The False Consensus Effect, Geography, and Going to University

Apologies for the lack of updates - I've been hanging in Miami for a few days.

And this got me thinking about the false consensus effect. After the sunk cost fallacy, the false consensus effect is probably one of the biases that tends to lead you astray the most. As wikipedia describes it:

[T]he false consensus effect is a cognitive bias whereby a person tends to overestimate how much other people agree with him or her. There is a tendency for people to assume that their own opinions, beliefs, preferences, values and habits are 'normal' and that others also think the same way that they do. This cognitive bias tends to lead to the perception of a consensus that does not exist, a 'false consensus'.

The false consensus effect seems to show up the most when you're not explicitly thinking about 'what do other people want, as evidenced by the things they do and say?', and instead just think 'what is desirable?'. Because implicitly the second question is really asking 'what do I think is desirable', and then extrapolating this to everybody.

People seem to do this a lot with preference for places to live. I tend to be in the category of people who prefer large coastal cities, ideally with warm weather. And it's easy to think that everyone wants these things. But at least according to revealed preference, they don't. Lots of people want to live in Toronto and Chicago and other cold weather cities. Lots of people really dislike temperatures above 80F (~27C). Lots of people want to live in middle-of-nowhere small towns, and can't stand the thought of having to drive half an hour to get to work.

Now, none of these are strong preferences for me. But the mistake is thinking that people who live elsewhere have the same preferences as you, but just have different constraints. He lives in that tiny town because his family is there. She lives in Chicago because it's the only place she can get a job. But if you took those things away, then surely everyone wants to live in Miami.

No, no they don't. You want to live in Miami, but maybe they just want different things than you do.

Now, if people are pressed, they can imagine that such alternative preferences might conceivably exist. But the perniciousness of the fallacy is that it's easy to get slack and just extrapolate your own preferences without thinking explicitly about whether they are going to be shared in this particular case. It's easy to overestimate how much your preferences are common to everyone.

Preference for geography is a very mild example of this bias. But it's a bias that's easy to slip into on all matters. And it gets even worse when the preferences are crazily different from your own.

I remember Mark Steyn had a very sharp observation about this a few years ago, when discussing Condoleezza Rice's views on the preferences of the Palestinian people:

"The great majority of Palestinian people," Condi Rice, the secretary of state, said to commentator Cal Thomas a couple of years back in a report that first appeared on JWR, "they just want a better life. This is an educated population. I mean, they have a kind of culture of education and a culture of civil society. I just don't believe mothers want their children to grow up to be suicide bombers. I think the mothers want their children to grow up to go to university. And if you can create the right conditions, that's what people are going to do."

Thomas asked a sharp follow-up: "Do you think this or do you know this?"

"Well, I think I know it," said Secretary Rice.

"You think you know it?"

"I think I know it."

I think she knows she doesn't know it. But in the modern world there is no diplomatic vocabulary for the kind of cultural fault line represented by the Israeli/Palestinian dispute, so even a smart thinker like Dr. Rice can only frame it as an issue of economic and educational opportunity. Of course, there are plenty of Palestinians like the ones the secretary of state described: You meet them living as doctors and lawyers in Los Angeles and Montreal and Geneva but not, on the whole, in Gaza.

Let us put aside for the moment the contentious questions of Palestine and Islam specifically, and consider purely as a matter of demographic estimation exactly how many mothers in the world would prefer their children to die in some military action than to go to university. Assuredly such people exist. Their preferences may seem bizarre to you and me. But the point is that it will always be tempting to assume that people with preferences so different from your own must necessarily be in the tiny minority. In fact, these are the types of issues that the false consensus effect is likely to impact the most.

In other words, when you are forced to estimate the prevalence of opinions widely different from your own, you would do far better to begin by examining specific data that bear on the question - survey responses, election outcomes, whatever, - rather than just assume that deep down, everyone must want the same thing as you.

Forget the Palestinians, and consider this instead. Back in 1994, thousands of Rwandan Hutus woke up each morning, and rather than 'just wanting a better life' as Condi Rice understands the term, what they actually wanted was to hack lots of Tutsi civilians to death with machetes. And they did so. For 100 days in a row.

Sometimes a group of people can have entirely consistent, widely shared preferences that are radically different from your own. What you do with that knowledge is up to you, but you do yourself no favours by pretending to the contrary.

Why American Flight Attendants are so Rotten

My guess? Age discrimination laws. Once upon a time, the de facto rule was 'we keep you employed as long as you're young, hot and friendly. When these change, hit the bricks'.

This meant that being a flight attendant was one of those jobs that women (and at the time, it was just women) planned to do for a while then quit, like modeling.

Now, if you start firing people over 40, you get a massive lawsuit under the Age Discrimination in Employment Act of 1967. I would have thought that airlines would have implemented a 'when you're 35 you're out the door' policy, but they haven't. My guess is that unions make the rest of it hard.

But the net result is that flight attendants are less attractive. In addition, it seems that dealing with the flying public tends to grate in you over time. So you end up with a lot of older flight attendants who (in my anecdotal experience) are nasty and grumpy all the time. But since it's hard to write people up for that, it just persists.

The only major exception to this trend seems to be Singapore Airlines. The Singapore government decided that since it is in charge of the airline, messy things like discrimination and labor laws weren't going to stand in the way of providing young, hot, and impeccably trained flight attendants. Until they're 30, then they're never seen again. It's ruthless, but competitive markets that maximise consumer surplus usually are.

A Proxy for The Quality of a Sushi Restaurant

If they bring you a spoon with your miso soup, it's probably not good.

If they offer you a spoon, it's probably okay.

If a spoon is neither brought nor offered, it's probably good.

I've seen exceptions to all three, but this tells you the type of clientele they're used to serving, and how much they know (roughly speaking) about Japanese food. Foodie wankers may be obnoxious in their own way, but I still want to free ride on their restaurant choices.

Gingrich lead develops some lebensraum over other candidates...

Hitler has a thing or two to say about the Republican nomination:



Seems pretty accurate to me.

Had this been real, it could have been added to 'Hitler was a vegetarian' and 'Hitler really lowered German unemployment!' in the category of 'trivial facts frequently claimed by people to partially offset the enormous evil of World War 2 and the Holocaust'.

(Via Ace of Spades)

PC Non-Sequiturs About Terrorism

Apparently a gunman in Belgium named Nordine Amrani shot and killed three people in Liege, Belgium, and wounded 75.

Here's the BBC with some helpful context:

Officials said the attacker acted alone, ruling out terrorism.

Uhhh, this rules out terrorism... how, exactly? Surely nobody acting alone could ever be involved in a politically-motivated act designed to inspire civilian terror!

Any bets as to whether you think they'd apply the same logic to Timothy McVeigh or that nutcase in Norway? Anyone at all? I'm offering highly competitive odds.

Woolly Mammoth Update

Via SMH, apparently there are now betting odds on when the Woolly Mammoth will be cloned, and they are the following:

2014 or earlier: 8 to1.
2015 or 2016: 2 to 1.
2017 or 2018: 5 to 2.
2019 or 2020: 11 to 4.

It's easy to miss the enormous picture that these odds are conveying. To bring it into focus, let's convert those odds to probabilities and work out the market's estimate of the cumulative probability that a Woolly Mammoth will be cloned by the end of year X:

2014:     11.11%
2016:     44.44%
2018:     73.02%
2020:     99.68%!!!!


Hoo-ah! According to the market, the dream is looking good!

Harry Reid - Imbecile

Listen to this choice quote from the Senate Majority Leader:

'Millionaire job creators are like unicorns - they're impossible to find, and don't exist.'

Hand that socialist fool control of the economy!

Okay, okay, surely a quote this stupid has some additional context that somehow makes it coherent, right?

See the whole clip and decide for yourself.

If you (quite sensibly) don't want to spend 3 minutes of your life watching Harry Reid, let me summarise the context, : apparently nearly everyone with over a million dollars 'is lawyer or a hedge fund manager', and we know that there aren't any millionaire job creators, because NPR went around looking to try to interview one and said they couldn't find any. So them someone (at this point in his ramble, it's unclear whether it's still NPR doing the searching) started looking through Facebook (no, really), and found some guy who claimed to be a millionaire who was hiring, and he supported the Reid tax on millionaires.

