Evolutionary Impulses

Imagine that, all of a sudden, humans no longer found food to be delicious or sex to be enjoyable.

Would we go on eating, procreating, and surviving with the big picture in mind, or would the human race die off after a few decades because we'd all be too short-sighted? In other words, how important are our evolutionary impulses today, now that we have an established society?

Powerless? Speak Up Anyway

I'm presenting a paper in class this week called "Voice matters in a dictator game" (gated link). It was published in Expermential Economics in 2007 and was written by four Japanese researchers, who analyzed a twist on the dictator game.

At first blush, the dictator game seems quite uninteresting: Player A gets $10 to start with, he decides how much of that to give to Player B (keeping the rest for himself), and then the game ends.

In the paper, the researchers asked each Player A to map out a payment schedule to Player B, based on how much Player B asked to receive. Some dictators acted selfishly (or rationally, depending on how you look at it) and kept all the money for themselves, no matter what the request. But on average, the Player B's who asked for 50% of the money received more than those who asked for 10% of the money, who in turn did better than those who didn't voice any request. Additionally, the dictators usually punished their counterparts if they asked for more than half of the money.

If the conclusions of the paper can be extended to broader life situations, we learn that perhaps it's wise to speak up and ask for your fair share, even when you hold no power in the negotiation.

Should Child Labor Be Illegal in Poor Countries?

I know it's been Steven Landsburg hour around here lately, but I want to share an idea from his book "More Sex Is Safer Sex: The Unconventional Wisdom of Economics" (not my first choice for a book title, I'll admit).

Landsburg argues that rich nations aren't helping the extremely poor in third-world countries by limiting their choices, such as forbidding them to put their children to work:

Being poor means making hard choices, such as whether to work more or to eat less. Neither alternative is terribly palatable, but it requires more than a bit of hubris to suggest that middle-class American and European demonstrators can choose more wisely than the African and Asian families who have to live with the consequences.

He also cites studies suggesting that parents do truly care about their children and want them to have enough to eat, and he points out that child labor drops dramatically as families exit abject poverty.

I'm not sure if my drive-by synopsis did Landsburg's point justice, but it's well argued in the book.

Building Cars out of Corn

I'm 15 years late to this discussion and don't have anything worthwhile to add to it, but I found this point from Steven Landsburg's "The Armchair Economist" quite profound:

David [Friedman]’s observation is that there are two technologies for producing automobiles in America. One is to manufacture them in Detroit, and the other is to grow them in Iowa. Everyone knows about the first technology; let me tell you about the second. First you plant seeds, which are the raw material from which automobiles are constructed. You wait a few months until wheat appears. Then you harvest the wheat, load it onto ships, and sail the ships eastward into the Pacific Ocean. After a few months, the ships reappear with Toyotas on them.

International trade is nothing but a form of technology. The fact that there is a place called Japan, with people and factories, is quite irrelevant to America’s well-being. To analyze trade policies, we might as well assume that Japan is a giant machine with mysterious inner workings that convert wheat into cars.

Any policy designed to favor the first American technology over the second is a policy designed to favor American auto producers in Detroit over American auto producers in Iowa. A tax or ban on “imported” automobiles is a tax or a ban on Iowa-grown automobiles. If you protect Detroit carmakers from competition, then you must damage Iowa farmers, because Iowa farmers are the competition.

The Hot Girl Resource Curse

Economists have long speculated about the existence of resource curses. For instance, a nation rich in a finite resource such as oil might rely too heavily on it and fail to develop other areas of its economy.

What about a hot girl resource curse? On average, we would expect hot girls to have an easier time at life while they're young. If you constantly have guys fawning over you, it's hard to make yourself buckle down and learn Chaucer or calculus. These girls have less of an incentive to study or invest in other areas of themselves, as they can go through their young lives with stuff being handed to them.

But just as Arab countries may eventually run out of oil, the hot girl's main resource--her looks--is also finite. Once her beauty fades, she may regret not having invested in other areas of herself earlier in her life.

Kill Yourself to Donate Your Organs and Save 5 People?

