I got an email from Steve Landsburg with the subject line "krugman, me and you." I can't decide whether that counts as the sort of threesome I've always dreamt about...
I get daily emails from The Chronicle of Higher Education newsletter. Today's headline: "Academe Today: Professor Says His University Cares Little About Teaching." I had to stop for a second and confirm that I wasn't in fact reading The Onion.
When deciding whether or not to read something, I tend to focus more on who the author is than on the specific headline. This probably explains how I came across an article by Hoover Institution fellow Paul Gregory and clicked on it without looking closely at what it was about. (As far as I can tell, Gregory isn’t a particularly big name or anything, but he does work on Russian economics, which is interesting to me since my family is Ukrainian. #thingsgregmankiwandIhaveincommon)
In retrospect, the title “Lee Harvey Oswald Was My Friend” probably should have tipped me off to the fact that the article was not actually about economics. In my defense, however, I can totally picture some super conservative economist being politically incorrect and using such a title for an article about how marginal tax rates during the Kennedy administration were too high or something. (While said economists would be correct that marginal tax rates were very high at that time- up to 91%, in fact, it should be noted that Kennedy was on board with lowering them but didn’t have the chance to do so because his plan got rejected by Congress, so the job was left to Lyndon Johnson instead.) Anyway, this article is probably more viscerally fascinating than anything about economics could ever be. No offense to economics, of course, but dude, how many people can say that they inadvertently insulted Lee Harvey Oswald’s writing skills?
Since the 50th anniversary of the Kennedy assassination seems to have brought the conspiracy theorists out of the woodwork, I think it would be totally appropriate for you to tell your boss that you have to leave work early so that you can go home and watch JFK.
I suppose I am a fairly lazy employee, at least in a typical sense, since I do much of my work at home with the television on in the background. At night, this process generally entails reruns of The Big Bang Theory, since by this point I’ve watched the episodes enough that I don’t feel the need to give them my full attention. During the day, on the other hand, I usually have the television tuned to some sort of news channel. Today was no different, especially since I needed something to keep me at least partially entertained while grading exams, except that I found myself getting incredibly distracted by Obama’s presentation of the Presidential Medal of Freedom.
I won’t lie- I think it was either Oprah or Loretta Lynn that first got my attention (if you don’t love Oprah then I am convinced you are dead inside), but after a minute or so I noticed that behavioral economist Dan Kahneman was also on the list…so I started watching and then was late to class because I still had tests to grade. Sigh.
Apparently this award isn’t entirely unheard of for economists- a quick scan of the recipient list turns up Gary Becker, Milton Friedman, John Kenneth Galbraith (twice!), Alan Greenspan, and Friedrich von Hayek, but it’s still pretty neat- especially given that the award was instituted by John F. Kennedy, whose assassination took place 50 years ago almost to the day. (November 22, 1963, in case you are curious.) It was also pretty exciting (I am told I have a strange definition of exciting) to hear the phrase “prospect theory” on national television. Anyway, the 16 recipients in this bunch are a diverse and interesting group, and you can read a bit about each of them here.
From this, I can conclude that President Obama has at least a passing knowledge of prospect theory…which means it’s only a small logical jump to realizing that status-quo bias is a thing. Therefore, I am hoping that there was a conversation between Kahneman and Obama during lunch or cocktail hour or whatever that went like this:
Kahneman: So, Mr. President, I have a fun empirical result that I want to share with you.
Obama: Oh really? Do tell.
Kahneman: A test of status quo bias in a field setting was performed by Hartman, Doane, and Woo using a survey of California electric power consumers. The consumers were asked about their preferences regarding service reliability and rates. They were told that their answers would help determine company policy in the future. The respondents fell into two groups, one with much more reliable service than the other. Each group was asked to state a preference among six combinations of service reliabilities and rates, with one of the combinations designated as the status quo. The results demonstrated a pronounced status quo bias. In the high reliability group, 60.2 percent selected their status quo as their first choice, while only 5.7 percent expressed a preference for the low reliability option currently being experienced by the other group, though it came with a 30 percent reduction in rates. The low reliability group, however, quite liked their status quo, 58.3 percent of them ranking it first. Only 5.8 percent of this group selected the high reliability option at a proposed 30 percent increase in rates.
Obama: Is that from the paper that Richard Thaler keeps trying to slip under my doorevery time he’s over here nowadays?
Kahneman: It’s probably the same paper, yes, since we are both authors on it.
