Monthly Archive for April, 2013

A Sip of Monstrous Moonshine

You and a stranger have been instructed to meet up sometime tomorrow, somewhere in New York City. You (and the stranger) can decide for yourselves when and where to look for each other. But there can be no advance communication. Where do you go?

Me, I’d be at the front entrance to the Empire State Building at noon, possibly missing my counterpart, who might be under the clock at Grand Central Station. But, because there are only a small number of points in New York City that stand out as “extra-special”, we’ve at least got a chance to find each other.

A Schelling point is something that stands out from the background so sharply that we can expect people to coordinate around it. Schelling points are on my mind this week, because I’ve just heard David Friedman give a fascinating talk about the evolution of property rights, and Schelling points play a big role in his story. But that story is not the topic of this post.

Instead, I’m curious about the Schelling points that say, two mathematicians, or two economists, or two philosophers, or two poets, or two street hustlers might converge on. Suppose, for example, that you asked two mathematicians each to separately pick a number between 200 and 300, with a prize if their answers coincide. I’m guessing they both go for 256, the only power of two within range.

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Terror, Truth and Torture

Last week was not the first time the United States was transfixed by an act of terror. In 1964, three civil rights workers in Philadelphia, Mississippi were (quoting Wikipedia) “threatened, intimidated, beaten, shot, and buried by members of the Mississippi White Knights of the Ku Klux Klan, the Neshoba County Sheriff’s Office and the Philadelphia Police Department.” It took 44 days and an FBI-initiated act of torture to locate their bodies.

The FBI, in a nod to the theory of comparative advantage, subcontracted the torture to the Mafia, more specifically to the Colombo family associate Gregory Scarpa. Here’s the story as relayed by Selwyn Raab, the New York Times investigative reporter who covered the Mafia for 25 years:

[Scarpa] went down to Mississippi for the FBI and kidnapped a KKK guy agents were sure was involved in disposing of the bodies. The guy had an appliance store. Scarpa bought a TV and came back to the store to pick it up just as he was closing. The guy helps him carry the TV to his car parked in the back of the store. Scarpa knocks him out with a bop to the head, takes him off to the woods, beats him up, sticks a gun down his throat and says “I’m going to blow your head off”. The KKK guy realized he was Mafia and wasn’t kidding and told him where to look for the bodies.

(Source: Raab’s book Five Families, which is fascinating throughout. Raab says the story has been verified by “former law enforcement officials who asked for anonymity and lawyers who are aware of the circumstances”.)

The moral of the story is that torture sometimes works. Other times it doesn’t, eliciting either no information, or false information, or whatever “information” the victim believes the inquisitor wants to hear. I am almost 100% ignorant, and hence virtually 100% agnostic, about the relative frequency of these outcomes in those cases where the torturer is both skilled in his art and genuinely interested in eliciting the truth. I will be very glad if any educated reader can shed light on this question. I doubt that we’re likely to learn of any controlled experiments, but I’ll settle for sketchy data or even well-chosen anecdotes. Failing that, I’ll settle for plausibility arguments.

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A Dog Who Really Wants A Cat

Since we’ve been talking about dogs and cats this week:

Hat tip to my sister Barbara.

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I GIve Up

These were the posted prices at my local gas station this morning:

(Note the 5 cent discount for cash on regular and premium, as opposed to the 65 cent (!!!) discount on plus.) Unless this was just a mistake, my complete inability to explain it makes me question whether I should be allowed to teach economics.

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Cats, Dogs and Coin Flips

The solution to yesterday’s rationality test:

This one is much much simpler (and much less infuriating) than some of our earlier rationality puzzles (e.g. here and especially here), but it has a good pedigree, having come to me from my student Tallis Moore, who found it in a paper of Armen Alchian, who attibutes it to the Nobel prizewinner Harry Markowitz.

