Procrastination

Procrastination bothers me. Not in the sense that I want to procrastinate, but biologically. Why would a tendency to procrastinate evolve?

Even without considering evolution, time inconsistency is a subject of debate in economics. The problem of “hyperbolic discounting”, in which people rapidly discount events in the near future but discount more slowly for further delay, has been well established in experiments. This also accords with our experience (For an example of hyperbolic discounting, as well as some general thoughts on procrastination, it is worth reading James Surowiecki’s recent article). From a rational perspective, why would someone make a rational decision about the future but then change their mind when that time nears?

Biologically this shortcoming is more serious. The individual that is able to make the rational choice at all times should have higher fitness and come to dominate the population.

One explanation for hyperbolic discounting may be uncertainty. A bird in the hand is better than two in the bush. But that explanation is only satisfactory where there is immediate reward. What of situations where we know something is good for us and yet we delay the up-front cost?

The value of a species

Today I listened to an old (2006) interview with E.O Wilson by Michael Novacek (thanks NYAS). Wilson had a few criticisms of economics – the heavy basis in mathematics for one – and he stated that this had come at the expense of building a microeconomic foundation based on evolutionary biology.

He also spent some time on the subject of valuation of diversity and ecosystem services. Much of this is a no-brainer. There is clear value to clean water, recreation etc. Where it gets more interesting is when we get to the value of a species. There might be some value in the genetic or biological information, the willingness to pay of some people to simply let it exist and some degree of moral obligation. A great example of this is gecko. In another NYAS podcast, Kellar Autumn laid out what had been learnt from the amazing properties of the hairs on gecko feet. There are applications from nanosurgery to aerospace that may come from this.

The flip side is, of course, that the value must have a limit. In the same way that the optimal healthcare system will see some people die, some ambulances arrive late and not every treatment is provided to everyone it could help, there is a limit to the costs that society can bear. At what point do we draw that line?

There is but one social science

“There is only one social science and we are its practitioners” – George Stigler, economist

I am not sure of the source of the above quote (it has been mentioned several times on Econtalk), but I consider that Stigler was thinking of the wrong field. He should have thought of biology.

An article in the Economist this week noted the increasing use of biology in the study of business and management. Biology has been slowly entering field after field as people click that humans are biological organisms that have evolved over billions of years into our present state. We are not pure rationalising machines, nor solely the product of our environment or culture. We have natural predispositions and whatever drives our “utility”, the one measure that will always be present is reproductive success.

That does not mean that everything is biologically pre-determined or that there is no point is studying culture or environmental factors, but we need to recognise the biological basis. It would be fantastic to see the teaching of biology start to creep into business schools, economics faculties and the rest of the social sciences. With a sound biological foundation, I believe that many “puzzles” in these fields will suddenly seem a lot more tractable than they did before.

The short wingman – do humans use visual illusions to attract a mate?

An ABC news article last week reported a study by Professor John Endler on the use of visual tricks by male bower birds to make themselves look larger to females. By placing small objects at the front and larger objects at the back of their bower, the court in which the male bower bird is viewed appears smaller, which makes the male look larger. Endler noted, however, that it was not clear whether the male had any empathy for the females perspective or if the male simply arranged the objects based on his own preferences.

It seems certain that humans use illusions to attract mates. I have some difficulty in coming up with many examples off the top of my head. There is evidence that being the tallest amongst a group of short people is advantageous, but this may be more a question of opportunity than visual trickery. We also use a vast array of visual techniques (dress, ornamentation, dancing etc). But how many of these are for the purpose of creating an illusion? I would expect that some body paint patterns would make individuals appear taller and wider. But generally when we do make illusions in art etc, those illusions are not for the purpose of making the male appear more attractive (although they may be a way of appearing clever to attract a mate).

One possible example (although a selected, not conscious illusion) might be narrow waists on females – making the hips appear wider. But even that may have a simpler explanation – evolving to to separate the genuinely wide hipped from cheaters who have a bit of extra fat all over.

Some extra research on my part is going to be required on this one.

Economics versus history – is this the right debate?

Over the past few days, Tim Harford has been engaging in a debate with Gideon Rachman (along with a few other bloggers) regarding Rachman’s contention that economists should be swept from their throne and historians given greater due.

A debate like this is always going to be at cross purposes. Both history and economics are large fields with differing schools of thought (and battles within). To tar all of economics with the same brush is to ignore the breadth of economics. Paul Krugman’s characterisation of saltwater and freshwater economists is a case in point. The strongest and most coherent critics are generally on the inside.

Similarly, history has a variety of schools of thought. Which historian is representative? Niall Ferguson, for example, has built his career on controversial and counter-intuitive ideas. If he is wrong, should that be a black mark on all historians? Or are historians his strongest critics and counterbalance? And of course, Ferguson is constantly making predictions, the very crime that Rachman accuses economists (but not historians) of committing.

My two cents worth is that Rachman is right the influence of economics should be tempered. In his Nobel Banquet speech, Freidrich Hayek stated that he would not have created the “Bank of Sweden Prize”. He stated:

… I must confess that if I had been consulted whether to establish a Nobel Prize in economics, I should have decidedly advised against it. … the Nobel Prize confers on an individual an authority which in economics no man ought to possess. This does not matter in the natural sciences. Here the influence exercised by an individual is chiefly an influence on his fellow experts; and they will soon cut him down to size if he exceeds his competence. But the influence of the economist that mainly matters is an influence over laymen: politicians, journalists, civil servants and the public generally.

In his prize speech, Hayek also touched on the mess made by economists and the “scientistic” approach which may lead to error.