I've been wondering about a version of the transplant problem thought experiment for years. The way I've always formulated it was this:

Right now, I could volunteer to donate all of my organs, saving at least a handful of lives at the cost of my one life. Five people (or so) get to live, while only one person (me) has to die.

Am I really that selfish to value my own life so much more highly than those of other people, even if they are strangers? I can think of two "economics"-type solutions to this dilemma, but I can't say I buy into either fully.

First, some might argue, sacrificing myself for organs at age 23 isn't optimal. The world would be better off if I live a long time, experience all sorts of utility for myself, and then donate my organs after I die.

I could be wrong, but I think I could save more people donating now, when I'm healthy, than I could by waiting until I die. At that point, I don't need my organs anymore, so the donation is essentially costless, but I would expect that my organs would be in rather bad shape and thus much less useful. Yet I choose not to donate early. (Anyone with a firmer grasp of biology who sees a flaw in this argument can feel free to point it out in the comments.)

Second, one could argue that you can save more lives by living than you can by killing yourself and sacrificing your organs. If you devote your life to some sort of charitable or missionary work, it's easy to imagine scenarios in which this is true.

This is much more of a stretch, but one could also argue that pursuing your goals is better than sacrificing yourself, no matter what your pursuit. Technology and economic progress have allowed billions of people to enjoy so much wealth and pleasure in ways that wouldn't be possible if people were sacrificing themselves all the time. Such societal progress requires expertise and mastery in countless fields, perhaps including the one you want to work in.

Steven Landsburg's book is again the source of inspiration for this post. The transplant problem is, incidentally, a variation of the more widely known trolley problem. The problems typically involve a third party: If you're a surgeon, would you harvest someone else's organs to save five people who otherwise are going to die within the hour? Would you push a fat man in front of an out-of-control train to save five people tied to the track? However, I've always thought of them in the first person: Would I be willing to sacrifice myself to save others?

(Note to relatives and close friends: I'm very happy with life and not at all on suicide watch. It's just a thought experiment!)

Good Enough for Stanford Is Good Enough for Us

University of Rochester economist Steven Landsburg's "The Big Questions" has a fascinating discussion about how we value our own opinions above those of people who are just as smart, capable, and well-informed as we are. This stubborness often leads us to needlessly duplicate the work of others, such as in evaluating job applicants:

[George Mason University economist Robin] Hanson's best guess is that disagreements persist because we tend to overestimate our own intelligence, and therefore tend to put too much weight on our own opinions. One sees this in academic circles all the time. Every year, the members of my department devote prodigious amounts of energy--perhaps half our working hours over a period of several months--to evaluating the qualifications of applicants for faculty positions. At the same time, the faculties of MIT and Stanford are evaluating pretty much the same pool of candidates. Yet we persist in making offers to candidates we believe are strongest, as opposed to the candidates our Stanford colleagues believe are strongest--even though they're surely as well qualified to make judgments as we are. We could save ourselves a lot of time and effort by just announcing a policy that we're willing to hire anyone with an offer from Stanford.

An offer from Stanford is a very credible signal of quality. So credible, in fact, that the University of Rochester could use it as a substitute for its own expensive and time-consuming applicant screening process.

Taking this idea one step further, if such a practice were the norm, all the universities would want some place like Stanford to do all the legwork of screening applicants, while the rest of the universities could pick up the people who decline Stanford's offer.

Of course, Stanford isn't going to make enough offers to support the rest of the system (and it might even begin to make offers strategically to hurt the copy cats). And many, if not most, people with such an offer would accept it. Even expanding the criteria to "we'll hire anyone with an offer from an Ivy League school" or something similar wouldn't cut it, either.

But I could imagine a world in which some centralized body interviews and evaluates all the candidates. Universities would then be willing to hire an applicant if he has a sufficiently high score.

Then again, such mass evaluation has proven imperfect in the past. High school students with the best SAT scores or GPAs don't always become the best college students (though there is enough correlation that these measures still have value). Law students with the best grades or scores on the bar exam aren't always the best lawyers. But does the econ department at Rochester make better hires under the current system, which brings in face-to-face contact and subjective evaluation, than it would if it just based hires on scores? More importantly, even if the current system picks applicants slightly better, is it worth the huge amount of effort the system requires?