Yes, that is the larger context in which this is meant to make sense.

Apparently according to this buffoon, individuals and small business owners create jobs, but only when their net worth is less than $1 million.

Because $1m is that lucky number where people just decide to coast, and develop a hatred of hiring anybody. Aggressive hiring expansions only take place by those with less net worth to pay their new employees, don'tcha know? No wait, the boss is paying for hundreds of jobs only out of the massive company earnings instead, even though these earnings somehow aren't translating into him having a net worth above six figures.

Next comes the second great plank in this Jenga Tower of Stupid, the claim that you can only be a job creator if you're a small business owner. Because it's not like a corporation ever hired anybody! Small business may be important, but it employs around half of private employees. Were you hired by Microsoft? Bad luck, because we couldn't get Steve Ballmer on the phone to claim to be a 'millionaire job creator', your job just came out of the ether!

Maybe it's because senior executives in large corporations don't have the hubris to claim that 'I created jobs'. Doesn't mean that they're not contributing. And maybe, just maybe, when your net worth starts to get higher, you're running a sufficiently large and complicated company that you're no longer arrogant enough to claim that every job there is created by you, and you alone.

But what about all those evil lawyers and hedge fund managers? They're not hiring anybody?

Well how do you think corporations fund themselves? The lawyers don't just bathe in a vault of money like Scrooge McDuck. They tend to invest it in ... bonds and stocks! Which are issued by the corporations, and the capital from which is used to expand.

The clip itself was posted by the Democrats, who liked this speech so much that they advertise it.

As Ace of Spades said about this incident:

I am actually moving away from the question of "Can America survive?" to "Should America survive?" 

Indeed.

Update: I also forgot to mention the other distinct possibility for explaining why NPR can't find any millionaire job creators - people who have a million dollars may find it in poor taste to publicly boast about that fact, and the only exceptions are people who are doing so as a way of ostentatiously flouting their socialist bona fides. I can just imagine the phone call now - "Hi, this Jim Jones from NPR, and we were wondering whether you, John Smith, would like to be the public face of 'millionaires who oppose tax hikes'." Yeah, who could possibly refuse that interview?

Charging By The Hour

I'm always amazed by the number of jobs and services that are paid or charged by the hour.

Charging by the hour makes the most sense for jobs where the main requirement is actually just to be there for a given amount of time - working at a front desk, or some sort of customer service position that doesn't have a big up-selling component. If you're serving ice cream, the store really needs you to be there for those eight hours, and it makes sense to pay accordingly.

But the most mysterious are those when the job is complicated and based around a particular outcome, not a length of work. Take something like legal work. At least in Australia, the vast majority of it is charged by the hour, with different lawyers having different hourly rates.

This creates exactly one good incentive effect - it means that your lawyer does not have incentives to scrimp and save on the level of work they're putting in. Incentivising your lawyer to spend a few more hours at the office to look up other possible defenses to your embezzlement charge is probably something you actually want to do. This becomes particularly important when the amount of work required is not clear up-front, which may well be true in legal cases. 

But balance this against all the other bad incentives this creates. First, the moral incentives - it punishes honesty. Their inputs are typically unobserved, and thus you create huge incentives to overbill. The honest ones won't, but they're going to be hurt for it. And  I never, never want to incentivise dishonesty. It's not as clear as outright fraud either - since lawyer time is billed out in six-minute increments, there's always a question of exactly how much to deduct. If you do 30 minutes of work, have a 2 minute toilet break, do another 30 minutes of work, grab a coffee and check your work email  for 4 minutes somewhere in the interim, is that 10 units or 11? What if you don't remember exactly when you started? Do you just round it up to some other number? I don't imagine the average lawyer worries about these questions much, but they've come to some accommodation on this, and are getting rewarded or punished accordingly.

The second is that charging by the hour actively punishes anybody who finds a more efficient way to solve a problem. If you find a way to solve a client's legal problems in a tenth as much time, you're going to earn less than the guy who just chugs through hours of sort-of-relevant research. A lawyer who can demonstrate an ability to solve problems quickly in several situations might eventually be able to charge a higher rate. But clients who don't know their reputation might shy away from someone who charges a lot. And what if the client has very little idea how long the task should take? Then they won't even appreciate the fact that you've been efficient.

The law isn't even the worst example of hourly contracting - having web designers being charged out by the hour is even more barmy. Surely you can have a rough fixed-price estimate of how much to charge for a basic web page?

Generally speaking, wherever I have a choice I'd rather pay people a flat fee for whatever the service is, and then build in explicit incentives where necessary ($50K upfront, another $50K if I'm found innocent, another $25K if my sentence is less than 3 years, etc.). Of course, it's hard to negotiate this with your lawyer, but when I'm writing the contract I'd rather do it this way.

More practically, I do have one choice available to me, and it is this - I don't want to work in any industry where people are charged out by the hour. And I especially don't want to be someone else's employee in that industry where I'm being paid a fixed salary but being charged out by the hour. It means that it's going to be very hard to have any sort of work-life balance and be successful, because the incentives of the firm are just to have you spend more time at the office.I also don't want to worry if I'm doing work too quickly from the perspective of the firm. Having to do a worse and slower job because the firm effectively demands it would be soul-destroying.

The Conversations of Doomed Men

I read this last night, and have found myself strangely moved and preoccupied with it ever since.

Popular Mechanics has a transcription of the black-box record aboard Air France Flight 447, the plane which crashed into the Atlantic Ocean on June 1st, 2009, killing everyone on board.

What's very interesting is that they recount the conversation between the two co-pilots who were flying at the time, and intersperse it with descriptions of what was actually going on with the plane as the discussion took place.

Let me quote the part of the article that is most puzzling:

The Airbus's stall alarm is designed to be impossible to ignore. Yet for the duration of the flight, none of the pilots will mention it, or acknowledge the possibility that the plane has indeed stalled—even though the word "Stall!" will blare through the cockpit 75 times. Throughout, Bonin will keep pulling back on the stick, the exact opposite of what he must do to recover from the stall.

I quote that much merely to encourage you to read it all- if I quote more, I am going to do injustice to just how strange it is to read the whole transcription. So you should definitely read the whole thing. And when you're done (and only then), come back and read the rest of my thoughts below the jump:

Comedy Gold

Ace of Spades knocks it out of the park discussing the hilarious angsty email doing the rounds, from a guy who got rejected after one date to his romantic interest.

Funniest thing I've read in ages. Go, read.

Going Gentle Into That Good Night

There's an article that has been getting a lot of press recently, written by a doctor called Ken Murray. The subject of the article is how doctors themselves often don't wish to undergo lots of invasive procedures when they approach the end of their own lives. It's a fascinating article, and well worth reading the whole thing.

The question is, why not? The author suggests that it comes from a greater understanding of how many treatments may cause a lot of suffering, but only prolong life but a short amount (if at all), and usually under miserable conditions. Coming in for particular scrutiny is the practice of administering CPR to the very elderly and terminally ill, characterised as "experienc[ing], during their last moments on earth, someone breaking their ribs in an attempt to resuscitate them with CPR (that’s what happens if CPR is done right)." And in terms of the result, it is described thus: "If a patient suffers from severe illness, old age, or a terminal disease, the odds of a good outcome from CPR are infinitesimal, while the odds of suffering are overwhelming."

But I wonder how much another factor may come into play - namely, a greater familiarity with, and acceptance of, death. Doctors, especially those who interact with emergency rooms, are forced to confront death in a way that few other people are. Beyond a certain level of exposure, it is just viewed a fact of life, and an inevitable one at that.

To state that, of course, is to state the bleeding obvious. And indeed, once upon a time, the average person did indeed come into contact with dying and dead people, and was thus forced, however fleetingly, to reflect on their own mortality.

Modern man, by contrast, is enormously shielded from death. It occurs out of sight in hospitals, and we spend the rest of our time avoiding contemplating it or, if we do, thinking about it in abstract terms reserved for other people. ("20 dead in Russian bridge collapse").

A doctor, of course, does not have the luxury of avoiding the concept of death. It haunts the halls of every hospital. But I suspect that a large number of people making end-of-life decisions for themselves or a loved one have not yet come to grips with the inevitability of death. Because once you accept the fact that, one way or another, you will die, you start asking much more seriously whether it's worth going in for that long shot last round of chemotherapy. The first step is to realise that it won't stop you dying. It will only delay it, and at best you'll die of something else. And the second step is to ask the hard questions about how you want to die, and how much life you are willing to trade in order to live out your last days the way you want to.

