Hypothetical Bias

Boring lectures, Inc.

Here is one of my ratemyprofessor.com entries from this past semester:

Lectures were GOD awful boring never went to class and just taught myself before test time.

Fair enough, but if you never went to class how do you know the lectures were so boring?

An X-iday gift

The Chronic of Narnia Rap from SNL via youtube.com provides a reference to the first SecTreas of the U.S., a review of mapping software ("Google Maps Is The Best. True Dat! Double True!") and tips for fitting a movie into your holiday budget. A must!

And you can rap along with the lyrics ...

$700k watches

Robert Frank on income redistribution (Tax cuts ...):

... there is little reason to expect large tax cuts for wealthy families to have resulted in a more efficient allocation of our nation's scarce resources.

For one thing, not all of the dollars used to finance these tax cuts would have been spent wastefully by government. Most of the money recently cut from the food stamp program, for example, would have been spent by poor families to buy food at fair market prices. And even though government does buy some items at inflated prices - body armor whose price includes a profit margin large enough to finance a $10 million birthday party? - many of these items serve vital purposes.

In contrast, most of the tax cuts financed by recent budget cuts will go to families that already have everything they might reasonably need. This money will be deployed in the quest for "something special." Yet because special is an elastic concept, the number of families that succeed in this quest will be little different from before.

The idea is that rich people don't really know how to spend "their" money any better than the government does. Alpha males buy $700k watches and the best mommies and daddies spend $10 million on birthday parties for their 13 year old. Raging against silly spending by rich people is a loser's game ... but Frank makes a different point, if the spenders are trying to buy prestige and if everyone does it, no one breaks away from the pack and so the marginal utility of the extra spending is close to nil. Ouch.

Lost: Locke, Rousseau and Social Contracts

After hearing a short blip on NPR by TV critic David Bianculli, I decided to give the television series, Lost, a try. Yep, it is in the second season and we are just watching the first season on DVD (and avoiding the internet spoilers). I’m not exactly on the cutting edge. I have never seen a episode of The Sopranos or Sex and the City; however, I have recently discovered a quirky sitcom called Seinfeld but it appears to be off the air. I found the series, Lost, be to very intriguing and my favorite show since David Lynch’s Twin Peaks.  Although my knowledge of philosophy is even less than my knowledge of television, this won’t stop me from babbling on about Lost & philosophy. I don’t think Whitehead (not this Whitehead) considered competency as factor when he asked me to be a guest contributor to this blog.

The plot of Lost involves 48 survivors of a plane crash on a remote island. The passengers go from the relatively civil world of air travel to an environment that is somewhat less friendly than Gilligan's Island (ahhh, the Mary Ann vs. Ginger debate). In the first episode, we are introduced to a major character named John Locke and later there is a character named Rousseau. Why are Locke et al. interesting choices of character names? Their work on social contracts. Social contracts are tacit agreements between individuals or individuals and rulers for the establishment of order.  The choice of characters named John Locke (the character's biological father is Anthony Cooper) and Rousseau make me want to do the Lost equivalent of a Trekkie taking a sabbatical and spending a semester at the Klingon Language Institute (Those Trekkies loved their show.) For an example of modern work on social contracts, think about John Rawls’ work (Rawlsian justice and the Veil of Ignorance) or Ken Binmore’s work.

Although David Hume (economists are probably more familiar with Hume than Locke & Rousseau) was critical of social contracts, Ken Binmore notes that David Hume's writing represents an early description of repeated games. Specifically, In the Treatise on Human Nature, David Hume writes:

I learn to do service to another, without bearing him any real kindness: because I foresee that he will return my, in expectation of another of the same kind, and in order to maintain the same correspondence of good offices with me or others.

Hume(the Folk theorem would be an odd name) should be a character on Lost since they show some degree of cooperative behavior arising in a noncooperative setting.

My above insights are probably not very insightful given that they may already appear on the web but give Lost a try.

Behavioral econ at the Boston Fed

The Boston Fed has put together a research center focused on the policy implications of behavioral econ (Mind over money). Of course, the most infamous of all behavioral econ results is the divergence between intentions and behavior (i.e., hypothetical bias). Also, related to hypothetical willingness to pay is the practice of bad -- very, very bad -- researchers to manipulate results for their own evil purposes. Here is the new center's spin on this sort of thing:

Dan Ariely, the center's visiting scholar and an MIT professor, is examining why people might pay prices greater than the intrinsic value of a good or service, which could have implications for policies that rely on market forces to deliver equitable results.

Ariely's research shows people often don't have a good idea of what something is worth, which makes them susceptible to manipulation. He calls it ''Tom's law," referring to the Mark Twain character, Tom Sawyer, who convinces friends to pay for a chance to do what would otherwise seem an unpleasant chore, whitewashing a fence.

''People's willingness to pay is not always determined by supply and demand," Ariely said. ''Sometimes, they just don't know what to pay."