Weekend Gaming -- perfecting the imperfect

[disclaimer -- I've only field tested the first of these, so I can't guarantee that all of the variations will play smoothly. On the bright side, there ought to be plenty of room for improvement. As with all discussions of game variants, you should probably assume that countless people have already come up with any idea presented here.]

When the subject of perfect information games comes up, you probably think of chess, checkers, go, possibly Othello/Reversi and, if you're really into board games, something obscure like Agon. When you think of games of imperfect information, the first things that come to mind are probably probably card games like poker or a board game with dice-determined moves like backgammon and, if you're of a nostalgic bent, dominoes.

We can always make a perfect game imperfect by adding a random element or some other form of hidden information. In the chess variant Kriegspiel, you don't know where your opponent's pieces are until you bump into them. The game was originally played with three boards and a referee but the advent of personal computing has greatly simplified the process.

For a less elaborate version of imperfect chess, try adding a die-roll condition to certain moves. For example, if you attempt to capture and roll a four or better, the capture is allowed, if you roll a two or a three, you return the pieces to were they were before the capture (in essence losing a turn) and if you roll a one, you lose the attacking piece. Even a fairly simple variant such as this can raise interesting strategic questions.

But what about going the other way? Can we modify the rules of familiar games of chance so that they become games of perfect information? As far as I can tell the answer is yes, usually by making them games of resource allocation.

I first tried playing around with perfecting games because I'd started playing dominoes with a bluesman friend of mine (which is a bit like playing cards with a man named Doc). In an attempt to level the odds, I suggested playing the game with all the dominoes face up. We would take turns picking the dominoes we wanted until all were selected then would play the game using the regular rules. (We didn't bother with scoring -- whoever went out first won -- but if you want a more traditional system of scoring, you'd probably want to base it on the number of dominoes left in the loser's hand)

I learned two things from this experiment: first, a bluesman can beat you at dominoes no matter how you jigger the rules; and second, dominoes with perfect information plays a great deal like the standard version.

Sadly dominoes is not played as widely as it once was but you can try something similar with dice games like backgammon. Here's one version.

Print the following repeatedly on a sheet of paper:

Each player gets as many sheets as needed. When it's your turn you choose a number, cross it out of the inverted pyramid then move your piece that many spaces. Once you've crossed out a number you can't use it again until you've crossed out all of the other numbers in the pyramid. Obviously this means you'll want to avoid situations like having a large number of pieces two or three spaces from home.

If and when you cross off all of the numbers in one pyramid you start on the next. There's no limit to the number of pyramids you can go through. Other than that the rules are basically the same as those of regular backgammon except for a couple of modifications:

You can't land on the penultimate triangle (you'd need a one to get home and there are no ones in this variant);

If all your possible moves are blocked, you get to cross off two numbers instead of one (this discourages overly defensive play).

I haven't had a chance to field test this one, but it should be playable and serve as at least a starting point (let me know if you come up with something better). The same inverted pyramid sheet should be suitable for other dice based board games like parcheesi and maybe even Monopoly (though I'd have to give that one some thought).

I had meant to close with a perfected variant of poker but working out the rules is taking a bit longer than I expected. Maybe next week.

In the meantime, any ideas, improvement, additions?

A physicist in econ-land

Noah Smith has some fascinating things to about making the transition to economics as a grad student (via Thoma, of course):

At the time I took the course, I didn't yet know enough to have any of these objections. But coming as I did from a physics background, I found several things that annoyed me about the course (besides the fact that I got a B). One was that, in spite of all the mathematical precision of these theories, very few of them offered any way to calculate any economic quantity. In physics, theories are tools for turning quantitative observations into quantitative predictions. In macroeconomics, there was plenty of math, but it seemed to be used primarily as a descriptive tool for explicating ideas about how the world might work. At the end of the course, I realized that if someone asked me to tell them what unemployment would be next month, I would have no idea how to answer them.

As Richard Feynman once said about a theory he didn't like: "I don’t like that they’re not calculating anything. I don’t like that they don’t check their ideas. I don’t like that for anything that disagrees with an experiment, they cook up an explanation - a fix-up to say, 'Well, it might be true.'"

That was the second problem I had with the course: it didn't discuss how we knew if these theories were right or wrong. We did learn Bob Hall's test of the PIH. That was good. But when it came to all the other theories, empirics were only briefly mentioned, if at all, and never explained in detail. When we learned RBC, we were told that the measure of its success in explaining the data was - get this - that if you tweaked the parameters just right, you could get the theory to produce economic fluctuations of about the same size as the ones we see in real life. When I heard this, I thought "You have got to be kidding me!" Actually, what I thought was a bit more...um...colorful.

