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Monday, January 31, 2011

Adolf Hitler Understood Nudge

Even before those in behavioral econ warmed up to the idea, Adolf Hitler understood the power of "nudge." In this 1938 voting ballot, he makes it quite clear what you should vote for. The question read: "Do you agree with the reunification of Austria with the German Reich that was enacted on 13 March 1938 and do you vote for the party of our leader; Adolf Hitler?; Yes; No,”

T'was a double question too. Smart.

via Marginal Revolution

Sunday, January 30, 2011

Do No Harm and the GK approach

I got woken up by a tweets yesterday by Dean Tony La Vina. It was from some high level meeting of important people:
@tonylavs: In China, they never scale up programs nationally unless tested in provinces and regions first.
@tonylavs: Dean Arsi Balisacan of UP Economics argued that the choice of what strategy to scale up should be based on evidence.
Ah, this is indeed very encouraging. If public policy can be based more on evidence, I believe we would be able to bring more people out of poverty more quickly and use scarce resources better. Dani Rodrik of Harvard has spoken about this many times. Development should take a more diagnostic approach rather than a presumptive one.  The idea is, we really don't know what works. But we will try out many things, many programs, and evaluate each, and see which one to pursue and scale up.

Quite the opposite, I would say to what I would call the "Gawad Kalinga approach," where the idea is to scale up as quickly as possible. I'm sorry, I know many are fans of this program. 700000 houses in 7 years was their motto right? But to date, I have not seen or read any rigorous evaluation done of the program. Does building houses -- pretty ones -- in fact, increase development outcomes like health, employment, education, etc.? Did the housing cause unintended consequences to the families, to surrounding neighborhoods? Nobody knows the answers to these questions because nobody stopped and said, wait a minute, is this the right use of our time? Did we do no harm?

Sigh. Do no harm. I like that. There is much talk lately about developing some ethical code for economists. Perhaps policymakers should adopt one too, just like the one for medical doctors. That is, before scaling up something, we should first make sure that it does no harm.

Saturday, January 29, 2011

The Morality Underlying Econ

From Tyler Cowen on the morality underlying economics:
Even though the predictions of economics are independent of any ethical theory, there are ethical ideas behind normative economic reasoning. An economist who rejects the idea of exploitation in kidney purchases, for example, is treating the seller of kidneys with respect—as a person who is capable of choosing for himself or herself even in difficult circumstances.
Similarly, economists don’t second-guess people’s preferences very much. If people like wrestling more than opera, then so be it; the economist, acting as economist, does not regard some preferences as better than others. In normative terms, economists once again tend to respect people’s choices.
Respect for people’s preferences and choices leads naturally toward respect for trade—a key action that people take to make themselves better off. As we saw in Chapter 9 on externalities, economists recognize that trade can sometimes make the people who do not trade worse off. Nonetheless, the basic idea that people can make decisions and know their own preferences leads economists to be very sympathetic to the idea of noncoercive trade.
Economists also tend to treat all market demands equally, no matter which person they come from. Whether you are white or black, male or female, quiet or talkative, American or Belgian, your consumer and producer surplus count for the same in an economic assessment of a policy choice.
None of this it to say that economists are always right in their ethical assumptions. As we warned you in the beginning, this chapter has more questions than answers. But the ethical views of economists—respect for individual choice and preference, support for voluntary trade, and equality of treatment—are all ethical views with considerable grounding and support in a wide variety of ethical and religious traditions.
Perhaps you have heard that Thomas Carlyle, the Victorian-era writer, called economics the “dismal science.” What you may not know is that Carlyle was a defender of slavery and he was attacking the ethical views of economics. Economists like John Stuart Mill thought that all people were able to make rational choices, that trade not coercion was the best route to wealth, and that everyone should be counted equally, regardless of race. As a result, Mill and the laissez-faire economists of the nineteeth century opposed slavery, believing that everyone was entitled to liberty. It was these ethical views that Carlyle found dismal. We beg to differ.

Thursday, January 27, 2011

Hans Rosling Goes 3D

The data visualization guru at it again. HT: econjeff

As econjeff rightly points out though, 1) one may have objections with the scaling of income and life expectancy, 2) there's a failure to note the lag in Africa's progress. Is convergence really that sure a thing?

Wednesday, January 26, 2011

Rizal Sent No Remittances

This took a while but Rizal historian, Ambeth Ocampo responded to my email. I asked whether as a migrant, Rizal sent remittances home:
Rizal did NOT send money home, he was supported by his relatives back home during his studies and even for publication of his books. He worked in Hongkong but didnt need to remit because his parents and spinster sisters joined him. Rizal only gave money to his family after he won the lotto when he was an exile in Dapitan.
The context of course was my post a while back on Winnie Monsod and her claim that you'd have to be in the country to help the country. Recall, she virtually called those who left the country, especially the educated, traitors. I asserted that if this were true, by her standards, then we cannot possibly conceive of Rizal as a hero since a) he spent his working life mostly away from the country and b) now we know he did not send back remittances. He is even worse than today's migrants. But we consider him our national hero.

