The Price Elasticity of Belief: Beavers are Fish edition

I am so using this when I lecture on the price elasticity of beliefs in my public choice class next semester.

Suppose that you're trying to convert to your religion a bunch of people who eat a lot of beaver meat. And suppose that you want to ban them from eating meat on Fridays in Lent. And suppose that they don't want to give up beaver during Lent. What do you do?

In addition to disease, the European settlers also brought Catholicism with them, and successfully converted a large proportion of the indigenous population. And the native Americans and Canadians loved their beaver meat.

So in the 17th century, the Bishop of Quebec approached his superiors in the Church and asked whether his flock would be permitted to eat beaver meat on Fridays during Lent, despite the fact that meat-eating was forbidden. Since the semi-aquatic rodent was a skilled swimmer, the Church declared that the beaver was a fish. Being a fish, beaver barbeques were permitted throughout Lent. Problem solved!

The Church, by the way, also classified another semi-aquatic rodent, the capybara, as a fish for dietary purposes. The critter, the largest rodent in the world, is commonly eaten during Lent in Venezuela. “It’s delicious,” one restaurant owner told the New York Sun in 2005. “I know it’s a rat, but it tastes really good.”

Chalk this one up on the supply-side in the market for irrational beliefs.

Afternoon roundup

Today's afternoon news roundup.

Item the first: NZ's organ donor rate remains low; the kidney waiting list in particular remains long. Andy Tookey again suggests compensating cadaveric organ donors with subsidised funerals to encourage donation. I agree.

Item the second: if you're a small country, and the US ignores a WTO ruling in your favour, your options are pretty limited. Antigua gets points for creativity. HT: Susan.

Item the third: the National Business Review reprinted a couple of my posts this past weekend; here's cost-benefit analysis and banning cats. Their comment pool is a bit different from the one we have here. I'll be talking with Jim Mora and Radio New Zealand's The Panel on the topic around 4:15 this afternoon. [Update:  embedded below]


Item the fourth: American crime rates seem more sensitive to number of police on the streets rather than number of people in jail; the policy recommendation is to spend less on imprisoning people and spend more instead on community policing. A small portion of this effect is may be due to that crimes committed by police may be less likely to show up in the crime rates. The Bridgeport, Ct. police officers filmed stomping on the head of an immobilized and tazered individual are on desk duty rather than under arrest, at least so far. At least the guy who filmed them is unlikely to be arrested; had it happened in another state results could have been different. But I do agree with the overall policy recommendation - so much the more so if it could be done by diverting police resources away from victimless crimes.

Item the fifth: SciBlogs is running a survey on scientific literacy. I got a perfect score on it, but only because I lied a little bit about one of my answers. One question asks what makes a scientific result most credible: peer review, reputation of the research team, or a couple of other options. I knew the right answer was peer review. But I often put a lot more weight on researcher reputation. Things are so infrequently replicated, and results so often fragile when replicated, that I far more typically weigh a bundle of researcher reputation, publication, and topic. A new working paper from somebody who's credible is just worth more to me than a published piece from somebody who has a bit of a reputation for results that are fragile to specification search.

Item the sixth: +Jeet Sheth rightly wonders whether this is inconsistent with our usual assumptions around transitional gains traps. I'd think of it more in terms of a Peltzman regulatory model. In New Zealand, older used cars must undergo a basic safety inspection every six months while newer ones only need it every year - the Warrant of Fitness. They don't seem to be a profit centre for most garages except inasmuch as they give garages the opportunity to sell other (hopefully needed) services to those getting inspected; some garages specialise in only doing WoF checks on a quick while-you-wait basis. The national government proposed moving to annual inspections for vehicles first registered in 2000 or later. Recall that in the Peltzman model, regulation always balances the public interest with that of the regulated party; that balance changes as technology changes. The mechanics' trade association lobbied against the change, painting it as a road safety issue; the Automobile Association lobbied in favour of it despite also providing WoF checks. While dedicated WoF stations could have been earning some rents from the regulations, free entry into providing WoFs would have meant those rents would not have been huge. It's better viewed in a Peltzman model where deregulation (or a loosening of regulations) can emerge when a technological shock makes the regulation less beneficial to the regulated and to customers. Here, mechanics who weren't WoF specialists would have been seeing less benefit from the regulation as car manufacturing standards improved over time (and so potential gains from on-selling other services were smaller); the regulation's incidence was also pretty obvious to car owners.

Item the seventh: having this particular lotto number selection strategy isn't clever, it's just a way of increasing your winnings if your main numbers happen to come up. It's a bit nuts to purport that any number selection strategy is more clever than any other. It's a random draw guys. Random.

