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.

Tuesday, December 08, 2009

Deception in Experiments - Not Cool

Posted by Simon Halliday | Tuesday, December 08, 2009 | Category: , , | 3 comments

A recent Slate article comments on work in Psychological Science in which people are used for an experiment (the 'people' are probably university students) on moral behaviour and 'buying green'. The subjects are asked 'What do you want to buy from Online Store X' (the experimenters manipulate the store's stocks), which is all good and fits with experimental protocols (oh yes, though it's imaginary, and they aren't spending money, so hey?). What is not cool, not cool at all, is that the experimenters then set up a dictator game telling the players they were paired with someone, when they weren't. The money they were 'giving' to someone else, didn't get given to anyone. The experimenters deceived their subjects. Not cool. Fantastic that they are doing experimental work, and using economicky experiments to do it, but not cool that they deceive their subjects. Why? Experimenter legitimacy! One of the big battles as an experimentalist is having your subjects BELIEVE that what you say you will do, you ACTUALLY will do. If word of this kind of deception (almost always by psychologists) gets out, then more and more experimental subjects won't believe experimenters and therefore won't behave in ways consistent with how they would outside of the laboratory or experiment. This is why economics experimenters have such a strong code of ethics about not deceiving and doing what you say you will do.

Tuesday, December 01, 2009

Books I

Posted by Simon Halliday | Tuesday, December 01, 2009 | Category: , , | 0 comments

I have split this post into two sections: non-fiction (Part I) and fiction (Part II). All as a consequence of reading more than I've felt like writing about what I've read. But, I know that the content always cements itself better when I write about it.

Non-fiction Hayek - The Fatal Conceit
I have enormous respect for Hayek because he has an interesting methodological take on economics and because he supports evolutionary methods in economics. First, he takes an methodological position in economics that opposes the position taken by most economists in that he advocates a non-mathematical approach. Second, he argues for strongly for an evolutionary perspective on economics, which results in him advancing a theory of group selection. But I do not agree with the conclusions he draws from the positions he takes, namely that of quasi anarcho-capitalism, or a state that exists purely to uphold laws and to act as defence against outside forces. Nevertheless, I believe that many of his arguments against socialism are accurate and should be better recognised and negotiated by socialists and statists alike. But Hayek also makes several errors, some of which I will bring up in this review, mainly those conceived by academics I have read, but about which you may not know.

First, he conflates a notion of a firm as actor and an individual as actor when firms are not individuals and markets often do not operate with an internal market structure, i.e., people are not priced within firms, they are managed. The problem with this is that corporatism and competition are often incompatible, or, at least, firms that have obtained substantial market share will spend substantial amounts of money to maintain that market share (see Herbert Simon on this). Second, he does not discuss the benefits of monopolies, and neither does he do much to consider Schumpeter's arguments about the roles of monopolies and entrepreneurs as innovators (maybe I've missed something), nor does he consider the extent to which markets facilitate lock-in and monopolization and which, if harmful, cannot be undone without suitable government intervention. Third, he articulates how human society needs both filial ties and commercial ties for it to function well, but he does not accurately specify the exact limits of each, and when he tries to make some arguments as to some limits (i.e. market interactions are 'commercial' family interactions not), they often seem forced rather than well-argued or evidence-based, that is what about gift exchange, or charitable giving, or helping a neighbour, doing volunteer work? Where exactly does the boundary lie and why? Does the boundary exist at all, or is it a hangover of Adam's Fallacy (as Duncan Foley might put it). Fourth, and probably most importantly, Hayek does not speak about power and the market - not market power, but how individuals with amassed market share have political power outside of the market and in the political sphere. They can, and do, exert power over others in a way that is anti-democratic and anti-libertarian. There are several other problems with the book, but these are the ones that leapt out at me.

That said, Hayek commands his territory well. He bulwarks private (several) property with many strong arguments, defends an epistemology based on evolutionary arguments for economies and group selection in particular, marshals an attack on more mainstream economic thinking (his famed 'Fatal Conceit' chapter) and socialistic thinking in particular, and continues onward to garner a position that stands for both a minimal state, yet with specific liberties. But when reading the book, I got the sense, disturbingly, that Hayek would rather live in an authoritarian state that defends private property than a democracy that does not. This jars with my senses of liberty and democracy. Nonetheless, the book is a landmark of libertarian philosophy and must be read by any ambitious scholar of the institutions and mechanisms of capitalism and human cooperation.

