Economics, Literature and Scepticism

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I am a PhD student in Economics. I am originally from South Africa and plan to return there after my PhD. I completed my M. Comm in Economics and my MA In Creative Writing (Poetry) at the University of Cape Town, where I worked as a lecturer before starting my PhD.

Blog Archive

Wednesday, December 31, 2008

On the Carnival of the Africans #5

Posted by Simon Halliday | Wednesday, December 31, 2008 | Category: , , | 0 comments

Below, my comments on some of the recent pieces from the Carnival of the Africans #5.

Michael of Irreverence shares a piece I had intended to comment on previously: 7 Myths about the SA Economy. I enjoyed his summary. I disagree with Cronin and Nzimande on the 'scientific' nature of Marx, but still believe that he made occasional relevant points (as exemplified in work by Stiglitz, Bowles and others).

The Skeptic Detective discusses an encounter with Tarot Reading. I used to have a Tarot Deck (I know, I know). I always thought the pictures particularly pretty and liked the mythological ties, but I gave up on the divinatory stuff a long time ago (forgive me). Anyway, the discussion is interesting and entertaining.

A blog I had not read previously, Ambient Normality, has a report on a Christian campaign for the death of Santa Claus as a "new Pagan god of Materialism." The blogger comments on how odd the double standard is, and, particularly, how odd the assertion that the 'true' reason for Christmas is the birth of Christ, rather than, say, the Winter Solstice (northern hemisphere). Brief and cutting.

Limbic nutrition gives a good bullet point summary on the riots in Greece. Worthwhile to read covering most of what you 'should' know about the riots.

Lastly, a comment from retroid raving on the state of Science in SA was enlightening. I am in the process of applying for funding from the NRF so I won't voice an 'actual' comment, except to say that I hope that they support me as an 'unrated' researcher.

Ok, that's enough for now. If I feel enlivened enough to escape from research and read some more blog posts I'll see what I can do later.

Bringing it home

Posted by Simon Halliday | | Category: | 0 comments

One of my classmates is Palestinian. When he and I are not studying together in Italy, He lives in Ramallah with his wife, child and family. Although he is not close to Gaza, the violence in the region is overflowing into the West Bank in small ways. He told me, in email communications, of violence close to his home in which clashes between Israeli soldiers and members of the public is becoming more common. Recently, these clashes were within 100 meters of his home. This saddens me deeply.

He keeps a photograph of his daughter on his cell phone screen. She is a beautiful little girl. He and two other Palestinian students in our PhD program are committed to improving their own lives and the lives of their compatriots in the Palestinian Territories. I sincerely hope they get the chance. I sincerely hope for a more unified and peaceful response from our world leaders. I hoped for more from Obama. I am glad the EU proposes peace and asserts that the solution cannot be military. I do not regularly comment on political strife in contexts other than those which are immediately pertinent to me as a South African, or as an economist, but in this context I hope simply for the end of killing, for an end to unequal responses.

For those who have not read it, I recommend this short piece on the current conflict, and the lead up to it, in the London Review of Books written by Sara Roy of Harvard's Center for Middle Eastern Studies.

Sunday, December 28, 2008

Carnival of the Africans #5

Posted by Simon Halliday | Sunday, December 28, 2008 | Category: , | 2 comments

Owen Swart of 01 and the universe is hosting the fifth Carnival of the Africans. I have not read the pieces yet, but wanted to promote the carnival. Go and have a look. I will read and tell you of the posts that I enjoyed.

I admit that I have been quiet of late because of work and teaching summer term, but I hope to have a couple of interesting pieces on Neuroeconomics up for the next carnival (Mike hold me to this!).

Anyway, it is also necessary for me to update my African Sceptical and Scientific blogroll. Here they are, I will be adding them to my sidebar promptly:


Friday, December 26, 2008

Priced Charity

Posted by Simon Halliday | Friday, December 26, 2008 | Category: | 0 comments

I know this makes me 'sound like an economist', but I am in favour of the low-priced, profit-driven provision of support for those in need. Specifically the targeting of 'poor' individuals for goods that they require, but at prices that still allow a business to run, for example the provision of mosquito nets, or paid toilets or others.

Al Roth comments on this (initially in reference to an article by Nicholas Kristof, but anyway), and, in general, I am with him. Read the Ashraf paper, she is an (upcoming) goddess of experimental development work - she did experimental economics work in SA a while back (J. Exp Econ, 2006 if I recall). Very cool lady.

Ok, back to work.

Tuesday, December 23, 2008

This Makes Me Happy

Posted by Simon Halliday | Tuesday, December 23, 2008 | Category: | 0 comments

The UN general assembly signed in a declaration for the universal decriminalization of homosexuality. The action was opposed by the US, the Holy See and by a conglomeration of Islamic Countries.

Anyway, I understand that this kind of thing is not binding, but it is a step in the right direction for the promotion of LGBT rights. I am in favour.

See the article from the UN Dispatch here.

Friday, December 12, 2008


Posted by Simon Halliday | Friday, December 12, 2008 | Category: | 4 comments

I have not commented on books that I have read for quite some time. Here are a few paragraphs on a selection of books that I've read since last posting on the topic.

Shakespeare by Bill Bryson: Bryson is always good to read and this book didn't disappoint. I reveled in the little anecdotes about the context in which Shakespeare wrote. I remain convinced (as Bryons is) that Shakespeare wrote the plays, but lament the fact that we don’t have more documentary evidence of his history and his literary ‘processes’. What made reading the book even more fun was the fact that I have met Stanley Wells, who Bryson regularly quotes in the book. He is based at the Shakespeare Institute where Amy (my wife) volunteered during her year in Stratford. He took a shining to her and, consequently, I have met him on several separate occasions. He took Amy and I to lunch when we were in Stratford during August. Paul Edmondson (who presided over our wedding) is also quoted a few times in the book, which made it even more entertaining to talk to Paul about speaking with Bryson about the book: this brought a double joy to the reading. Don't go in expecting a book about the plays, go in expecting a book about Shakespeare, his time and his England.

Talking It Over by Julian Barnes: A fantastic little novel which tells the stories three people (two men and a woman) who end up in a love triangle, each telling the story from their perspective as the narrative progresses. Barnes has a fantastic sense of humour and the voices of each of the characters is distinct and seems to encapsulate that character’s foibles, complexities and modes by which they interact with others. Very funny, and quite deeply satirises certain British stereotypes.

Daniel Martin by John Fowles: Is an epic novel that traces the steps of the title character from a brief retelling of his childhood, to his life as a student at Oxford, to his adult life as a screen- and playwright. The book drips with irony, and, rather like the Magus, you cannot believe that there are so many ways in which characters can interact, or threads by which the narrative can be extended. Still, it is a beautifully written novel, it captures a sense of what it must have been like to be a British scriptwriter or author in the US in Los Angeles, but still retaining an essential Britishness that cannot, or is not, adequately understood by many (North) Americans. It is also interesting because during the writing Fowles often goes on philosophical tangents: he tries to navigate an understanding of the conflicts of capitalism and socialism, something in which I am deeply interested, as well as problems of aesthetics, such as whether art should be instructive or not. It is a challenging, fantastically written and epic novel. It makes me want to retrace the routes that the characters do to remote places in the US, certains spots in the UK (yes the UK does have remote beautiful areas) and also Egypt. I'd give this book a big thumbs up if you can deal with his occasional over-writing.

Song of Solomon by Toni Morrison: I enjoyed this book far more than I
enjoyed the previous book of hers that I read, Beloved. Beloved was very well-
written and understandably lauded (for example the New York Times did a survey of American authors and they voted it as the best American novel of the past 25 years). However, I found the writing style of Song of Solomon easier to read, as well as finding it more manageable in terms of the characters and narrative Morrison introduced. The main character’s name is Macon Dead, an African American growing up in the US during the period spanning the 1940s to 60s. Morrison tells his life: how his experience, as the son of an African American who owns property is both an intrinsically African American experience, but also distinctly not African American in the advantages that he has because of his father being a property owner. Combine this with a backdrop of odd family members, a narrative that takes you back to his grandparents and their tale and the book makes for riveting reading - it's a window into the paradoxed of African American life in 20th Century USA.

