Pursuit of Truthiness

my gut tells me I know economics

Archive for the ‘Social Science’ Category

Tracking Changes in the Laboratory of the States

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50 U.S. states with different policies provide much data which can be used to determine the best policy on a given issue.  But it is difficult to keep track of what is going on in each state.  Even if you have a dataset covering outcomes in each state, it is often difficult to find out exactly what policy each state followed in a given year.  Finding this out sometimes requires digging through the records of every state legislature for every year being considered.

But for many issues other people have already done the digging, so all you need to do is find their work.  For instance, the National Council of State Legislatures keeps track of policy changes for many issues.  In my research however it seems like they missed some things and don’t explain what some bills actually did very well.  On the more narrow field of privatization policy, the Reason foundation has a very good annual report on policy changes at the federal, state and local levels.

I would love to know about other organizations that do the work of tracking changes in state policy.

Written by James Bailey

April 21, 2010 at 1:00 pm

Posted in Social Science

The Wisdom of the Crowds in Your Head: The Case of Behavioral Finance

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A common idea in the social sciences is that two wrongs can make a right, when errors cancel each other out.  So we have the Median Voter theorem, the Efficient Market Hypothesis, the Wisdom of Crowds.

Some aspiring rationalists have worried that the same process takes place not only in large groups of people, but within the head of a single individual.

Why worry about this?  It would mean that correcting for a single bias could bring you further from the truth, by leaving a corresponding bias in the opposite direction unchecked.

This precise thing seems to have happened with behavioral finance.  In the post that started the Great Macro Flame War, Paul Krugman said that the study of behavioral finance should be a major part of the future agenda for macroeconomics.  But Brad Delong, Krugman’s ally in this debate and in general, recently admitted in “Recent Economic Thought as an Interrupted Three-Cornered Cage Match” that it was behavioral finance that led him astray and prevented him from seeing the oncoming crisis.  He says on page 8 that “it did not seem to be such a bad thing to raise the market’s risk tolerance- the behavioral financiers like Richard Thaler and Matthew Rabin tell me that investors are, by and large, much too fearful”.  Now, of course, it does seem like a pretty bad thing.  There were biases in the other direction that were not corrected for, especially the low capital ratios of major Wall Street investment banks.

I suppose there are two lessons from this.  First, behavioral finance is not going to solve all the problems of macroeconomics any time soon.  Second, when making a change to a complex system- like your beliefs, or the economy- one must consider all the possible effects.  An economist thinking along these lines may have been able to save the day by preventing the SEC from removing capital requirements on the shadow banking system in 2004, though in this case political failures would probably have overwhelmed better economics anyway.

Written by James Bailey

September 29, 2009 at 10:02 pm

Further Link Dumping

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Because the neighbors’ wireless is functioning well, finally.  Who do they think they are, expecting me to keep paying $0 for a mediocre service?  Verizon should start piping in our own internets tomorrow.

1. This should not be inspiring.  But it is.  “Bite off more than you can chew, then chew it!”

2. The Gaussian copula, the formula that killed Wall Street.  Scientists and mathematicians can empower others to wreak havoc, and not just through traditional weapons development.  Of course, Marx did the most damage of all economists and he didn’t even give people tools, merely ideas.

3. Books and Music that make you Dumb– using data from Facebook.  The pages themselves have been up and down (its up now!) but Boing Boing has an image of the books chart to match the WSJ’s partial image of the music.  Glad to see Sufjan and Freakonomics up on the higher end, though of course the whole idea is a bit silly.  It is really sad for social science that Facebook took down their network pages though, those were amazing sources of data.  I hope they will someday reappear.

4.  Badass of the Week– a good idea for a website.

5. Thoughts on recent happiness research.  They cite “scientists” who have determined that happiness is about half due to chemistry/genetics and only 10% due to actual circumstances like income.  The unimportance of circumstances does mesh with my experience, as I think people are largely as happy as they make up their minds to be; of course some circumstances might be so objectively awful that they become more important, and people in these circumstances are probably not the people US-based happiness researchers will find to answer their survey questions.

6.  7 marathons on 7 continents in under 7 consecutive days.  Run by a 42-year old.  This reminds me of a line from Neal Stephenson’s Snow Crash:

Until a man is twenty-five, he still thinks, every so often, that under the right circumstances he could be the baddest motherfucker in the world. If I moved to a martial-arts monastery in China and studied real hard for ten years. If my family was wiped out by Colombian drug dealers and I swore myself to revenge. If I got a fatal disease, had one year to live, devoted it to wiping out street crime. If I just dropped out and devoted my life to being bad. Hiro used to feel that way, too, but then he ran into Raven. In a way, this is liberating. He no longer has to worry about trying to be the baddest motherfucker in the world. The position is taken.”

Written by James Bailey

August 13, 2009 at 1:34 am