average.

There is strong theoretical and empirical support for the theory that most actively managed mutual funds won’t beat the market average.  As reported in index fund pioneer John Bogle’s The Little Book of Common Sense Investing, after paying taxes and fees, someone who put $10,000 in an index fund in 1980 had $149,000 in 2005.  In contrast, someone who put this same $10,000 in an average actively managed mutual fund in 1980 had only $61,700 in 2005. 

Each year some actively managed mutual funds do outperform the market.  Funds that do well one year are not, however, more likely than average to do well the next.

Despite the clear advantages of investing in index funds, Americans put more money in actively managed mutual funds than they do in index funds.  Part of the reason is because of overconfidence bias on the part of investors who irrationally think they can pick actively managed mutual funds that are more likely than average to beat the market.

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7/7/07 Weddings

By James Miller · July 14, 2007 6:00 am · Comments (13)

From Time.com:  "Superstitious Americans…have gone to great lengths to secure the triple sevens as their wedding date, hoping the lucky numbers will make them lucky in love…It may well be the most popular wedding day in history."

Since the demand for weddings on this date was high, the price for 7/7/07 weddings should also have been high compared to other dates.  Thus, only couples willing to pay a superstitious premium got married on 7/7/07.  This could provide a great research opportunity.  Are superstitious couples, for example, more likely to get divorced?  Do they make as intelligent financial decisions as other couples do?

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Randomly Review Criminal Cases

By James Miller · June 19, 2007 1:00 pm · Comments (7)

This Slate article suggests that prosecutor Mike Nifong’s unethical actions in the Duke Lacrosse case might not be that unusual among prosecutors.  The article argues that the only reason Nifong’s unethical behavior was uncovered was because the Duke case generated an extraordinary amount of scrutiny.

I propose that we randomly select a few criminal cases for intensive review.  The review would give us an indication of how honest prosecutors are and would provide some deterrence against unethical prosecutorial conduct.

Over 90% of criminal cases settle through plea bargaining.  These cases never reach trial.  So, as the Slate article points out, any prosecutorial misconduct that might have occurred in these cases would almost certainly go undetected.  For my proposal to succeed plea bargained cases would have to be eligible for random intensive review.

Ideally, at least one person participating in the review would have subpoena power.  But if the government was unwilling to go along with my random review idea, private organizations could conduct it by themselves.  Each year, for example, law schools could randomly select, say, 30 criminal cases that were concluded in the past year.  These schools could then have their students investigate every aspect of the case to determine if justice was done.

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Nutritional Prediction Markets

By James Miller · June 3, 2007 7:21 pm · Comments (19)

The chemical resveratrol might slowdown aging.  Taking large doses of vitamin D supplements might drastically reduce your chances of contracting cancer.  It’s possible, however, that taking either supplement could worsen your health.

Some would argue that the prudent thing to do is wait for more research to be published.  But, for example, if resveratrol really does slowdown aging then if I wait five years to take it I might lose two years of life.  Similarly, if taking large quantities of vitamin D really does drastically cut the risk of cancer then waiting five years to start taking it in supplement form might cost me my life.

In ten years we will know far more about the health effects of taking these and many other supplements.  What should we do in the meantime?  What most of us are forced to do is rely on the advice of experts as presented in the popular press.  Instead someone should create prediction markets in the benefits and costs of health supplements.

If resveratrol fulfills its promise then in ten years tens of millions of Americans will be taking it.  We could therefore create a prediction market that predicts how many Americans will be taking resveratrol in ten years.

We should also create a prediction market in whether taking resveratrol proves harmful.  Many people are currently taking the drug.  A prediction market could estimate, for example, how many deaths or serious health problems will be linked to resveratrol over the next decade.

These two prediction markets would prove enormously useful to rational consumers.  For example, imagine that the first market estimated that there was a 40% chance that in ten years most Americans would regularly take resveratrol, and the second market estimated with high probability that no one would be harmed by taking resveratrol.  This would mean that with high probability taking resveratrol today would either help you or do you no harm (other than to your pocketbook.)  Based on these results many people, I suspect, would start taking the supplement.

Nutritional prediction markets would also create incentives for scientists to study the health benefits of resveratrol.  A scientist could conduct research and then play the prediction market before publishing his results.

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Winning at Rock-Paper-Scissors

By James Miller · May 23, 2007 10:08 pm · Comments (3)

Rock, Paper, Scissors is a simple game whose winner should be determined completely by luck. Yet here is a guide to winning at the game. (HT Andrew Sullivan.)

Against a rational player you should randomize and play Rock, Paper and Scissors each with 1/3 probability. If your opponent does this you can never come up with a strategy that will give you an advantage over him. But, as the guide says, “Humans, try as they might, are terrible at trying to be random, in fact often humans in trying to approximate randomness become quite predictable.” For example, according to the guide, an inexperienced player will never play the same thing three times in a row. Taking advantage of this, you can gain an edge over your opponent.

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Joke

By James Miller · May 15, 2007 9:31 pm · Comments (11)

Here is a (slightly shortened) joke from the book The Curious Incident of The Dog in the Night-Time:

There are three men on a train. One of them is an economist and one of them is a logician and one of them is a mathematician.  And they have just crossed the border into Scotland and they see a brown cow standing in a field from the window of the train.

And the economist says, "Look, the cows in Scotland are brown."

And the logician says, "No. there are cows in Scotland of which one at least is brown."

And the mathematician says, "No. there is at least one cow in Scotland, of which one side appears to be brown."

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The U.S. Should Bet Against Iran Testing a Nuclear Weapon

By James Miller · May 11, 2007 5:18 pm · Comments (8)

Vice President Cheney has promised that Iran will not get nuclear weapons.

If we had a very liquid current events prediction market then the U.S. government could bet, say, $20 billion that over the next 10 years Iran will not explode an atomic weapon.

Such a bet would make it far more credible that the U.S. would stop Iran from going nuclear.  It might thus discourage Iran from trying to acquire atomic weapons.

The disadvantage of the bet, of course, would be that those on the other side of the U.S. on the bet would have a large incentive to help Iran get atomic weapons.

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