Update: Krugman chimes in with some relevant comments here.

"Premature Ecalculation"

Over the past quarter century or so, journalists, particularly television journalists, have gotten very good at finding excuses for covering sensationalistic non-news stories. Thirty or forty years ago Donald Trump's campaign would have merited about as much coverage as Pat Paulsen's. Now the reporters (eyes bleary with crocodile tears) insist that they don't want to provide a national platform for someone who is probably just in it for the publicity to make provably false claims with racist overtones. It's true that freak shows like Trump bring in the ratings and the consequently the ad revenue, but reporters like Meredith Vieira assure us that they're only giving this airtime because the polls show that he's a 'serious candidate.'

As is usually the case with journalistic hypocrisy, the best rebuttal comes from the Daily Show.

Inessential Yglesias -- understanding the elasticity of oil demand

I'm afraid I'm going to have to differ with Joseph on this one. This piece from Matthew Yglesias manages to leave out most of the good stuff from this excellent post by Adam Ozimek.

For example:

However there are important caveats to these estimates that suggest the real current elasticity is higher. First, the evidence has indicated that the response of demand to price changes is asymmetric: price increases cause a larger response to demand than price decreases. This is because price increases are more likely to cause shifts to newer, more energy efficient technologies than price decreases are to undo such shifts. Any estimate of the average price elasicity then will be a downward biased estimate for the likely response to a price increase.

A recent paper by Davis and Killian The Journal of Applied Economics covers some other econometric issues in the literature. For instance, we know price and quantity demanded are jointly determined, which means that there will be a correlation between the price variable and the errors such that single equation or panel data methods, like those used in the reported IMF estimates, will bias estimates towards zero. Some studies attempt to use exogeneous oil shocks as instrumental variables. This approach is used in the appendix to the IMF study. But this requires the assumption that consumers will respond the same to these shocks as to normal real price appreciation. If consumers expect shocks to be more temporary than a demand led increase in price, this is a questionable assumption.

To understand why this is such an important point, we need to step back and discuss why we choose certain analytic approaches in certain situations, specifically why we shouldn't think about elasticity of demand for gasoline the same way we think about it for fruit juice.

[brief warning: I'm a statistician, not an economist, so the terminology here might not be what you'd hear in INTRO TO ECON, but I suspect the underlying concepts will be basically the same.]

Let's discuss demand in terms of decisions. If I go into the grocery store thinking I'd like some orange juice I almost certainly have some threshold price X in mind. If a carton of juice costs more than X, I won't buy orange juice that day.

Assuming I don't have some sort of weird Minute Maid fixation, doing without juice is probably not a big deal. My consumption is determined by a single simple (rather than complex) decision.

[brief warning II: I'm assuming, for the sake of simplicity, that all the grocery stores and gas stations available to me charge roughly the same prices for comparable items.]

By comparison, my consumption of gasoline is determined by a complex set of decisions spread out over a long time and based on anticipated gas prices. Of these decisions, the impact of the one that's analogous to the OJ decision (go to the store and check the price) is trivial next to choosing where do I live, where do I work and what kind of vehicle do I drive.

Even if there is a there happens to be a hurricane or a revolution at the exact time I'm making one of those decisions and gas is at five dollars a gallon, I probably won't bother factoring that in. Trying to estimate the impact of temporary and unpredictable events is a game best left to the specialists.

But let's say that the five dollar price is the result of a recent buck and a half increase in the gas tax and I only see it going north from here. Now five dollars a gallon is starting to look like a floor instead of a ceiling and I am much more more likely to look at MPG and commuting distance when I make my decisions.

Or, in other words, pretty much what Ozimek said.

Essential Yglesias

Matt Yglesias on taxing oil and gas:

One is that while low elasticity implies that a tax is unlikely to be very effective at reducing demand, by the exact same token a low elasticity implies that taxing whatever it is you’re proposing to tax will be a very efficient way of raising revenue. So if you’re the kind of person who believes the government should raise revenue, then there’s really no possible result in the elasticity literature that should make you hesitate to tax gasoline and/or oil.

The other thing is that these elasticity estimates generally imply that the relationship between price and demand is going to be linear, which is almost certainly false. Which is to say that the estimate is only reliable when you’re considering a relatively small policy shift. Nothing wrong with that, there’s just no way to get an empirical estimate about some crazy shift outside the realm of ordinary experience. But it is a real limitation to what this kind of work can tell us.