I would be interested to see what the decisions are for people outside the medical profession who deal in death - funeral directors, priests, that kind of thing. I suspect they may be more like doctors than like the average person.

But maybe not. Maybe everybody clings to life in the same way, mortal familiarity be damned. It may be as Ken Murray suggests- the only difference is that doctors understand from grim experience the futility of the odds and the consequences of their actions better than everybody else.

Gift Card Arbitrage

GiftRocket has this interesting post examining what the average secondary resale value of a $100 gift card is.

Apparently there's quite a spread. At whole foods, the value is $91. At 1-800-Flowers, it's as low as $50. The average resale value is $72.

So here's the question - what should they be trading at?

Well obviously the upper bound is $100, as cash weakly dominates a gift card for all consumers. (The logic is that if I gave you $100 and you would like to spend it all at Starbucks, you would be indifferent between the cash and a Starbucks Gift Card. If you were going to spend even some of it elsewhere, you'd prefer the cash).

The standard explanation for a discount is shipping/hassle costs. If it costs me $2 to get it sent to me, and $5 of time to hassle around on E*Bay, I'm only going to pay $93. But this doesn't explain why there's such a big spread across retailers. The shipping costs are the same for all cards. And even the estimated cost of people's time doesn't make sense - people who shop at Whole Foods (value = $91) will probably have a higher cost of their time than people who shop at Baja Fresh (value = $70), in which case the price patterns should be reversed.

Another potential reason for the existence of a discount is the estimated probability that the card is fraudulent. But unless some stores are easier to scam than others, it's not clear how you end up with a cross-section of prices.

GiftRocket notes that the discount is related to how popular the merchant is - popular stores trade at a lower discount.

So what's the profitable trade here? The real question is why people who aren't planning a big purchase at one of these stores anyway don't stock up on gift cards. Doing so is getting you a 50% discount on flowers! I guess most people don't think to do this trade.

My guess is that it's also related to the length of time it will take you to spend the money. The two highest are a supermarket (Whole Foods) and a giant retailer (Walmart), where people might conceivably spend the money in one or two weeks. Next is Starbucks, which is also likely to be bought fairly frequently. But it will probably take most people quite a while to buy $100 worth of burritos. And as for flowers, if you weren't buying $100 of them at once, it could be a long time before you spend the rest.

Either way, I may look into this next time I'm thinking of buying at one of these places.

Global Warming FTW

Apparently scientists have found well-preserved bone marrow from a woolly mammoth.

Why is this a big deal? Because it means that they now might be able to clone one, by implanting the mammoth DNA inside an elephant. The claimed time frame is five years. I'm guessing there's a margin of error there, but it sure is cool.

And how did they get access to this pristine specimen?

Warmer temperatures tied to global warming have thawed ground in eastern Russia that is almost always permanently frozen. As a result, researchers have found a fair number of well-preserved frozen mammoths there, including the one that yielded the bone marrow.

That's right, when you're riding around town on your pet woolly mammoth in 10 years time, be sure to thank the guy driving around in the Hummer. Glorious consumption AND prehistoric animals brought back from the dead!

The article also ends with one of the most hilariously lame warning notes I've read in ages:

Is it such a good idea, however, to clone animals that have long been extinct? For a while there's been some discussion of a real life Jurassic Park setup containing such animals. Introducing these beasts into existing ecosystems could be like bringing in a potentially invasive species that would try to fill some space presently held by other animal(s). Even if the cloned animals were contained in special parks, there could still be a risk of spreading.

Yes, because when I think 'invasive species', my mind immediately turns to ... woolly mammoths. You know, if one gets loose in Oklahoma, it'll just start reproducing like crazy, and we'll never be able to track them all down. Because Lord knows it's not easy to spot an elephant-sized prehistoric creature walking around - people may confuse it with, say, a minibus or a carnival ride. And it might end up filling the niche in the ecosystem currently occupied by the Bald Eagle, the Atlantic Salmon or the Prairie Dog.

Here's my red hot prediction - everybody's concerns about 'Jurassic Park'-style scenarios are going to evaporate within two seconds of the birth of the woolly mammoth, as they realise how awesome it is to have crazy prehistoric animals walking around again.

Good News, Bad News

The good news:

Vladimir Putin's ruling party suffered a big drop in support in a parliamentary election on Sunday and was not certain even of holding on to a majority of seats, an exit poll showed.

The bad news:

The communist party emerged in second place in both polls with considerable gains over 2007.

Really?? It's kind of amazing that a Communist Party in Russia is a credible electoral force, after everything Communism did for Russia. Dislike Putin as much as you want, but only bad things can come from a more powerful Communist Party in Russia. I guess the virtue of democracy is that people eventually get the government they deserve.

But the bigger picture good news is this: Russia apparently still has some semblance of a democracy! I know, I was as shocked as you. I was starting to lump Putin in with the category of 'strongarm leaders that miraculously never lose elections'. Sure, he hadn't gotten to the point of Saddam Hussein winning 100% of the vote as the only candidate on the ballot, but one assumed this was merely a matter of time. Apparently the process is still uncertain enough that popular will can actually shift results by a meaningful amount, even if not (in this case) necessarily enough to change the government.

Why Smart People Are Getting Worse At Spelling

This is not a post about why dumb people are getting worse at spelling. There's lots of obvious culprits - the spreading of teenage text message LOLspeak, declining educational quality, feelgood 'everybody wins a prize!' teaching methods that decline to correct too many mistakes, lunatic academics who argue that insisting on correct spelling and grammar is horribly racist and elitist, etc. etc.etc.

No, what's less remarked on is the hidden decline in spelling knowledge among educated people. But you'll only see this in a very particular context - if you ask them to hand-write something that requires big words. Their typewritten work is getting better and better.

Once upon a time, people used to need to know how words were spelled. To write something wrong in a letter was embarrassing, and every correction you made was obvious too. The benefits in knowing the correct spelling the first time were significant.

Now, we instead train people to know that they have to use spell-check. This requires them to know how to have a good stab at the word, and to diligently check that their document doesn't have any red squiggly lines under any words. But this doesn't actually drill spelling.

The reality is that bad spelling in a document these days is a sign only of laziness or complete illiteracy. Grammar is still more of a filter, as grammar checkers are less sophisticated. But the test of 'does this document contain typos?' is now only a very weak signal of actual spelling ability.

Five minutes ago, I had to type the word 'accelerate', and I couldn't remember if it had one or two "c"s, and whether it had one or two "l"s. No worries! Just have a stab, and keep going through the combinations until you hit it.

But here's the problem - within 5 seconds, I'd forgotten what the answer was. And next time, I'm going to do the same thing. It's like using a GPS instead of a map - in theory, the more efficient system could be used as a tool to improve the learning process. In practice, it gets used as a substitute for the learning process.

Don't believe me? Try writing a hand-written letter to someone, and see how many times you find yourself stumbling over the correct spelling of a word. And this is only the mistakes you know you're making, let along the ones you don't! It's a sure-fire way to cure yourself of any hints of snobbery about how eloquent and precise your writing is.

Overall, I'm okay with this process - it's not like men are about to be thrust into the wilds of nature where no spell-checkers are available. This is certainly less problematic than the decline in mental arithmetic skills with the ubiquitiousness of calculators. There are a lot more situations where it's valuable to be able to do fast mental mathematics than to always have correct spelling.

Since nobody writes handwritten letters any more, there is only one case where you really see how bad people's spelling has gotten - handwritten signs. Very few people who are going to write a protest sign tend to type it in Word first. But they should:



(image credit)




(when it's on 'know your meme', the time for image credits is pretty much over)

Everyone looks at these signs and thinks these people are unspeakable idiots. But this is the wrong lesson. I'm sure if either one had to send an email, it would be spelled just fine.

Technology giveth, and technology taketh away.

Miscellaneous Joy

-San Francisco tries to ban Happy Meals at McDonalds. McDonalds lawyers easily circumvent ban. Meddling bureaucrats' tears ensue.