Obama: Ok- so what exactly is your point?
Kahnmen: Well…do you think we have any reason to believe that this result would change much if I were to replace “electric power” with “health insurance?”
Obama: Probably not, since status-quo bias doesn’t seem to be context-spec…ohhhhh, I see what you did there. Did Clinton put you up to this?
Kahneman: No sir…here’s my card with my contact information on it, and please feel free to hit me up when you are pondering policy choices that may be affected by behavioral biases and you can’t get ahold of Thaler. Also, here’s a copy of my book, in case you have a lot of free time coming up.
Obama: Thanks. *mutters something about the book making a good doorstop if nothing else* Seriously, did Bill put you up to this? At this rate, I am pondering honoring Kennedy’s legacy by instituting a Presidential Medal of Pain in the Ass and giving it to the two of you.
Kahneman: I approve, but only if you retroactively give one to Greenspan as well for that whole deregulation thing, sir.
Obama: That’s not the worst idea I’ve ever herd.
Kahneman: You’re welcome.
This video shows how to determine at what prices a firm will be making an economic profit and at what prices a firm will want to shut down. It also explains at what prices a firm’s supply curve will give positive quantities of production The problem is taken from Principles of Microeconomics by Dirk Mateer and Lee Coppock, and is Ch. 9 problem #5.
The AEA has launched a new site to register randomized control trials (RCTs). The AEA encourages all investigators to register new and existing RCTs. Registration is entirely voluntary and is not currently linked to or required for submission and publication in the AEA journals.
On this site, you can register your forthcoming, ongoing, or even completed RCTs, with as little or as many details as you wish. The site will also permit you to store and make publicly-available additional information on your RCTs (reports, articles, data, and code). We believe that this will prove to be a very valuable resource for investigators to share their work and the site will be widely used by those who wish to find out about on-going and completed studies.
The registry is characterized by:
1) Simplicity and flexibility: Registering a trial is straightforward with only a minimal number of required fields. There is considerable flexibility to provide additional material at the time of registration or at any point in the life of the study. Materials can also be hidden from public view until completion of the study, or be made accessible only with the permission of the PI.
2) Adjustability and memory: Any registry entry can be amended by the PI at any point, but the registry keeps track of all versions.
3) Ability to work as a research portal for your RCTs: The registry can serve as an access point for collaborators, other scholars, students, and the general public providing links to data sets, survey instruments, experimental findings, and experimental protocols.
To register a trial, the PI simply needs to enter the following information: PI name, project title, study location, project status, keyword(s), abstract, trial start and end dates, intervention start and end dates, proposed outcome(s), experimental design, whether the treatment is clustered, planned number of clusters, planned number of observations, and IRB information. Optional fields allowing the PI to customize and enhance the information made available include details on sponsors and partners, survey instruments, an analysis plan, and other supporting documents. Help is available if the PI encounters any problem.
The AEA registry system will provide the PI with reminders to update the registration of an RCT at appropriate points in the trial’s lifecycle. For example, the submitted end date will trigger an email asking the PI to enter post-trial information. If the trial has been extended, the PI can update the trial with the new end date.
We encourage you to explore the registry and to register your RCTs.
The committee on the registry for social experiments
Larry Katz (chair)
So why is this important? I think this pretty much sums it up:
I’ve written about this before- in general, a finding is only considered statistically significant if there is less than a 5 percent chance that the observed result would have happened by random chance. (Hence the use of the 0.05 value in the cartoon.) But think this through a bit- if something has a 5 percent chance of happening randomly, then, on average, that result will be observed one time out of 20 even if there is nothing systematic going on. Therefore, it doesn’t mean a whole lot to see one result that has less than a 5 percent probability of occurring by random chance unless you know that there aren’t a whole bunch of studies out there that tried the same thing and didn’t get the observed result.
This registry is a fantastic development since, if used properly, it will keep track of all of those non-result studies that would otherwise be hidden in researchers’ desk drawers or on their hard drives and therefore be unobservable to someone trying to determine the validity of the research that is actually published. I say “if used properly,” since it’s only helpful to the degree that we can be confident that everyone is actually registering their experiments. Given this, I’m somewhat surprised that the architects of the system didn’t make pre-experiment registration a prerequisite for publishing in an AEA journal, but I’d be willing to bet that that will be coming eventually. Baby steps, I suppose.
