Late last year I received an email containing an article by Skeptic Magazine’s Michael Shermer. Here was another free market advocate, and someone with a strong grounding in science, stepping into the climate change debate on the side of less action. I did not expect more from Shermer as Shermer is not alone. He is joined by the likes of Matt Ridley and almost every libertarian think tank, who also tend to attack the basic science.
This creates a problem. The continued advocacy of no action by libertarian minded people, particularly those with a strong grounding in science, leaves a large gap in the climate change debate. There is almost no one proposing solutions to climate change in the way that maximises freedom and gives the greatest incentive and opportunity to markets, but also addresses the problem and the clearly identified risks of climate change. We have a debate between climate change deniers and do-nothing advocates on one side, and on the other side, advocates of often quite intrusive and government centred responses to climate change. Since the climate change campaigners have science on their side, their victory in that debate could have far-reaching consequences for the role of government and the cost of the response. (On quick bright note, here is one idea from John Humphreys of the CIS).
And that is the challenge that I would like to see more libertarian minded people take up. What is the method of dealing with climate change that best preserves liberty? If no-one pushes for those types of solutions, climate change solutions will be implemented but in a way that is far more in intrusive and expensive than need be.
Over the course of this increasingly interesting Australian election, I have followed the betting markets. I want a quick proxy of the likely election outcome without the requirement of monitoring the news. I try to avoid overdosing on short term news, preferring to read books and articles that someone has put some thought into. However, being unable to completely detach myself, I have had a quick peak at the betting markets each day. Everyone else can absorb and collate the events of the day for me.
During the course of the campaign leading up to the election (and this is from memory), Labour was generally ahead, with the Coalition paying over $3 at some points. On the night of the election, the polls in Eastern Australia closed at 6pm EST. At 9.30pm EST after some of the results had come in, the odds on a coalition victory had blown out to $3.80 on Betfair. When I returned two hours later after watching a movie, the Coalition was favourite (paying around $1.40) with the most likely outcome a hung parliament and the balance of power in the hands of a few rural independents.
That result has played out for the last two weeks, with the three rural independents possibly announcing who they will support tomorrow. Over those two weeks, the Coalition has slipped out of favouritism and is now paying $3.20 on Betfair (they have been as high as $3.40 today).
This raises the interesting question of the accuracy of the betting market in predicting an election outcome. On the one hand, it is wrong to say that the market was “wrong”. The implied odds of a Coalition victory during most of the campaign was around 25 per cent. If those odds are accurate, the Coalition should win one in four elections in those circumstances. Unfortunately, since our sample size is one, this election result does not help us in assessing the accuracy of those particular odds. On the other hand, I am not sure that the markets have provided a useful guide, particularly in the last two weeks. I might have just been better off completely detaching myself until the new Prime Minister is announced.
This highlights a question worth exploring. Over the last few years, I have seen a lot of comments and articles about how the betting markets are generally right. In an article on election markets, Andrew Leigh and Justin Wolfers noted that in 2001, the Centrebet favourite won in 43 out of 47 marginal seats, while they won 24 out of 32 in 2004. The implied Centrebet odds for 11 of the seats was between 50 and 60 percent for the favourite (that is from a visual inspection of Figure 6 in another article by Wolfers and Leigh). Another dozen or so seats were between 60 and 70 percent. To have seats in those probability ranges and get 43 out of 47 right suggests that the odds were far too conservative. The favourite should have been more favoured and a larger payout available for the underdog.
Following from my recent post on marshmallows and impatience, I have come across the following article by Dohmen et al. It was found that lower cognitive ability was associated with risk aversion and impatience.
I have gone through the back catalogue of podcasts for WNYC’s Radiolab for a couple of months now. I got into it after ABC radio substituted it for the Science Show for two weeks in late June. It is sensational – great content and entertaining.
I just listened to the Radiolab podcast on Walter Mischel’s marshmallow experiment . The basic idea of the experiment concerned testing the ability of four-year olds to delay gratification. The experimenters left the children in a featureless room with a marshmallow (or Oreo cookie in later experiments) with a promise of more if they waited. The interesting outcome from the experiment has been how the ability to delay is a strong indicator of future success. For example, the average difference between those who waited 10 seconds and those who waited 15 minutes was around 210 points on the SAT. 210 points is roughly the difference between the 60th and 85th percentile.
I was familiar with this experiment from earlier readings, but was not aware on how this had become such a strong indicator of future success. Mischel and his colleagues are still following a number of the subjects, so there should be more to come.
So what we can take from this experiment? One (optimistic) possibility is that by training children to delay gratification (those who delayed used a variety of tricks) there may be lifelong benefits. Another possibility, and the one to which I lean, is that the experiment is an indicator of a broader personality trait, and that teaching a technique to delay gratification in such a case will not have much long-term impact. I consider that it is more like testing children for IQ – you can do something but it will take some effort.
An interesting question is whether patience is a cause of the delayer’s future success or a symptom of the underlying cause. For example, is this test simply a proxy for intelligence, with more intelligent children able to foresee the consequences of their actions and devise methods to help them delay?
Last week, ABC’s Catalyst had a story on skateboarders taking extra risks based on the presence of an attractive researcher. This was based on article published earlier in the year (Ronay, R. & von Hippel, W. (2010). The presence of an attractive woman elevates testosterone and physical risk-taking in young men. Social Psychological and Personality Science, 1, 57-64).
I haven’t been able to access the article yet, but in the Catalyst story, von Hippel proposed that it could be explained through the role risk taking plays as a signal of fitness. It demonstrates skill or (in case of failure) robustness.
Another evolutionary explanation, and one that applies particularly to young males, was put forward in 1979 by Rubin & Paul (An Evolutionary Model of Taste for Risk, Economic Inquiry, 17:4).They noted that adolescents, having attracted zero mates, have little to lose from risk seeking activity. By taking the risk, they have a chance of increasing their number of mates from zero. Failure to take the risk leaves them with zero mates with a probability of one. The ‘risky’ activity is not risky from the perspective of the desired result.
An extension of the skateboarding experiment to test this other hypothesis could involve using older males or males with long-term partners. It would be interesting to see their testosterone response compared to the young, single cohort.
If this hypothesis were true, you would expect to see more risk taking where there were, say, an excess of males or some males monopolising the females. Some cross-society analysis could be interesting.