-Some interesting thoughts on self-defence:

If you find yourself in a situation where a predator is trying to control you, the time for listening to instructions and attempting to remain calm has passed. It will get no easier to resist and escape after these first moments. The presence of weapons, the size or number of your attackers—these details are irrelevant. However bad the situation looks, it will only get worse. To hesitate is to put yourself at the mercy of a sociopath. You have no alternative but to explode into action, whatever the risk. Recognizing when this line has been crossed, and committing to escape at any cost, is more important than mastering physical techniques.

More here, especially starting at 8 minutes 30 seconds.

-Anti-piracy group gets hit by copyright infringement claim and falling grand piano made entirely of irony.

-Business decisions that are clearly not made with cheapskate economists in mind: payment system Dwolla announces that all transactions under $10 will be free. I'm assuming they've thought of the possibility that I'll pay for my $500 TV with 100 free payments of $5 each in order to save two bucks or whatever. They're probably right that most people won't bother, but it would be humourous if they did.

-Via Reddit, The Good Old Days:

Psychologists Getting Statistics Wrong

Ace of Spades links to a study that claims to show that people view atheists as being less trustworthy. This was also covered in the National Post. The headline claim is attention-grabbing:

Atheists cannot be trusted: Religious people rank non-believers alongside rapists, study

Controversial stuff. As in all this stuff, you should always read the original study before rubbishing it. The author, Will Gervais, kindly has a version on his webpage, which you can read here. And I'm sorry to say that nearly the whole study appears to be done wrong.

So how exactly does Mr Gervais establish that atheists are as untrustworthy as rapists? Let the study tell the story - this is Study 2 of 6, but 5 out of the 6 studies have the same problem:

One hundred five UBC undergraduates (age range 18 –25 years, M 19.95; 71% female) participated for extra credit. Participants read the following description of an untrustworthy man who is willing to behave selfishly (and criminally) when other people will not find out:

Richard is 31 years old. On his way to work one day, he accidentally backed his car into a parked van. Because pedestrians were watching, he got out of his car. He pretended to write down his insurance information. He then tucked the blank note into the van’s window before getting back into his car and driving away. Later the same day, Richard found a wallet on the sidewalk. Nobody was looking, so he took all of the money out of the wallet. He then threw the wallet in a trash can.

Next, participants chose whether they thought it more probable that Richard was either (a) a teacher or (b) a teacher and XXXX. We manipulated XXXX between subjects. XXXX was either “a Christian” (n 26), “a Muslim” (n 26), “a rapist” (n 26), or “an atheist (someone who does not believe in God)” (n 27).

So the authors are relying on the conjunction fallacy of Tversky and Kahnemann (1983) - logically, the probability of being a teacher and [Y] is less than or equal to the unconditional probability of being a teacher, for all values of [Y]. People sometimes get this the wrong way around if the behaviour is associated with the trait. That is what the authors are trying to test (I think). They report that the proportion of people who answered (wrongly) that the person was more likely to be a teacher and an atheist was higher than the proportion who answered (wrongly) that the person was more likely to be a teacher and a Christian.

The first thing that should make alarm bells start ringing in your head is the way the question is phrased. To say 'are atheists untrustworthy?' is to ask the probability of being untrustworthy given you're an atheist. But the question implicitly being asked in the survey is something different, namely the probability of being an atheist given you're untrustworthy. These are not the same thing!!!! And this is really going to screw up the inferences.

If statistics bore you, let me skip to the punchline - the authors screw it up because they're not taking into account that there's tons of atheists and very few rapists. This means that the probability of being an atheist given you're untrustworthy is always going to be much higher than the probability of being a rapist given you're untrustworthy. But this says nothing at all about trustworthiness, and everything about how rare it is that a person is a rapist! And this makes the whole study flawed.

For stats people, what is actually being asked is whether people erroneously believe that:
P(teacher | Untrustworthy actions)  <  P(teacher AND atheist | Untrustworthy actions).

This answer is then compared to answers to the question as to whether:
P(teacher | Untrustworthy actions)  <  P(teacher AND rapist | Untrustworthy actions).

Since the left hand side is the same in each inequality, let's think about what could drive differences in the right hand side (even if people are screwing it up via the conjunction fallacy, this is still the implicit comparison). Using Bayes Rule:



(where A1 = Teacher and Atheist, A2 = Teacher and Rapist, and B = Untrustworthy).

Let's ignore the teacher bit for simplicity (it doesn't change the logic). What the author really wants to know is the second ratio - are people viewed as more likely to be untrustworthy given they're an atheist, relative to being untrustworthy given they're a rapist.

What they're actually measuring is the first ratio: the probability of being an atheist given you're untrustworthy versus the probability of being a rapist given you're untrustworthy.

But the difference between the two ratios is also driven by the third ratio -  the overall probability of being a rapist versus an atheist, regardless of whether you're untrustworthy.

And this ratio is huge! The study was done at the University of British Columbia. According to Wikipedia, 42.2% of Vancouver is atheist. What's the probability of being a rapist?  The overall rate of rape crimes in Canada is 0.016 per 1000 people. As long as each rape is only committed by one rapist, this will overstate the probability of being a rapist (i.e. if a rapist has multiple victims, the probability of being a rapist will be lower. If a victim is raped by multiple people in a single rape, the number will be higher, however)

So the third term is equal to 42.2/0.0016 = 26,375! In other words, suppose that people thought that you were 1000 times more likely to be untrustworthy if you were a rapist than an atheist (i.e. the second ratio equals 1/1000). The left hand side will be equal to 26375/1000 = 26.375. In other words, P(atheist | untrustworthy) will always be much higher than P(rapist | untrustworthy), even if rapists are considered far less trustworthy than atheists.

The authors only report the proportion of respondents who made the conjunction error - in other words, they report the number who state that P(teacher | Untrustworthy actions)  <  P(teacher AND Y | Untrustworthy actions), which is clearly wrong, and compare this for different values of Y. Sadly, this doesn't allow us to say anything about the real ratio, which is P(Untrustworthy | Atheist) versus P(Untrustworthy | Rapist).

In other words, the study is unsalvageable if you're trying to answer the question you're hoping to ask. Which is a shame, because it's actually an interesting question.

Quite Right

Thought of the Day, from Thomas Sowell:

"The more doctrinaire libertarians see the benefits of free international trade in goods, and extend the same reasoning to free international movement of people. But goods do not bring a culture with them. Nor do they give birth to other goods to perpetuate that culture."

Bingo.

If I had to describe where I part company with (some) libertarians, it is on exactly this point - that I think they frequently tend to underestimate the importance of culture. This often makes them both unwilling to defend western culture in a meaningful way, and enthusiastic about widespread immigration,  even if it is comprised of individuals unlikely to share (or even deeply antithetical to) the values of western society.

A Snapshot of Modern Britain

Article 1 - British Police spring into action to arrest woman for saying nasty racist things on a train:

A woman has been arrested after an online video apparently showed a woman abusing ethnic minority passengers on a packed south London tram.
...
British Transport Police said a woman, 34, had been arrested on suspicion of a racially-aggravated offence.
...
In the online clip, the woman confronts several passengers, saying: "You are not British". She then starts swearing. 

A British Transport Police spokesman said: "The video posted on YouTube and Twitter has been brought to our attention and our officers have launched an investigation. ....We will not tolerate racism in any form on the rail network and will do everything in our power to locate the person responsible."

Article 2 - Theodore Dalrymple recounting how the British legal system doesn't give a rat's @** about burglary:

While on the subject, let me just recount one story to illustrate how seriously the British state takes the defense of the property of its citizens. I was looking through the criminal record of one of my patients in the prison and discovered that he had not long before been convicted for the fifty-seventh time for burglary. Since most criminals will happily admit, in confidence, that they have actually committed between five and fifteen times as many crimes as they have ever been caught for, it was quite possible that this man had committed more than five hundred burglaries. And what was his terrible punishment for his fifty-seventh conviction for burglary? A fine of $85, presumably paid for from the proceeds of his activities.

Now that's a society with its priorities set straight! Get your feelings hurt by racist white trash assholes? Leave no stone unturned to arrest them! The same racist white trash assholes are breaking into your home right this second while you're on the phone? Sorry, we're very busy. Stop by the office later and we'll give you a useless police report so you can file an insurance claim.

