Thursday, December 22, 2011

Calculating Generosity and Old Refrigerators

Generous People Are Just Being Smart

In economics there are a number of thresholds beyond which the behavior of rationally self-interested agents changes, based on subsistence or biological set-points of humans. For example, there are diminishing returns in happiness to increasing wealth, once basic needs are met (although this point has become contentious of late).

We would also expect cultural values to change in wealthy societies. In a poor and unpredictable society, possessions are few, frequently used, and critical for economic survival. Consequently people are highly risk averse and discount the future, and don't let their few things out of their sight. In a wealthy and predictable society, there may be more value to be had from your possessions; specifically, social capital from allowing others to use them. That is, generous people are really just smart. (That doesn't diminish their niceness at all.)

A qualitative equation for sharing possession would look like this:

NET UTILITY GAINED =

social capital for the future,
+ pleasure from seeing friends benefit,
+ status from interacting with more powerful person or signaling wealth by helping a lesser person

- utility lost while possession is loaned out,
- value of possession relative to overall wealth,
- chance of the item getting damaged, lost or stolen (if an object is changing hands)


Ergo:
- If you have powerful, rich friends or people who have access to goods and services you don't, the ROI is big, and this favors your being generous with them. Note that social capital is not just directly an IOU, but a relationship that's been built or reinforced. (See Benjamin Franklin's anecdotal trick to turn an enemy into a friend this way.)

- If you're a nice person and gain utility from seeing people happy, that favors your being generous.

- The more people know about your generosity, the better (if you gain status based on the person you loaned something to, or by helping those less fortunate.)

- If you use the item a lot, that counts against being generous with it.

- If the item is valuable, and/or if there's a significant chance of its not coming back in one piece, or you have poor information to evaluate those chances (i.e. you don't know the person well), that counts against being generous. As the value of the item increases relative to the value of your wealth, that counts against being generous.


The social capital built by economic interactions has been a major part of trade transactions for most of our history; most people who traded knew each other over the long-term until the last century or two. This may explain why in disparate places in the developing world, refusal to barter is taken by merchants as an insult - which would be very, very strange if they were only maximizing money. The bartering process extends the social contact. In my anecdotal experience, marketeers in these places in the world have caught on and realize that bartering is a tradition they don't mind parting with.


A Theory of Refrigerators In Front Yards

Conversely, hoarders may be irrational or stupid, believing they can gain value from objects that they store, often with the intent to fix or restore them. The type of hoarder I'm talking about here is a hoarder of things (machines, tools and objects, rather than paper records or sentimental objects). The hoarding of machines is much more often seen in males, especially those which plan to fix or amend them eventually.

Why do object-hoarders keep their objects for so long? We might assume that their economic "problem-solving" is intact but their estimations of some of the variables plugged into the decision process are off:


NET UTILITY GAINED =

estimation of mark-up you can get, i.e. value added to purchase price by labor

minus (inconvenience of storing it)*(belief how fast it will move)


That is to say:

- The clutter doesn't motivate them sufficiently (this is more likely the case on a large plot of rural land than in a city apartment)
- They have an unrealistic idea of how soon a buyer might appear
- They have an unrealistic valuation of the objects, in part because of an unrealistic valuation of their own skills and attention to repair them in the future

Gift-Giving; and In New York and Asia

Matt Yglesias writes about the irrational economics of gift-giving; for example, on average, gifts are worth less to the recipient than they are the market (Yglesias cites estimates from 10 to 33%). This apparently stupid custom makes us wonder what else is being maximized here. Thorstein Veblen wrote about conspicuous consumption (and gift-giving) as a form of status signalling, and used the pre-Columbian Pacific Northwest tradition of potlatch as an extreme example. Orgies of mutually ruinous gift-giving make perfect sense only if you're trying to impress people with your wealth. Asymmetric gift-giving can also make sense if it's an emotional experience you're trying to create, and it's starting or reinforcing a social relationship that will hopefully be of value to both parties; of if you're just looking for status from the giving of the gift.

Many of us explicitly tell family members that if there is anything to be given at the holidays, it's cold hard cash. Unlike that sweater you'll never wear, there's no loss there - it has the same value in your pocket as on the market. And indeed, direct cash gifts are the norm in some places in the world and even one region in the United States. New Yorkers give money at weddings; most Americans outside New York consider this crass. East Asians are more likely than Westerners to give money on holidays.

What is interesting here is that East Asian cultures have a rich tradition of gift-giving to reinforce relationships, but among family and close friends cash is acceptable or even expected. And it's worth asking whether we think of East Asians as better or worse rational optimizers (on average) than other groups of people, and whether New Yorkers as better or worse rational optimizers than other Americans. These folks might be on to something. So to your boss, take the time to think of something nice, but send your sister a cash card.

Saturday, December 17, 2011

The Revolting Syrian

Coverage of the Syrian uprising. In the links at right also.

Thursday, December 15, 2011

What Fraction of Chinese Economic Success Is From Stolen Data?

A report in Business Week covers China's cyber-warfare, and links to McAfee's report, which doesn't mention China by name but might as well. (Oddly, only a single article on Xinhua's English edition mentions the McAfee investigation and comes to the opposite conclusion, that no single nation is thought to be behind the attacks. The Chinese edition's front page today has not a single mention of it.)

Much is made of China's rise, but is there something to be learned here? Is there a way to estimate the value of the stolen data, and its impact on that growth? It's often thought that shame is a better tool than guilt to influence our frenemies across the Pacific; maybe a casual mention by the Obama administration of this interesting form of foreign aid might provoke an actual discussion.

