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.

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Wednesday, September 22, 2010

Beer Distibutors Lobby Against Legalization of Marijuana

Posted by Simon Halliday | Wednesday, September 22, 2010 | Category: , | 0 comments

In a fantastic display of the power of availability of substitutes, we're witnessing the opposition to legalization of marijuana in California by California Beer and Beverage Distributors.  Proposition 19, which proposes the legalization of marijuana in California, has various groups lobbying against it.  The main group funding the opposition to the proposition is the California Police Chiefs Association.  That makes sense to me for political economy reasons (if I am a policeman, and I know that one of the sources of me having a job is drug crime, if drug possession is no longer a crime, then I am less likely to have a job in the future, therefore I campaign against the legalization of drugs to ensure myself a job), but not moral ones (marijuana doesn't have any 'worse' effects than alcohol, in fact it's less addictive, and legalizing marijuana would decrease certain drug-related crimes, which are often racially/ethnically correlated).

Anyway, the California Beer and Beverage Distributors face a similar problem economic problem.  If marijuana is legalized, then the the price of marijuana is likely to decrease because of increased (legal) supply.  Let's assume that marijuana is a substitute for beer. If the price of a substitute decreases, this implies that the good that has the higher price is going to take a hit to its demand - its demand decreases.  Consequently, at the same supply of beer, the price for beer will be lower than it was before the price for the substitute decreased.  At this new, lower price, some firms may exit the market because they cannot cover costs.  If firms exit the market, then the supply must decrease.  If the supply decreases, then there is less beer for beer distributors to distribute, that is, the demand for beer distribution decreases.  If the demand for beer distribution decreases, then at a given supply the price for beer distribution must decrease (a new, lower, equilibrium price obtains).  At this price some beer distributors may not be able to cover their costs.  Some of the distributors will have to exit the market.  Consequently, beer distributors will pay now to ensure that a proposition that jeopardises their future profitability does not get passed! Economics in action.

How might this all change if beer and marijuana were complements rather than substitutes? Well, in that case the opposite would hold.  Demand for beer would increase with legalization of marijuana (as consumption of marijuana increased, so would consumption of beer).  Consequently, there might be an increase in demand for beer distribution, which, at a given supply of beer distribution, would imply a higher price for beer distribution and greater profitability.

So it all rests on whether beer and marijuana are substitutes or complements.  It appears as though the beer distributors have a strong reason to believe that they are substitutes, else they wouldn't be paying to try to oppose the legalization of marijuana.  I think this is a fantastic, entertaining and easily teachable use of basic economics principles and price theory.  I've made a few simplifying assumptions along the way, but the explanation still helps us to understand the behaviour of the beer distributors.

Images sourced from Morguefile.com from users ruskyskytrain and MindExpansi0n.

Monday, September 20, 2010

Do we need a new Economics Principles Course?

Posted by Simon Halliday | Monday, September 20, 2010 | Category: , , | 1 comments

Principles of Economics (7th Edition)Stephen Kinsella sends us to a post on economics education by Paul Gregory, author of an Economic Principles text since the 80s, which is now in its seventh edition.  Gregory tells us in the post that "There is no need for a new Economics 101. What we have experienced over the past two years is nothing new. There is nothing unexpected that has happened. Events however should serve as “teachable moments." I think that he's right about some stuff, wrong about others and, more problematically, behaves inconsistently in his approach to different theories.  

First, I agree that Gregory's post is useful in telling us what is wrong with current policy, that is, that some of the theories that economists in the current US administration have about consumers and firms' preferences and behaviour have been falsified.  This is good theory.  However, Gregory then takes the behaviour of firms and consumers as confirming evidence of alternative theories. This is a bad theory.  You can't apply falsifiability to some theories and then use the data you used to falsify those theories as confirming evidence for theories that you prefer.  I could, equivalently, have found falsifying evidence for the theories that he proposes and confirming evidence for the theories that he argues are falsified.  This is bad economics and bad philosophy. I'd be differently inclined were he to take a Bayesian position and say that the evidence alters our priors about the theories that we have and that we should adjust our expectations and our probabilities accordingly, but he doesn't.  Consequently, I would have been more interested had Gregory said, 'These are Keynesian hypotheses that have been falsified' and 'These are Neoclassical hypotheses that have been falsified.' Then he could have said, 'Here are hypotheses (Neoclassical/Keynesian or otherwise) that have not (yet) been falsified.' I suppose he could have put in his comments about the behaviour of the theories in his text at this juncture, but he should have also looked for falsifying evidence of those theories.

Second, his claim that 'Nothing unexpected has happened' (emphasis on expected, that is in anticipation) is outright rubbish.  Many (most) economists did not expect what happened.  We can use economic theory to explain it in hindsight, but saying it was expected by those who learned from textbooks such as his is rather outrageous. They (we) did not expect it, did not anticipate it, and subsequently have bungled much of the management of it. In the future we shall be able to use the data from the crisis and the subsequent policy interventions to create a better understanding of extant theories, but the point would be to do so in a methodologically consistent and coherent manner.

Third, and nevertheless, he makes good points about the teaching of moral hazard, uncertainty and information asymmetry.  I strongly advocate teaching these ideas in economic principles courses and I suspect that we should give them more weight than ever before.  In fact, we should do almost all of our teaching in the understanding that information is almost never perfectly symmetrical, on the contrary it is almost always imperfect.  What would this do to our economics principles course if we assumed that imperfect information was the norm and not the exception.  Well, I would argue that, in opposition to Gregory, we would need a new Economics 101 and that, consequently, we could coherently take the past few years a 'teachable moment' in the understanding that economists themselves are victims of imperfect information and are not exempt from their own theories.    

Saturday, September 11, 2010

Tech & Pop Culture in Teaching Econ

Posted by Simon Halliday | Saturday, September 11, 2010 | Category: , , | 3 comments

On Thursday I gave a presentation at the School of Economics at the University of Cape Town about incorporating pop culture and better use of technology into your teaching.  I've been trying to experiment with various things in my teaching recently and I plan to experiment more in the future.




The talk began with a discussion of whether I think we should use slides or not.  I think we can (not necessarily should) use slides, but that they need to be of a very high quality and that they need to be designed with specific goals in mind.  For this, I discussed people like Edward Tufte, Garr Reynolds, Larry Lessig and I used Hans Rosling as someone who uses both analog and digital presentation props well, and from whom I think we can learn as instructors of economics.  I proceeded to discuss some useful databases that are out there and to which people can contribute: Movies for Econ and Music for Econ.  An example: I recently took it upon myself to use music videos in my lecture slides and tutorials and based questions and examples on these music videos (you'll see two of them in the presentation).  I moved on to look at various resources that are out there, both proprietary software that I use (Screenflow in Mac OS) and internet repositories for creative commons or shared products, e.g. compfight.com for CC images, or Teaching Resources for Undergraduate Economics (TRUE) for economics. 

I also began to broach the topic of the challenges that I've faced in trying to innovate.  For example, the costs of bandwidth in South Africa force the university to adopt a 'Campus Internet Quota' (CIQ).  Because of the CIQ, students on campus are allowed approximately 200MB per month of external internet access.  Consequently, after I had uploaded my videos to Vimeo I was contacted by students staying in campus residences who said that they could not access the videos because they were too big and they'd exceeded their CIQs (the videos range from 80-120MB depending on the content).  This resulted in me having to work out work-arounds.  It was an education.

I concluded the discussion by bringing up 'open content' generally and the University of Cape Town's own attempts to move toward open content.  There are many examples of researchers and teachers trying to open up teaching and research: academicearth.org, MIT open courseware, etc.  I hope I can contribute in my small way as I go forward. 