Several commenters got it exactly right, but whenever possible, I prefer an explanation that invokes cats and dogs. So: Suppose I give you a choice between A) a cat, B) a dog, and C) a coin flip to determine which pet you’ll get:

It’s perfectly rational to prefer the cat to the dog, and perfectly rational to prefer the dog to the cat, but (according to the traditional definition of rationality) quite indefensible to prefer the coin flip to either.

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Another Rationality Test

In front of you lie three urns, labeled A, B and C. Each contains 2000 balls. Urn A has 2 reds and the rest black; Urn B has 20 blue and the rest black; Urn C contains 1 red, 10 blue and the rest black. Like so:

You can reach into the urn of your choice and remove a ball. If you draw red, you get $1000; if you draw blue, you get $100; if you draw black, you get nothing. Which urn do you pick and why?

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According to the New York Post, “President Obama’s temporary-amnesty program has paid off for 454,000 young immigrants who were brought here illegally.”

That’s all well and good, and I don’t begrudge a single one of those young immigrants his or her good fortune. But let’s be clear here: The biggest losers from our country’s heartless immigration policies are not the young people who have managed to find their way here only to risk deportation. The biggest losers are those who never got here in the first place.

If it were my job to remedy the evils of American immigration policy, I’d start by making it easier to get here, not easier to stay here. Or to put this another way: If the President is willing to allow 454,000 young immigrants (and no more) to be here, I’d prefer he deport everyone who’s already here and bring in another 454,000 to replace them. That way, a million people get at least some opportunity to reap the (relative) benefits of American education and American freedom, as opposed to a lucky half-million reaping all the benefits while another half-million get nothing.

It would be better, of course, to welcome everyone.

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Friedman on Psychic Harm

Four terrific posts by David Friedman, partly on psychic harm, partly on talking about psychic harm. I’d recommend these highly even if they hadn’t invoked my name.

Landsburg v Bork: What Counts As Injury?

Response to Bork and Landsburg

Frightening Ideas

Why Landsburg’s Puzzle is Interesting

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Missed It by *That* Much

Why do senior citizens get so many discounts? A lot of it is because they have the time to shop for bargains — so if you don’t give them a bargain, they’ll find someone else who will.

We talked about this and other forms of discounting (or, in economic jargon, “price discrimination”) in my Principles class just last week, emphasizing that it does no good to hand out discounts willy-nilly; instead you want to target them to the most price sensitive customers. That’s why you sometimes have to jump through hoops (like filling out a rebate form) to get your discount — the customers who are motivated to fill out a rebate form tend to be exactly the same customers who are most likely to look elsewhere for a good price.

We talked too about how the airlines have always strived to separate business travelers from leisure travelers so they can charge the business travelers more and the leisure travelers less — the leisure travelers being more likely to take the train (or just stay home) if they don’t get a bargain. The problem, though, is that it’s hard to tell who’s a business traveler and who’s a leisure traveler. So historically, there have been devices like discounts for those who stay over a Saturday night, which is something a business traveler is unlikely to want to do.

Now I can go back to my students and tell them something about the value of staying awake in their economics classes. Because someone who’d obviously absorbed this lesson well has started a new site called GetGoing that takes this idea and runs with it. Here’s how it works: You book two conflicting itineraries, say a trip to San Francisco and a trip to Atlanta on the same date. You are quoted prices that are typically about half what you’d get elsewhere. You agree to fly. And then it books one of the trips, chosen randomly.

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Blog Notes

Note added on 4/5: Readers who want the short version can skip down to where it says “Edited to Add”.