It's also refreshing to see that the British Police have also taken a leaf out of Ken at Popehat's "Chicago Manual of Style For Censorious Dipshits":

The obligatory “we believe in freedom of expression” paragraph in the standard defend-our-censorship communique is simply embarrassing. That’s why the Chicago Manual of Style For Censorious Dipshits (“CMSCD”) recommends eschewing it and launching straight into the meat of your uninformed and conclusory stomping on First Amendment law.

Yes indeed, the British Police are admirably straightforward - they don't believe in freedom of expression, and don't care if you know it.

File this under 'unpersuasive'

To put it mildly.

Robert Frank wrote an op-ed claiming that there was an arms race in thanksgiving store opening hours which, of course, needed regulation. Tyler Cowen wrote about it, and Frank sent Cowen an email with some additional details. Included was the following anecdote about the recent allowing of Sunday trading hours in liquor stores in New York State :

I had a recent conversation about this issue with a friend in Ithaca who owns a wine store. Traditionally, New York State wine merchants were not allowed to do business on Sundays. But last year that restriction was repealed, and I asked my friend how the change had affected him.

His overall sales were about the same, he told me. The change had thus been a clear negative from his perspective, since it meant that he and his wife were no longer able to spend Sundays together with their children. The upside was that customers who lacked the foresight to shop in advance for their Sunday wine needs could now be accommodated. If we’re willing to discount the cost of an inconvenience suffered by those who could easily have avoided it, the costs in this case seem clearly to outweigh the benefits.

You don't say! If you're willing to discount the main cost of a given action, the benefits will frequently outweigh the costs. Feel free to try this with a range of meddling economic proposals:

-If you're willing to discount the millions in unrecoverable funds, the benefits of the government guarantee of Solyndra seem to clearly outweigh the costs.

-If you're willing to discount the cost of reduced competition and higher prices, the benefits of mandatory licensing of interior decorators clearly outweigh the costs.

 etc.

But there's an easier way to tell that this proposal doesn't make sense. What's so special about Sundays? Why not restrict Mondays as well? Or only allow trading one day a week? After all, if we're willing to discount the inconvenience suffered by those who could easily have avoided it, these would clearly make sense too!

Eventually, the Robert Franks of the world would look at this and say, yes, but there's a limit, customers need some convenience.

But this implicitly acknowledges that his argument, as phrased, is a crock. It's not that you can actually 'discount the cost of an inconvenience suffered by those who could easily have avoided it', but instead that Robert Frank thinks that the inconvenience they suffer is less valuable than the benefit to the liquor store owners.

To which I ask, how exactly are you arriving at that conclusion? Because it sounds a lot like you're just pulling that conclusion out of your @**, and you'd have no idea what the actual inconvenience to customers is, nor how many of them there are, nor how to value it.

Personally, I cannot fathom a theory of government that says if I want to open my store at 9am, 4pm or 2am to sell you a computer, a suit, or a bottle of whisky, why it is any business whatsoever of the government's. A government that is willing to intrude in this is willing to intrude in absolutely anything.

Why was the Greek default "voluntary"?

Marginal revolution links to this piece in the UK Daily Telegraph:

But perhaps the biggest sin of the lot was effectively to render all credit default swaps (a form of insurance against default) on sovereign debt essentially worthless, or void, by making the Greek default "voluntary".

This has made it impossible to hedge against eurozone sovereign debt purchases, and thereby destroyed the market. Worse, it's made investors believe that the euro cannot be trusted, that it'll repeatedly find ways of reneging on contract. That's the point of no return. This is no longer a serious currency.

Tyler Cowen refuses to take a stand on the question of whether the stated claim (making the default "voluntary" was a big blow to the credibility of the Euro) is true. And I think it's not clear, although the argument is not unpersuasive.

But it does raise a something that I now wish I'd written about earlier when I thought of it at the time, namely this: I don't understand why on earth they insisted on making the default "voluntary". The quotation marks are deliberate, as it was about as "voluntary" as when Vito Corelone makes you an offer you can't refuse, complete with a decapitated horse head left on your pillow. But technically, the private debt holders just happened to agree to forgive half the Greek debt they held. You know, like debt holders always do! Call up your student loan company, they'll tell you all about it!

When investors in Greek debt have to take a haircut, somebody is losing money. In a simple world without credit default swaps, the holders of the debt lose money - easy enough, that's the risk they took when they bought it. In this case, it doesn't really matter if the default is voluntary or not, they lose the same amount of money.

But when you add in credit default swaps, now it does start to matter. For the non-finance audience, think of this as like an insurance policy for the case that the debt defaults. You make periodic payments in advance, and then get a payoff if there's a 'credit event' (default, delay in payment, reduction in principal or interest, and a bunch of other contractually specified events). Some people buy the CDS contract and the bonds, some people buy the bond but not the CDS, some people sell (i.e. write) the CDS.

In a typical default, the ordering goes like this: the best off are those who had the bond and the CDS - this is like when your house burns down, but you have an insurance policy. The next worst off are the guys who have the bond but not the CDS. They're like the people whose house burnt down without insurance, but they still at least have the land (i.e., whatever the recoverable value of the bond is). The worst off are the CDS writers (i.e. the insurance comapny) - they pay out on the policy, and get nothing.

In well-functioning financial markets, we tend to think that this kind of risk-sharing is welfare improving. The insurance company is better placed to bear the risk of my house burning down than I am, and I pay them a premium for this service. Everyone benefits in the long run, even if there's winners and losers in any given event.

So here, it's as if the EU governments decided to not only burn down the house, but also void all the fire insurance policies, since "voluntary" defaults don't trigger the CDS contract payments. The best off are the CDS writers (the insurance companies), who pay nothing. The second worst off are the guys with bonds but no CDS (the homeowner without insurance), who takes the haircut but that's all. And now the single worst off guy is the one who bought the bond and the CDS - he loses  out on the value of the bond, AND he's been paying premiums for all these years on the CDS! Essentially you're totally screwing over the guy who bought the Greek Bonds but was a bit nervous about the risk and tried to insure himself. Congratulations pal, you get to eat a sh*t sandwich!

Now, bear in mind this is the exact opposite  of what governments normally do in catastrophes. If anything, they like to pressure insurance companies to pay out in situations they might not have. Both September 11th and the Paris Car Burnings could arguably be considered acts of war or civil emergencies (respectively), neither of which tend to be covered in insurance contracts. But the insurance companies paid out anyway, perhaps because of actual (or implied) pressure from the respective governments. Obviously there are clear political reasons in those cases - lots of voters on one side, a couple of nasty insurance companies on the other - but still, it's the general rule for how things go.

So why the hell would they deliberately do the opposite in this case? Truthfully, I don't really know. The "voluntary" defaults were taken by private investors and banks, and the people who wrote CDS contracts were largely other banks. So it's not clear why the EU government should prefer one group over the other. Maybe the government had private information that the financial stability was more threatened by CDS writers going under than bondholders, but it's not clear why this should be the case - a lot of French and German banks stood to lose money by this deal, as they held the bonds and CDS contracts that got screwed.

So what's left? A symbolic 'we never defaulted!' victory? Seems like a pretty damn Pyrrhic victory to me, as investors are not going to be fooled at all next time they're thinking about investing in PIIGS government debt. And the article author is right - they're also going to rightly question whether they can even get proper CDS insurance on this debt, or whether the EU will choose to screw them over again. This might not cause the collapse of the Euro, but it sure doesn't seem to be adding to the desirability of EU sovereign debt.

I'm hoping there's a good reason they did this that I don't know about. But from reading around, I haven't uncovered what it is. I can think of a bunch of bad reasons (CDS writers were more politically connected, the EU had a hard-on about the idea of not actually defaulting). But if there's some higher purpose to the whole thing, you can put me in the same camp as Jeremy Warner at the Telegraph in not understanding what it is.

Odd Graffiti in the Bathroom at the Hipster Dive Bar

'Ulysses is Odysseus'

In order:

1. Yes.

2. Wot?

The Difference Between Game Theory and Decision Theory

Game Theory assumes (at least) two things: common knowledge of the structure of the game, and mutual best responses by all players.

Decision Theory assumes neither.



The classical decision theorist would look at this picture and reflect that the lesson is that sometimes people do things that are TOTALLY CRAZY.