Divisadero by Michael Ondaatje: I picked this up in Borders Bookstore in Heathrow's Terminal 3 to read on my flight back to Cape Town. I read about half of it on the flight, distracted by action movies, mindless entertainment and the copy of Malcolm Gladwell's Outliers that I have on my ipod (not quite finished more on that book another time). Anyway, this book is somehow caressingly written, as if Ondaatje is drawing you in with the lyrical nature of his writing, drawing you in to the stories of how people love one another, how it damages them, how it helps to construct who they are. This is the second novel of his that I have read (The English Patient was my first, glorious delving into Ondaatje's fiction) and it contrasts oddly with his poetry, which I find to be more comical and more playful, definitely more playful with respect to how he treats and interacts with words. Nevertheless, this book is wonderful and now that it is in soft-cover it constitutes a good gift to the Ondaatje uninitiated.

Predictably Irrational by Dan Ariely: This book constitutes a fun introduction to a fairly limited draw of modern experimental economics and social psychology, the barried between the two is quite small with respect to what Ariely does as I would not always call what he does 'experimental economics'. Although I think that Ariely does some intriguing and worthwhile work, he suffers from the experimentalists Achilles' Heel (in my mind) in that he overstates the parallelism, or generalizability, of the results that he obtains in small-scale and localized experiments. I don't believe that he gives sufficient credence to cultural difference, or to heterogeneity of individual responses. That being said, I would recommend this book to most critical thinkers as it restates many examples of how we, as humans, thinking irrationally and do it in a predictable manner. For as many overly general or slightly inaccurate statements that he makes, Ariely makes many more that are worthy of our consideration in modern economics and psychology, especially in the contemporary crisis-wracked world.

Experimental Methods: A Primer for Economists by D. Friedman and S. Sunder is a book from which I read a chapter or two for a course on decision theory and behavioral economics. I decided to read the book and found it very valuable. Most of my reading in experimental economics has tended towards individual decision-making and individual preferences, the book, though quite dated (published in 1994) now in terms of the field, but is still a classic. They have a significant focus on market, auction and asset-market experiments with barely a mention of preference-based experiments, yet they provide general guidelines for conceiving and implementing experiments, data analysis and writing up that are very valuable. The book is an easy read and I found it worthwhile considering how I want to undertake experiments as part of my disseration research.

Otherwise, I am reading a book of Italian Short Stories, Gladwell's Outliers as mentioned, a book on Italian History, and another on neuroeconomics, in addition to which I am still doing my best to read Adam Smith's The Theory of Moral Sentiments when I have the time (and the patience). Oh yes, I also forgot to mention reading the inestimable 'On Liberty', but I don't believe that I can add much to criticisms or laudatory remarks on that book as it really is one of the great texts in philosophy (or so I believe, whether you disagree with its conclusions or not). Sherbet, I also realise I read Marx and Engels's Communist Manifesto for the first time, I found it interesting with some of the content agreeable and other content particularly disagreeable, but I suppose that was bound to happen. I know I am forgetting others, but this will have to do for now.

Tuesday, December 09, 2008

Positive Feedbacks

Posted by Simon Halliday | Tuesday, December 09, 2008 | Category: , | 2 comments

Not necessarily what I will get from my students after prescribing them actual (shock! horror!) reading for ECO2003P, but hey. Anyway, the reason I mention this is that while lecturing in Intermediate Micro one of the subjects that I cover with the students is that of monopoly power through network externalities, increasing returns, lock-in and specific, or irreversible, investment. The discussion is based on two articles both very easy to read:

W. Brian Arthur, 'Positive Feedbacks in the Economy', Scientific American, Feb 1990.
Paul A. David, Clio and the Economics of QWERTY, AER, May 1985.

I am hoping to get some lights on in the minds of some of the kids by doing a question-based discussion of the papers. I want them to engage with the readings and come up with their own ideas, I know such intentions may be naive but I remain optimistic. Even if only 1-5 of the 65 students gains some insight and some ability to think better about the world as a consequence of the discussion (rather than a straight up lecture) then I will be happy. In fact, I am guaranteed at least one with a bright and engaging student who I see is getting a fair amount from my lecturing, but I am hoping to get more than four more students to have something more than crepuscular lights going on in their heads.

Does anyone have specific ideas for South African situations of lock-in, network effects resulting in monopoly and irreversibility of investment resulting in monopoly type market dominance?

Monday, December 08, 2008

Back in CT

Posted by Simon Halliday | Monday, December 08, 2008 | Category: | 4 comments

So after some time travelling, arriving back in SA, going up to Plett for a few days and then arriving back in Cape Town I am now lecturing ECO2003P, intermediate microeconomics, for the Summer Term at UCT. Joy! Well at least it pays for flights and a bit more.

Anyway, my hiatus was as a consequence of said travels. Coming back to SA has been surprising in terms of realising the effects of inflation, but also talking to people who are remarkably positive about the future of the country, as well as (overly?) optimistic about the economic potential of South Africa. I had one of the secretaries in the department ask me if I didn't want to stay on to lecture this same course during the semester, as much as I would love to I need to complete my PhD else no employment for the white male in SA in an academic institution. Note that this is said with no sense of unjustness, but simply a statement of fact. I cannot think of how any (economics) department in South Africa could offer a white male anything resembling a permanent position without them having a worthwhile PhD and some publications. Hence, I will apply to UCT when I am approaching the end of my PhD and I have some job market papers, in the meant time ad hoc work if and when they need me!

So yes, if you are in Cape Town or the vicinity and would like to see me then give me a shout. I look forward to hearing from you. I'll try to keep up a semblance of blogging even though I am teaching. Maybe I will be inspired by my minions (read students) to deal with interesting questions. Or maybe not.

Friday, November 28, 2008

Ariely, Foster and CEOs

Posted by Simon Halliday | Friday, November 28, 2008 | Category: , | 0 comments

Dan Ariely recently published a short op-ed in the NYT, arguing that excessive wages basically encourage laziness (gross simplification). Peter Foster of the FP responds. I thought it worthwhile to add my 2c have just written my most difficult exam this quarter (Advanced Game Theory) and feeling jubilant and like my opinion is worth something. My other reason for commenting is that I am currently three quarters of the way through Ariely's (audio) book Predictably Irrational, some of which I find interesting and to be of high quality, and other parts of which I think she would be left to the Department of Huh?

The reason I make the DoH comment is that I think that Ariely plays it a little bit loose with the ideas of parallelism and generalizability. What I mean here is that if you consider the experiment he talks about in the article, i.e. using people in India to mimic the working hours and payments of low, middle and high management is your sample in fact similar to that of the people who actually work in those jobs? I don't believe that the people who are the CEOs of the top companies in the world and who receive the inordinately high bonuses and salaries that they do are, in fact, like your average employee. I am not claiming that they are necessarily more intelligent, or that they have higher IQs, that could be the case. It could also be that they have way better social skills than anyone else you know, or that they need only to sleep four hours a night and get huge amounts of work done, or that they are simply more cut-throat, more ruthless and more savage with their opponents than your average Joe (the plumber). Consequently, getting a sample of average people and paying them more and they respond by working less than the medium and low paid people is odd, it is something that warrants its own explanation as an idea and argument separate to that made by Ariely. It cannot be extended to CEO, CFO, etc salary problems.