Robert Heilbroner - The Worldly Philosophers
What new can be said about The Worldly Philosophers? The book is a marvel of easy-to-access history of economic though, charting the path from before Adam Smith, through Ricardo, Malthus, Marx, Veblen, Keynes and Schumpeter and ending with a discussion of the ends of the worldly philosophy - both its intentions and its extinction. Going in, I already knew a substantial amount about those whom Heilbroner wrote about, but I had not had their stories told to me with such panache and verve. Having previously read various short biographies of Marx, for example Paul Johnson's acerbic short biography in Intellectuals, it was refreshing to see a more forgiving and holistic view of Marx, especially from an author who has written so much using marxist theory. The Worldly Philosophers makes a fantastic introduction to the history of economic thought - simply to provide a more expansive understanding of the intentions of economics and why so many have found its study to be such a stimulating and motivating force in their livings. I want to buy copies for my parents, and my wife will read it soon. What made it all the more pleasurable, is that, unlike many more technical books on economics, it was an easy 'read before bed' book because you could capture the narrative and sink back into it with ease, and emerge from it without feeling anxious about statistics and abstruser musings. I recommend this book strongly to any student of economics and anyone related to that student, you'll understand them better, I promise (it should be compulsory reading for any parent who wants their child to study economics).

Finally, it should be given a strong recommendation because of the final chapter, in which Heilbroner discusses the 'end' of Worldly Philosophy. In it, Heilbroner launches an attack on mainstream, largely mathematical, neoclassical economics, arguing for a more inclusive, historically located economics that allows people to consider simultaneously the small, niche questions that they do, in addition to the 'big-think' that made so many of the worldly philosophers great. Paul Samuelson, who recently passed away, gave similar advice in a recent interview, saying that, in hindsight, non-technical economic history and history of economic thought had greater relevance than he would have originally thought, giving particular weight to understanding the structures and evolution of the institutions that make so much of modern society, modern capitalism possible and, current events notwithstanding, to make them flourish. What a marvellous book.

H. L. Mencken - Prejudices: A Selection (James T. Farrell ed.)
Mencken was a fantastically witty, intelligent and acerbic commentator. He's also probably one of my favourite conservatives (Yes, I have a list of my favourite conservatives). He wrote short and cutting pieces about subjects or things of which he doesn't approve (for example, see his essay on Chiropractic written back in 1924). I did not read all the essays in the book, its expiry date was up at the library and I intend to buy it and have the pleasure of reading some essays that I had not read. If you have not read any of Mencken's essays this book provides a fantastic short collection to introduce you to some of his more famous work, looking at everything from domestic US politics, to literature, to his thoughts on the world as a whole. Give it a try if you enjoy short, and often personal, essays.

Thomas Childers - WWII: A Military and Social History - TTC Lectures
The course was advertised as a 'social and military' history, but far more weight was given to the military history of the war, and this is where Professor Childers shines. However, he does the social history well tpp. He intersperses tales of battles (infantry firing, tanks blitzkrieging, aircraft bombging) with stories of the everyday lives of the people living and experiencing the war. Both of these aspects of the war require the emphasis that they get, though it must be said that Childers focuses greatly on the Allies' experience of the war, and the experiences of US and British citizens in particular.

Two factors made this series of lectures particularly relevant to me: the way in which Childers describes the pacific arena, and also how he lent credence to how the Russians bore the brunt of the German war machine. I had not understood the extent of the war between Japan and the United States previously, which I assume was a consequence of my anglocentric upbringing and the eurocentric instruction in WWII history. Being a non-American, having the Pacific war brought home was both perplexing and revelatory, and I began to understand some of the motivations behind the use of the nuclear bomb in Hiroshima (but not for Nagasaki). Why? Estimates for an invasion of Japan ran up to 1 million casualties, both civilian and military. Using the bomb would result in fewer casualties. Now, I do not claim the excuse the action, but rather that part of me which objected to the bomb on principle began to understand some of the political and military dynamics behind it: the jungle warfare had resulted in phenomenal US and Japanese casualties, the kamikaze killed hundred, the ritual suicides of the Japanese - whole villages throwing themselves off of cliffs, the suicide bayonet charges of Japanese soldiers - the abuse and torture of American POWs, led the Americans to believe that their enemy would stop at nothing, and would likely repeat a Pearl Harbour had they the option to do so. Again, this does not begin to excuse the use of the bomb, or the consequent fallout, but it did begin to explain it to someone whose only understanding of these things was a rudimentary knowledge of Iwo Jima.

