Stumbling and Mumbling

(Not) thinking in politics

Darling's tax announcement yesterday has been widely praised, even by me. But the Bubble asks a good question: how come Darling's good idea is a panic measure?
It's not the  first time a good policy has been introduced in a panic after a carefully-considered one was found to be a disaster. When the UK was forced out of the ERM in 1992, monetary policy was in disarray. And out of the panic came a very good idea - inflation targeting - that's worked fine (until recently?) for years. So there's a precedent for quickly-thought out policies to succeed.
There are two reasons for this. First, snap policies are likely to be simple ones. And simplicity is a virtue in itself.
The second is that rationality and research are weaker foundations for policy than generally realized. Countless cognitive biases means that politicians can't think rationally even if they are freed from short-term headline-grabbing motives; rationality is an ambiguous notion; and evidence is often absent or distorted - as John Kay says, evidence-based policymaking often leads to policy-based evidence.
The upshot is that in dispensing with research and thinking, we lose less than we think. This is why Blink!  works, and why panicky policies are no bad thing.
Which brings me to Dave's question. He asks: "isn’t anybody willing to stand up for honest-to-goodness barking mad reactionaries these days?"
Yes. Me. The problem with "progressives" is that they believe they know enough to devise policies that will deliver progress. Reactionaries - or at least conservatives such as Michael Oakeshott - know that knowledge and rationality can be false friends. 

Longevity, success and friendship

A successful test career makes a cricketer live longer:

Cricketers who play regularly for England tend to live longer than those who make only a few appearances, a study has shown.
Research by the University of St Andrews reveals that cricketers who represented their country more than 25 times lived on average almost five years longer than those who played only a handful of Test matches. (Via Norm.)

This is consistent with two other findings - that Nobel prize winners live longer than mere nominees, and that Oscar-winning actors live longer than those who were nominated but never won (though this might not be statistically significant.)
What’s interesting here is that this effect seems independent of wealth and ordinary socio-economic status. The Nobel effect exists controlling for wealth. And Nobel nominees, actors with good careers, and men who play only a few tests (and some combine two of these), are by any objective standards, much more successful than the average. Many of us would give our right arm to play just once for England. Some have given the impression of having done just this.
This effect is also a different one from the finding of the Whitehall studies (pdf) showing that senior civil servants live longer than junior ones. That effect might be due to inequalities in power and control over one’s life. But there are no significant differences in power between cricketers with long test careers and short ones, or between nominees and winners of Nobels and Oscars.
So what’s going on here? One obvious possibility is that status and high acclaim boost health.
But there’s a finding which speaks against this - screen-writers who win Oscars seem to have shorter lives than mere nominees.
So, here’s a theory. One thing that matters for longevity is having friends. Most prize-winners are more like to attract these, ceteris paribus, than nominees. However, because their work is naturally solitary, Oscar winning writers don’t benefit from having more company - indeed, they actually lose it, because they tend to work more than non-winners.
So, maybe the message here is not that we should invest time pursuing career success, but rather that we should focus on making friends. 

Brown: victim of framing

Why are Labour MPs so irate now about the harm done to the low-paid  by the abolition of the 10p tax rate, when they were so quiet when the move was announced a year ago?
It can't be because they've only just noticed the effect. The IFS pointed out that the move would hurt those earning under £18,500 the day after the 2007 Budget.
Instead, there are two other possibilities.
One is self-interest. Back in March 2007, everyone knew Brown was about to become PM, so Labour MPs didn't speak out against the Budget in the hope of getting a ministerial job. Now, though, those hopes have been disappointed so MPs have less to lose by speaking out.
The other is a form of framing effect. Last spring, Brown had a high reputation, at least in Labour circles. And as the saying goes, if you give  a man a reputation as an early riser he can sleep till noon.  Now, though, Brown's reputation is much lower. So even his unchanged policies are judged more harshly.
What's changed, then, is not the policy towards the low-paid, but the frame through which it is seen.