What do we need to understand for this? First, are CEOs paid less when they perform badly? Are they paid less when they did the same stupid thing that everyone else did? If they truly are miraculously talented people they should be able to see when other people are getting things wrong and they should have the guts, intellect and arguments to say 'X is getting Z wrong, so we should do Y instead of W.' CEO behavior should not simply be a case of bandwagon effects. What does this mean? More CEOs, especially in the US, should lose their jobs. They should not be given bonuses when their company performs, say, a standard deviation below the average. Moreover, during this period when a recession flows sweetly onwards and the ghosts of a possible depression haunts us, they should not be rewarding themselves, or even allowing their boards to reward them, when they should be doing everything they can to keep their jobs, keep the jobs of those below them and make their companies money. This is what normal salaries are for, not salaries that are more than 300 times the average are for. So yes CEOs could be paid less, but don't go making arguments about them being lazy, unintelligent or stupid. They're probably just greedy.

Wednesday, November 26, 2008

Sex/Partner Markets

Posted by Simon Halliday | Wednesday, November 26, 2008 | Category: , | 0 comments

Two items on the agenda. First, the UK has introduced new legislation preventing 'forced' marriages. One would have thought that marriage in the UK would have had to be voluntary, but supposedly this was not the case - especially for families of Middle Eastern heritage. The question is, will this result in fewer marriages in those groups at which the legislation is targeted? Will it result in more antipathy towards the British Government from targeted groups because of them believing the legislation to be Anti-Islamist? I hope that antipathy doesn't rise as a consequence, but I can't see how it won't. I also don't see it dramatically altering the lives of many in the near future, the reason being that it would require intervention from someone who is a) aware of the rights of the partner but who is not complicit with the agreement which is unlikely, or b) the partner who is being forced into the marriage to be aware of their freedoms in the UK and to elect to abandon family, culture, etc in order to get out of the marriage. I am not convinced that this will happen as much as we might like to think it would.

Lastly, are there unintended consequences? For example, Man1, Man2 and Woman 1. Man 1 marries Woman 1 and it is a freely chosen arrangement, no forcing. Man 2 is jealous because he wanted Woman 1 and now lodges charges of forced marriage against Man 1. Will this, or permutations of this, occur? I hope not, but I am not convinced that it won't.

Note though that my personal stance is that the legislation is necessary to protect women's rights.


Second item on the agenda: supposedly there have been responses by high income individuals the likes of which we might not have considered. Many who have mistresses, or even possibly high paid courtesans, are considering major cutbacks in their spending or abandoning their mistresses entirely. Anyway, what I realised was how this was all from a man's perspective. Do high paid female professionals not seek young virile men and support them with their large paychecks? One, the sample is problematic because there are probably dramatically more men in these high paid jobs because of under-representation of women in those high paid positions, as is still the case in the US. Moreover, and not to diminish the sexuality of women in any way, it would not surprise me if the demand by men, in general, for such services is probably significantly higher than it is for women. Moral of the story? High paid courtesans and mistresses (who are not paid, but who are bought gifts, have their apartments paid for, etc) are luxury goods - a shock to income reduces demand.


Links - it's been a while

Posted by Simon Halliday | | Category: | 0 comments

Monday, November 24, 2008

Bad Assumptions

Posted by Simon Halliday | Monday, November 24, 2008 | Category: | 0 comments

I didn't think it was that hifalutin, hoity-toity, nampy-pamby, academicky, nerdy... But, then again I am an economist and we regularly make bad assumptions.

blog readability test

Sunday, November 23, 2008

Hard-line Economists?

Posted by Simon Halliday | Sunday, November 23, 2008 | Category: , | 0 comments

Ed Glaeser, in his recent piece in the NYT, talks about how,

Hard-line economists argue that Detroit lost its way decades ago, and that government support for this industry will be worse than wasteful.
What he actually means is hard-line, the-market-is-perfect-no-it-really-is-flawless right-wing economists who believe that market forces dominate everything and there is no space for government intervention in markets. I am not arguing here that government intervention is warranted in this specific situation, but I marvel at how Glaeser can take such a univocal view of what it means to be a 'hard-line' economist. What about a hard-line Marxist economist? or possibly a hard-line interventionist economist? or a hard-line Austrian economist? No, for Glaeser the term economist must exclude any allusion to ways of thinking that include heterodox or non-neoclassical, non-market fundamentalist views. This is sad. I suspect that other economists, who might view themselves as 'hard-line' just not Glaeser's hard-line might, dissent and oppose Glaeser's views, and I'm not talking about anyone extreme here, Brad DeLong maybe, or Paul Krugman. Thoughts?

Friday, November 21, 2008

Prospect Theory

Posted by Simon Halliday | Friday, November 21, 2008 | Category: , | 0 comments

One of my courses this quarter was dedicated to decision theory and behavioral economics. Decision Theory has its roots in the axiomatisation proposed by Von Neumann and Morgenstern and is based on 'objective' probabilities, such as a fair coin flip in their Theory of Games and Economic Behavior. Savage proposed an alternative in his Foundations of Statistics that incorporated the notion of subjective probabilities based on individuals having their own perception of the likelihood of events. Anscombe and Aumann later synthesised these two theories to devise a theory that included both subjective and objective probabilities. Nevertheless, the goal for all of this the Expected Utilty Representation of a Utility Function, i.e. representing a utility such that it can be decomposed into the probability of obtaining specific utility amounts and that this can be done in an additively separable manner (this is less complex than it sounds).

However, the problem is that humans often don't behave consistent with the axioms of Von Neumann and Morgenstern, Savage, or Anscombe and Aumann. Allais showed this in his 1952 paper. Kahneman and Tversky (K&T), two psychologists who shifted into economic choice theory, also did work on this in 1979 and subsequently. Previously, I had 'studied' their theory, called 'prospect theory' previously from textbooks, but had not read their original 1979 paper. It is part of our compulsory reading list for this course and so I recently read it. K&T used many surveys to try to come up with an idea of how people responded to risk, to uncertainty over outcomes. In orthodox economic theory an amount of money should be 'state neutral', i.e. you should treat 500 currency units (CUs) in the same manner regardless of whether you are going to gain that money or lose it. However, their evidence indicates that people treat losses and gains differently. People are 'risk-averse' over gains, but 'risk-loving' over losses. I will go over this in a moment.

Take the following example. You are given the choice between R450 for certain or a lottery which involves a 50% chance of winning R1000 and a 50% of getting nothing. The expected value of the lottery (the sum of the probability multiplied by the amount to be won) is R500, which is strictly greater than R450. A 'rational' person should therefore choose the lottery. However, people seem to prefer the situation in which they gain the money for certain. People are therefore 'risk-averse' over gains.

Now take another example. You are offered the following choice. You either lose R3000 for certain, or you face a lottery in which you lose R4000 with 80% probability or lose nothing, R0, with probability 20%. The expected loss of the lottery is R3200. A 'rational' person would thus choose the certain loss. However, empirically, people choose the second option in which they face a lottery rather than the certain loss. People are therefore 'risk-loving' over losses.

These conclusions are in direct conflict with orthodox decision theory. Now, I think that VNM, Savage and A&A provide graceful mathematical depictions of potential behavior. However, they postulate humans with decision capabilities and computational abilities the likes of which I believe are truly miraculous. Savage, for example, talks about being able to partition sets of events into smaller sets of equiprobable events in order for them to be able to rank different sets of events, this would require a super-machine, or a person who is entirely unlike me in their decision capabilities.

K&T's theories should also be seen as largely descriptive. They have taken data and constructed a model that would represent behavior that is consistent with the behave that they observe when people make decisions. This area of decision theory has seen several developments in recent times with Gilboa being the champion of its development, I don't know if I can comprehend Gilboa's math, but hey I'll try and I'll let you know one day... For now it's good to know though that economic theory is doing its best to construct models that use assumptions that are closer to the actual behavior of people, rather than abstract and incorrect postulates of (in)human conduct.