Item the eighth: Andrea Marchesetti points to a nice little story perhaps illustrating Caplan's rational irrationality model. Recall that in Caplan's model, when beliefs are of low cost, you'd indulge your bliss belief; when beliefs contrary to truth become expensive, you scale back demand for them. The Wall Street Journal reports that "haunted" homes in Hong Kong no longer trade at much of a discount; the property boom has pushed prices up. Entrepreneur Ng Goon Lau buys up at discount houses where an unnatural death has occurred, rents them out to expats who don't believe in ghosts, then later sells them - presumably with reports from the renters showing there to be no ghosts. It's unclear from the story whether the Hong Kong boom has brought in sufficient expats that haunted houses were bid up to standard prices without locals changing their beliefs, or whether the absolute increase in housing costs induced locals to put up with spooky ghost problems.

So concludeth the closing of the browser tabs.

Economist Irrationality

Boy is S.M. at The Economist's "Democracy in America" blog having to engage in contortions to defend the rationality of voting.

Launching off from Katherine Mangu-Ward's really excellent summary of the case against voting, S.M. invokes Gelman's argument that large N elections both reduce the probability of decisiveness and increase the potential benefits from winning.

The mathematics are convoluted, but the message is simple: even with a one in 10m chance of casting the decisive vote, the stakes are high. In fact, the lower the odds are of influencing the vote, the higher the stakes. This is because everything scales linearly and more people will bear the brunt—or enjoy the benefits—of a country led by candidate X rather than candidate Y. So your vote in Ohio, Wisconsin or another tipping-point state is worth $60,000 to your fellow citizens. That’s a pretty good return on the investment of the hour or so it takes to vote.

Except that the very fact of your decisiveness in the election proves that half of all voters disagree about whether you're making the world a better or a worse place! You can only be decisive by making or breaking a tie. That happens when half the voters think you're rather wrong. And, unless you are in an epistemically privileged situation relative to other voters (and why would you think you are!), you can't know whether you're on the right side or the wrong side. Gelman's a great statistician, but I've never liked his argument here.

Worse, S.M. pulls a pretty shonky Kantian move.

This misses the point of the Kantian argument for voting. The idea is not that one person’s decision to forgo voting would crash the system—how would that possibly happen?—but that it is immoral to act on a maxim that we cannot imagine everyone else acting on. So if I consider adopting Ms Mangu-Ward’s proposed maxim—I will abstain from voting because the costs of voting outweigh the benefits—I will first need to see if the maxim passes a test implicit in Kant’s categorical imperative. I ought not act in accordance with the maxim if it fails the test.

So let’s see: can I universalise the non-voting maxim? Can I imagine living in a world in which every eligible voter opts for a nap or a game of Temple Run in lieu of going to the polls? No. The logic of American democracy does not support such a universalised principle. No one votes, no one is elected, a moment of constitutional failure brings an emergency convention in which unelected delegates draft a new constitution calling for an alternate system of specifying leaders that doesn’t involve the public. The franchise, and America as we know it, disappears. Since the logic of the system cannot be sustained were everyone to adopt the nap-over-voting maxim, I am morally bound not to act on it.

Here's the universalisable version. Two weeks before the election, flip a coin. If it comes up heads, flip it again. If it comes up heads, flip it again. If it comes up heads a third time (a 12.5% chance), study hard about the policy options, decide which candidate is best, and then go vote. If everybody does that, there's a non-trivial chance of being decisive (maybe we'd need four heads in a row to be more sure) and so you've an instrumental reason to get out and vote - and to vote more sensibly. At current levels of turnout, it's clear that everybody else is failing to play the universalisable Kantian "vote at low probability" rule, so a good rule of thumb is then "Don't vote unless turnout looks low enough; if turnout is low, run the coin flips."

The simplest and most plausible way of squaring voting with rationality is simply to recognize that people like doing it for its own sake. We don't try to come up with stories about how onanism increases reproductive fitness; it's done for its own sake. Same with voting. Unfortunately, that breaks most of the normative desirability of median voter outcomes.

Rationality and economists

Andrew Gelman takes a swipe at economists. I think he's got things wrong. Let's work through it.

First, Gelman argues economists are inconsistent in arguing for consumer rationality while arguing that people need economists to help them overcome their irrationalities, largely about government policies. But these arguments are hardly inconsistent. In environments where individuals face real costs of being wrong or irrational, they consume little irrationality. At the voting booth, their likelihood of decisiveness is sufficiently low that they can indulge biased but comforting beliefs about the true state of the world. That's Caplan's rational irrationality model; I find it rather convincing.

Here's how Gelman thinks we square the circle:

OK, now to return to the puzzle that got us started. How is it that economics-writers such as Levitt are so comfortable flipping back and forth between argument 1 (people are rational) and argument 2 (economists are rational, most people are not)?

The key, I believe, is that “rationality” is a good thing. We all like to associate with good things, right? Argument 1 has a populist feel (people are rational!) and argument 2 has an elitist feel (economists are special!). But both are ways of associating oneself with rationality. It’s almost like the important thing is to be in the same room with rationality; it hardly matters whether you yourself are the exemplar of rationality, or whether you’re celebrating the rationality of others.