There are all kinds of things I didn't get around to discussing: blogs, twitter, using an RSS feed (which is still a foreign concept for some), prezi.  I hope to write something more official on this topic using my experiences as a case study and I hope that I can make some more general points in the article.  We'll see what comes of it.

The presentation was received well by the members of the audience.  Many of the staff had not seen me present before or thought about this stuff became readily engaged and hope to look at a lot of this stuff in the future.  The problems are, obviously, the large fixed costs of getting to know the resources out there and the incentive problems that an academic faces when choosing whether to dedicate time to research or to teaching (with its attendant preparation).  I hoped to convince them that the spillovers, once you've incurred the initial high fixed costs, are valuable and will improve your presenting as you go forward in your career.  We've yet to see whether I'll be a case in support of this argument or not. 

h/t Stephen Kinsella for getting me to think more deeply about these topics and suggesting readings that got me onto this whole push for improved teaching and use of technology (or abandoning slideware entirely).   
h/t Lara Skelly who is the economics librarian at UCT.  She's done (and is doing) all kinds of good work and updating me on information and additional resources for open content, creative commons in teaching, and more.

Sunday, September 05, 2010

Disagreeing with Jonah Lehrer

Posted by Simon Halliday | Sunday, September 05, 2010 | Category: , , | 3 comments

Jonah Lehrer recently wrote about the identifiable victim effect. In the piece he talks about the work of Paul Slovic and identifiable victims. I appreciate the work that Slovic has done. I have met and interacted with some of Slovic's co-authors and think the work is great. The idea behind identifiable victim bias is that people respond differently when they see one 'identifiable' victim rather than a bunch of statistics indicating the 'true' depths of poverty. For example, people give £3.50 in the one case and less than half that in the other. Lehrer says the following about the different reactions that people have:

"Of course, this is a deeply irrational reaction. We are much less interested in helping a victim – we only want to help the victim. (This bias is known as the identifiable victim effect, since it suggests that we react much more strongly when the victim can be specified.) Why do we this? Because human charity is ultimately rooted in our compassionate feelings, and not in some rational, utilitarian calculations. We are not Vulcans."
But, Lehrer's claim that it's 'irrational' for us to respond in one way to an emotive stimulus and another to an intellectual one is false. Again, this abuses the idea of 'rationality'. What Lehrer is actually saying is that people behave in a way that he interprets as inconsistent, and thus irrational. I would argue, instead, that the behaviour is not inconsistent. That is, in an agent's preference rankings they will (or may, depending on the agent) consistently prefer - and rank higher - cases in which they can identify victims rather than observe the statistics of a problem. This can be a consistent response. It just seems as though Lehrer wants to project a certain kind of value on what an individual's ranking should be and, because he thinks its inconsistent, infer it is irrational. Were it inconsistent for all agents at all times, it would display irrational behaviour.

He then goes on to examine a new paper in which some people are 'less irrational' than others. That is, some people who tend to be 'more analytical' also tend not to 'fall victim to' the identifiable victim bias. OK, we're getting somewhere. What this says to me, instead, is that people who value analysis are going to approach and rank their preferences in such a way that they would like their emotional and analytical selves to be consistent. That is their preference rankings mirror the correlate of tendency to analyse. What Lehrer does not say is that both groups could be rational and satisfying preference functions that are indeed consistent, but that he does not know what those preference sets are. If we accepted this, and measured at the level of the population, we might be able to infer what those preference sets are from the behaviours that people display, rather than labelling one group as rational and the other as not.

The problem here is one of identification. That is, can we identify at the level of the individual ex ante and without additional information what a given individual will rank higher? No, we can't. We need their preferences to be revealed by their behaviour. OK. Once we have data, though, might we be able to list the probabilities with which an individual's preferences might fall into one class or another? Yes. In fact, I'd say that would be progress. Admitting the possibility of agents with heterogeneous preference sets, that is, people who rank things differently, and therefore rank their responses to things like statistics and identifiable victims differently, is a step toward improving the behavioural sciences. The point is the idea of rationality is non-tautologous as long as we have accurate descriptions of the classes of preferences that individuals might have. If I understand the problem accurately, then this is indeed what many researchers are trying to consider when it comes to other-regarding and self-regarding preferences. Some agents seem to display other-regarding preferences. Other agents seem to display self-regarding preferences. Given no knowledge about an individual we cannot say with certainty which kind of preferences they have. But, as more data mounts, we should be able to say that individuals with certain kinds of characteristics are more likely to display a certain set of preferences given a certain set of conditions. We could then provide probabilities with which a given individual about whom we have limited information will display one set of preferences or another. Rationally. Similarly, once we have better and more comprehensive data about how states affect behaviour, then we can improve our understanding of state-based and endogenous preferences (see Bowles's (2006) book Microeconomics: Institutions, Behavior and Evolution for a decent summary of these ideas).

To me, that is more interesting than identifiable victim bias being 'irrational'. I must also leave this post with a caveat: I do not believe people are fully rational. Moreover, I feel studying psychology can improve our understanding of agents in the settings that they are accustomed to and to understanding proximate motives for behaviour (see Greg Mankiw's NYT column from today where he urges students to study psych, along with one or two other subjects).  But I also think that inaccurate commentary on what rationality is and means does not help us to improve the behavioural sciences. Moreover, I think a proper understanding of rationality and its applications in the behavioural sciences serves to improve them rather than impoverish them (consistent, for example, with this recent post at Crooked Timber).

Friday, August 27, 2010

Failed Cooperation in Fashion

Posted by Simon Halliday | Friday, August 27, 2010 | Category: , , | 1 comments

I didn’t ever think that I’d comment on the game theory of the fashion industry, but hey the fashion industry contains profit-maximising firms that rely on a brand to maintain their profits, so why not? We’ve known for a while that various fashion houses employ many tactics to improve their branding, for example sending free products to celebrities so that their products are associated with these celebrities. This morning, though, I came across an article in which it was shown that fashion houses also send out their opponents’ products to sub-lebrities, that is, those people at the lower end of the celebrity spectrum with whom the fashion houses would rather not have their products associated in case it jeopardises their brand.  You get your opponents' customers to see that some loser sub-lebrity has their branded goods, which makes those customers come and buy your goods instead. Eureka!

But what the fashion house that started this didn’t realise is that the best policy with these kinds of games is not to commence playing them at all. Unless all the fashion houses can come to a simultaneous agreement to cease doing this 'unbranding' or ‘anti-branding’, they’ve now permanently increased their branding costs. Why? Not only do they have to pay for sending their products to celebrities, but they have to pay for sending their opponents’ products to sub-lebrities. I can see that the very first fashion house to do this thought “Wow! What a great idea! We can damage our opponents and increase our market share. We’re geniuses!” They didn’t realise they were initiating a multi-player prisoner’s dilemma in which each fashion house has an option to Cooperate (not anti-brand) and Defect (anti-brand).  How does this work? Well, for each fashion house, it’s in their interests to anti-brand if no other firm does (they defect, when the others cooperate) because they will end up looking like a superior brand at relatively low costs. Secondly, they would also much rather not be the firm that is not anti-branding when any other firm is anti-branding.  Together, these imply that Anti-branding is a strictly dominant strategy in the game.  Consequently, an All Anti-brand equilibrium obtains, at which all the firms are worse off than they would have been had no firm chosen to anti-brand, or at least chosen not to allow anti-branding into their set of potential strategies.