Hillary the Nietzschean

Everyone's mocked Hillary for her "mis-speaking." Only Bryan Appleyard, however, has come close to diagnosing the underlying illness. Her narcissism, he says, has caused her to elevate the survival and propagation of her self-image above all other values, such as a respect for reality.
In this sense, Hillary is a good Nietzschean. So-called "truth", he said, is just "a mobile army of metaphors, metonyms, and anthropomorphisms -- in short, a sum of human relations, which have been enhanced, transposed, and embellished poetically and rhetorically" in the service of the pursuit of power.
To him, the founding fact about the world is not external reality but rather our own wills: 

Nothing is “given” as real other than our world of desires and passions and...we cannot access from above or below any “reality” other than the direct reality of our drives...Seen from inside, the world defined and described according to its “intelligible character” would be simply “will to power” and nothing else. (Beyond Good and Evil.)

The important thing here, though, is that Hillary is not unique. Prioritizing the will to power over the truth is a defining feature of managerialism. Managers presume that the world can be bent according to their will. And, time being a tricky thing, it's a small step from thinking the future is wholly malleable to thinking the past and present are as well - as Stalin knew in his notorious doctoring of Russian history. Hillary's "mis-speaking" is in the same category as New Labour's smearing of David Kelly and bosses' presentation of company accounts not as objective measures of corporate performance but as vindications of their own success. All subordinate "truth" to ego.
Now, I'm not suggesting Hillary, or bosses generally, do this consciously. I suspect instead that Hillary has lived so long within the purely imaginary world of the decision-maker that she has long forgotten the distinction between her own will and reality.
But the distinction does exist, if only because "reality" is the product of others' wills as well as her own. So perhaps Hillary's tragedy is not merely her Nietzschean narcissism, but also her solipsism.

Mismemory & demand

In Corrie, Gail can't remember falling down the stairs. This is a common response to trauma; a colleague of mine recently fell off his bike and broke his nose (it didn't spoil his looks - he's a scouser), and he can't remember the accident either.
The mind blocks out distressing events; it's easy to imagine an evolutionary reason for this.
But it's not just in extreme cases that our memory of bad things is distorted. Daniel Kahneman has shown (pdf) that our memories of less dramatic things can also be systematically distorted in two particular ways.
First, our memories are insensitive to the duration of a bad event; we remember long uncomfortable experiences as being no worse than shorter ones despite the fact that we'd all prefer discomfort to be as short as possible.
Second, our memory conforms to a "peak-end rule". If the end of an episode is less painful than its worst moment, we look back on the incident less unfavourably than we do if the pain suddenly stops.
Here's my question. Might this have economic consequences?
Take holidays. At first, these are deeply unpleasant - the hassle of checking in and waiting hours for a plane - but they end adequately. Or take moving house. This too is horribly stressful at first (dealing with lawyers) but it ends nicely (I hope).
These episodes are those which the peak-end rule says we are are likely to remember  too favourably - because the end of the event is less distressing than the peak.
So, could it be that demand for air travel, or moving house, is higher than it would be if our memories were correct, because we forget how unpleasant they are? If so, some part of demand for them is irrational.

Why are the old happier?

It's well known that happiness is U-shaped in age (pdf): it troughs around our early 40s.
But why do we cheer up after then, even though our health starts to go? This new paper has some answers, and they're not terrribly encouraging:
1. Older people no longer suffer from unemployment, or the threat thereof. And joblessness is disastrous for well-being.
2. Divorce and widowhood hurt younger people more. This is partly because they are unexpected when one is young. It's also because people adapt to their circumstances, so the pain of divorce fades over time. When you're 41, your divorce at age 40 hurts. But by the age of 6o, you're over it.
3. Older people are more religious, and religion is a big source of happiness. I'm not clear, however, whether this is an age or cohort effect. If it's the case that people born in the 1930s are more religious than those born in the 60s, this is no comfort to us 40-something atheists*. But if it's the case that we tend to find God as we get older, perhaps it is.
* Not that we are unhappy, at least today.