I think it's rather that economists recognize that there can be a rather large disconnection between policies that are politically popular and ones that would maximize a reasonable conception of a social welfare function. You can get it through the combination of rational ignorance and logic of collective action or other public choice problems; you can also get it through Caplan's rational irrationality.

Now, I know Gelman rejects that the expected instrumental benefits of voting are low; he says that an altruist weighs the benefits to everybody else of his voting to make things better and consequently voting passes a rational instrumental cost benefit analysis. But surely if your vote is the decisive one making everybody better off as you see it, it's also the one that makes half the voting population worse off as they see it. And so Gelman's argument fails unless the voter can place himself in an epistemically privileged position: he has to know that he's making the voters who disagree with him better off. And I just can't see how that happens. That half the population disagrees with you at the ballot box ought to make you more uncertain about the benefits of your preferred policy unless you truly have expert knowledge.

Fortunately, we economists often do have expert knowledge about economic policy. Well, maybe not about macro beyond a short list of "don't do these twelve things lest you completely ruin everything". But in micro and applied price theory, we're decent.

I rather liked Gelman's PS:

P.S. Statisticians are special because, deep in our bones, we know about uncertainty. Economists know about incentives, physicists know about reality, movers can fit big things in the elevator on the first try, evolutionary psychologists know how to get their names in the newspaper, lawyers know you should never never never talk to the cops, and statisticians know about uncertainty. Of that, I’m sure.

Expressive voting

Hamlin and Jennings survey the expressive voting literature. It's a nice piece, and I like how they've brought Kuran's preference falsification arguments. I'll quibble on two points, mostly because I like the word quibble and need excuses to use it. They write:

Caplan is careful to distinguish between [rational irrationality and expressive voting]: 'In expressive voting theory, voters know that feel-good policies are ineffective. Expressive voters do not embrace dubious or absurd beliefs about the world ... In contrast, rationally irrational voters believe that feel-good policies work.'

Therefore, a further condition would need to be fulfilled in order to judge a vote to be expressive of true preferences rather than rationally irrational ones; we would need to check how well informed the voter is. One suspects that this issue may be similar to social pressure. If voting is both expressive and 'rationally irrational', making information available might be expected to result in a rapid and significant shift in the political equilibrium. If, by contrast, voting is an expression of truly-held expressive preferences, the political equilibrium will be much more stable.

I doubt that Caplan would argue that rationally irrational voters need only be provided more information in order to improve outcomes. If information provision were the sole problem, voters wouldn't be openly hostile to the provision of information with which they disagree. And the rise of the Econoblogosphere would have quickly led to substantially better economic policy.

Here would be a rather better test of Caplan's rational irrationality model. I've not seen it conducted, but more experimental economics applications have been melding voting and markets. Here goes. Set up an experimental double-auction environment framed in a salient way - buyers and sellers of labour, for example. Run a few rounds of the experiment as baseline. Then, let folks vote on whether they'd like to make a change to the trading environment: policy changes that either improve or reduce overall efficiency. A price floor, for instance - a minimum wage. Set treatment groups that vary in individual expected decisiveness: the odds that any player's vote will determine the trading structure for the next round, with the sum of all player odds being less than or much less than one. Then run a few rounds with the (potentially) changed trading environment before offering other votes - some which augment and some which attenuate efficiency, with varying expressive framing. If traders make better choices when more decisive, that would be consistent with rational irrationality. It wouldn't distinguish between expressive voting and rational irrationality, but I'm more interested in testing the broader concept anyway.

Hamlin and Jennings later discuss the implications of expressive voting for constitutional choice. Brennan and Hamlin worried that constitutionalism exacerbates expressive voting problems and suggested that constitutional questions be left to small but statistically representative groups in order to avoid the Veil of Insignificance. They write:

Perhaps these proposals should be decided by small (but representative) groups, which might be more likely to take an all-things-considered view. Crampton and Farrant make explicit the potential problem that such a small group might design institutions that enrich themselves if they are not fully representative in a relevant sense. Therefore, a trade-off may exist between the problem of expressiveness, on the one hand, and allowing too much room for the narrow self-interest of unrepresentative groups, on the other.

It's probably semantics (a lot can be packed into "in a relevant sense"), but our main worry (ungated) was that the perfectly statistically representative group would have, by virtue of being the constitutional committee, a newly granted interest in enriching the members of the committee. If the group is small enough to overcome expressiveness problems, it may also be small enough to solve internal collective action problems and set itself up as effective dictator post the constitutional phase. The only way of breaking past the Veil of Insignificance is by reintroducing the problem that constitutional political economy in the Buchanan sense was meant to solve: separating individuals at the constitutional level from their particular interests in order that the constitution foster the general interest. Absent the Veil of Insignificance, the constitution serves the general interest of those writing the constitution.

Paper gated permalink below:

Expressive Political Behaviour: Foundations, Scope and Implications

Alan Hamlin and Colin Jennings (2011).

British Journal of Political Science,
Volume 41, Issue 03, July 2011 pp 645-670

http://journals.cambridge.org/abstract_S0007123411000020