What do they need to do to get out of this situation? As someone who doesn't consume these goods, I don't really care, but the consumers of the goods should because the costs are probably going to be passed on to them (depending on the elasticity of demand for these goods, which might be quite great given that they are luxury goods).  Anyway, I suspect that they would like to alter the game so that the incentive to anti-brand is removed.  I suspect, though, that now all firms have done it, there is no credible way to get rid of it. All the firms will continue to do it, in the interests of attempting to get more market share, but ultimately damaging their profitability because if everyone does it, no single firm is likely to improve their market share.  Doh! Did no one at Gucci or Prada study game theory? What's probably even more frustrating for a consumer of these goods is that the outcome is not like the breakdown of cooperation in a cartel in which consumers might eventually benefit from lower prices, here, instead, consumers may suffer.  Poor fashionistas! Your Prada, Gucci and other famous brand's will cost more now.

Images: Gucci Bag from guccigoods.com, Snooki trio from americanchic.net

Monday, August 09, 2010

Comments on Review of Ridley's Rational Optimist

Posted by Simon Halliday | Monday, August 09, 2010 | Category: , , , | 1 comments

I've just read this review - by John Gray - of Matt Ridley's book The Rational Optimist.  I originally intended to comment on the article's content, then realised that I had to refer to some commenters who would probably just troll (because, I suspect, their ignorance displays their misunderstanding of the position that they advocate).  Anyway, here's the extended version of the comment I planned to write.  My comment is intended to be about the comments and not so much about the review itself. 

I get the sense when reading the comments on Gray's review that people are misconstruing  as a philosophical point what Gray intended instead as a description of an historic process, i.e. when Gray says "Laissez faire [...] was imposed through state power".  What Gray seems to be saying is that what we mean when we talk about 'laissez faire' occurred not only as a consequence of decentralized decision-making by people, but also because of the application of state power to reinforce and support (an approximation of) laissez faire.  In terms of British, Dutch and US history that makes sense: these countries had people who made decentralized decisions to create and sustain free markets, and then used state power to mobilize the populace to protect these free markets.  So-called laissez faire was not only the result of a decentralized process, but also a consequence of people coming together and asserting the primacy of free markets through state power and democratic systems. 

Also, semantically, laissez faire is not the 'absence of state power' as some commenters assert.  It is the absence of state intervention in industry and the market particularly, rather than the absence of any government intervention or state power generally.  The absence of state power is anarchism, not laissez-faire.  Consequently, it's entirely consistent for state power to support laissez faire market organizations by using state power to prevent state intervention in markets. This is what Gray said.  Moreover, state power is often necessary to ensure that markets remain free.  Adam Smith made this point in The Wealth of Nations when he observed that "People of the same trade seldom meet together [...] but the conversation ends in a conspiracy against the public." (WoN, Book1, Ch 10) Smith argued later in The Wealth of Nations that government would be required to sustain competitive markets against the forces of merchants operating in the market.  Consequently, it is only through the exercise of state power that free markets, that is laissez faire, can be protected and sustained.  Anarcho-capitalism is a pipe dream. 

Some other commenters also seem to suggest that the kind of capitalism used by China is equivalent to a 'free market'.  I suggest that they read their Hayek on the differences between private property (several property) and state property and what sustains liberty in markets (see, for example, The Fatal Conceit).  The point is not that China was a Communist country, but that China now engages in a form of state-sponsored capitalism (also, anyone who claims that the Chinese economy is a free market obviously forgets that the Renminbi is not a floating exchange rate - they need to read their Friedman).  Ridley apparently ignores China as a counter-example.  It appears he also ignores other east Asian State-Owned Enterprises and their roles in these quasi-capitalism economies.  It's the problem that 21st century capitalism may not only be about private property, but about state property and how states dispose of their property in ways that might contravene principles of liberty, yet their policies result in improved material flourishing of their populations.  It's a problem for those, such as myself and Ridley, who advocate a capitalism based on private property.  We need to examine and confront this problem, not ignore the problem as Ridley apparently does.

Independent of these problems in the comments and the massive problems and glossings-over in Ridley's book, Gray gets several things wrong too.  It would take him some time to cover all of them, so I will try to cover one: it appears as though Gray has not read any of the literature on cultural evolution and group selection, often in counterpoint to and contention with gene-level-only selection arguments.  Consider, for example, the work of Robert Boyd and Peter Richerson, or that of Luigi Luca Cavalli-Sforza.  Gray incorrectly labels cultural evolution a 'misleading metaphor'.  He portrays his ignorance of the topic by saying so - it's not only about memes and Susan Blackmore.  Gray is right to call Ridley on Ridley's poor history, Ridley's mis-characterization of cultural evolution as an ultimately teleological force with laissez faire capitalism as its end, and Ridley's attempts to ignore confounding facts like China.  But Gray should have been more careful in his representation of evolutionary theory as he ignored important ideas in contemporary theory that approach the problems in a theoretically well-grounded manner.

Thursday, August 05, 2010

Cooperation and Competition Lectures

Posted by Simon Halliday | Thursday, August 05, 2010 | Category: | 1 comments

I am slowly uploading my lectures from Cooperation and Competition (EC2007S) at the University of Cape Town to
Cooperation and Competition - 1st Lecture 26 July 2010 from Simon Halliday on Vimeo.
">vimeo, a good video sharing site.  You can see the "channel" for the videos here: Cooperation and Competition.  You can subscribe to the RSS feed of the channel if you're interested.   Cooperation and Competition is a course in introductory game theory using the textbook Games of Strategy by Dixit, Skeath and Reiley (which I mentioned recently in this post).  The videos are a combination of a video of me and a screencast - that is a video and audio capture of the slides that I use for my lectures.  The book is great because it covers all the basics of game theory with many good intuitions.  I try to make the content even more intuitive and accessible in my lectures, brushing over a bit of stuff initially though defining it more clearly later.  I only lecture six weeks of the course, going quite in depth into the ideas and applications of strategic form games, games with many players and extensive form games.

I have embedded the first lecture below.  I was quite fortunate to have Helen Zille and Patricia De Lille declare an agreement to cooperate the day before the course started, which meant that I could use that as a starting point for a discussion of agents agreeing to cooperate in political games.  This meant that students could see from the get-go that game theory offers all kinds of interesting insights into various aspects of interactions outside of its immediate purview, that is outside of economics (I'd rather not be accused of 'economics imperialism' here, the idea is for students to see that there are many applications of game theory and then later to develop a more nuanced view of the limits and extensions to the theory once they have a better understanding).

Cooperation and Competition - 1st Lecture 26 July 2010 from Simon Halliday on Vimeo.

Tuesday, August 03, 2010

Illusory Superiority and Signalling

Posted by Simon Halliday | Tuesday, August 03, 2010 | Category: , , , | 4 comments

My sister is an actress, doing more stage acting and dancing than screen work.  My brother is a musician.  I dabbled in acting and singing for much of my youth, even heading up the University of Cape Town choir for a while when I was a student.  Now why is this relevant? As a consequence of these affiliations and activities I occasionally end up watching programs like So You Think You Can Dance (which my brother-in-law did quite well in previously) and IdolsI explained to my students that these two programs create problems for economists and some of our theory.  Why? I shall try to explain below.

Consider signalling theory and let's take the classic example of education.  The idea here is that you try to create a set of incentives such that high ability individuals and low ability individuals self-select into groups such that high ability individuals get an education to signal that they are high ability because to get such an education would be too costly for low ability individuals (this is summarizing greatly).  What this assumes is that people know their own abilities.  But, as Idols and So You Think You Can Dance so readily exemplify, many people do not know that they have low ability.  They believe, falsely, that they are high ability individuals. They are victims of illusory superiority.. 