The second point, that relationships like these are unlikely to be linear is a theme that Mark has been trying to communicate for years and it is nice to see the idea beginning to get traction.

But the first point is a really good one. I like government (not unlimited government, but unlimited ice cream is bad for me too) and I recognize that we need to raise revenue somehow. If the tax on fuel consumption is a way to raise revenue that is a major benefit.

Now it is true that this could adversely impact the transportation options of the less well off. But there are a number of options including means tested fuel tax credits and improved public transportation infrastructure that could be tried. But I think the bottom line is that this tax is like alcohol and cigarette taxes -- we want to discourage an activity and raise revenue for basic services at the same time; while it isn't optimal tax policy (which might address issues like the capital gains tax) it is a major improvement.

Around a quarter of a million reasons to want to keep your job

I started my teaching career in Arkansas, a state known at the time for many ludicrously small school districts. This caused an exceptionally high administrator to teacher ratio. Supporting all these administrators consequently put an additional strain on an already underfunded system.

I had always thought of this as a Southern problem, but this excellent piece by Dana Goldstein has me questioning that assumption:

One of Governor Andrew Cuomo's contentious budget cutting ideas is to consolidate very small school districts. I'm generally a tax-and-spend liberal, but this is a good idea, especially in relatively densely-populated parts of the state. I was reminded why today by the New York Times, which reported on a controversy engulfing the tiny Westchester village of Katonah, NY, not far from where I grew up. Katonah's school board would like to hire a superintendent named Paul Kreutzer, who happens to be the only superintendent in Wisconsin to have publicly supported Gov. Scott Walker's attempt to ban teacher collective bargaining.

Unsurprisingly, hundreds of Katonah teachers, parents, and students are loudly protesting Kreutzer's appointment.

But what really caught my eye was that if he does get the job, the 39-year old Kreutzer is set to earn $245,000 annually to oversee a district of just six schools and 3,800 students. Ninety-three percent of these kids are white, and just 1 percent are non-native English speakers. Approximately 0 percent of Katonah public school children participate in the federal free-and-reduced-price lunch program.

This reminds me of an anecdote I've mentioned here before.

When I first decided to go into teaching I asked a retired superintendent I knew for advice. The first thing he told me was, "Never trust a superintendent; they'll lie to your face." I think he was being just a bit harsh but I understand his position. Administrators live in an intensely political world where the right move can double their incomes and the wrong one can get them demoted or fired. It tends to test character.

Just to be clear, like teachers, most administrators (particularly most principals) are dedicated educators who genuinely care about their students, but they are also, by necessity, expert game-players who know how to work a system. This is simply part of the skill set. An administrator who's bad at politics will probably be a bad administrator.

But if we can't blame administrators for being good at politics, we can certainly blame many education reporters for being bad at journalism. To the extent that this is a story of labor and management, most journalists have unquestioningly swallowed the line of certain managers* that the blame for any problems in the system rested entirely with labor. Every standard of good journalism should have told them to look at both sides of the issue. Every reporter's instinct should have told them to take with a block of salt potentially self-serving claims of a group of media savvy, politically adept people who are trying to protect high but vulnerable salaries and, in some cases, impressive potential careers in politics and the private sector.

* And to be ABSOLUTELY clear, let me make this point explicitly: I am not talking about most administrators. The majority of superintendents and the vast majority of principals are hard-working and intensely focused professionals whose first priority is the interests of their kids. Just like the vast majority of teachers.

Preblog -- Businessmen seldom believe in efficient markets and rational actors

I've got to head off for lunch in a minute, but I wanted to at least throw this out now and address it in more detail later (hence the term 'preblog'). The impetus was this post* which seemed to assume that the market-based approach was more likely to provide real vs. perceived benefits (my wording, not his).

Back in my marketing days when I was building consumer response models and working with the BAs, we would talk about maximizing the perceived to real value ratio -- find a cheap product that looked expensive. Like many, if not most, of our strategies and business plans, this idea was based on assumptions that violated some of the axioms of freshwater economics.

Efficiency and rationality are useful for businesses for lobbying and PR purposes but most people in the private sector don't believe in them. They think can beat the system. That's why they're there.


* nicely rebutted here and here.

Two quotes

No particular connection here, just a couple of passages that seemed worth passing on.