Fascist Rugby Players

Posted by Simon Halliday | | Category: , , | 1 comments

I thought I'd mention briefly some of the reasons I decided against playing rugby here in Italy. First, I thought that I was misunderstanding the political positions and locations of certain individuals because of poor Italian. I also misunderstood several other things, which I will mention in a moment. Initially I stopped playing because I was injured and I had too much work with the PhD. Later, I decided not to return because of politics and racism. Oh well...

This all became even clearer for me recently when a Roman friend of mine described his experiences playing rugby. He'd played a bit as a kid when in Brussels and decided to take it up in Rome, he told me how the players tell one another, when in a ruck or scrum when trying to obtain the ball to 'Caccia il negro', which translates literally as 'hunt the nigger', in fact the ball is often just referred to as 'il negro'. I recalled my own teammates saying this but I didn't understand at that point in time because my Italian was barely sufficient to say my name, let along understood colloquial racist slurs.

On top of this, the beliefs South Africans have about 'right wing' Afrikaners and Rugby is nothing compared to the fascists I met when playing rugby, and the fascist tendencies that my friend described to me of the team he tried to play with (and subsequently left). Absolute belief that Mussolini was dead right, swastika tattoos, immigrant haters (though they don't mind blonde, white English or US immigrants) and more. Crazy times.

Anyway, so if you thought SA had problems with racism and rugby, or politics and rugby, think again. Yes, it is occasionally bad in SA, but at least you don't hear about South African Afrikaans teams saying 'hunt the k***'. Ah... Europe.

Thursday, November 20, 2008

Paying for Sperm?

Posted by Simon Halliday | Thursday, November 20, 2008 | Category: , | 0 comments

Take a look at this post by Daniel Hamermesh at the Freakonomics Blog. The second comment, by a lady named Rachel argues for the introduction of material incentives, i.e. payment, for sperm in the UK. Such incentives are already in place in the US and, as far as I know, involve drug screening and, obviously, screening for STDs.

Another comment, further down the page mirrors the comment that I made earlier in reference to payment for organs and the Tittmus problem. As a consequence of introducing payments for blood altruists were crowded out and drug users tried to use the system to get money. After several blunders this was corrected for and donors went through stricter screening procedures.

Anyway, the point is that I think that probably, in the case of sperm where there is a clause that allows the child to find out the identity of their donor-parent when they are 18 (a historical anonymity clause was repealed) they system could allow for improvements in the number of individuals who donate, assuming that the Titmuss related altruists are not crowded out by the introduction of material incentives and that the screening protocols result in no addicts and STD carriers donating sperm.

One of the other commenters noted how sperm donations have gone up regardless of the introduction of the new clause. I would not claim the new clause was causative in any way. However, there are still several thousand people who fall short of getting sperm for their babes. Crazy times.

Would I consider donating sperm? I don't know. I'd have to ask my wife's opinion on the potential of having a child with my genetic material whom I had not conceived with her potentially arriving on the scene in 18 or so years time. Might material incentives help? Well, it depends on how big they are? Also, do they just want sperm, or do they want high quality nerdy sperm (if I may be so bold, lol)? If so then maybe I should donate. Still unresolved though. It's those little touches of altruism...

Singaporean Organ Market II

Posted by Simon Halliday | | Category: , | 0 comments

Obviously one of the things I was assuming in my first post was that material incentives (money) will result in increased supply of organs by individuals. This may be an incorrect assumption.

For example, Richard Titmuss did research on blood donations in the UK and showed that the introduction of payments reduced donations, i.e. overall supply. Which means that the mechanism to be implemented needs to have a nuanced design such that it does not crowd-out donations that are already occurring because of altruism. Instead it should, somehow, maintain these altruistic incentives while also allowing those who would be positively incentivised to donate because of material incentives to enter into the market.

I am not sure how to do this as of yet. But I still think it is something to which we should aspire. Far too many people are dying and, until we can artificially construct new organs (one day...), offering material incentives is one option that just has not been explored. There are many ways to offer payments if you are worried about it being callous, and I believe it can be done in a way that allows for longer life for those who want it and increases in welfare for those who needed the money in the first place.

Another article to look at on the problem of the introduction of material incentives is Sam Bowles' recent article, on which I blogged here.

Singaporean Organ Market

Posted by Simon Halliday | | Category: | 2 comments

Singapore is planning to pay organ donors (at least for kidney transplants and eggs).  I know doctors balk at the idea, but there is horrendous loss of life currently because doctors and hospitals refuse to allow payments for organs by private institutions or by non-governmental organisations that might elect to provide organs for donor-patient matches. I really think that (regulated) moves in this direction are a good idea.

Question: will this result in a substantial influx of overseas individuals who need organs and find matches in their own countries going to Singapore? Will it results in organ donor tourism? I don't know, but the seeds are there.


Thursday, November 13, 2008

Reading Group

Posted by Simon Halliday | Thursday, November 13, 2008 | Category: | 0 comments

We have a voluntary extra-curricular reading group here at Siena organise by one of the young assistant professors, Giulio Zanella. The idea is that we should each present a paper approximately once every couple of months, while ensuring that we read the papers that others present. We generally present for about 1-1 1/2 hours and then try to chat about the paper for the 30 minutes following that.

Anyway, this past Tuesday I presented a recent paper by Ernst Fehr and Lorenz Goette, "Do Workers Work More if Wages Are High? Evidence from a Randomized Field Experiment." There are two purposes to the paper:

  1. to demonstrate that there is a negative effort response to an increase in wage rates, even though there is an overall increase in wage supply
  2. to explain that the loss-averse workers among those in the sample of experimental subjects are those whose actions resulted in the negative wage-effort relationship.
The importance of 1) is that research has often found that there is not much of a response by workers to a large, temporary and perfectly anticipated increase in wages. They show a significant and large effect.

The consequence of 2) is that there can be heterogeneous preference profiles among consumers/workers and, in particular, that the preferences of consumer-workers that are not consistent with neoclassical theory can have such a strong effect that they override the preferences of those who do display preferences consistent with neoclassical theory and alter the outcome in equilibrium.

I believe that these are all strong points. However, I had a couple of issues with the paper. First, I think that, with their own results, they only provide an upper bound of the behavior of their subjects, given a lower bound which you can deduce from their results (regression 6 in Table 3) a lower relationship between wages and shifts results in a lower estimate of wage-shift elasticity. This implies, furthermore, that the estimate of the negative wage-effort elasticity may not be as strong as they believe it is if subjects are not increasing their wage supply as much as F&G argue they do.

Anyway, I think that the paper, as it stands, is still high quality research and something to which I aspire. I just wish that they had also reported lower-bound estimates using their own numbers - I feel that would have been more intellectually honest. The problem with this though is that their results wouldn't have been as unequivocal then and this may have reduced the impact of their paper.

You can access my slides here.

Ernst Fehr & Lorenz Goette, 2007. "Do Workers Work More if Wages Are High? Evidence from a Randomized Field Experiment," American Economic Review, American Economic Association, vol. 97(1), pages 298-317, March

Monday, November 10, 2008


Posted by Simon Halliday | Monday, November 10, 2008 | Category: | 0 comments

Many apologies for the lack of posting. I have been working hard with coursework as well as having had a horrid cold which became a chest infection. I will return to customary blogging soon.

Tuesday, November 04, 2008

Quid Pro Quo

Posted by Simon Halliday | Tuesday, November 04, 2008 | Category: | 1 comments

I want to commend my friend Dave Ansara for his tireless work over the last few days to report on the convention for the development of the new party, the South African Democratic Congress (SADC).  He managed to interview a few interesting people at the convention, including Mluleki George and Smuts Ngonyama.  I've linked to each of the interviews below .  He has audio and transcripts of each interview, as well as a transcript of a comment made by Helen Zille (no interview with Helen as of yet), in addition to one or two of his own comments.

