Economists Do It With Models

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The Dumbest Words I’ve Read Today, Now With Jon Stewart, Black Swans and Dan Ariely…

May 20th, 2011 · 9 Comments
Behavioral Econ · Decision Making · Incentives

I want to like you, Ben Stein- you knew enough economics to not need a script for your role in Ferris Bueller’s Day Off, and I definitely wanted to win your money- but I’m guessing that your father Herb, who was an actual economist, would not have been pleased with your line of reasoning regarding the Dominique Strauss-Kahn accusations:

In life, events tend to follow patterns. People who commit crimes tend to be criminals, for example. Can anyone tell me any economists who have been convicted of violent sex crimes? Can anyone tell me of any heads of nonprofit international economic entities who have ever been charged and convicted of violent sexual crimes? Is it likely that just by chance this hotel maid found the only one in this category? Maybe Mr. Strauss-Kahn is guilty but if so, he is one of a kind, and criminals are not usually one of a kind.

There are two problems here, one logical and one factual. On the logical front, Stein’s reasoning illustrates the danger of learning from induction. What, you may ask, is learning from induction? Consider the following train of thought: I see a swan. It’s white. I see another swan. It’s also white. I see another swan. It’s white. Therefore, I eventually conclude that all swans are white. I use the swan example because there actually is something called the black swan theory (not to be confused with the Natalie Portman movie), and there is in fact such a thing as a black swan, it just took a while to discover it.

Don’t think for a second, however, that this sort of error is one only made by ornithologists. (Yup, those are people who study birds.) How many times have we heard the “housing prices have never dropped significantly before, therefore we have nothing to worry about” line? One would think that with an example as recent, salient, and impactful as that one, we would be a little wary of the “economists have never done this before, therefore it can’t have happened in this case” argument. (On the other hand, if people buy this logic, I’m going to go rob a bank.)

Beyond even the logical error is a problem of pesky little facts. Jon Stewart was pretty quick to pick up on the “economists have never done this” fact-checking opportunity:

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Seriously, Ben, did you not even google before you wrote your piece? It’s not hard, I do it all the time…for example, James Urbaniak managed to come up with an even more comprehensive list of economists behaving badly:

Cobourg’s former economic director goes to jail for sexual assault
Economist on governor’s staff charged with child sex abuse
Former Rockford College economics professor pleads guilty to sexual abuse
W&M assistant [economics] professor charged with online sex crime
Colby [economics] professor resigns amid secret-camera flap
Economics professor caught in teen sex sting
CSUN economics professor Kenneth Ng runs Thai sex tourism website

(Urbaniak does acknowledge that not all of the above items count as violent. I’m also not sure that the last one is illegal, but it got the guy in trouble with the school anyway.) I’m certainly not proud of my colleagues with regard to the above items, but it’s also not helpful to ignore easily accessible facts when making an argument.

I find it somewhat interesting that this sort of speculation is pervasive even among actual economists. For example, from Tyler Cowen:

Dominique Strauss-Kahn has been arrested, taken off a plane to Paris, and accused of a shocking crime. When I hear of this kind of story, I always wonder how the “true economist” should react. After all, DSK had a very strong incentive not to commit the crime, including his desire to run for further office in France, not to mention his high IMF salary and strong network of international connections. So much to lose.

Should the “real economist” conclude that DSK is less likely to be guilty than others will think? If you are following the social consensus estimate of p, does that make you less of an economist? A lesser economist? Is everyone else an economist anyway and thus you can agree with them? How many economists seriously use the concept of incentives — more than non-economists do — to understand everyday events? Is the notion that incentives predict individual behavior actually so central to economics? Should it be?

Now, I believe in the power of incentives as much as (ok, fine, more than) the next person, but it’s important to remember that people’s choices depend on their perceptions of costs and benefits (which may or may not be accurate), which in turn depend on an individual’s state of mind. As it turns out, people’s perceptions of costs and benefits (and their choices) change dramatically when they’re, um, how do I put this delicately…horny. From Dan Ariely:

Despite the social importance of decisions taken in the “heat of the moment,” very little research has examined the effect of sexual arousal on judgment and decision making. Here we examine the effect of sexual arousal, induced by self-stimulation, on judgments and hypothetical decisions made by male college students. Students were assigned to be in either a state of sexual arousal or a neutral state and were asked to: (1) indicate how appealing they find a wide range of sexual stimuli and activities, (2) report their willingness to engage in morally questionable behavior in order to obtain sexual gratification, and (3) describe their willingness to engage in unsafe sex when sexually aroused. The results show that sexual arousal had a strong impact on all three areas of judgment and decision making, demonstrating the importance of situational forces on preferences, as well as subjects’ inability to predict these influences on their own behavior.

The full paper is available here.

So what have we learned here? I would argue nothing- behavioral economists can, to some degree, explain why people do stupid shit, but as far as I know, we are not well-versed in determining whether someone did said stupid shit in the first place. Personally, I hope DSK is innocent, if for no other reason than it means that no one got raped. (Didn’t think about it that way, did you?)

Tags: Behavioral Econ · Decision Making · Incentives

9 responses so far ↓

  • 1 Pema // May 20, 2011 at 7:21 pm

    I agree, there are many economists who have been accused of serious crimes. Khan is currently a well-known example, but he’s by no means the only one.

  • 2 RJS // May 20, 2011 at 9:56 pm

    Awful, I know, but I keep wondering if he was doing this on the IMF’s dime.

  • 3 Jon // May 21, 2011 at 11:43 am

    Stein’s most basic logical flaw is confusing ex-ante probability with probability conditioning on the fact of his arrest.

    I would agree that P(rape | being a famous economist and planning to run for president of France) is pretty close to zero, but the police know that and if they are going to arrest him and bring charges, they need “probable cause.”

    Even granted that the cops may not be as adept as Ben Stein at taking into account prior probabilities (though given widespread reports of racial profiling, they may do this TOO much), I’m confident that P(rape | being a famous economist and planning to run for president of France AND being arrested for rape by the police and then being subject to criminal charges) is a good deal higher than 0.

    In fact, if you think that the police require a probability of guilt above a certain threshold to arrest somebody, and then a higher threshold to bring charges, then the fact of arrest and charges screens out all other prior information when setting our probability estimates.

  • 4 Punditus Maximus // May 21, 2011 at 12:59 pm

    Stein doesn’t care if the poor woman was raped or not; he just wants impunity for rapists. The basic inhumanity of conservatives is never so obvious than when discussing sexual assault.

  • 5 Eat The Babies! // May 25, 2011 at 10:03 am

    I’m flabbergasted by Stein’s statement. I pretty much knew where you were headed from there but I kept reading to put a salve on the throbbing in my head.


  • 6 Brad Markis // May 25, 2011 at 9:59 pm

    You dismantled and revealed the fatal flaws in both of the following statements with ease, and with concise examples. I’d say you’ve shown critical thinking/reasoning at its best.

  • 7 econgirl // May 25, 2011 at 10:19 pm

    @ RJS: The news has been specifically reporting that DSK was in the US on a personal trip rather than on business. I guess this is an important distinction since it matters for purposes of diplomatic immunity and such.

    @ Brad: Why thank you. 🙂 Though the bar was admittedly kind of low in this case…

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