Risk aversion & statistical discrimination

In my search for a new Dillow Towers in Oakham, I'm struck by the fact that several apparently attractive places are for sale very close to each other. This raises three possibilities:
1. The smart money - home-owners - know there's something wrong with the area. So I should avoid it.
2. This something might actually be something that doesn't trouble me, such as a desire to move near better schools.
3. It's just the sort of bunching that happens under random conditions.
Now, the mere existence of points 2 and 3 show that 1 is only a probability - and maybe a low one. But my problem isn't: which is right? It's: am I prepared to stake thousands of pounds on point 1 being wrong?
This bears on the question of statistical discrimination. Imagine two equally qualified 20-somethings, a man and woman, apply for a job with a small business. If the employer knows mere statistics - women are more likely to get pregnant than men, costing their bosses time and money - he'll be disinclined to hire the woman.
What's the solution? Bryan says the woman should use counter-sterotypical behaviour to stand out from the average woman. She could wear tweed and smoke a pipe to signal that she won't get up the duff.
The problem is, though, that such behaviour must send a signal strong enough to overcome two barriers. One is the employer's Bayesian prior that women are expensive employees - a prior that, in imperfect markets, might be held more strongly than rationality would warrant. The other is risk aversion. The boss might figure as I do in house-buying: "there's only a small chance this woman will get pregnant, but why bet thousands on this?"
Which raises the question. Is it really feasible for people to adopt sufficiently strong counter-stereotypical behaviour to overcome these barriers?
Bryan says it is, because black men who get an education enjoy big pay-offs. I'd add that lesbians do seem to earn more than heterosexual women.
But are these examples scalable? For example, some of the high pay-off to being black might come precisely because highly educated black men are so rare; a black man who made it from the ghetto to Harvard is signalling that he has remarkable qualities. If loads of black men made this journey, the signal would be greatly weakened. The same would be true if more women sent lesbertarian signals.
So, is statistical discrimination really so easily overcome?

Knowing, believing and doing

The drawback of moving house, as I'm planning to do, is of course that it's just so much hassle - finding a buyer, clearing out the house, dealing with lawyers and estate agents and so on.
When confronted with this prospect, my reaction is the standard one - to think just how happy I'll be when I move to Oakham.
But here's something that puzzles me. I know I'm almost certainly exaggerating the uplift in my happiness. I know people have a projection bias (pdf) which causes them to under-estimate the extent to which they'll adapt to their new environment. And I know there's a focusing (pdf)  illusion; we exaggerate the importance to our well-being of any particular thing that our mind settles upon, such as moving from London to Oakham.
The psychological literature, then, suggests I'll have a brief period of happiness once I've gotten to Oakham, but that I'll adapt and end up little happier.
But despite this, I'm really looking forward to moving. What I know doesn't much influence what I believe. Intellectual knowledge is superficial; it doesn't penetrate my soul.
What's more, I know why it doesn't do so. I know that we all have a tendency to underweight academic evidence precisely because knowledge of average tendencies is not as vivid and salient as mere anecdote; dead tree writers earn the contempt of everyone by regularly making this error.
So, yes, I know I'm being irrational here. But I'm making a life-changing move anyway.
This isn't navel-gazing. It raises two questions.
First, might there be an evolutionary reason (or at least functional explanation (pdf)) for us to under-estimate our adaptation to our surroundings? If everyone had thought "there's little point doing anything; we'll only get used to our better surroundings", mankind would have made little progress since the stone age. 
Secondly, doesn't this show that rationality - in the sense of acting in accordance with the evidence - is an impossibly demanding ideal?