Nov 1- The SANC Part 1
Nov 3 - The SANC Initial Thoughts
Nov 3 - Voices of the SANC: Philip Dexter
Nov 3 - SADC: A Better name than 'Shikota'
Nov 3 - Voices of the SANV: Mluleki George
Nov 3 - Helen Zille address to the SANC
Nov 4 - Voices of the SANC : Smuts Ngonyama

I'll let you know as more things come and link to them when they do.

Links & Brief comment

Posted by Simon Halliday | | Category: | 0 comments

Cutler & Delong - Obama can Cure Health Care's Ills
Robert Frank - Wealth Gap is Focus Even as it Shrinks
Brad DeLong - Stocks and the Long Run
Robert Shiller - Changing the Crowd in Whispers, Not Shouts

James Galbraith - Interview with NYT
Stan Collender - Response to Galbraith

I respect Galbraith and many of the predictions that he made, as well as the points that he makes regularly on economic policy and government, are relevant. Many of his points are, in my view, wrong.  However, when he comments on the '15 000 economists' who did not see the crisis coming, I agree with Stan Collender - not all of us are financial macroeconomists.  I am basically a behavioral microeconomist with additional interests in economic history & thought, and applied development.  None of this has anything to do with the financial crisis. For example blaming, say, Steve Levitt for not predicting the financial crisis would be silly as that is not where his specialty lies.  Whereas Robert Shiller, with a specialty in housing and agent irrationality, saw the crisis coming from a mile away and made his thoughts known.  People ignored him, Ariel Roubini and others. Oh well... here we are.

Saturday, November 01, 2008

Crazytalk on Greenspan

Posted by Simon Halliday | Saturday, November 01, 2008 | Category: | 0 comments

I have read many things on the financial crisis, on Alan Greenspan's confessed amazement at the 'self-interest' of bankers, and so forth.  However, this article from Z-Magazine by Frederic takes that cake as the best piece of crazed codswollop that I have read about Greenspan and the financial crisis as a whole. 

I came to Z-Magzine through an interest in Chomsky and reading his book Understanding Power, some of which I thought was good and insightful, some of which I thought was a bit odd and some of which I thought was simply wrong. Anyway, Clairmont's article, to which I was referred by a Z Magazine newsletter is just crazytalk. 

He goes on about the bourgeosie, about failing capitalism, and uses superlatives in every location possible.  He characterizes Greenspan as the 'criminal prime mover'.  Greenspan's policies were 'cold blooded' and 'deliberately designed to enrich a specific parasitical class'. Ok, so we know that he was the governor of the Fed during the period in which securitization and derivatives became prevalent.  I can refer you to a host of literature which provides evidence indicating that these financial innovations, although having contributed to our current problems, are, nevertheless, worthwhile financial innovations which will serve individuals and society in promoting well-being and success.  Not to mention the fact that Greenspan was head of the Fed for a period iduring which inflation was remarkably stable and unemployment was stable and low.  I understand that there were conflicts between the Clinton Administration and Greenspan over what should de done during the early 90s, and that Greenspan's unitary view of 'inflation bad' limited the policy options for government. I don't see why these are necessarily indicators that he is criminal or the servant of a 'ruling caste oligarchy'.  I wish to not that I understand the arguments that inflation can, but does not necessarily, benefit those who hold wealth over those who do not hold it, but I remain unconvinced that Greenspan was specifically trying to propagate class warfare and undermine the working classes to the benefit of the 'rule parasitical class'. 

None of the criticisms provided by Clairmont even give credit to the fact that a market-integrated society is generally held to be more successful - and to promote greater integration and cooperation - than non-market integrated societies (see Henrich et al (2004) on this and Paganelli (forthcoming)).  Admittedly, as Adam Smith argued in the Wealth of Nations, greedy mercantilists could undermine social needs (see Paganelli on this).  So some market-capitlism is good, too much is probably bad (recalling that the term capitalism was invented after Smith by Makepeace Thackeray in his novel The Newcomes in 1854 (ht: Gavin Kennedy).

Thus there are probably non-linear relationships between market integration and say 'favourable' outcomes.  Think about a parabola with a maximum at some point of market integration on the y-axis and 'favourable outcomes' on the x-axis and you get the idea, though there could be other non-linearities.  So let's accept that there may be non-linearities in positive outcomes resulting from market integration.  This result does not imply that financial innovations that are created by individuals in that market are necessarily bad. I hear far too many people saying 'we must get rid of securitization', or 'derivatives are our worst enemy'.  This is not the case.  What we need is for financial regulation to catch up with financial innovation so that securitization, when it is done, is done in a transparent manner such that the people know what they are purchasing and can run the numbers, and such that the poor are still able to find innovative and new ways to obtain wealth and NOT be stopped from doing this by people being paranoid about financial tools. That is what these things are: tools.  They are not the antichrist.  They are not the anti-market.  They are simply tools that testosterone driven financiers used recklessly.  In the hands of intelligent and regulated financiers they could do wonders.  Again, nothing about this from Clairmont.

Ok end of rant now.  I just become annoyed when people misunderstand their Marx and Smith and misportray the events that are going on in the world now. 


Posted by Simon Halliday | | Category: | 0 comments

Paul Collier - The Politics of Hunger
Brad DeLong - Republic of the Central Banker
Ian Ayres - Spreadsheets vs. Mean Streets
Andrew Sullivan - Why I Blog
Jeff Sachs - A new New Deal

Tuesday, October 28, 2008

Carnival of the Africans #3

Posted by Simon Halliday | Tuesday, October 28, 2008 | Category: | 1 comments this month's edition of the Carnival of the Africans I have set out to do two things, first, to find some interesting posts that people have either sent to me, or that I have managed to find myself.  Second, I decided that we should have a special place for the launching of the site Stop Danie Krugel and link to several of the posts there.  So here goes...

General Skepticism and Science
Angela, the Skeptic Detective, brings us three interesting and entertaining posts.  She gives us the first two installments (here and here) of her trilogy (third part forthcoming) on the woo presented in the 'documentary' Water: The Great Mystery.  The film proposes that water is imprinted with emotions and 'energy'.  Angela breaks this with a skeptical incisions, along with a dose of sarcasm.  Similarly she deals with a chain email trying to promote the dubious claim that baby carrots are out to get you... oohh... they get white and fluffy... oohh...

Prometheus Unbound sets out some of the arguments about religion being a Virus of the Mind.  See his post on some recent work in the Proceedings of the Royal Society and an article in the Economist. He also sets out in his 'Sorry, friends, not since Darwin they ain't' some of the ways in which postmodernist Pieter Duvenage attempted to attack his naturalist inclination, Claassen reminds us that Duvenage's attack on science and naturalism is silly.

Subtle shift in emphasis brings us a piece, Ritual Insantiy,on an incident in Malaysia in which a couple were killed during a 'ritual beating' (i.e. not something that occurred regularly, but something that was part of a ritual).  Wow. 

From my own blog, I decided to highlight two posts.  The first, Egalitarians behave 'trustworthily',  is on egalitarianism and egotism and within-subject variation in economic experiments, which included a sample of individuals from South Africa.  The second, Experimenter Bias, reminds us that it is necessary to be aware of priming in economic experiments and elsewhere and that awareness of such effects needs to become more widespread.

Mike Meadon, from Ionian Enchantment, reminds us that even professional and fantastic science journalists like Malcolm Gladwell can get it wrong.  Mike discusses, in his 'Genius and Precocity', a recent article by Gladwell in the New Yorker.  Mike also assesses a recent New Scientist article on the Discovery Institute's attempts to attack naturalism by reviving dualism.  Sigh... Read his incisive commentary, Neuroscience denial is the new wedge.

Richard Harriman, of Botswana Skeptic, tells us about how he has been lying to astrologers in his post 'It's in the stars?'  It's a very entertaining breakdown. 