One of the vulnerabilities of an advanced and open society is that China has no trade secrets we'd like to steal - but it would be good if all the cleverness we applied to Stuxnet, and all the enthusiasm of Wikileaks activists were being turned to infiltrating the government systems of the most powerful dictatorship in the world.

Tuesday, December 13, 2011

Things You May Not Have Known About James Earl Ray

First and most mind-blowing to me, some members of the King family don't think Ray was MLK's assassin.

Second was that he lived in Los Angeles in 1967-68 and got a nose job while he was there. Prior to that he tried to become a porn director in Mexico. Very twenty-first century of him. While he was in L.A. he volunteered for George Wallace. For all the fetishizing of 1960s California history that goes on, I've never once heard of this connection; I guess it doesn't fit the narrative.

And finally, the aforementioned deeds were all committed while he was a prison escapee. Ray was already a convicted violent criminal with multiple crimes in several states to his name. He managed to escape again after he was imprisoned for King's assassination, in 1977.


I've just pulled out what were to me the most surprising facts but I just got these from the James Earl Ray Wikipedia page.

Monday, December 5, 2011

Asian Students Not Checking "Asian"

Asian and part-Asian students, aware of the well-studied bias against high-performing Asian students in college admissions, are now avoiding checking Asian on their applications. Things are only going to get worse for Asian applicants: the Obama administration has recently relaxed restrictions on the use of race in college admissions, and in California specifically, Jerry Brown wants to go further. Of course, many of these students have ambivalent feelings about this.

Ambivalent Asian students: I'm going to solve this for you. Don't check Asian. Why is it okay for you to do this?


- First and foremost, because you're dealing with a badly immoral system. Let the admissions offices squeal all they want - the day they stop discriminating against you based on your race is the day you'll stop not checking your true background. If you woke up two centuries in the past, and the house you were in was harboring escaped slaves, would you lie to the police who came looking for them? Of course you would. Just like you're going to lie to the people who are treating groups of people differently today based on ethnic background.

- One concern seems to be that somehow students are "selling out", "selling their soul", or "turning their back on their community". Seriously? A mark on one piece of paper has that much effect on the identity you'll project in your life? Either don't complete that section, or say "not Asian", and forget about it. If your surname gives you away, then, and I mean this seriously, do a legal name change. Then change it back once you're in. Again, seriously. You have to weigh the annoying paperwork against the 250 SAT point advantage you'll get.

- From a purely selfish standpoint, I as an American adult want you to get into a good school where your potential is realized, based on your actual academic performance. Do it for me, and do it for yourself, for your country and future economy.

Friday, December 2, 2011

SCOTUS: Bone Marrow Donors Can Be Compensated

Reported by Alex Tabarrok here. Egg donors might be next, then kidneys? There are coercive kidney donations going on already in East Asia; clearly this exchange does occur already elsewhere and is not morally optimal.

Thursday, December 1, 2011

Centrality of State Capitals Doesn't Matter

The center of population of the United States over time, migrating progressively west from Washington D.C. Does this matter?


Political entities try to locate their capital cities centrally, assuming that this facilitates administration of the entire territory. Consequently, we would expect to see that development indicators would correlate with centrality of capitals. I looked at data from American states, which are more standardized culturally and otherwise than the full set of world capitals would be. Using U.S. state data, the central capital assumption is false.

I compared per capita income, well-being, and Gini data for each U.S. state against the distance between from the geographic center of each state to the capital of each state, both in absolute terms and adjusted for the size of the state (against the square root of the total area including water).

As seen below, the R-squareds for linear correlations are very weak. If not, then what correlations there are, are almost invariably the opposite of what the central capital assumption would predict. (Correlations are shown by + or - in the tables.) That is, the further the capital is from the center of the state, the higher the well-being and per capita income, and the lower the income inequality. I'm not going to take up space with the noisy scatter plots so here's a table of the correlation strengths:

MeasureR squared, AbsoluteAdjusted
Well-being+, 0.0751+, 0.0651
Per cap income+, 0.0099+, 0.0773
Gini-, 0.066-, 0.0266


Because geographic center in this case is really a proxy for center of population - does it really matter if the capital is equally near an empty quarter as to an urban area? - I also compared these metrics to capital-to-population center distance, with similar lack of correlation.

MeasureR squared, AbsoluteAdjusted
Well-being+, 0.0311+, 0.0004
Per cap income+, 0.0131+, 0.0738
Gini-, 0.0126+, 0.0086
(Data can be provided upon request.)
See here for a map of population centers.


Of course there are outliers on the scatter-plots in terms of distance from capital to population or geographic center (especially Florida and Alaska) but removing them never resulted in significant changes and often actually lowered the already near-zero R-squared. Sometimes taking out the outliers reversed the correlation, but again the R-squared didn’t change much (biggest R-squared improvement with outliers where the correlation reversed was 0.0385 for Gini relating to capital distance from population center as opposed to 0.0126 with outliers, and the correlation went from negative to positive; still no signal.)


What are the implications or explanations here?

- The obvious one: that access to the capital doesn't matter for human development.

- That there are confounding factors; especially since the size of states varies non-randomly with their location and date of entry into the Union, which in turn non-randomly varies with their population density and types of economies.

- That in fact there has been sufficient wealth redistribution by the central national government to erase differences introduced by differing access to the capital (i.e. that having non-central capitals might have indeed hurt some states, but they get support from the Federal government that conceals this.)

- That geographic centrality is only a proxy for proximity to population that's being served, which is rarely distributed exactly evenly throughout a territory; perhaps doing this same analysis and taking into account center of population would give different and/or stronger correlations.


At the national level, I've often wondered what if any harm has been done in leaving the American capital in the original center of the U.S. (along the central East Coast) rather than moving it to Kansas City. Barring scale effects, based on this data, it's more likely that the answer is none at all.