The more nuanced decision theorist would look at this picture and reflect that the lesson is that sometimes the other party isn't actually playing the game that you think they're playing.

Personally, I side with the latter as the one that you've really got to be worried about.

Either way though, caveat emptor.

Filling in the relevant details of the game is, of course, left as an exercise for the reader.

Predicting Behaviour During a Divorce

Apparently Hulkamania is running 70% less wild these days.

Linda Bollea, 52, who divorced Hulk Hogan in 2009, received a little more than 70 percent of the couple's liquid assets in their divorce settlement, a recent court filing shows.

In addition, Hogan, 58, the semiretired professional wrestler whose real name is Terry Bollea, agreed to give his ex-wife 40 percent ownership in his various companies and pay her an additional $3 million "property settlement," according to the 
filing.
...
The Bolleas married in 1983 and divorced in July 2009 after nearly two years of acrimonious proceedings. 

This is what happens when you get divorced in California, a community property state. The 70% is an overstatement because it only applies to the liquid assets, and Linda gets $3 million from the sale of their property. But from reading through the rough description of the settlement numbers (it's hard to figure out the exact details from the article), it seems like she's probably getting maybe 50% of the total net worth.

I'm guessing that when Hogan got married in 1983, he wasn't imagining that in the event of a divorce, he'd be going through 2+ years of nasty court proceedings and still lose half his stuff. The latest dispute, apparently, is over whether he owes his ex-wife 40% of the company's gross revenues, or 40% of net revenues. Over such minor drafting ambiguities do years of litigation depend when people loathe each other.

The question is, why are people so bad at forecasting how their partners will act if they get divorced? I think part of the problem is that they keep being influenced by the way the partner is acting today. In other words, they think of how Bob or Sally is today, and imagine them breaking up.

But this is deeply faulty. By the time you get divorced, it's fair bet to assume that they will hate you more than any other person in the world. You have the burden of years of messy and hurtful deterioration of the reltationship, and/or surprising and nasty betrayals of trust. Plus you're then forced into a very high-stakes negotiation with someone that you now despise. Which may last years. And in which they'll have a lot of opportunities to engage in costly punishment - refusing to agree, dragging out court proceedings, etc.

So the better measure is the following - how do they act towards other people they hate or have hated in the past? Are they vindictive? Do they bear grudges for long periods? Do they find ways to get back at people? And how many such people are there - do they have a long list of people they don't like? If you have data on past relationships, this is even better. Are they on speaking terms with their past boyfriends/girlfriends/ex-wives/ex-husbands? Were they cheated on, and if so, how did they react?

A second, but somewhat less useful category, is how greedy are they with money generally? Someone may go after your money either as punishment for you, or because they really want the lifestyle it gives them. What is their attitude towards receiving charity? Are they reluctant to be financially supported by other people? I think this is a weaker test, because a) there's substantial punishment motivations for going after money as well, and b) by this point, they're likely to view it as being their money, not yours. And if there's any lingering aspect on this, having it intermediated through the courts will probably weaken it further.

But my strongest predictor would be the following - what's their attitude to the courts? Have they ever seriously threatened to sue someone? Have they gone through with it? Has this happened multiple times? If any of these start coming up, you'd better believe you're going to be in for a nasty divorce if it happens.

And once you've got your estimate of the chances of the divorce being messy, double it. Then either get yourself a good pre-nup with your spouse getting independent legal counsel that gets documented (knowing that courts will probably throw it out anyway), or don't get married. Unless you're in Australia, in which case even not getting married may not to save you. In which case, bend over and take it like the government demands, or presume to spend a ton on lawyers no matter what.

The Single Worst Law in America Today

The rule that both parties in legal disputes pay their own costs, regardless of the outcome.

This leads to gold-digging lawsuits. It leads to people suing home owners because they slipped on their pavement. It leads to disgruntled employees filing lawsuits every time they get fired. It leads to doctors being sued every time an operation is not successful, regardless of whether it was their fault. It leads to robbers suing homeowners for injuries they sustain in the course of burglaries.

Why, you may ask, does it lead to all these various things?

Because it creates the most screwed up incentives imaginable. A lot of plaintiffs get their fees charged on contingency – no win, no fee, in other words.

When someone files a lawsuit, no matter how ridiculous, the only cost is their time. Monetarily speaking, every lawsuit has a positive expected value from filing. Any risk that’s there is retained by the lawyer, who spends more time on the case.

When people defend a lawsuit, even when they win, they lose. Because there’s no payoffs to successfully defending a lawsuit, defence lawyers can’t charge on contingency. Hence, apart from a few special cases like SLAPP statutes (where you can argue that the lawsuit was designed to silence free speech), the defendant has to pay up front.

The best case scenario is that you just pay your legal fees. The worst case scenario is that you pay your legal fees and the judgment against you.

But then the plaintiffs will make you the devil’s bargain – if it will cost you at least 30 grand to defend this, why not just settle the case for five grand, even though it’s bogus?

The main people who defend lawsuits are those who have a personal conviction that they’d rather spend more money on lawyers just to make sure the plaintiff doesn’t get anything. But even then, the plaintiff doesn’t get punished, they just get zero. If defendant actually wins. Which they may not.

This system has a number of problems.

Firstly, it creates an incentive for all sorts of gold-digging lawsuits. Lawmakers end up trying to play whack-a-mole to fix the related problems, such as capping medical negligence damages (where everyone still has an expected benefit, but it’s now smaller.) Or maybe make it harder to win lawsuits if you slip over, or if you were in the process of robbing a home. But whatever you do, you’ll always be playing catch-up as long as the base incentives to file lawsuits remain in place.

Secondly, it creates a morally impoverished citizenry that views every trivial wrong as a potential lottery ticket. Those who justifiably view this system as legalized extortion may choose to voluntarily refrain from filing, but this merely means that the benefits accrue disproportionately to the shameless, the self-entitled, the greedy, and the narcissistic. What a horrible incentive to erode virtue.

Thirdly, it fails to recognize that lawsuits impose a real cost on the counterparty and society. Like any externality, when people aren’t forced to internalize the cost, they over-consume the item. Same with lawsuits. Making the losing party pay the winning party’s legal fees means that people are forced to consider if they actually suffered a serious and acute legal wrong for which they need compensation, or whether they’re just trying to punish someone they’re pissed off at. It is manifestly not the role of the legal system to help ameliorate your hurt feelings.

But for some reason, the popular support for this position is very slim. Websites like Overlawyered document very well the egregious abuses of this lawsuit-obsessed society. But they don’t really talk about why this happens, or what can be done to stop it.

I would love to see the Republicans propose ending this practice. The trial lawyers would scream bloody murder, but it would be amongst the easiest and most beneficial changes that could be made to the law.

Man, Dog, TSA version

Dog bites man:

A Transportation Security Administration employee is accused of sexually assaulting a woman in Manassas.

*Yawn* That happens all the time.

Man bites dog:

Police said the victim reported that she and a friend were in the 10500 block of Winfield Loop in Manassas when the suspect approached them. The suspect flashed a badge and sexually assaulted the victim before fleeing on foot, police said.

Wait... this happened outside of an airport? Outrage!

Bad Signals of Movie Quality

When the premise of the movie begins as follows:

"X is a (movie/book/etc.) writer who has enjoyed past critical success. But he  finds himself suffering from a bad case of writer's block, and ... [blah blah blah]"

The problem is that this just screams out projection by the scriptwriter. "Holy crap, I can't think of anything to write and the studio is busting my @**! Let's write a movie about a guy who's struggling to write a movie and the studio is busting his @**!"

Let's not.

This formula is just a very slightly disguised version of what happened in primary school when you were told you had to give a speech but couldn't think of what to talk about, so you gave a speech about how to give a speech. It wasn't interesting then, and it's not interesting now.

Looking back to the synopsis above, there's only two possibilities. Sometimes the [blah blah blah] is actually interesting, in which case why not just start there? Why have all this self-indulgent bit at the start that merely dilutes the average quality? The other possibility is that [blah blah blah] isn't actually that interesting. In which case, the good news is that quality is not being diluted, but the bad news is that it's uniformly bad.