I am still interested in the question on how big a portion of Rizal's post-university life he spent outside the country. I want numbers. My guess is a big chunk.

Wednesday, January 19, 2011

Don't Miss Out on the Arbitrage Opportunity of the Day

I wanted to alert everyone to the arbitrage opportunity of the day up at Living Social.

Standard economic theory suggests that we should act rationally and have an infinite demand for this product. Alas, 527,980 people, including me, have already acted accordingly.

I'm trying to figure out what's in it for Amazon in this one. I have some theories. A. They must believe that enough people would eventually lose this or forget that they purchased such a card, that they are able to recuperate the 50% subsidy they are giving to people. B. They are using this as some advertising stint to increase future demand for their service. C. This is a scam. Hopefully not.

What other things could they be thinking of?

Full disclosure: If you refer 3 friends, Amazon gives you the card for free. If you click on my link and buy the card, you'd essentially be my referral.

Monday, January 17, 2011

Classic Milton Friedman in Defense of Free Trade, 1971

A very lucid and convincing argument for free trade by one of the more important economists of the last century. Say what you will about laissez faire economics -- believe in it or not -- but this is pretty compelling. This is my first time listening to Friedman, seeing him on screen. What a good speaker.

The Q&A portion about the Japanese subsidizing its steel is gold. Great example. The part when he talks about taking into account not only what is visible but also what is invisible is at the heart what social science is about. Put in another way, one must take note of the indirect as much as the direct effect.

I must mention I got the link from Michael Clemens, who is a great source of this kind of stuff and my source for a lot of things.

Thursday, January 13, 2011

Public Policy as an Experiment

 Dan Ariely blogs about how we should think about public policy.
For instance, in my ideal world, before implementing any public policy—such as No Child Left Behind or a $130 billion tax rebate or a $700 billion bailout for Wall Street—we would first get a panel of experts from different fields to propose their best educated guess as to what approach would achieve the policy’s objectives. Next, instead of implementing the idea proposed by the most vocal or prestigious person in this group, we would conduct a pilot study of the different ideas. Maybe we could take a small state like Rhode Island (or other places interested in participating in such programs) and try a few different approaches for a year or two to see which one works best; we could then confidently adopt the best plan on a large scale. As in all experiments, the volunteering municipalities would end up with some conditions providing worse outcomes than others, but on the plus side there would also be those who would achieve better outcomes, and of course the real benefit of these experiments would be the long-term adoption of better programs for the whole country.
Exactly my sentiments. Public policy is an experiment, which is why we should treat policy as an experiment. This means a) the starting point must be a pilot program or a study with a rigorous evaluation mechanism, before government enacts large scale changes, b) this should allow us to reverse course once we find that something isn't working. After all, not all of our wonderful ideas should work out.

I think about this in the context of the proposed K-12 program in the Philippines, where the government effectively adds 2 years in schooling for everybody. I am fearful about it. It is an untested idea that is proposed to be  implemented in a large scale. What if adding school years does not help at all? We're going to waste valuable resources. Worse, what if the program had unintended harmful effects?

The proposed program is probably backed by some theory that more education leads to better outcomes. But what works in theory does not always work well in practice. The program might not work in the context of Filipino children. The program might deter families from sending their children to school because the time costs of getting an education is higher. I don't know. Who really knows? We will never know unless we run some small scale program and see what the effects are. If it doesn't work, then trash the idea - at least we didn't have to waste resources making it large scale. If it works, then good.

My frustration with the debates surrounding the issue is that people are arguing about the policy based on  theories they have in their heads. The government says it will do some consultations. But the issue will not get resolved this way. My suggestion is: let's try it, see how it plays out in the small scale, and then decide if we should implement it as national policy.

Saturday, January 8, 2011

The Wikipedia List of Common Misconceptions

I spent quite some time going through this fascinating list. Some of my favorites are:

1. There is no medical reason to wait an hour after eating before going swimming. (Sorry dad, you were wrong about this)

2. A popular myth regarding human sexuality is that men think about sex every seven seconds. In reality, there is no scientific way of measuring such a thing and, as far as researchers can tell, this statistic greatly exaggerates the frequency of sexual thoughts. (And women I think, think of sex, just as much)

3. People do not use only ten percent of their brains... [and] until very recently medical experts believed that humans were born with all of the brain cells they would ever have. (Not true and happy to know this. Now I know I can drink much and not worry about losing brain cells)

4. Prolonged exposure to cold weather such as rain or winter conditions does not increase the likelihood of catching a cold. Although common colds are seasonal, with more occurring during winter, experiments so far have failed to produce evidence that short-term exposure to cold weather or direct chilling increases susceptibility to infection, implying that the seasonal variation is instead due to a change in behaviours such as increased time spent indoors close to others. Viruses spread more easily when humidity is low which is the case during wintertime.

5. Barack Obama is not a Muslim.

Where is the section on misconceptions in Economics? Marginal Revolution has a list here but there are probably more interesting ones. Also, misconceptions about the Philippines? I know one -- the Philippines was not - never - second to Japan. What other misconceptions are there?