So, I explained to my students that in the context of Idols and So You Think You Can Dance, that humans are funny creatures.  We're subject to all kinds of cognitive biases.  One particular bias, appropriate for these programs, is the Dunning-Kruger effect.  The Dunning-Kruger effect exemplifies a cognitive bias by which individuals often think that their abilities are better than they are, that is people suffer from illusory superiority.  Consider two people: one of low ability, another of high ability.  If the Dunning-Kruger effect (and, specifically, illusory superiority for low ability individuals) holds, then the individual with low ability does not realise that they have low ability.  This creates a problem for signalling theory.  Why? The low ability person will lack the metacognitive abilities to evaluate their own cognition.  Consequently, they may incorrectly evaluate the costs that they would incur to attend university (get an education).  They might then attend university and fail at a cost to themselves and to society.  The might also, by some fluke, get through university and send the signal of 'high ability'.  But, once they enter the workplace, their employer might then discover that the signal was untrue and they are indeed a low ability individual, which undermines the credibility of the signal for others.

But, the Dunning-Kruger effect has another side.  Intelligent, or high ability, individuals generally have the metacognitive abilities to evaluate their own abilities relative to others.  Consequently, they are often better at measuring when they have high ability in one subject and low in another, but they are also often victims of incorrectly evaluating the incompetence of others: they take their own ability as representative of an average ability to complete a task, therefore underestimating their own abilities.  This adds a second problem: imagine that a high ability individual, falsely believing that she is a low ability individual chooses not to attend university.  This further complicates the signals for companies.  A high ability individual who is hired and found to be a high ability individual undermines the 'low ability' signal of no education. 

Signalling theory in economics consequently faces a host of problems, at least as far as it tries to grapple agents who suffer from cognitive biases, i.e. humans.  I have simplified the problems here, but it does give us a first blush of some of the problems of reconciling actual human thought processes with economic theory.

[Note: I haven't ever read anything about Dunning-Kruger and Signalling theory together, it just struck me that the one contradicted the other, what I know about Dunning-Kruger and other cognitive biases is predominantly self-taught so I may have phrased things slightly loosely.  My apologies.] 
Images: denitza.wordpress.com, www.motivatedphotos.com

Monday, July 26, 2010

Books for Game Theory

Posted by Simon Halliday | Monday, July 26, 2010 | Category: , , , , | 3 comments

Today, at the University of Cape Town, I began to teach an undergraduate course in game theory.  The course is a broad-based introduction to game theory for students across the university's faculties: from humanities, to commerce, to engineering and the built environment.  We instruct with the textbook Games of Strategy (3rd ed) by Dixit, Reiley and Skeath.  The book is a good, broad-based and intuitive introduction to game theory, with mathematical formalisation that is accessible to the majority of students who have done basic calculus.  However, producing problem sets is difficult year-on-year as many of the problems are similar and students often share information across the university network.  I mean that literally: they share their solutions of old problem sets so that their friends can download the solutions and hand them in as 'their' solutions.

Consequently, in an attempt to expand the number of resources I have for problem sets, I have found a number of other books useful for finding additional problems, especially some problems outside of economics.  I have several goals for the course, one of which is to ensure that the students have many problems that they can work on in order to prepare for the mid-term test and the exam.  I have found a problem-oriented approach to work quite well and, as far as I understand it, research demonstrates that this is a good way to approach a course like introductory game theory. Nevertheless, I also hope to convey most of the intuitions in accessible and commonsensical situations.  I have lectured the course a few times before and I am looking forward to lecturing it again after this hiatus (the last time I lectured it was for the summer term in early 2007). 

Here is a list of the books I have found useful so far:
Binmore, Ken (2007) Playing for Real - Gets a bit complex for the course I will teach, but has some good examples that one can adapt quite easily for problem sets.  The book is an updated version of Binmore's earlier (1991) Fun and Games.
Miller, James (2003) Game Theory at Work: How to use game theory to outthink and outmaneuver your competition - written for the businessperson wanting to understand the basics of game theory, this book has many examples that can be adapted to create problem set questions.  The book could have been better edited and better conceived in parts, but it does give many typical problems in different settings that can be useful for someone producing problem sets.
McCarty Nolan and Adam Meirowitz (2007) Political Game Theory: An Introduction - this book has several basic examples with added complexity that make for good problem set questions.  Moreover, it has problem sets at the end of chapters that can be used quite easily for problem sets. The book itself is a bit too formal for the 2nd year course that I am teaching, but I think that it could probably be used quite easily in a higher level undergraduate or Honours-level course where the mathematical formalisation would not be a problem for students.
Rasmusen, Eric (2006) Games and Information: An Introduction to Game Theory - Rasmusen uses a number of definitions and approaches that I would not use when teaching game theory, nevertheless he has many interesting and fun examples in his textbook that can be put into problem sets for a course like mine.  Rasmusen also gets a bit too mathematical and caught up in definitions that I would not want to use. 
Romp, Graham (1997) Game Theory: Introduction and Applications is targeted at advanced undergraduate and early graduate students. Consequently, the book as a whole gets too complex for my course, but several of the examples in the introductory chapters as well as 'dumbed down' versions of the applications can make good problems for an introductory game theory course.  
Straffin, Philip D. (1996) Game Theory and Strategy is also a bit too mathematical for the needs of my course.  Nevertheless, it also has some good examples of zero sum and non-zero sum two-person games that can be easily introduced into an easier course.  The N-person games stuff is interesting, but too in depth for the way in which we approach games with many players. 
Gibbons, Robert (1992) Game Theory for Applied Economists is again too mathematical for the course I am teaching, but it has numerous examples and problems that can be adapted to an easier and more intuitively directed course. 

Overall, looking at all of these books has reinforced how Dixit, Reiley and Skeath is a great book for an introductory game theory course. Most of the books claim to be introductory, but aren't really, they're introductory if you've done sufficient calculus and economics, but not introductory in the sense that most second year students in an cross-faculty course would be able to deal with them. Instead they are pitched at an advanced undergraduate or introductory graduate level where there seems to be a lot of competition for that kind of book.  I'm surprised that more authors haven't tried to take the path that Dixit, Reiley and Skeath have by finding a less formal way to approach game theory and hook students into an area of study that has such potential, notwithstanding its flaws (see Hargreaves-Heap and Varoufakis' Game Theory: A Critical Introduction or some of the passages in Gintis's Game Theory Evolving). 

Books I'm not using:
Osborne and Rubinstein - A Course in Game Theory - Too much mathematics in an inaccessibly written way.  
Binmore, Ken - Game Theory: A Very Short Introduction - Though this is meant to be a book for the layperson and I thought I might get some useful examples from it, I got the sense that someone would have had to study a fair amount of economics to make head or tail of it.  Not useful.
Gibbons (1992) A Primer in Game Theory - Too mathematical and too brief, I'd use this for an advanced undergraduate course.
Gintis, Herbert (2009) Game Theory Evolving (2nd Edition) - More focused on evolutionary game theory, which I'd love to teach, but is outside the ambit of this course also requires more math than 2nd years will have. 

There are many other books that I haven't begun to look at or study, especially some of the more advanced Micro texts that would be unnecessary for a course such as this.  I also know that Dixit and Nalebuff have two good books - The Art of Strategy and Thinking Strategically - but I don't have those to hand and therefore did not want to comment on them.  