Yet another skeptic jokes about claims and proof a bit in his post 'Claim and Protocol'.  The style is humorous, the message important: Evidence is crucial.

Lastly, Pause and Consider offers us his insights into the Bigfoot phenomenon, giving us 10 Reasons why Bigfoot is Stupid.  He put the problem in its cryptozoological frame and breaks it all down.  Have a read of this fine post.

Danie Krugel:
First, we have the Open Letter to Danie Krugel signed by all kinds of luminaries, including James Randi and Ben Goldacre to name a few.  Get your name on that list to get Krugel's 'machine' tested. See also the discussion on the site.
Mike Meadon - Stop Danie Krugel
Subtle shift - Stop Danie Krugel
Yet another skeptic's blog - 8th on Google
The James Randi Educational Foundation hosts a forum to discuss Stop Danie Krugel.

And for Google...
Danie Krugel, Danie Krügel, Krugel, Krügel, Stop Danie Krugel, Danie Krugel criticism, Danie Krugel sceptic, Krugel skeptic, Danie Krugel facts, Danie Krügel facts, Danie facts, Krügel facts, Krugel facts, Krugel truth, Krugel, honest, Krugel, science, Science Krugel, Science Krügel, Physics Krügel, Physics Krugel.

Saturday, October 25, 2008


Posted by Simon Halliday | Saturday, October 25, 2008 | Category: | 0 comments

Financial Crisis Related
Eamonn Butler - No Such Thing as a Free Lunch
James Livingston - Their Great Depression and Ours Part I and II
Bill Moyers interviews James Galbraith
Greg Mankiw - But have we learned enough?
Andrew Lahde - Letter to FT
Barry Eichengreen - New World Pragmatism
David Colander - Trickle Up Plans
Claire Berlinski - What the Free Market Needs
Economist - Into The Storm

Non-Financial Crisis Related
Duncan Green - World Health Report 2008: Getting Back to Basics
Will Wilkonson - Equal Chances for Equal Talent
Economist - Rise of the Obamacons

Friday, October 24, 2008

The Tiger That Isn't

Posted by Simon Halliday | Friday, October 24, 2008 | Category: | 0 comments

Tiger That IsnI wanted to promote a podcast - Beauty and the Beast - Numbers and Public Policy - that I recently listened to by Andrew Dilnot, one of the authors of the book The Tiger That Isn't. His co-author is Michael Blastland.  Dilnot gave a lecture at the LSE which was put up on the web at UChannel, a fantastic resource for lectures and presentations given at various universities and other institutions.

Dilnot's lecture centred around the appalling nature of numeracy in the British population, and the world population in general.  Specifically, the lack of a general understanding of basic statistics. He discusses how there are regular mishaps in interpretations of data, by journalists, by government and by the public.  He makes the point that people should be more skeptical about the numbers that they see and that they should be made aware of all kinds of statistical 'rules of thumb' that good quality practitioners know.  For example, regression to the mean where "individuals far from the mean on the first set will tend to be closer to the mean on the second set". 

To use Dilnot and Blastland's example, consider that you are a government official thinking of installing speed traps, you make an observation of the number of accidents in several locations over a period of time, say six months, and see that in several places there are numerous accidents.  You install these cameras in these 'danger areas'.  You then observe that for the six months following the installation of the cameras there was a 'decrease' in the incidence of accidents and your policy 'worked'.  Well... no.  You are actually observing regression to the mean.  The sample that you have of two six month periods constitutes a sample of almost zero.  With any given time series data (i.e. observations of specific events over time) there will be deviations around a mean.  The government, because it observed a freakishly high incidence of accidents in one area, assumed that its policy instrument of installing speed cameras was effective simply because the incidence went down.  This is not accurate.  What you need to have is a measure which gives you what the mean number of acccidents are in a specific location and observe a statistically significant decrease - i.e. a decrease for which we can impute a correlation with the use of speed traps holding other factors significant (such as that the skill of drivers wasn't suddenly higher, or that people had suddenly stopped drinking alcohol, or that the number of drivers on the roads was different). 

Dilnot considers this and other factors that affect public opinion and makes the point that far too many people blithely accept numbers that are thrown at them by people in 'authority', be it the media or government.  They need to be aware of the types of behavior displayed by data and be aware that people will manipulate how something is portrayed to aggrandize their own actions (far too much is said, for example, on the effects of anti-smoking legislation, it's normally nowhere near as effective as claimed).

Anyway, listed to the podcast, I think it is worthwhile.  I am always in favour of skepticality improving broadcasts and information (Dilnot also tells a great story of being thought of as a literary philistine and asks why the same doesn't apply to numeracy).  Thanks Andrew Dilnot, LSE and UChannel.  I'm going to keep an eye out for the book when I am next in the UK.


Posted by Simon Halliday | | Category: | 0 comments

Financial Crisis:
Joseph Stiglitz - A Crisis of Confidence
Jeffrey Sachs - Seven Questions
Tim Harford - Econopoly
Robert Skidelsky - We Forgot Everything Keynes Taught Us
Dani Rodrik - The Next Stage of the Crisis

Chrisopher Hitchens - Vote for Obama
Chris Blattman - Interview with Ray Fisman and Ted Miguel

Thursday, October 23, 2008

Religious Norms, Human Capital and Risk

Posted by Simon Halliday | Thursday, October 23, 2008 | Category: , | 0 comments

Yesterday, I attended an interesting presentation by Matteo Cervellati of the University of Bologna that he gave in the Seminar series at Siena. The title of his paper, co-authored with Marcel Jansen (Universidad Carlos) and Uwe Sunde (Univ. St. Gallen) is "Religious Norms and Long Term Development: Insurance, Human Capital and Technological Change". Here's a section from the abstract of the paper:
Under reasonable assumptions, we show that any implementable norm can either enforce charity or extra effort provision, but not both at the same time. The features of the most desirable norm depend on the relative importance of pure hazard (luck) and returns to effort, suggesting that in early development stages charity norms are more desirable, while norms supporting effort provision and self-responsibility are dominant when returns to human capital are relatively high and safe. This is consistent with the observation that the Catholicism is based on norms of charity, while Protestantism promotes self-responsibility and industriousness.
They basically argue for an endogenous, and basically inevitable, 'reformation' of the church as a consequence of life becoming 'less risky'. This lower risk resulted in guarantees to returns to human capital investment that could not be achieved before (the reformation).  The factors that determine religious adoption had to do with the size of the returns to human capital and exposure to risk.  Prior to the reformation, risk was high and returns to human capital investment (if not investment generally) were quite low.  One of the norms which could allow for insurance in this instance would be one based on 'mutual insurance and charity', which the authors identify as a 'Catholic' norm.  However, once the returns to human capital increase and size of or exposure to risk decreases norms that support increased effort provision are, instead, a better method (i.e. a approximate a first best solution in a general equilibrium framework) of insurance.  This is similar to the 'Protestant', Calvinist, or Puritanical systems.  The paper is a work in progress and they are still look at combinations of the two, i.e. systems in which there is partial mutual insurance and substantial - but not extreme levels of - effort provision. They are still working on the math of this, but it looks promising.  Basically, they should be able to cater to a continuum of religions on a line of 'effort provision' to 'mutual insurance' with signals of what are likely to be specific 'sins' in one religion (norm set) vs. another. 

One of the consequences of this research is that if the division of religions was, in fact, endogenous then the use of religion as an 'exogenous' variable in cross-country regressions as a proxy for culture is deeply problematic.  This obviously has a consequence for using such variables as an instrument for culture and thus, when published, the paper should have a substantial impact on the empirical work using 'religion' as a proxy for underlying, unobservable characteristics in a country.