BBC bias

The BBC is massively and systematically biased. I'm not referring to its position on left vs right, or on Israel vs Palestine, but to another question - that of the merits of dispersed vs centralized knowledge. On this issue, the BBC has taken a strong but unquestioned stand that's wholly pernicious.
Put it this way. Why should the BBC spend so much on reporting on the Democrat and Republican primaries, when it can just quote the betting prices, in the same way it mentions the FTSE 100 index? In principle, such prices should convey all available information about  Clinton's, Obama's or McCain's prospects cheaply and efficiently, saving the huge cost of having a mob of reporters over there. When the Beeb is trying to cut 2500 jobs, you'd think it'd seize upon an obvious way of saving money whilst still telling viewers and listeners what they need to know.
Of course, there are some things reporters could tell us that the markets don't - like why we should give a damn about the race. But they are not doing this.
So why is the BBC using expensive reporters rather than cheap markets? This is where its bias creeps in. It seems to believe - almost certainly unthinkingly - that reporters can do better jobs of gathering and processing fragmented and dispersed information than can markets.
Leave aside the issue of whether this is correct or not - personally, I think it's silly. The point is that this bias has very nasty effects, especially as it is repeated year after year and by other media. There are three of them:
1. It fosters support for hierarchical centralized decision-making, which in turn leaves ordinary people powerless over their own lives. If a journalist can process all information about primary elections efficiently, we are invited to believe that bosses can likewise process all information relating to company performance without a need to involve workers.
2. It breeds big, complicated government. Support for big government arises from a belief that it's possible for clever people to know lots of things and therefore manage them from the centre. Again, the BBC systematically but unthinkingly sustains this notion.
3. It undermines support for free markets. The case for free markets, as Hayek saw, is that they are information-processing devices. In rejecting this view, the BBC encourages anti-market attitudes. Is it any wonder therefore that so many markets - in macroeconomic insurance, carbon permits, congestion charging, organs, whatever - are so woefully underdeveloped?

Subrational decision-making

Gordon Brown's support for the idea of "presumed consent" in organ donation raises a big issue. I don't mean the specific principle of who owns our organs, but rather that our decisions can be coloured by sub-rational factors.
The thing is, in principle, it shouldn't matter whether we opt in or opt out of organ donation. Under Brown's proposal, anyone who doesn't want to donate organs can choose not to, just as now.
So why the fuss?  It's because the way in which choices are presented to us can affect what we choose - a fact which is awkward for conventional conceptions of rationality.
I reckon there are at least 8 ways in which this can happen.
1. Inertia. This is the principle Brown is exploiting. People don't always make decisions, but merely carry on as usual. In our current system, this means they are not organ donors, as becoming a donor requires an active choice. Under the "presumed consent" system,  non-donation will require an active choice. That means the non-decision makers will become donors.
It is for this reason that Halifax is driving us mad with its adverts for its high-interest current account. It knows that we don't make decisions about our bank account, but merely stick with what we've got. To overcome this inertia, it's got a lot of work to do.
2. Status quo bias. A related tendency is to stick with what we've got - the devil we know. For this reason, a good way to get things done in large organizations  is to do it, and then seek approval - because the action then becomes the status quo.
3. The endowment effect.  People value what they have simply by virtue of having it.  It's for this reason (and perhaps 1 and 2 as well) that companies offer zero interest for the first six months on credit cards, or cheap broadband. They figure that after the introductory deal has run out, people will stick with their products, even though they aren't such a good deal.
4. Availability. We choose what's obvious to us, rather than seek out more obscure but better alternatives. Advertising plays to this principle. It is also why supermarkets place their higher-margin products at eye-level.
5. The choice set matters. Richard Thaler and Shlomo Benartzi have shown (pdf) that when people are offered choices to invest their pensions in lots of equity funds and few bond funds, they put more into equities than they do if they are offered lots of bond funds and few equity funds. Even for intelligent people making big-money decisions, therefore, the set from which we are choosing influences our choice more than it should.
6. Framing. Every pedant fumes when furniture shops offer us a "50% saving". What the shops know, though, is that people are attracted more by getting a positive gain than they are by foregoing a loss.
7. Information cascades. Advertisers - especially of beauty products for some curious reason - sometimes point out that theirs is a best-selling item.  This appeals to the principle that we are more likely to choose something if we believe others have done so.
8. Halo effect. The popularity of the iPhone rests in part upon the success of the iPod; people figured that if Apple could produce one great thing, they could produce others. Car-makers even make halo vehicles, which are intended to attract buyers to other cars in their range.
You might think all this is well known. But I'm not sure its implications are sufficiently appreciated.  It's not just retailers who use such sub-rational methods to get us to buy their products. So too do politicans. Which raises the question. Would a government that owes its election to such techniques be entirely legitimate?