Thursday, July 15, 2010

Collective Secular Action: Protest

Posted by Simon Halliday | Thursday, July 15, 2010 | Category: , , , , | 5 comments

Since arriving in London, I'd been intending to meet up with fellow sceptics, humanists and affiliated people. It took a while, but I got around to doing some stuff.  I've been involved in three things in the past two weeks: the Protest The Pope march at London Pride 2010, a meet-up of the Central London Humanist Group last week, and a talk by Simon Perry (he of Quacklash fame) at the meeting of Westminster Sceptics on Monday night.  I'll blog about each of these in turn. 

http://lh6.ggpht.com/_WZ7wg6OCpvM/TD42Hx5IkII/AAAAAAAABQ4/JlmYJCvauvI/s640/030720102863.jpgOn Saturday 3 July, participating the the London Pride 2010 parade and march from Baker Street to Trafalgar Square, I joined the 'Protest the Pope' section in the walking group of the pride march.  We had a large placard stating that we 'Protest the Pope', the particular relevance of which for London Pride 2010 is the Pope's position on equality of sexual orientation, on 'biological differences' between people, on denying the freedom of choice to women, on Ratzinger's own criminal acts as a concealer of pedophilia in the church, etc.1 It must be noted that we were not out there to protest Catholicism or religion generally, but rather the particular positions that the pope has taken and on the ways in which he has affected government policy and pressured policy in the UK. 

http://lh5.ggpht.com/_WZ7wg6OCpvM/TD42IazVXLI/AAAAAAAABQ8/lgJVtac7SzA/34341_412166101854_507681854_4387194_5542829_n.jpgThe march went well.  To choruses like "Say yes to condoms, say Nope to the Pope", we handed out fantastic stickers protesting the pope's state visit to the UK and pamphlets about the organisation.  [As a state visit an invitation extended by the British head of state to the head of state of the Vatican it will be paid for by the UK taxpayer and should cost upwards of 30 million pounds.2] We also protested the things mentioned in the paragraph above, in addition to abstinence only sex advice and more.   It was a pleasure to be involved in a well-organized march on behalf of the LGBT community, but also in support of a crusade in which I believe - trying to protest the power of religious leaders in secular societies.   

I hope that in the future I can participate in similar protests as part of the on-going movement toward a secular society in which separation between religions and the state is constitutionally protected and in which individuals are better educated about alternatives to religious morality, of which secular humanism is one I find particularly attractive. Specifically, I would like to see increased activity in South Africa, in the mode of what Michael Meadon, Jacques Rousseau, Tauriq Moosa, Angela Butterworth, and many others have been trying to promote as and how they can (I would link to more of you, but I just can't do it Captain).  I hope that it becomes more widespread and more formalised and I intend to do my bit when I return to South African.  Later in the week I'll comment briefly on my experience of the Central London Humanist Group and the Westminster Sceptics - all of it positive. 



End Notes
1. On this, yes, there are biological differences between men and women, for example,  I happen not to have particularly large breasts.  The point is that, for those things that 'count' there may be greater variation within one gender than between genders such that it is difficult to claim what is meant by 'a single biological difference' that is totally unaffected by culture or social context. It also isn't obvious that 'biological differences' imply anything about gay marriage commitments either, unless we tie it to 'consummation' that, for whatever reason, can only occur between a penis and a vagina.    
2. Notwithstanding the fact that the reason that the Vatican is itself treated as a sovereign state is because of a deal - the Lateran Accords - between the then pope, Pope Pius XI, the King of Italy, Victor Emmanuel III and the fascist Benito Mussolini. 'What?' I hear you say, "We're held to deals made by a monarch and a fascist?" Indeed we are. It's contract law, see. It made the Vatican a sovereign state, see. And we can't interfere with sovereignty in international law, see? The treaty was adopted into the Italian constitution in 1947, so some may say, "Ahah! Your grievances are irrelevant." But, I don't get how one country (Italy) can decide at one of its weakest points in history on the continued existence of a theocracy that affects the world internationally.  Granted, this happens all the time in the middle east, but I will support my position by saying I object to all theocracies, not just the Vatican. I do need to consider this more, but genuinely consider it to be a problem. 

Monday, July 12, 2010

Rationality v. Money-Maximising Self-Interest

Posted by Simon Halliday | Monday, July 12, 2010 | Category: , , , , | 1 comments

So I watched this talk of Dan Ariely's with BigThink (embedded below). He covered interesting topics as always. But he also brought up my 'pet hate' when people talk about rationality and self-interest and how they are often conflated when people talk about behavioural economics in the popular press. What's the point here: a rational actor maximises the payoff or utility that they gain from taking certain actions, that is consuming goods, engaging in certain activities, etc. A self-interested individual who maximises their money has rational preferences over money and is self-interested and will therefore engage in activities to maximise the amount of money that they have, calculating the costs and benefits in order to do so. But a rational individual who has other-regarding preferences - that is they care about how other people behave - an individual who does so rationally may give some money away, may behave trustingly, and may punish individuals she sees infringing what she may perceive to be social norms. Notice that such an individual remains rational, but her preferences are not the preferences of an entirely self-interested individual who only wants to increase the amount of money that she has.

Anyway, I feel the need to bring this up because far too many people talk about rationality and self-interest interchangeably when they are not. One of the problems we encounter, for example is that you could hypothetically have irrational individuals, some of whom are otherwise self-interested and some of whom are other-regarding. We might not be able to differentiate between these individuals if their irrationality is such that they behave in ways that do not maximise what we perceive to be their preferences. But we may still have rational actors who are self-interested (also called self-regarding), other-regarding or bits of both.  So when Ariely says that trust and punishment (vengeance) are irrational he is not actually defining the problem properly, or he's assuming that the preferences of being are in fact the preferences of someone who is an entirely self-interested money-maximising individual.  I believe that the evidence indicates that most people are not wholly money-maximising and only self-interested - their preferences are structured differently.  Consequently his rumpus about rationality is a poorly constructed problem about preferences and not a problem about rationality. 

Later he is asked about companies and irrationality.  He then talks about something 'making sense'.  Logic and rationality are not the same thing.  This is a sophomoric error.  He talks about focus groups being less useful than we think they are.  If this were irrational then it would mean that they do not help companies to make profit, because rational companies go about maximising profits (or maximising share prices or some other goal).   

Ariely finally nods his head to other-regarding or social preferences toward the end of the interview when he talks about 'society' and social norms, but places nowhere near enough emphasis on it given the power he attributes to 'irrationality' and the time, content and rhetoric he dedicates to 'irrationality'. Oh well... 

Otherwise, his commentary on reward-substitution, differences in time preferences and other phenomena is interesting and apposite.  I recommend that you take a look at the video and see what Ariely has to say, but make sure that you realise he's trying to package the talk more accessibly. 

Sunday, July 04, 2010

Cory Doctorow on Copyright

Posted by Simon Halliday | Sunday, July 04, 2010 | Category: , | 0 comments

I'd like to encourage people to take a look at the video embedded below, which is a talk by Cory Doctorow about copyright and democracy. If you don't know, Doctorow is co-editor of boingboing.net and a best-selling author. He makes many fascinating arguments about the problems of copyright creep, the democratic state, and the ways in which our lives could be monitored and affected by third parties that are allowed access to end-users' personal information. These third parties could be governments or, increasingly, they could be corporates. Consider the myriad possibilities for interactions between corporates and governments that if either or both had access to tons of information about us and could simultaneously have control over what is on our computers. We already know that this has happened with Amazon and the Kindle, with Apple and its apps, with Google and Android - the companies take stuff off the end users' device that they don't want there despite protests by the end users. Crazy stuff. Imagine that by a government too. Scary stuff. Consequently, I don't believe that the four horsemen of the infocalypse - terrorists, drug dealers, pedophiles, or organized crime - or copyright infringements constitute sufficient justification for attempts to monitor my and your internet activity and the applications we happen to have on our devices. Anyway, watch the video. It's illuminating.