Hayek’s message that economics is full of fashion and pretends to be a harder science than it should be still holds today. But at the same time, there are pockets of theory and thought that have stood the test of time (read Adam Smith). The innovative uses of microeconomics continue to astound, with examination of incentives providing a framework for predictions. Amongst the problems, mistakes and unfortunate influence, there is value. But since there are internal differences, we should be careful about the extent of the influence and power of any one individual or school of thought.

And in that sense, it is probably no different to history.

Education in the developing world

Following from my recent blog on over-education, Tyler Cowen’s words on under-education for most of the world should be noted.

Of course Bryan favors rising wealth and falling fixed costs, as do I.  But in the meantime he also should admit that a) education “parachuted” in from outside can have a high marginal return, b) collectively stronger pro-education norms raise demand and can alleviate the high fixed costs problem, c) there are big external benefits, some operating through the education channel, to lowering the fixed costs, d) stronger pro-education norms put a region closer to a “big breakthrough” and weaker education norms do the opposite, and e) a-d still impliy “too little education” is the correct judgment.  On b), some evangelical groups in Latin America do seem to have stronger pro-education norms in their converts and it appears to be much better for the children of these families and no I’m not going to buy any response which ascribes the whole effect to selection.

…..

Signaling models are important but they are not the only effect and of course a lot of signaling is welfare-improving for reasons of screening and sorting and character reenforcement.  The traditional story of high social returns to education is supported by evidence from a wide variety of different fields and methods, including cross-sectional growth models, labor economics, political science, public opinion research, anthropology, education research, and much more.  You can knock some of this down by stressing the endogeneity of education, but at the end of the day the pile of evidence, and the diversity of its directions, is simply too overwhelming.

Sports stars born early in the year

One of the more interesting pieces of evidence in the nature or nurture debate is the that athletes on professional sports teams tend to have a higher proportion of players born early in the year. Malcolm Gladwell documented this phenomenon for ice hockey players in his book Outliers. The basic idea is that when young, those born earlier in the year are bigger and faster than their peers and, as a result, tend to get more game time, are selected for further development and so on. This ongoing cycle amplifies the original difference. (The precise time of the year can change if the age cut-off is based on another date, but the same concept still holds.)

This morning I went through the current player lists of the Australian Rules Football teams and saw a similar result. Around 30 per cent more players were born in the first quarter of the year than the final quarter (although as a quick google discovered, I was not the first to have done this). Still, there is nothing like playing with the data and seeing it with your own eyes.

This is clearly evidence in favour of the nurture side of the debate. There are also a few possible policy responses. Gladwell talks of setting up parallel sports leagues for children, with one having a different birthday cut-off (say, mid year). Another suggestion might be to spend less time trying to pick future stars at such a young age. Within a single country, there is probably not much benefit to these policies, but for international sports, could this give a country an edge by ensuring that talented individuals born later in the year have a chance?

There is some evidence for this effect in academic pursuits, with the difference in test results between children born earlier and later in the year enough to differentiate who might be selected in a gifted academic program. The longer term effects of this is not so clear however. What would be a good dataset to test whether someone born later in the year is under-represented in an academic field?

To me, whether this all matters depends on whether this effect extends beyond the top end of the bell curve. Whether a few dozen professional sports players make it to the big league or not is of no great social consequence. If this effect was throughout all levels of society, with those born later in the year being invested in less than the early birds, there may be some serious misallocation of resources and sub-optimal use of human resources.

I have one further hypothesis regarding this scenario: the long term effect is larger in sport than in other areas. This is based on two ideas. Firstly, it comes from some scepticism on my part about the benefits of “gifted child” programs and the like. Secondly, in the area of sports, if you are shorter or slower, you tend not to be picked for the sports team or not given the ball. In academic areas, you still have to do your math problems, sit through the test and undergo most of the academic training that the “gifted children” do.  I’m not fully convinced of my hypothesis, but if there was a dataset to examine the birth effect for academic related outcomes in adulthood, it would be worth a look.

Should we tax education?

Over the last few weeks, Bryan Caplan of Econlog has engaged in a debate with his former teacher Bill Dickens over the social value of education. Brian’s position is that  education is largely used for signalling rather than skill acquisition. While some signalling is good (matches students and employers), it is privately optimal to far exceed the social optimal. This excessive signalling consumes resources for limited social return, so we should stop subsidising it and possibly consider taxing it. I find myself leaning towards Brian’s position – particularly in relation to senior high school and university/college education.

A recent Economist daily chart reflects the waste from the subsidisation of education, with over 20 per cent of university graduates in the OECD working in low-skilled jobs. In the United States and Canada, it is over 30 per cent. Some of this is choice, and you would expect that group to be the first to cut back on education if they were required to pay the full cost.

The element of Brian’s position that interests me is what the signalling environment would look like in the absence of subsidised education. Education is not only costly in terms of money, but it also consumes a large amount of time. Is the time commitment required for an accurate signal? Once education is no longer subsidised, will other signals that are less intensive in the time required emerge? IQ can be determined through tests. How long does someone need to engage in an education to show persistence, courteousness and reliability? Could an intense one-year course substitute?

I would also expect to see a distinction emerge between those courses with a larger signalling element and those in which skills are genuinely acquired. This would flow on to the costs (salaries) associated with those skills.

The last things, and my hope, is that it would give us cheaper plumbers. That is a touch flippant, but if fewer people move into education as the price has increased, perhaps some of them will get those other unsubsidised skills and trades and push the price of them down.

The 2010 Australian election betting market

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.