Sunday, May 31, 2009

self reported vs revealed preferences

So often I read in economics papers skepticism towards self-reported preferences, or willingness to pay. I admit, it's pretty unreliable, but a good starting point. But so often, revealed preferences are just as fishy sounding to me, and I wonder why that is not focused on more.

For example, there is an assumed monetary value of time depending on your income. That is, if you spend a certain amount of time doing something, the value of that time is your revealed willingness to pay. Does this not sound ridiculous to you? Most people work for some fixed amount of money. The marginal hour of work that I do will not affect my paycheck in the least. Even IF I worked for an hourly wage of $15, I can't just decide willy nilly to work an extra hour and get an extra $15. The number of hours along with the wage is part of the agreement with my employer. So saying that if I go out of my way by half an hour to avoid some consequence, that consequence is worth at least $7.50 to me to avoid, is nonsense. If I weren't avoiding a consequence with that half hour, I'd probably be sitting at home reading or playing with my cats or something else equally non-money-earning.

Then there's just the fact that people misestimate the consequences of their actions. For example, if the probability of dying in a motorcycle accident is .5 if I don't wear a helmet, and .25 if I do, and a helmet is available for $100, and I don't wear one, does not mean that I value my life by at most $400, my "revealed" preference. I'm just underestimating the probability of dying, or overestimating my abilities as compared to the general population of drivers from which those two statistics were calculated. In this case you're much better off asking me how much I'd be willing to pay to guarantee that I won't die in a motorcycle accident, even as ridiculous and hypothetical that question is.

I think good research should attempt to use both measures, and discrepancies in answers does not automatically mean that one is less reliable than the other. We should be trying to figure out what biases our statements and actions in general, and use that to determine which measure is more accurate.

Saturday, May 30, 2009

Milky Way

This is the most amazing time-lapse video of the entire sky as seen from Ft. Davis, TX, during the Texas Star Party. TSP is an amazing 700+ attendee star party in the darkest location in the 48 states that I went to in 2001 and saw the most amazing Milky Way imaginable. They make jokes about people mistaking it for a storm cloud coming up over the horizon, and I laughed, until it happened to me a few days in when I lost track of time. You can actually see your shadow by it. Watch the video and be amazed.

Friday, May 29, 2009

experiments + surveys

I'm working on an interesting combination of data right now. Primarily, it's experimental data: the dictator game played with alterations on framing and whether the pot is earned through effort or luck. But, through a different project, there is also a wealth of personal data for each participant.

Experimental economics mostly aims to see how markets work in real life with exogenous real world randomness minimized, and with little regard for personal details of participants. The hope is, after all, that there is some kind of social scientific law that is indifferent to such details. But when play varies between groups of people, even if it almost always averages out to a certain "law" of aggregate behavior, all that personal data can probably say a whole lot about why people do the things they do, hence why markets work the way they work on a micro level, and hence how they evolve dynamically and what is the mechanical operation of the invisible hand.

Sounds pretty thrilling to me. In fact, that's serendipitously eerily related to what I wrote my NSF proposal on (never thinking that would actually be what I got to work on.)

Wednesday, May 13, 2009

[psst it's because they have no motive to do things well]

No time for blogging (or eating or sleeping) until after the two finals next week that have a significant chance of forcing me to retake classes I have no interest in (and thus have ignored to my current detriment), but in the meantime, Xavier Sala-i-Martin of Columbia has a perfectly articulated argument for why the knee-jerk reaction to recession should not be more government spending.


(thank you to my friend Slavik for pointing the direction to hilarity. Go here for more.)

Wednesday, May 6, 2009

thank you Prop 8

It is really interesting to see how the passage of Prop 8 has sparked a nationwide advance for the LGBT rights movement. So much outrage resulted, and awareness was so piqued, that already this year three other states have taken it upon themselves to recognize homosexual marriage.

Thank you, Mormon bigots. If you hadn't made such a big push for Prop 8 in the last days prior to the election, California would still have gay marriage, and the rest of the country wouldn't have even blinked an eye, because, well, of course some liberal nuts on the west coast would defeat that kind of voter referendum. Instead, now even Iowa has gay marriage. And in another year or two, so will we.

whims of authoritarians

It is profoundly disturbing to me the amount of power the government has to whimsically decide which businesses fail and which don't during this crisis. And even more profoundly how little anyone is questioning this power.

Is it because most of the country is currently thrilled with the new leadership, and don't mind giving him dangerous authoritarian power?

Is it because the mindset of socialism, the right and responsibility of government to control industry, has already engrained itself in American culture?

Is it just flat out fear of the current situation that is clouding our judgment, much as fear after 9/11 allowed the Bush administration to pass such heinous legislation as the Patriot act with almost no objection?

Our government is simply not equipped to weigh long term costs and short term pain. A couple years of adjustment and high unemployment and slow or no growth is being weighed against the fundamental disassembly of our market economy and political system of checks and balances and strict restriction of the powers of the federal government (so that inept leaders [remember the last 8 years? anyone?] can't do TOO much damage when they worm their way into power) and virtually no one is even hesitating.

Tuesday, May 5, 2009

Merle Hazard

You wouldn't think Greg Mankiw would be such a great source of humor but I get the best stuff from his blog...

*giggle* I'll be humming the Zimbabwe or Japan line all day.

Saturday, May 2, 2009

economics of carbon restrictions

I found them! Two whole-heartedly "liberal" bloggers I actually like reading. Robert Reich, who I definitely do not agree with much of the time, is still enjoyable and interesting to read several weeks after I picked him up. (It's amazing what a humble, contemplative tone of voice will do for the palatability of your writing. Paul Krugman and Brad DeLong, please take note.)

And, Matthew Yglesias. Very well known but I never subscribed since he's way too prolific for my appetite. But I finally gave him a chance and am very impressed by the structure and organization of thought evident in his writing. Intellectual candy.

Take, for example, this post on the politics of trying to get climate change measures passed. This is the best summary of possibilities and their economic gists I've seen:
Folks have been open the idea of a carbon tax, or else to cap and trade. Within cap and trade they’ve been open to giving the permits away (to minimize the adjustment costs to business) to rebating the revenue (to minimize the adjustment costs to consumers) to using the revenue to finance offsetting tax cuts (to minimize the macroeconomic adjustment) and to using the revenue to finance clean energy investments (to minimize the impact on energy intensive businesses). They’ve been open to mixed strategies for the use of the revenues and to mixed strategies about the extent of permit auctioning.
Once a clear assessment like this is available, we can separately choose our priorities and make the resulting choice easily. (Instead, dogma gets in the way and we're stuck in stalemate. Read the whole post for more details.)

It's not that it's even particularly difficult to come up with a honest, realistic assessment of complicated options. But politicians pandering to uneducated masses and special interests, knee-jerk reactions, emotions, ulterior motives, and idealistic dogma (in particular, religion) make what would be easy for a computer a matter of pulling teeth for human beings. It's not surprising the political process is so depressing to observe.