Monday, June 28, 2010

Eat and Behave Risk Aversely

Posted by Simon Halliday | Monday, June 28, 2010 | Category: , , , | 0 comments

http://fatherstephen.files.wordpress.com/2008/07/gluttony.jpgBPS research digest has a great little summary of an article investigating the role of hunger in risk-taking.  The article speculates on the results it observed about eating and risk-taking on the theory of behaviour of obese individuals and individuals on diets. The general result was that people who are hungry are likely to take more risks and that this is exacerbated by 'baseline adiposity', that is, how much adipose tissue an individual has, or how 'fat' they are.

Consequently, what concerns me is the eating behaviour of individuals in financial institutions.  Let's say that people on Wall Street or who work in finance often don't eat in order to 'continue working' (trust me, I hear enough horror stories from friends), then these people go about deciding on the risk portfolios of their customers.  They claim that they do this in an objective and unaffected way, but if hunger affects their decisions to take risks, then maybe their employers should consider enforced eating (I know that many companies subsidise food or provide it directly to their workers).   Extending this logic, it would be reasonable to prefer that your stock broker had regular and healthy meals than working overtime to get in that last moment of work effort and staving off their meal.  Also, if we're worried about obese individuals and dieting individuals, then I'd also rather not have an obese stock broker.  A question results, might a study such as this result in statistical discrimination against obese brokers because they're more likely to take risks when hungry?

[Please note, I'm not advocating discrimination here, I'm simply trying to spell out the ways in which people might interpret the results, I really wouldn't be surprised to see a headline in a few days saying 'Slim bankers take fewer risks' or something similar.]

Thursday, May 13, 2010

Fun and Frustration Running Experiments

Posted by Simon Halliday | Thursday, May 13, 2010 | Category: , , , | 2 comments

I've been running economic experiments with undergraduate students at the University of Cape Town.  I've learnt a number of things about doing the experiments since I began.  Much of this stuff was not in the first 'bible' of experimental economics that I read a couple of years back - Daniel Friedman and Shyam Sunder's Experimental Methods: A Primer for Economists.  Nor have I seen it in many articles or other stuff publised about experimental economics, though I may have just forgotten the stuff that I've read. So here are some problems and insights that occurred to me.

  1. Recruit more people: Recruit a lot of participants and expect that between 10-30% of those who signed up won't come, you'll reach the higher bound of missing participants more readily if it's raining badly and the participants would rather not leave their warm rooms. So recruit more participants than you think you'll need, that way if there are people who don't arrive, you'll be ok. Yes, you could make mistakes, but rather end up with slightly too many people than too few on a regular basis.  I over-recruited always, still I got burned with slightly too few (3 participants fewer than I'd have liked) on one day when it was raining heavily. 
  2. Plan for Free Entry: Don't stick too strongly to your list of registered participants.  Plan for people who have not registered to show up.  I did this in my very first experiment, but I ended up turning two people away who I would have liked to have participate because I didn't prepare sufficiently for enough random arrivals.  Often they can slot into the roles of people who didn't arrive, so they counter the forger/weather/double-booked attrition.  To do this you obviously need to make the venue and time of the experiment public knowledge, which I had attempted to do through leaflets and UCT's online system (I don't know if this should be called foresight or paranoia).   I know that allowing day-of-experiment arrivals may affect your sample because people may have communicated the information through social networks, but when you're playing with university students it's unlikely to have a large effect and I expect it won't have any effect at all given the other constraints you deal with when doing economic and social experiments such as these.
  3. Confront Disappointment Carefully: Some students don't like being randomly allocated to roles and don't understand that when everyone has the same probability of being a 'Participant A', 'Participant B', 'Participant C', etc that randomness makes the mechanism 'fair', even if the amounts of money at the end of the day if they had perceived them ex ante might be thought of as 'unfair' ex post.  I had a couple of students (literally two) who emailed me after the experiment because they were annoyed they got less money than other people did. One of them said it wasn't an experiment and that I'd used him.  I reminded him that many other disciplines don't give experimental participants the opportunity to make any money, or if they interview you they may not give any rewards, and when they survey you do may not give any kind of gift.  It seems as though the expectation of money influenced these two students and they got annoyed with me for the fact that others walked away with more than them. Oh well... I had to deal with this, 'in the name of science' (I reassure myself).  If you were wondering, the range of money that participants could walk away with was ZAR0 to ZAR120, roughly USD0 to USD16 in exchange rate terms, but substantially more, about $30 in PPP terms (by this site's estimates).  That said, other students enjoyed participating in the experiment and found it exciting and interesting. I reassured the disappointed students that the outcomes were fair. I made a point of not apolosing though as that would have meant I thought something was wrong - I simply pointed out that the system was fair, they just happened to get a partner with different preferences or maybe they had poor luck. I don't think we should apologise for this, though I could be wrong. 
  4. Deputise: Recruiting good research assistants (RAs) was a crucial step for me.  I had recruited a couple of RAs for the first experiment, but not enough to deal with the havoc that can occur when people arrive late and want to play, when trying to ensure all forms are in, trying to stuff envelopes with money at a rapid pace, etc.  Two of my colleagues at UCT ended up helping me during the first experiment, which I appreciated greatly.  So I'd suggest that you hire at least one more RA than you initially think you need. Maybe you're gifted and can tell exactly how much of a problem X will be or Y might be. I wasn't that gifted, so I should have hired at least one more RA.  My first experiment went well, but it could have gone even better or as well as the second and third experiments did when I realised I should dedicate some (of my own) money to getting RAs.  You'll be happy you did it after the fact.  RAs make your life easier, though they do add their own complexities at times.  Also learning to deputise is itself a good skill to have and to develop. 
  5. Plan/Play with other people: You may think you have everything covered.  You're probably wrong.  Bounce your ideas, your instructions, your forms, your questionnaires off of as many people as possible, both inside and outside of economics (or whatever your discipline happens to be).  I don't mean "check with your supervisor" obviously you've done that already.  I mean that I tested the instructions, forms, etc on my wife, my parents and my friends before I checked stuff with other economists.  It helped. As did checking the stuff with economists and my useful RAs.  Other people see things you don't.  Use these other people. Crowdsource.  Get other people involved, your ideas probably aren't so great that someone with a bit of insight could see a problem you didn't. 
Anyway, these are the five things I learnt while planning for and running experiments.  I'm sure more stuff will arise as I capture data, do the statistical work and write about the results.  The ideas above are logistical, non-technical suggestions, but I haven't really seen a blog post or article that deals with this kind of stuff.  Maybe I need to spend more time trawling the web, maybe I need to think harder about the problem before going in (I think I dealt with it well and I am proud of the quality of my data), but in the future I plan to ask more people for more help, to deputise carefully and to try to find more and new ways to recruit more people.  

Tuesday, April 13, 2010

The Parochial and the Cosmopolitan - Globalization helps cooperation

Posted by Simon Halliday | Tuesday, April 13, 2010 | Category: , , , | 5 comments

ResearchBlogging.org Continuing my trend of reporting on papers about cooperation, I thought I'd comment on a recent paper by Nancy Buchan and co-authors about human cooperation and globalization. I've argued previously about the role of parochialism in punishment and in theories about the evolution of war and cooperation, today, though, the theme is the extent to which more cosmopolitan countries tend to foster individuals who are more willing to cooperate globally. Sounds intuitive, but how does it work experimentally?