Friday, October 17, 2008

Call for Posts - Carnival of the Africans # 3

Posted by Simon Halliday | Friday, October 17, 2008 | Category: , , | 0 comments

I am hosting the third Carnival of the Africans on October 28th.  Please send all your posts on things skeptical, scientific and social scientific to simon.d.halliday{at} (which I do without the 'at' sign in order to confound bots of evilness, &c) by 8am (GMT+2) of October 27th (one day prior to the carnival). 

I start my second year of PhD coursework on Monday the 20th, so please do me the little favour of getting the posts into me that day early so that I can get all of the reading done.  Send in posts that are preferably, but not exclusively, written and published during the last month.

The Carnival of the Africans is a carnival based on similar principles to that of the Skeptic's Circle, but with a distinctly African flavour - science by Africans for Africans if you will.  If you plan to send in a post, please make sure to look at the guidelines set out by Ionian Enchantment here. Closer to the time I will do my best to contact specific people if I have read blog posts that I would like to have included in the carnival. Please send me the URLs of, or links to, up to three posts that you would like to have included in the line-up of the carnival. 

If you would like to take a look at previous carnivals, then take a see that past two carnivals:
Ionian Enchantment hosting the Carnival of the Africans #1.
the little book of capoeira hosting the Carnival of the Africans #2.

I look forward to hearing from you soon! Remember that carnivals are a fantastic way to promote your blog and to get your name out there into the blogosphere. I anticipate fantastic posts.

Tuesday, October 14, 2008


Posted by Simon Halliday | Tuesday, October 14, 2008 | Category: | 0 comments

On the financial crisis:The Rescue Plan and Its Largest Recipients
Luigi Zingales - Plan B (very good)
Vernon L. Smith - There's No Easy Way Out of the Bubble
Ben Bernanke - We're Laying the Groundwork for Recovery
Vox EU Publications - Rescuing Our Jobs and Savings
NYT - US investing $250 Billion in Banks (this is simply wow, almost unbelievable, part of me is worried about the 'preferred stock' idea, but not too sure right now, see graphic adjacent)
Vox EU - Financial Development at Risk
Cass Sunstein - Wall Street's Lemmings
Vox EU - Richard Portes - A Strategy Emerges

Vox EU - HIV and Fertility in Africa
Vox EU - Never Trust a Stranger

And by the recent Nobel Laureate Paul Krugman
(all old pieces):
The Ice Age Cometh
Size Does Matter
Incidents from my career
How I Work
Ricardo's Difficult Idea

Maybe I was Wrong

Posted by Simon Halliday | | Category: | 0 comments

At least for Iceland, the import-dependent country of 320 000 inhabitants: the Icelandic currency, the krona, has depreciated so dramatically while its three main banks went bust that imports have frozen up because foreign currency has become unavailable.  Markets are clearing, not in the economic sense, but in the sense that they are really drying up of goods. It makes the optimist in me worry.

See the Bloomberg article here

Monday, October 13, 2008

Paul Krugman - Nobel Laureate

Posted by Simon Halliday | Monday, October 13, 2008 | Category: | 3 comments

Paul Krugman was just announced as the winner of the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 2008, supposedly for his "analysis of trade patterns and location of economic activity". Go Paul Krugman! Krugman is a professor of Economics at Princeton University (and before that MIT,Yale, LSE, &c). Currently, Krugman has advocated nationalization of bank debt - i.e. injections of liquidity by buying government buying up bad debt but also getting shares in businesses. He maintains a blog at the NYT, in addition to being a bi-weekly columnist for the newspaper. He also drew up a model of the spread of the crisis prior to the leaders of the EU, UK and US meeting in Washington. I think he is a worthy winner of the prize, though I had hoped that Oliver Williamson (transactions costs and institutional economics) and/or Richard Thaler (behavioral and experimental economics) might get it.  Nevertheless, Krugman is a good economist and deserves the prize.  Congratulations Paul Krugman.

No, capitalism is not ending

Posted by Simon Halliday | | Category: | 0 comments

Several people have, of late, said to me, "Well, this must be the end of American-style capitalism." I don't really know what they mean - 'the end of capitalism?' I don't think so. To me, capitalism is about having markets with individuals interacting in the markets which allow market mechanisms to allocate scarce resources to people who want them the most, be these resources cigarettes, plants, pencils, white collar labour, blue collar labour, what have you. That the financial system is in jeopardy because of poor regulation, poor management or risk and general irrationality does not imply that markets qua capitalism is 'failing'. That's just wrong-headed - it conflates financial institutions, many of which have been atrociously managed, and by extension the financial market with all markets. Not a good idea. If these people, by American-style Capitalism mean a system of private property with which we use markets, then I would still contest that, but the failure or death of markets in general. No.

So a couple of questions, if 'capitalism is failing' why do you still see groceries in your grocery store or supermarket? Why do you still see people in coffee shops being supplied with coffee in all its caffeinated (or not) glory? Why are people still selling and buying cothes at department stores and flea markets, going to movies, worrying about methods by which they can use the market and the mechanisms by which the market operates - i.e. those other agents in the market who we expect to go about allocating their resources to satisfy their wants - to make sure that we can satisfy our own wants. How is it that if you want something (and you have the money to buy it) you can go out and get it? The answer: a functioning market system.

This is not to say that I am overly optimistic about what is going to happen in the world economy over the next while. Do I expect that unemployment will increase as a consequence of the financial crisis? Yes. Do I think that it will be more difficult to get a loan and therefore for the market to operate as fluidly and responsively as before. Yes (which is a strong reason for injecting liquidity and recapitalizing the financial system). Do I think people will have to cut back in their spending? Yes. Do I think there may be issues with inflation and devaluation of capital? Yes. Do I think we should suddenly jump ship and decide to implement a communist regime of centralized government planning for all goods and service? No. No. No.

Mark Thoma puts it well:
As we are seeing now, sometimes markets can fail catastrophically, but that doesn't mean that all markets fail, or that we should lose faith in the ability of markets to allocate goods and services... Every day... the needs of hundreds of millions of people are met through our market system. For the most part, when you go to the marketplace, you can find what you want -- somehow, the market anticipates your needs and has the goods and services ready and waiting when you walk through the door of a store. You won't always find what you are looking for, stores can stock out, oversupply, not have what you want, and so on, but most of the time you do find what you are looking for, or don't have to wait long to get it. When you think about it, it's actually pretty amazing that we are able to coordinate so many diverse actions of so many individuals into an economic system that does a pretty good job of providing for our needs, responding to changes in our tastes, providing incentives for technological advancement, and so on. So I don't think the lesson of this crisis is that markets don't work. I think the lesson is that markets don't always work, that we need to be vigilant in our oversight of markets to make sure they really do satisfy, as much as possible, the competitive ideals that are necessary for markets to perform well.

This is fantastically sensible in my mind. Thoma was lauded for his prescience of the way in which the financial crisis would turn out and I recommend his blog Economist's View. I just want to make sure that people don't incorrectly interpret the current crisis as something that it is not - it is not a call for the dismemberment of markets, it is a call for oversight and recognition that legislation needs to keep up with the technology and pace of the financial system. It has not done so. We are feeling the consequences of both market failure and government failure now.

And now for a video of Charlie Rose interviewing Paul Volcker:

Thursday, October 09, 2008

Financial Crisis Links

Posted by Simon Halliday | Thursday, October 09, 2008 | Category: , | 0 comments

Tuesday, October 07, 2008

Egalitarians behave 'trustworthily', Egotists don't

Posted by Simon Halliday | Tuesday, October 07, 2008 | Category: , , , | 0 comments

ResearchBlogging.orgOk, so the title of the post gives the paper more pizzazz than it really has, but hey? Today, a little discussion about Nava Ashraf, Iris Bohnet and Nikita Piankov's (2006) paper 'Decomposing Trust and Trustworthiness'.

The main reason that it is of interest to me is that it used a sample of students from South Africa in Cape Town (which somehow was spelt Capetown in the paper, ATROCIOUS editing!), along with students from Boston, US and Moscow, Russia.