I noted this while watching Barton Fink last night, which follows almost exactly the plotline above for values of [blah blah blah] = murder plot that comes out of nowhere. It definitely one of the Coen Brothers weaker efforts, and I'm normally a big fan of their work. The movie has a great performance by John Goodman, and some hilarious portrayals of 1940s Hollywood types, especially the studio head. But it takes 70 minutes before anything interesting happens. 70 minutes! Many good movies are mostly finished by that point!

I did look at the Netflix synopsis, which was pretty similar to the outline above, and it gave me some trepidation, but I figured the Coen Brothers could make it work. Yeah, not so much. Do yourself a favour and watch The Big Lebowski a third time, you'll have more fun.

Miscellaneous Joy

-An interesting theory about McDonald's McRib - that it only gets reintroduced when pork belly prices drop. (via Kottke)

-A wicked sight-reading of the Super Mario Brothers theme, by someone who apparently has never played the game.

-Click and drag around to control the view from a helicopter ride. Rad!

-Coyote lays the smack down on the bogus use of statistics by global warming hysteric James Hansen. Deliberately misleading or just plain stupid? You decide!

The Off-Equilibrium Benefits of Widespread Gun Ownership

Economists sometimes talk about about the idea of certain things being 'off the equilibrium path'. What this means is that you never actually expect to see the situation where the alternative scenario would arise.

I think that military size is a classic example of this. If you have a military that is overwhelmingly stronger than everyone else's (and you only plan to fight defensive wars) you probably ever won't need to use it. Once you have the biggest army, why would anyone want to fight you? Other countries know they'll lose.

And here's where the off-equilibrium part comes in. You never expect to see the scenario where the huge army is actually useful. But if you took away the big army, suddenly you would need it, because other countries might be tempted to invade. In other words, you can't look at the fact that your army is not being used to fight wars and infer from that the large army wasn't necessary. The benefits, in other words, never get observed, because they are off the  equilibrium path.

I think that one of the big benefits of widespread gun ownership operates in the same way. Widespread gun ownership has lots of costs - more crimes of passion, more accidental shootings, etc. But like a large army, having lots of hunters (and even just armed gangbangers) has off-equilibrium national security benefits. Last year, Marginal Revolution linked to the following post at Federalist Paupers on this subject:

The state of Wisconsin has gone an entire deer hunting season without someone getting killed. That’s great. There were over 600,000 hunters.

Allow me to restate that number. Over the last two months, the eighth largest army in the world – more men under arms than Iran; more than France and Germany combined – deployed to the woods of a single American state to help keep the deer menace at bay.

But that pales in comparison to the 750,000 who are in the woods of Pennsylvania this week. Michigan’s 700,000 hunters have now returned home. Toss in a quarter million hunters in West Virginia, and it is literally the case that the hunters of those four states alone would comprise the largest army in the world.

This kind of level of armed citizenry would make it incredibly difficult to successfully invade the US. Even after you beat the main professional army, everywhere your soldiers go they risk getting killed by trained riflemen. That's going to make it very hard to subdue the populace.

The interesting thing, at least politically, is that when benefits get sufficiently far away from the equilibrium path, people tend to forget that they're there. It is almost unthinkable that someone would try to mount a land invasion of the US any time in the near future. And at least part of this is due to the deterrent effects of domestically owned guns. But the prospect of hunters shooting at - who? the Russians? the Chinese? - seems so far-fetched that people discount it. The relevant question is to assume that we're no longer in equilibrium. If the Chinese had invaded, would America's hunters shoot at them? Very likely. And as long as that's the case, it's a real benefit. Even though it's incredibly unlikely you'll ever see it come to that.

It may still not be worth it to have lots of guns. It may be the case that, hunters and gangbangers or not, the conventional US Army is enough to make invasion very unlikely. But that's not really the point - a benefit is a benefit, even if it might be very costly to obtain.

As Cypress Hill noted about guns: When the $#*t goes down, you'd better be ready.

The game theorists riposte would be as follows: If you're always ready, the $#*t may never actually go down. But that doesn't mean you don't need to be ready anyway.

Thought of the Day

"To die well, we must know first what we have lived for."

-Theodore Dalrymple

That's just super!

Back during the debt ceiling debate, one of the key components of the compromise agreement between Democrats and Republicans was that a fabulous new "supercommittee" was to be formed to figure out how to reduce the deficit. No, not the Bowles-Simpson commission, which had been formed to investigate just that question and came to some quite reasonable-sounding conclusions, but a great new one! Made of the same quality politicians that steered the country right to the brink of voluntary default!

So how exactly is that working out? Well, here's the answer, according to The Hill:

It's a move that's been dismissed as a budget gimmick, but it's also one that could make the supercommittee's job a whole lot easier: counting the savings of withdrawing troops from Iraq and Afghanistan.

The White House says $1.1 trillion will be saved by drawing down those troops from Afghanistan and making the U.S. presence in Iraq a civilian, not a military, one.

Given that the supercommittee must track down at least $1.2 trillion in cuts to avoid the triggering of automatic cuts, simply accounting for those savings would nearly get the panel there all by itself.

Yes, that's definitely the kind of tough political decisions that S&P was hankering after when they downgraded the US credit rating! I'm intrigued by the first sentence - is there anyone who wants to seriously take the counter-position that this is not, in fact, simply a budget gimmick? Anyone at all?

But not only that, apparently Democrats on the committee have already proposed that these miraculous 'savings' should now be spent on a second stimulus instead of used for deficit reduction. Yes, that's right! They found new funny money, and can't wait to spend it on real commitments! Which will, in the grand tradition of Washington, be advertised as one-off extraordinary spending, but somehow will make it into future budgets as the baseline of spending, from which any cuts will be demagogued as harsh and cruel.

Mark Steyn heaps well-deserved scorn on this whole exercise:

But, aside from that, in what sense are these “savings”? The Iraq war is ended – or, at any rate, “ended,” at least as far as U.S. participation in it is concerned. How then can congressional accountants claim to be able to measure “savings” in 2021 from a war that ended a decade earlier? And why stop there? Why not estimate around $2 trillion in savings by 2031? After all, that would free up even more money for a bigger stimulus package, wouldn’t it? And it wouldn’t cost us anything because it would all be “savings.”

Come to think of it, didn’t the Second World War end in 1945? Could we have the CBO score the estimated two-thirds of a century of “budget savings” we’ve saved since ending that war? We could use the money to fund free Master’s degrees in Complacency and Self-Esteem Studies for everyone, and that would totally stimulate the economy. The Spanish-American War ended 103 years ago, so imagine how much cash has already piled up! Like they say at Publishers’ Clearing House, you may already have won!

It is becoming clearer and clearer that the US deficit will not be seriously dealt with until the country is in the same position as Greece is now. And given how well that's working in Greece, that may well mean that it's not dealt with at all. Unless you count 'default and being frozen out of credit markets' as a form of dealing with the problem. Which it is, after a fashion.

Reality will eventually deal with unsustainable spending one way or another. As Herbert Stein noted, if something cannot go on forever, it will stop. But you ought to care which way it happens. A car can stop by slowly pulling up to a red light, or it can stop by colliding with a brick wall. At this stage, I'm betting on the latter.

High Marginal Value Cleaning

The law of diminishing returns is called a law for a reason. The more of something you do, eventually the payoff decreases. It might increase at first (e.g. if there's network effects or economies of scale), but sooner or later, it turns negative.

But if you're clever, you can use this to your advantage. Take the lazy bachelor's approach to cleaning. Suppose (entirely hypothetically in my case, I assure you), your bathroom is quite dirty. In the case of cleaning, the first efforts at cleaning have huge payoffs. Just wipe the floor with a paper towel and you'll pick up maybe 70% of the filth. And it only takes 5 seconds! This is clearly a huge return on effort. But if you really want to get the floor clean, you'd have to get the mop and bucket, run the water, put in detergent, scrub the floor, and wait for it to dry.

In other words, that last 30% is going to take you 10 minutes, minimum. Honestly, who's got that kind of time?

The answer, of course, is people who are OCD about dirt, clean for a living, or have too much time on their hands.

It will come as no shock to those who know me in real life that I would self-classify as none of those three. Okay, maybe the third one is true (see, for instance, this blog), but I don't have the inclination to spend it cleaning.

If you don't believe me, just ask David Ricardo:

You should listen to your friend David Ricardo, he's a cool dude.

So True!

Phrases that I challenge ANYONE to explain the logic behind

(After the plane has landed):

"You may now use your cell phones but all other electronic devices must remain off."