I’m somewhat hesitant to post this, since I believe my regular readers will find it all to be entirely obvious and hence entirely unnecessary. But we’ve had more than the usual number of non-regular readers here the past few days, largely in response to my post on psychic harm, and more than a few of them have made the mistake of plunging into a conversation they didn’t understand (often, apparently, without even reading the post they were responding to). Per my usual policy in long threads, I’ve deleted comments that failed to advance the discussion, either because they were off topic or did no more than repeat things that had already been said. In most, but not all, such cases, I drop short notes to the commenters, explaining why their posts were deleted and inviting them to come back with something more germane. Often (and this week has been no exception), I get notes back from these people saying they’ve learned something, which is gratifying enough that I keep on sending those explanatory notes. (If your post was deleted and you didn’t get a note, you probably just had the bad luck to post at a time when I was unusually busy or distracted.) But since certain points come up repeatedly, it might be more efficient to mention them here.

1. This was not a post about censorship, or about the environment, or about rape. It was a post about where to draw lines between purely psychic harm that should receive policy weight and purely psychic harm that shouldn’t. This is an issue I raise from time to time, because I find it both perplexing and important. And it interacts with lot of other standard issues in public policy in ways that make it impossible (for those of us who care about such things) to ignore.

2. The post was laden with unrealistic hypotheticals. That’s the only way I know of to approach these questions. Take rape, for example. Rape frequently has ghastly physical and psychological consequences for the victim. We all know that, which is precisely why it’s important (in this kind of discussion) to assume those consequences away. The whole point is to focus on the stuff we’re not sure of, such as: Should my distress over someone else‘s rape receive policy weight? To focus on that question, it helps to imagine a scenario where that’s the only distress. In other words, we assume away all the usual harm to the victim precisely because we’re already know that this harm is dreadful and merits policy weight. To focus on examples where the victim sustains damage would be to say, in effect, that we’re not sure how to feel about that damage. (Otherwise, why investigate those examples?)

Or to put this yet another way: In this business, the way one acknowledges that an issue is settled is to assume it away. It is settled that damage to rape victims is real, great, important, and deserves the attention of the law. Thus we assume it away.

Edited to add: Two extremely thoughtful commenters have pointed out that the first post dealt both with psychic harm to the victim and with psychic harm to the general public, and that these are two different issues. Indeed they are, but both are difficult in the same way, and both of them are clarified by hypothetical examples.

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Legal Problems

Economists often say that the law should be written to promote efficient outcomes. That’s more ambiguous than it sounds.

Suppose I want to take an action that causes you harm; for example, I want to cut down a tree that you like looking at. How do we tell if that action is efficient?

Definition 1. The action is efficient if my willingness to pay exceeds your willingness to accept. For example, if I’m willing to pay $100 for the privilege of harvesting the tree, and if you’d accept less than $100 to part with it, then the tree-cutting is efficient.

Definition 2. The tree-cutting is efficient if it would occur in a world with no transactions costs (i.e. a world in which there are no impediments to bargaining).

In many circumstances, these definitions are equivalent, and economists often pretend they’re equivalent always — but sometimes they’re not.

Example 1. I want to punch you in the nose non-consensually. (The non-consensuality is a big part of my enjoyment.) I’d pay $100 to punch you in the nose, and you’d accept $50 to take the punch. By Definition 1, the punch is efficient. But the punch would be unlikely to occur in a world with no transactions costs, because it would require bargaining, hence consensuality on your part, which kills my interest. So by Definition 2, the punch is inefficient.

Example 2. I am willing to pay $100 to cut down a tree; you are willing to accept no less than $150 to part with it. By Definition 1, the cutting is inefficient. But part of the reason I’m willing to pay only $100 is that I’m credit constrained. In a world with no transactions costs, I’d borrow more, and would be willing to pay $200 to cut down the tree. So by Definition 2, the cutting is efficient.

Example 3. I am willing to pay $1000 to cut down a tree; you are willing to accept $500 to part with it. By Definition 1, the cutting is efficient. But the only reason I’m willing to pay so much is that I make an excellent living in my job as a mediator who helps people overcome transactions costs. In a world with no transactions costs, I’d be much poorer and would be willing to pay only $200 to cut the tree. So by Definition 2, the cutting is inefficient.

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