The next point of interest is that, unlike many economic experiments, it assesses within-subject variation across two different games, the dictator game and the trust or 'investment' game.

The authors had 4 main hypotheses that they wished to test:

  1. Trust is only based on expectations of trustworthiness.
  2. Trust is only based on unconditional kindness.
  3. Trustworthiness is only based on reciprocity.
  4. Trustworthiness is only based on unconditional kindness.
The results from the paper for the dictator game and trust game do not differ significantly from conventional results as reported by Camerer (2003) on a survey of experimental results. Pertinently, non-white South Africans in the sample were significantly less trusting than white South Africans using an index of trust that included 'trust'-probing questions such as “Generally speaking, would you say that most people can be trusted or that you can’t be too careful in dealing with people?”

With respect to their hypotheses, they find that, "trustors derive satisfaction from trusting independent of amounts expected back and unconditional kindness" (201). This dismisses hypotheses 1 and 2. With respect to hypotheses 3 and 4, they find that "[In] contrast to trust, unconditional kindness accounts for most of the variance explained while reciprocity plays a comparatively small role" (202-204) but, "Overall, we reject both our hypotheses" (202) they do this because their results seem to explain approximately 20% of variation, which they do not feel is sufficient to 'prove' their final hypothesis.

This doesn't give us much insight, however their one conclusion is quite interesting, in response to the question posed by Camerer “What game do people think they are playing?”, they argue that:
Our results suggest that many people may play a different game than researchers thought they were playing when confronted with the “investment game.” Only 36 percent of the 159 trustors who decided to send any money in our “investment game” expected to make money (204).
Moreover, one of their final points is that:
Our design allowed us to solve one of the important trust puzzles, namely that people trust even though hardly anyone makes money by doing so. We found that generally, people are aware of this. They trust even though they know it does not pay monetarily. They enjoy the act of trusting and being kind to others, even to anonymous strangers (204).
This paragraph makes sense to me, up to the point when they say 'enjoy'. In a world where people get windfall cash (as that is basically how experimental money often is thought of, see John List, 2007) people might behave as if they enjoy giving away money to others or as if they 'enjoy' trusting others, but I remain unconvinced that they actually derive 'joy' from such acts in the real world.

Which makes me speculate. What if you could run experiments, and then have a 'beggar' set up outside the experiment (not actually a beggar but an actor, or something) and you gave the individuals the money and then you observed, after the experiment how many individuals chose to give to the 'beggar'. Apart from the 'deceiving the experimental subjects' problem, this might be interesting to observe and to see whether individuals behave consistent with their experimental generosity and 'enjoyment' of giving. It is this correspondence of field observation and experimental economics that requires propagation and increased funding in order for us to validate within subject variation and validity of our laboratory results.

Nava Ashraf, Iris Bohnet, Nikita Piankov (2006). Decomposing trust and trustworthiness Experimental Economics, 9 (3), 193-208 DOI: 10.1007/s10683-006-9122-4

Experimenter Bias

Posted by Simon Halliday | | Category: , | 2 comments

Experimenter bias is not a well-covered topic in the area of experimental economics, either because those who decide to test it don't find anything worth reporting, or those who do attempt to test it struggle to be published. Who knows?

Nevertheless, a 2004 working paper by Alessandro Innocenti and Maria Grazia Pazienza addresses the question of experimenter bias with respect to the gender of the experimenter. They used the trust game with various treatments to check whether the gender of the experimenter changed any of the responses by the subjects. The trust game involves a pairing of two individuals (a sender and a receiver), the sender chooses to 'invest' an amount in the other person (trust element), this amount is then tripled in value and the receiver may then choose to send some money back to the sender (reciprocity element).

There results were as follows:

  1. There was no evidence that the gender of the experimenter affected the degree of trust.
  2. The presence of a female experimenter was correlated with a statistically significant higher degree of reciprocity.
  3. The effect (of female experimenter reciprocity inflation) occurred across the genders of the subjects, i.e. it was not a 'correspondence' effect of woman-to-woman as some might argue.
They had other results, but these are not pertinent to my discussion of experimenter bias.

The main point here is that the fact that the presence of a female experimenter was correlated with increased reciprocity is problematic for experimental economics and requires several pertinent points for its investigation. First, any experiments that might have historically been carried out with women only as experimenters, without variation across the gender of the experimenter could result in over-statement of the reciprocity of individuals. I could not find specific references right now where this could be the case, but it is worth keeping in mind. Second, it begs the question of how we can do an experiment with the gender of the experimenter unknown. Ideally, we would like to be in a world where we could test the relevance of both male or female gender experimenters against some neutral 'non-gender'. Unless we do not have an experimenter present and disembodied instructions being given to the subjects, I do not see how this could be dealt with. Third, it informs future research because it informs us that we must do one of two things: either have male experimenters for whom the results do not seem to be inflated, or have male and female experimenters while controlling for the gender of the experimenter in the experiments. This second option is a bit problematic because it requires us to have larger samples in our experiments, but it seems to me to be the only way that there can be some kind of equitable way of doing this. Fourth, even though there seems to be a correlation of the gender of the experimenter with higher reciprocity, we do not know why this might occur. This requires further research.

It must be said that, personally, I would like to engage in similar research in the future, but using treatments across the race of the experimenter. I think that this would be especially pertinent in South Africa where there might (I insist, might) be differences in responses of individuals when there is variation across the race of the experimenter, holding gender constant of course. What do you think?

Monday, October 06, 2008

Financial Crisis Stuff

Posted by Simon Halliday | Monday, October 06, 2008 | Category: , | 0 comments

As the token economist amongst friends and family, I thought I would recommend the following links on the current financial crisis.

First, Wikipedia has a fantastic timeline of the current crisis, under the title 'Subprime Crisis Impact Timeline'.

Second, you can peruse these useful notes by Roger Congleton of GMU (they follow the GMU line somewhat, so take the ideology of them with a pinch of salt, but read them anyway).

Third, there is a new blog documenting the financial crisis: The Money Meltdown.

Fourth, there are several blogs that I read with commentary on the crisis that I would recommend: Marginal Revolution, The Semi-daily Journal of Brad DeLong, Greg Mankiw, Paul Krugman and Mark Thoma's Economist's View. Mankiw regularly gives interesting and brief insights, as well as giving links to good articles by prominent individuals. Thoma cites articles at length and gives his own commentary.

Fifth, don't believe what everyone has to tell you about Adam Smith and the financial crisis. Read what Gavin Kennedy has to say here, here and here on his blog 'Adam Smith's Lost Legacy'.

Sixth, Duncan Green, the head of research for Oxfam, maintains a blog and has couple of posts on the topic of the financial crisis and development, the most interesting post of which is a discussion of what $700bn would do for global development.

Lastly, some audio and video stuff. EconTalk host Russ Roberts chats with Arnold Kling on the role of Fannie Mae and Freddie Mac. I found this very useful for helping me to understand what exactly they did and, thus, how they impacted on the financial crisis. Roberts also interviewed Robert Shiller (of the Case-Shiller (housing) index fame) on housing bubbles, which I found interesting. UChannel, another audio and film 'academic' web resource, has a discussion featuring Paul Krugman and Alan Blinder, both of whom have been quite outspoken on the crisis and its possible solutions. Krugman especially is a fan of nationalizing Fannie and Freddie.

Ok, that's enough for now and should sate any financial crisis appetite for the moment.

Thursday, October 02, 2008

Praise be...

Posted by Simon Halliday | Thursday, October 02, 2008 | Category: | 1 comments those at Intrade. It looks like Obama has overtaken McCain substantially once more. Ahhh... the effects of Pa(l)in bring me joy.


Wednesday, October 01, 2008


Posted by Simon Halliday | Wednesday, October 01, 2008 | Category: | 0 comments