Secondly, Childers, though he does not emphasise it to the extent I think it warrants, describes how the war was, to a great extent, won by the Russians, or maybe lost by the Germans because of their Russian invasion, and thus the brunt of which was borne by the Russians. The Russians were assisted by the allies, specifically the Americans, with supplies of food and arms, but the Russian death toll was the greatest amongst the allies, and the reciprocal casualties that the Russians (and their landscape) wrought on the Germans decisively determined the end of the war: the Germans would lose. The rest of the Allies, though they did well in Africa and Southern Europe, did nowhere near as much to end the war and could almost be considered mere irritants to Germany in the face of its Russian invasion. The reasons why we anglophiles often don't know this, I think, is probably a consequence of the Cold War - it would not have been politically feasible for historians or politicians to recount the extent to which the West was indebted to Russia for its survival, or at least for teachers to tell the children they were educating as good capitalist citizens to believe that a communist power was their saviour.

Childers thus constructs an intelligent and useful historic architecture, filling in many of the gaps that I had, while also allowing me to understand the breadth of what I still do not know by hinting at many of the military, social, political and economic factors that he did not have time to consider. For example, I would like to understand better the internal functioning of Germany during the second world war: exactly how it incorporated other countries during the anschluss, the means by which Hitler ruled as Fuhrer, and the internal politics that facilitated fascism. More in time, I assume, as I read and study more about WWII.

Robert Bucholz - History of England: From the Tudors to the Stuarts - TTC Lectures
Initially I found it odd being lectured to by someone with an American accent. However, what Bucholz does well is to introduce the non-Briton to British history. Therefore, even though I am a colonial, I benefited from him explaining a number of things that would be obvious to a Briton because he would have absorbed through cultural osmosis, whereas as a non-Briton I would have to look it up to understand it better (my father's commitment to his birthplace notwithstanding).

Bucholz produces a fascinating and well-structured course. Starting just before the reign of the Tudors to set the scene of medieval and pre-protestant Britain, he proceeds onwards to the War of the Roses, the establishment of the rule of the Tudors through to Elizabeth's death. This first large part of the course taught me a substantial amount of things that were predominantly mythical to me. Two of the most important myth-breakers: first: England's irrelevance to European politics, and, second, the extent of the tall tales I had internalized about some of England's rulers. For example, although I understood that Henry VIII was profligate and arrogant, I had not understood the extent to which he almost bankrupted England through inane wars, or the extent to which his rebellion was quite unimportant to many, though obviously significant to others because of its protestant nature. Second, I had not understood that, although Elizabeth I ruled well, many actions she took jeopardised Britain's stability and its rule as a good protestant state - she let down many of the iconoclastic sects of Christianity.

Moving beyond Elizabeth into the Stuart rule, I learned a substantial amount about the revolution leading up to the Glorious Revolution. Bucholz seems to cover most of the areas well and answered many of the questions I would have considered had I done this course in a classroom, covering the ineptitude of Charles I, the brilliance of Oliver Cromwell and the gap left by his subsequent death, the restoration of Charles II, and the ultimate succession of William of Orange with the advent of the Constitutional Monarchy. Not having known all the details of the Glorious Revolution previously, I marveled at the sequence of events that led up to it. Moreover, the ways in which Britain has evolved since then are equally fascinating and constitute more history that I would like to pursue to understand better the contemporary United Kingdom.

Gender and Risk: Context and History

Posted by Simon Halliday | | Category: , , | 0 comments my series on risk aversion, competition and gender (see my first post here) after a long hiatus, today's papers try to assess whether risk and competition preferences are determined by 'nature', something inherent in women, or 'nurture', the environment in which the person grew and came to be socialised, or some combination of the two, or maybe something which is residual and unexplained. Moreover, are risk-preferences 'state-based' - are they contingent on the situation or context in which a person makes their decisions. We can therefore ask the following questions. Does the composition of the school, business, or social group in which you find yourself affect your willingness to engage in risky behaviour, or your willingness to compete? Does your personal history of nurture, as a woman, affect your risk preferences?