Gotcha. Now we've reached the seventh circle of anti-scientific hell - my iPod might cause the plane to crash into the hangar, but when they installed a cell phone receiver to make it an iPhone, this somehow fixed the problem.

Ugh.

A Pre-Mortem Post-Mortem

Over at Hacker News, there's a fascinating article discussing the prospects of Raystream, a company that claims to have a new video compression technology. As their 'about' page describes their claims:

Using Raystream, the same one hour 720p video can be compressed up to 90% of its original file size, which makes it easily streamable over connection speeds ranging from 0.4 to 1.0 Mbs per second.

No playback modifications required (codec, browser player, set top box, smart phones, etc.)

Interesting, no?

Enter the description at 'Ihatelawyers3':

OK, at this point, if you know anything about video compression, you start to see a red flag waving in your face. The only way one can encode videos so that they (a) play on mobile phones, and (b) need no playback modifications (codecs, etc) is... if you use an existing codec.
But how can an existing codec compress to 10% of what it... already can do?

So he decided to take their test video and compress it using off the shelf technology. And the results, as described in the hacker news thread:

If you encode their test-video with an off-the-shelf open source H264 codec on normal settings, you end up with a video that is smaller than their sample video. Their "amazing new technology" is just vanilla h264 compression.

 Or put another way:

It means the _normal.mp4 file was encoded in an absurdly high bitrate for no reason except to make their claim of 90% compression.

 Hmmm.

I don't know video compression. The hacker news discussion and the github site seem pretty compelling.

But I do know finance.

Here's Raystream's stock price over the last month:

Yeeeaaaaah. It sure looks like something fishy is going on.

It's an over-the-counter stock, so you can't short it. But let's put it this way - Shylock Money Management is not investing any of its proprietary trading money in RayStream, and would be interested in possible short exposure to the stock.

Spam Comment of the Day

From a spam site commenter calling itself 'Wastewater Training' (no link for the spam site):

"A lot of water is wasted in those taps. But that doesn't end there. There are still a lot of things we should look into if we really want to save water like for instance in the garden. We should use the conventional water container to water the plants rather than using a hose or a sprinkler."

Yeeaaah. I'm not so sure that that was really the original point of the post:

So here's the bottom line. I refuse to feel the slightest bit guilty about taking long showers as long as the water department are blowing taxpayer dollars on ridiculous ads. If you want people to use less water, raise the damn price.

But sure, why not! Those free-market types will be rushing to take your online environmental compliance and safety training class after reading how insightful your remarks were.

Morons.

Market-Clearing is Overrated

In Australia, today they voted in the Senate to pass a tax on carbon dioxide.

Now, there are some reasonable argument for having a world-wide price of carbon, assuming countries could somehow be arm-twisted into doing so.

There are bugger-all reasonable arguments for imposing carbon tax when very few other countries are doing so. All that will happen is that carbon-intensive industries will be exported overseas.

But (as Tim Blair notes) to add to the hilarity, the tax comes in at a specific amount - in this case $23 a tonne. The trouble is that the current carbon price in Europe is about half that. You can see the progress for yourselves.

But that's alright, we've got Climate Change Minister (yes, really, Australia actually has one of those) Greg Combet to point out the answer:

But Climate Change Minister Greg Combet is not convinced the difference demands a change in the local price, saying a few months ago the European cost was “there or thereabouts” of $23 a tonne.

“We’ve just got to take a bit of a longer term view of this,” he told ABC Radio

Hmm. Any particular reason you think that the current price is unrepresentative, but the old price is clearly accurate? Any reason at all? I mean, if you're willing to admit that the market is inefficient today, why is 'a few months ago' the gold standard for the halcyon days of price efficiency?

Don't hold your breath waiting for a good answer to that one. But even this is beside the point - efficient or not, the European price of carbon right now is a lot less than it will be in Australia. (Not to mention that the Chinese price is forecast to be $0 for quite some time now, with an R-Squared of about 100% on that regression). As long as there's going to be a price, it ought to be the market price. Unless you think the relevant market is the US and China, in which case we're back to the earlier Shylock regression.

In Australia, the price will be at $23 a tonne, which some days will be less than Europe, and other days will be more.

In other words, the price will definitely not be a market-clearing price. This gives Australian firms a fluctuating competitive position relative to Europe, and a permanent disadvantage relative to just about everywhere else. Heckuva Job, (Bob) Brownie!

One prediction I can make with some confidence - expect the market for Australian-produced Aluminium to start clearing very rapidly at an equilibrium quantity supplied of zero.

Some Quality Trolling

This is one of the most hilarious heckles on the repulsive Westboro Church cult.



Unfortunately, these clowns are too obtuse to even be embarrassed (kind of goes with the territory). But Brick Stone does a great job of ridiculing them, which I think is far and away the best response to these imbeciles.

Randomised Compassion

The problem with giving to the homeless is twofold.

First, how do you tell which people are truly in bad shape, as opposed to merely being professionally homeless? There are lots of people who are really out of luck. On the other hand, back when I was at university, the same 'bum' worked the same corner for years near school, and didn't look that homeless. I subsequently found out that he actually lived in the same large apartment building that I did.

Second, how do you give money without creating bad incentives? In other words, if you give money to people that beg, you create incentives for more people to beg, as opposed to say apply for a low-wage job. The last thing you want to do is set up a situation where someone makes more money begging than they would at a minimum wage job, or you'll end up with the hard-working being punished on net.

One solution that I like is to to give large-ish amounts of money to people who aren't asking for it.

In other words, find someone who is clearly homeless and away from significant pedestrian traffic, so it's unlikely that they're doing things for the benefit of an audience. For instance, I came across I guy today near a petrol station who was going through the bins looking for aluminium cans.

Now, clearly this guy meets criteria #1. Nobody digs through rubbish bins unless they're clearly down on their luck - it's not an obvious way to win sympathy from people, unlike holding up a sign saying you're a homeless vet.

But even better, giving the guy money isn't going to change his incentives. Because the generosity was essentially random from his point of view, he'll keep doing whatever he was doing before - in this case, working to eke out a small existence recycling cans. If you give money to a guy begging, your generosity is not random - it's a response to him asking you, and thus you're creating incentives for him to beg more.

Now, if the guy is truly homeless, this honestly isn't such a problem - more people get hassled, but he gets a little more money. I can happily call that a wash, or even a gain overall.

The bigger problem is the incentives you create for people who aren't actually homeless - slacker hippy tourists, for instance, who see beggars getting money. Unless you're able to clearly distinguish genuine need from grifters, giving to homeless beggars will create incentives for non-homeless beggars. And those are the people that definitely should be applying for jobs instead. Even worse, being asked for money by obvious moochers tends to make the average person reluctant to give money to anybody, even those actually in need.

In other words, I'd rather give twenty bucks to a guy sleeping on the street than twenty cents to a guy begging.

This is not a problem-free solution, of course. The guy who is truly in real trouble is likely to ask for money, out of desperation if nothing else. And he's the guy you'd really rather not turn down. The problem, as always, is the hippie grifters, mooching off people's sympathy.

In this sense, when I do give to beggars, the question of whether they truly are homeless is dealt with using the strong application of the Ronin principle  - if there is any doubt, there is no doubt.

It's not perfect, but compromises necessarily aren't. Don't blame me, blame the moochers.

Miscellaneous Joy

- A wonderful, rambling essay about crows as a metaphor for the working poor. There's plenty in The Exiled to disagree with (including, herein, gratuitous enjoyment about the Blackwater deaths at Fallujah), but they'll sometimes have these kinds of brilliant pieces that you're unlikely to read elsewhere.

-A great rant about how bad the websites are for Indian trains. Having been in the unfortunate position of having to once book railway tickets in India, I can attest to every word.

-Copyright troll who sued people for reproducing newspaper articles loses, big-time. Popehat has more on the background to this development.

-JWZ had this great post about how ridiculous Google's claimed 'support' for pseudonyms was, offering instead the following alternative policy:

Google's statement is obvious bullshit, and here's why. The way you "support" pseudonyms is as follows:

1. Stop deleting peoples' accounts when you suspect that the name they are using is not     their legal name.

2. There is no step 2.

Sure enough, they didn't take him up on the offer.