If you still want to think more about publication bias and the reliability of the scientific results that you see, check out the following:
(You should know that I spent about 30 minutes figuring out how to disable the annoying autoplay feature. You’re welcome. You can also see the video directly here, especially since I can’t seem to get the sizing to work properly…but consider yourself forewarned about the autoplay issue.) Granted, the conclusions in the video depend heavily on the number used for the proportion of hypotheses that are actually true as well as the assumed rate of false negatives, but the concept is still worth pondering.
This video goes through an example of producing versus shutting down in the short run and shows how to apply the shut-down condition. It also shows how to determine whether a firm would want to exit an industry in the long run The problem is taken from Principles of Microeconomics by Dirk Mateer and Lee Coppock, and is Ch. 9 problem #10.
I apparently have the approximate maturity level of a 12-year-old boy, since I cannot stop laughing at this:
I think part of my amusement comes from the fact that Tyler Cowen took up the cause of overthinking Zach’s cartoons, and there are some choice comments on that post. In case you don’t have time to read them all, just know that the best ones focus on the demand for $2 bills by strip club owners and a perfectly reasonable, in my opinion, speculation regarding the degree to which Canadian strippers jingle, and there are plenty of bad puns involving concepts such as “convexity” and “sticky wages.” (In related news, I’m a tad bitter than I didn’t think of the puns first.)
Tyler’s overall point is that strippers may actually prefer inflation:
Let’s say the standard tip is a dollar, and price inflation lowers the real value of that dollar. A lot of customers won’t substitute into stuffing $1.43 into the stripper’s garments. They might do two or three singles, but strippers will be shortchanged at various points going up the price pole. There is something about handing out a single bill that is easier and more transparent, or so it seems.
Say inflation gets high, or runs on for a long time for a large cumulative effect. At some point the customers switch to giving $5 bills.
Does it help strippers if the Fed issues lots of $2 bills? Well, the leap up to the larger tip comes more quickly, but the customers also stay at the $2 tip level a long time before moving up to $5.
At some margins inflation is bad for current strippers, but good for some set of future strippers. If the economy is close to the margin where individuals upgrade from a $1 tip to a $5 tip, then inflation is good for current strippers but bad for future strippers (for a while).
I think now is an excellent time for a discussion on nominal versus real wages. Nominal wages, which are what most of us are used to thinking about, are just the actual nominal-currency-denominated wages that a worker receives. Real wages, on the other hand, are wages that are denominated in terms of the amount of stuff that the worker can buy with the compensation. Put a bit more simply, real wages are inflation-adjusted wages. In order for the situation illustrated above to actually occur (and in order for Tyler’s argument to make sense), the consumers in the stripper market must have an interest in keeping strippers’ effective real wages stable in the face of inflation.
One reason that consumers might make strippers’ wages keep up with inflation is because they are worried that there will be fewer (or lower quality) strippers if real wages decrease. Of course, this line of reasoning requires the employment choices of strippers to be based on real as opposed to nominal wages. I have no data on whether strippers are more or less rational than the average person, but I do know that people are generally subject to money illusion, which causes their decisions to be biased by nominal as opposed to real values. For example, consider the following experiment:
(I couldn’t easily find an electronic version of the paper, so you get a photo of the hard copy, complete with my chicken scratch from when I was studying for my qualifying exams. Forgive my comment for being slightly idiotic in retrospect.) People seem to understand real versus nominal wages to some degree when specifically asked about them, but they aren’t good at using the real quantities when thinking about happiness or choices. This is, in part, why economists sometimes claim that a society can inflate its way out of a recession- if nominal wages don’t change and inflation is present, real wages decrease…but, if nominal wages don’t decrease, people likely won’t stop working. If businesses are better at thinking in real terms (not entirely convinced that they would be, since companies are made up of people, but go with me here), then they will be more willing to hire and produce more when inflation is present because real wages are lower and the price of the firm’s output is increasing. (The context of this discussion gives a whole new connotation to inflation having a stimulative effect.) By this logic, strippers likely should be wary of inflation, not for the reason illustrated above but due to the fact that it may instead lower their real wages. On the up side for some, however, lower real wages generally mean that will be more employment opportunities for strippers.*
In related news, the Consumerist proposes a savings strategy that is likely to be problematic for strippers…until Tyler’s hypothesized effect of inflation transpire at least.
* Technically, strippers are usually independent contractors who pay a commission to the club for use of the stage. And yes, this probably means that your favorite stripper knows more about business than you do.