A recent pair of papers by Alison Booth and Patrick Nolen, both of the University of Essex, grapples with these questions using experimental methods and a quirk of policy to evaluate the mechanisms and structure of risky behavior and competition - they want to understand whether nurture or nature speak out. To foreshadow, they come to conclusions similar to one of my favourite books, Nature Via Nurture by Matt Ridley. Men and women, girls and boys, seem to tend towards specific attitudes towards risk, but these attitudes are dramatically affected by the nurture that they experience and the context in which they find themselves. It seems, though, that girls, more than boys, are more affected by nurture and by context and that by manipulating these we can provide a context in which girls choose to compete about as much as boys, or choose to act as riskily (in a good way) as do boys.

In their first paper, Booth and Nolen interrogate whether a girl's history (coeducational or single sex schooling) and her context (being in a group of girls only or a group of boys and girls) affect her choice to compete (defined well in their paper, don't worry to much about it here). In the second paper, they assess whether a girl's history or context affect her risk preferences. How do they interrogate such important questions? Well, they opened the economic experimentalists' toolbox to manipulate context, while happening upon a quirk in policy in the British education system that allowed them to isolate history. In Essex and Suffolk, which border one another, we can assume that socio-economic status is distributed similarly. Consequently, that some students, by a quirk of policy can attend single-sex schools while others, just across the border, attend coeducational schools provides us with a natural environment in which to test history, or nurture, as a determinant of risk preferences. With an experiment, we can control the composition of the group in which a subject makes decisions, to see whether this composition affects their decisions.

In both areas, Booth and Nolen resoundingly answer that nurture and context strongly affect female decisions. Girls from single sex education background behave substantially less risk aversely than girls from coeducational backgrounds. Girls from single sex educational backgrounds behave similarly to boys in this respect (boys' behavior does not seem to be affect by background, which is a separate path for inquiry about gender effects) - single sex girls' behavior vacillates from being statistically not differentiable from boys' behavior, to being slightly (very slightly) more risk averse. Similarly, girls from single sex backgrounds choose to compete far more often than girls from coeducational backgrounds, and the incidence of girls' choices to compete is not statistically significantly different to the incidence of boys' choice to compete. So nurture matters.

With respect to context, for both single sex girls and coeducational girls, context matters. Girls from both groups are likely to behave more risk aversely and to choose to compete less often when boys are included in their group. Boys, on the other hand, don't change their behavior if they're from single sex or coeducational backgrounds.

Can we consider specific policy implications of their papers? First of all, one policy could be that to evaluate girls and boys, segregated schooling or, at minimum, segregated testing environments could ensure that women perform lest risk aversely and choose to compete as regularly as boys do. Also, there could be a role for all women companies or firms in which women only compete with and interact with one another and choose not to introduce any men into the women-only environment. Now, I'm not proposing that these things should be done, but rather that they are fairly logical implications of the Booth and Nolen results.

Another result could be, simply, that we'd rather have more risk and competition averse people involved in banking and finance, and that to ensure this we employ more women in these environments. However, sample selection could bias our sample. But maybe not, because it seems as though female MBAs are still more risk averse than their male counterparts, so the selection bias may not matter too much (see Levy, Elron and Cohen, 1999).

Another question goes begging. If girls' behavior is so responsive to environment and history, why can't the same be said of boys? Are boys immune to nurture? Is their behavior more innate or less? These are questions that remain to be answered, but, I hope, will continue to be questions that researchers try their best to answer with experimental techniques and an understanding of institutional peculiarities that make work like Booth and Nolen's so compelling.

Alison Booth and Patrick J. Nolen, 2009, 'Gender Differences in Risk Behaviour: Does Nurture Matter?' University of Essex, Department of Economics Discussion Paper 672
Alison Booth and Patrick J. Nolen, 2009, 'Choosing to Compete: How Different Are Girls and Boys' University of Essex, Department of Economics Discussion Paper 673,