Consider a prisoner's dilemma in the form of a multi-layer public goods game (PGG). A basic PGG works as follows: each player is given some money to contribute to a communal pot, that amount is multiplied by some factor (rate of return), but everyone gets a share of the total minus what they initially contributed. Therefore, I do my 'best' if everyone cooperates fully and contributes all their money, while I free ride and contribute nothing. It's a prisoner's dilemma in action - everyone sees this and they shouldn't cooperate. Consider a similar game, but with two communal pots: one 'local' where only people from my area can contribute to, the amount of which is then doubled and of which I receive 1/4 (3 other people in my group can contribute to it), and one 'global' or 'world' account that I and others can contribute to, the total amount of which is tripled, and of which I receive 1/12 (11 other people can contribute to it) . The tension is the following: the direct return is 0.5 from the local account and 0.25 from the world account. But if everyone contributes a maximal amount to the world account, then we all make off with the most money rather than if we had all defected and not made any contributions. This is also a prisoner's dilemma, but with more layers of complexity.

Buchan et al ran this experiment in 6 countries: the US, Italy, Russia, Argentina, South Africa and Iran, looking specifically at large cities in each of the countries. They made two hypotheses. First, globalization could lead to greater parochialism by emphasizing ethnic, local or national groupings. Conversely, globalization could have a palliative effect on parochialism and perhaps enable and sustain greater tolerance. They indexed a country level globalization index (CGI), an index produced by the University of Warwick. They also constructed an individual level globalization index (IGI) based on questions that each subject answered. The authors used quota sampling methods for gender, age and socioeconomic status (though not for rural-urban, which I comment on later).

Now we come to the reason I'm interested in the research. When the authors ran the experiments, they showed that South Africans ranked 5th out of the 6 countries in the CGI: above Iran, but below Argentina. Considering the experimental results, South Africa also ranked 4th or 5th below Italy, Russia and the United States, but almost exactly equal to Argentina in terms of probability of allocating resources to a global account. Iran came in lowest . Globalization at the individual and country seemed a good predictor of international cooperation. If you're sceptical of the globalization result, the authors also point out that:

"analysis of the CGI along with a host of macroindicators such as the rule of law, generalized trust, per capita income, and norms of civic cooperation shows that the CGI is the only macrovariable that is significantly correlated with mean cooperation rates at the world level." (4140)
So, it seems as though the second hypothesis is supported by the authors results: globalization may make people less parochial and more cosmopolitan. But one problem emerges, as the authors chose to do the experiments in large cities, it is possible that they have a biased sample. There may be an underlying correlation between a person's choice to live in a big city and a person's cosmopolitanness - more cosmopolitan people may choose to live in big cities, less cosmopolitan people may choose to live outside of cities. Consequently, in the paper we may be observing an upper bound on a nation's tendency to cooperativeness because the subjects are drawn from inherently more cosmopolitan (and maybe more internationally cooperative) people. I'd like to see this research replicated with rural and urban samples to see what the differences might be. I'd suspect that rural individuals would be more likely to cooperate locally, whereas urban individuals would be more likely to cooperate globally. Thus, globalization might predict urban 'world' cooperation, but not rural as there might be differences across countries over rural behaviour. Apart from potential rural-urban differences that might exist among countries, I could not fault the experiment's design. Moreover, the fascinating research exemplified by this paper tends to make me slightly more optimistic about multilateralism and the benefits of globalization in the 21st century, though that could just be confirmation bias.

References
Buchan, N., Grimalda, G., Wilson, R., Brewer, M., Fatas, E., & Foddy, M. (2009). Globalization and human cooperation Proceedings of the National Academy of Sciences, 106 (11), 4138-4142 DOI: 10.1073/pnas.0809522106

Saturday, March 20, 2010

Light Blogging

Posted by Simon Halliday | Saturday, March 20, 2010 | Category: | 0 comments

Apologies for the light blogging. I fly to South Africa next week and I have a number of deadlines before then (applications for conferences, grants, etc), as well as several for when I arrive in Cape Town: exam questions due for external moderator, tutorials must go up on the web, must finish and upload lecture notes, presenting a seminar a few days after I arrive... I have several half-written research posts that I hope to complete soon. So, apologies, but more research on economics and experiments will come soon.

Friday, March 12, 2010

Explain your total sheep played

Posted by Simon Halliday | Friday, March 12, 2010 | Category: , , , , | 1 comments

ResearchBlogging.orgWhen you come across a line like this in a paper, you can't help but laugh, "We now discuss and explain the cumulative number of sheep played in all rounds of the game." Yes, subjects played sheep. You may wonder how. I shall attempt to explain.

In three papers based on work in South Africa and Namibia, Bjørn Vollan and, in one paper, his co-author Bernd Hayo investigate several different experiments with the Nama people. They ran trust games, trust games with third party punishment, and common pool resource games with groups of villagers in the Northern Cape Province of South Africa and the southern region of Namibia. Their work was supported by BIOTA, a biodiversity and conservation project.

So what kinds of things did they find out? And how on earth were sheep involved? Well, the Nama people spend substantial amounts of time on subsistence herding of goats and sheep. Consequently, when they played the common pool resource game, the game was framed as though the subjects were exploiting common grazing ground by choosing a number of 'sheep' to 'graze' the resource. The game works like a multi-player prisoner's dilemma where the self-interested thing for a subject to do is to 'defect' by having as many sheep as possible in the hope that no one else will choose lots of sheep, but everyone chooses lots of sheep. The social optimum occurs when people exercise self-restraint and jointly have several sheep, but not too many such that the common resource vanishes. Strangely enough, people often don't play completely self-interestedly, instead they choose something in between the individual optimum and the social optimum (see Cardenas and Carpenter, 2008 and Velez et al, 2006). In Bjørn Vollan's work, we see that the Nama also cooperate to some extent with the option to exploit the resource, and, after several rounds, they also are able to vote on adopting a self-regulating policy of punishment, reward or communication, any of which seem to result in a higher degree of cooperation. The experiments were run with groups of five. In the control, when the subjects were given the choice of between 10 and 90 sheep(in tens), 51.6% of people chose the less cooperative options of 60-90 sheep. When, in the latter rounds, a treatment for reward, punishment, or communication, could be voted on the amount of outright defection decreased to 30.7% of the sample, with 46.5% of the sample choosing the highly cooperative 10, 20 or 30 sheep (everyone choosing 20 would be the social optimum).

So we know that introducing some kind of voted rule works, but does any one rule work better? Does 'buy-in' matter? One problems is that the rankings were different in South Africa and Namibia. In the South African community, punishment resulted in lower numbers of sheep chosen with the choice stabilising at around 4 sheep on average; it worked best of all when more people in the group participating in the experiment voted for it. So a community with 'buy-in' to norms could operate more effectively (interesting enough, in the Hayo and Vollan paper there's a strong correlation between voting for punishment and being a Lutheran, one of the few religious affiliation effects they found in the subjects' behavior). Conversely, in Namibia rewards work much better, though the positive effect of decreasing the number of sheep chosen peter off. Vollan argues that this can be explained by rewards 'crowding out' intrinsic motivations to cooperate (read his paper for the full argument).