Maybe the differences between universities and departments are more important than Landsburg lets on. Perhaps the perfect candidate for Stanford is a poor fit for Rochester, if the programs have different focuses. Also, it would be difficult to assign objective scores to rate the quality of professors in the arts and similar disciplines.

Rich in Money vs Rich in Time

A good passage from a book called "Free: The Future of a Radical Price," which I'm reading now:

If you're a kid, you probably have more time than money. That's the force behind MP3 file trading, which is kind of a hassle but is free (albeit illegal!). As Steve Jobs famously pointed out, if you download music from peer-to-peer services, you're likely to deal with problematic file formats, missing album information, and the chance that it's the wrong song or a poor quality version. The time it takes to avoid paying means "you're working for under minimum wage," he noted. Nevertheless, if you're time-rich and money-poor, that makes sense. Free is the right price for you.

But as you get older, the equation reverses and $0.99 here and there no longer seems as big a deal. You migrate into a paying customer, the premium user in the freemium equation.

This has certainly proven true in my life. I've ditched the Napsters and BitTorrents of my teenage years. Now, my fiancee and I love to sort through our Netflix queue together, and we actually get kind of excited waiting a few days for the next movie to arrive. (Though, unfortunately for me, she's having the new Twilight movie sent to us for Monday. Bleh!) We also don't mind paying the bill, as it's only a few dollars a month.

Similarly, now paying 99 cents to have a song downloaded instantly to my iPhone wherever I am is nothing compared to the pain that I would have to endure to get the same song illegally.

The "People Are Idiots" Explanation Isn't Good Enough

I think I've found my new favorite economics quote, by George Stigler:

Mistakes are indeed made by the best of men and the best of nations, but after a century are we not entitled to question whether these "mistakes" produce only unintended results? Alternatively stated, a theory that says that a large set of persistent policies are mistaken is profoundly anti-intellectual unless it is joined with a theory of mistakes. It is the most vacuous of "explanatory" principles to dismiss inexplicable phenomena as mistakes--everything under the sun can be disposed of with this label, without yielding an atom of understanding.

I learned of this quote from JC Bradbury's "The Baseball Economist," in a section where he discusses why there have been essentially no left-handed catchers in the major leagues for the past century.

Raising the Stakes in the Ultimate Game ... Even Further

I've written previously about ultimatum games, and they continue to interest me. See the link for a more extensive background, but essentially the game is this: Player A decides how to split a certain amount of money, and Player B can either accept or reject this split; if he rejects, neither player gets anything.

Does the amount of money at stake matter? Perhaps the B's are violating their economic (or at least monetary) self interest by rejecting low offers (i.e., taking nothing instead of something) because the gratifying feeling of implementing justice or revenge is worth sacrificing $4. Various studies have shown that the stakes do not affect the outcomes; the chances of a 60-40 split (or any other) being accepted was about the same under various payout purses and in various cultures. At the extreme, a 1999 study called "Raising the Stakes of the Ultimate Game: Experimental Evidence from Indonesia" (PDF) ran the ultimatum game with an amount of money equal to three months' pay in Indonesia and found similar results.

While many economists will no doubt disagree with me, I can't help but think that these results would not hold if gargantuan amounts of money were at stake. I believe that there is a certain amount of money at which almost no Player B would reject an offer, no matter how "unfair" it is in comparison to A's windfall. Assuming that you are not already fabulously wealthy, would you turn down $1 million because your Player A kept $9 million for himself? Would sacrificing such a lavish lifestyle really be worth it to prove your point?

The trouble is, such an experiment could never been run, as no one would be willing or able to fund it. I believe that an amount of money that sets someone for life would make people behave far differently than they would with a few months' pay.

However, I wonder is this is all a moot point. Imagine you are Player A in such a game. You can be pretty sure than an even split will be accepted, but there's an ever-so-small chance that a lesser offer may be rejected, even if only for the most wildly irrational reasons. The expected value (the sum of all possible payouts multiplied by their probabilities of occurring) of keeping a few extra million for yourself is higher than an even split because of how extremely unlikely it is for your partner to walk away from a million dollars. But most people (including myself) would be sufficiently risk averse as to err on the side of caution and offer a 50-50 split.