So, we know what's happened in the CPR game, but what about the trust game and the trust game with third party punishment? Recall that the trust game is a bargain between two subjects: a Trustor and a Trustee. The Trustor chooses some fraction of an endowment to give to the Trustee, the total amount of which is multipled by 3 (this act is called 'trust' below). The Trustee may then send an amount back to the Trustor. In the third party punishment (TPP) variation, a Third Party is introduced with the power to 'punish' the other players: the Third Party can pay to reduce the payoffs of players whose behavior she did not like, either the Trustor, the Trustee or both. In Vollan's results, and moving from sheep to money, we see that South African Nama trust 20% of their endowment to their partner, whereas Namibian Nama trust 40% of their endowment to their partner. The South African group is at the bottom end of all results of trust games internationally (see Cardenas and Carpenter, 2008, Camerer, 2003). Then, in the second set of experiments examing trust, punishment and relatedness, Vollan finds the results presented in the table below.

The paper presents the aggregated results and I could not dis-aggregate them for South Africa and Namibia as in Vollan's other paper. Nevertheless, the results are instructive. We can see, first, that there are substantially different results between villagers, friends and family. Moreover, introducing punishment substantially increases the likelihood that subjects act 'trustingly' (send money to the Trustee) and 'trustworthily' (send money back to the Trustor). But the effect of punishment differs greatly: villagers behave 48.4% more trustingly, friends behave 44.2% more trustingly, and family only 21.9% more trustingly. The relationship is different for trustworthiness: friends come out on top, behaving 65% more trustworthily, villagers 50% more trustworthily, and family 37% more trustworthily. Obviously these rankings occur because family members behave the most trustingly and trustworthily from the outset, but it goes to show that third party punishment may be its most effective between non-relatives in promoting trusting and trustworthy behavior.

The papers are all fascinating, particularly for a South African interested in doing similar work. I hope that the few results I have shown might have piqued your interest enough for you to go and read the papers. I presented what I perceived as the most interesting results without critiquing Vollan's methods too much. That said, Vollan could have done one or two things to improve his methods. For example, and somewhat pettily, with translation into Afrikaans (the language in which the experiments were conducted), Vollan should have translated and back-translated for consistency. Also, we could be given some additional ethnographic information about the Nama's particular institutional structures of third party punishment, though Vollan does provide information about reciprocity, gift-giving, and trusting/trustworthy behavior. He also finds (2008, 16) that the subject display inequity aversion, so I'd think that given the prevalence literature on this topic it would be worth investigating this idea more and offering some insights in the conclusion after the later results. Overall, they're a good contribution to the experimental economics, resource economics and behavioral economics literature and I thoroughly enjoyed reading them.

References

Wednesday, March 10, 2010

Trusting and Bargaining in Africa

Posted by Simon Halliday | Wednesday, March 10, 2010 | Category: , , , | 0 comments

ResearchBlogging.org Are we Africans different to the rest of the world in our giving, punishing and trusting behaviour? Three remarkable economic anthropology studies try to examine this kind of question with several ethnic groups in four countries: the Pimbwe, Sukuma and Kahama in Tanzania, the Maasai of Kenya and the Ju/'hoan Bushmen of Namibia and Botswana. I can't to do any of the papers justice with my short comments, but I thought you might find them interesting nevertheless.

The three papers take quite different approaches in their use of economic experiments. Paciotti and Hadley's paper with the Pimbwe and Sukuma looks at the institutional scope of interactions, that is the extent to which cultural practices and norms may imply differences in the ways people play. They show that the two ethnic groups live differently and respond dramatically differently in the experiments. The Sukuma are agro-pastoralists with pre-existing norms of within and between village cooperation, and justice institutions (sungusungu) that punish individuals for norm infringement. Their play in the ultimatum game was more generous than the Pimbwe, with very few rejections (most likely because the offers were fair or hyper-fair). Contrastingly, the Pimbwe do not have many institutions for between village cooperation, or any third party justice institutions and their grievances are often settled with personal violence. Their results are consequently unsurprising - much lower offers on average, with substantially lower offers to those of another village. The remarkable thing here is that even the Sukuma's offers to residents of another village were higher than the Pimbwe's offers to residents in their own village. Also, the Pimbwe rejected offers (which some call punishment) substantially more than the Sukuma. The authors therefore show that even within small geographical distances, differences in institutional backgrounds alter how people behave.

Lee Cronk's study of the Maasai cultural norm of osotua fascinated me even more. Osotua is an often reciprocal relationship between male Maasai who call each other isotuatin. Osotua bonds isotuatin to each other so that they should provide for each other in times of great need, normally requiring assistance with food or gifts of livestock, or even revenge killing. So Cronk decided to see how Maasai subjects played the trust game in two settings: the first without any cultural frame, and the second where it was framed as 'an osotua game'. As you'd expect they played the game quite differently given the frame. In the control (no frame) and considering all transfers the subjects gave 35.3% vs. 28.2% in the framed condition. Considering player 1 (the 'trustor'), the transfers differ 38% (unframed) and 30.8% (unframed), though not statistically significantly so, and transfers by player 2 (the 'trustee') back to player 1 also differ: 32.5% (unframed) vs 25.5% (framed). But only in the framed condition did a strong correlation existed between the amounts given and the amounts returned show through, indicating the reciprocal nature of the osotua. Also, Cronk proposes, the lower amounts given in the osotua frame probably reflect the sense that osotua gifts are only given to assuage great need, and normally are not great amounts. Cronk argues forcibly that anthropologists and economists need to act carefully when they construct games within specific tribal and ethnographic contexts, investigating the norms that exist within a specific context, and ensuring that they tailor their studies accordingly, being careful of when they encounter norms that may alter the data that they find.

Finally, Polly Wiessner's research into the Ju/'hoan bushmen looked at their behavior in the dictator game and the ultimatum game, after which Wiessner examined their behavior in everyday life to see whether experimental behavior and behavior outside the experiment were consistent. In the dictator game, the average offer was 20%, and in the ultimatum game the average offer was 16% with 4% refusals. These averages are the some of the lowest in the world (see Henrich et al, 2006, Barr et al 2009). Notwithstanding these low within game offers, outside the game the Ju/'hoansi share tobacco, pool food resources, ostracize those who had infringed social norms (those they ostracized possibly stole a goat) and act compassionately towards those who behaved unwisely with the money from the experiments (some went to the town, got drunk the so-called "fault of the beer"). As per experimental protocols, the subjects behavior was anonymous. Wiessner was asked repeatedly during the experiments if she was lying about this because the concept seemed quite foreign to the subjects whose behavior is normally socially embedded. Wiessner's work reinforces how researchers need to align laboratory and experimental protocols with the everyday lives of the people involved; though many of us are involved in anonymous market economies the distances that separate us from those who produce the goods we produce are immense, this is not always the case. Moreover, being able to understand the spillovers of anonymous behavior to social embedded behavior and the converse can enlighten the use of experiments in urban and rural, market-integrated and non-market-integrated societies.

The papers serve as a reminder to economists (though how many economists read anthropology journals I do not know) that their work must take cognisance of cultural and institutional structures, of the frames that they introduce with experiments (think of harambee with Jean Ensminger's work), and of the parallelism between experimental behavior and behavior in parallel situations outside of the experiment. In this way, pairing laboratory experiments with field experiments and good ethnography could provide a better way to do things in future. Or so I hope.

References:
Cronk, Lee. 2007. "The Influence of Cultural Framing on play in the trust game: a Maasai example." Evolution and Human Behavior 28(5):352-358.
Paciotti, Brian & Craig Hadley. 2003. "The Ultimatum Game in Southwestern Tanzania: Ethnic Variation and Institutional Scope." Current Anthropology 44(3):427-432.
Wiessner, P. (2009). Experimental Games and Games of Life among the Ju/’hoan Bushmen Current Anthropology, 50 (1), 133-138 DOI: 10.1086/595622