On top of that, Wall Street does have a habit of boiling everything down to a right/wrong duality: if you say that a stock will go down, you’re right if it does, and wrong if it doesn’t. The intelligence of your analysis, or the idea that all these things are probabilistic rather than certain, rarely even gets lip service. This is why you see so much technical analysis on Wall Street: it makes no intellectual sense at all, but it works just as well as — or even better than — fundamentals-based analysis. (Which, admittedly, isn’t saying very much.) And that’s all that matters.

Felix Salmon

All in all I’d rather have been a judge than a miner. And what is more, being a miner, as soon as you are too old and tired and sick and stupid to do the job properly, you have to go. Well, the very opposite applies with the judges.

Peter Cook via Krugman

Subtracted cities -- the art of falling gracefully

A few years ago, I was doing some work for a young company that had developed a reputation as a growth stock. As I became privy to more of the company's long-term plans, I started to wonder about the sustainability of its strategy. The company seemed to be counting on sustaining growth rates that would soon put us over 100% of the market.

I once mentioned this to a colleague who had drank deeply of the Kool-aid. I expected one of two responses: either he would find this troubling or he would point out a flaw in my argument. He did neither. Instead he just shrugged and smiled and assured me that when we reached that point the people who ran the company would simply find a way to "innovate out of the problem."

It's easy to understand the appeal of growth but good planning and management also have to be able to handle plateaus and even declines. This is true for industries like the newspaper business. It's also true for cities.

From Deborah Potter via Richard Green by way of Mark Thoma:

Detroit stands as the ultimate expression of industrial depopulation. The Motor City offers traffic-free streets, burned-out skyscrapers, open-prairie neighborhoods, nesting pheasants, an ornate-trashed former railroad station, vast closed factories, and signs urging "Fists, Not Guns." A third of its 139 square miles lie vacant. In the 2010 census it lost a national-record-setting quarter of the people it had at the millennium: a huge dip not just to its people, but to anxious potential private- and public-sector investors.

Is Detroit an epic outlier, a spectacular aberration or is it a fractured finger pointing at a horrific future for other large shrinking cities? Cleveland lost 17 percent of its population in the census, Birmingham 13 percent, Buffalo 11 percent, and the special case of post-Katrina New Orleans 29 percent. The losses in such places and smaller ones like Braddock, Penn.; Cairo, Ill.; or Flint, Mich., go well beyond population. In every recent decade, houses, businesses, jobs, schools, entire neighborhoods -- and hope -- keep getting removed.

The subtractions have occurred without plan, intention or control of any sort and so pose daunting challenges. In contrast, population growth or stability is much more manageable and politically palatable. Subtraction is haphazard, volatile, unexpected, risky. No American city plan, zoning law or environmental regulation anticipates it. In principle, a city can buy a deserted house, store or factory and return it to use. Yet which use? If the city cannot find or decide on one, how long should the property stay idle before the city razes it? How prevalent must abandonment become before it demands systematic neighborhood or citywide solutions instead of lot-by-lot ones?

Subtracted cities can rely on no standard approaches. Such places have struggled for at least two generations, since the peak of the postwar consumer boom. Thousands of neighborhoods in hundreds of cities have lost their grip on the American dream. As a nation, we have little idea how to respond. The frustratingly slow national economic recovery only makes conditions worse by suggesting that they may become permanent.

Subtracted cities rarely begin even fitful action until perhaps half the population has left. Thus generations can pass between first big loss and substantial action. Usually the local leadership must change before the city's hopes for growth subside to allow the new leadership to work with or around loss instead of directly against it. By then, the tax base, public services, budget troubles, labor forces, morale and spirit have predictably become dismal. To reverse the momentum of the long-established downward spiral requires extraordinary effort. Fatalism is no option: Subtracted cities must try to reclaim control of their destinies. ...

While we're on the subject of economic assumptions...

James Kwak makes some insightful points about allocative efficiency:

I was catching up on some old Planet Money episodes and caught Allen Sanderson of the University of Chicago talking about how to allocate scarce resources. The first day of introductory economics, he says, there are always more students than seats. Say there are forty extra people, and he can only accept ten more into the class. He asks the class: how should the ten slots be allocated? You can easily guess the typical suggestions: by seniority, because seniors won’t be able to take the class later; by merit (e.g., GPA), because better students will contribute more to the class and get more out of it; to the first ten people outside his office at 8 am the next day, since that is a proxy for desire to get in; randomly, since that’s fair; and so on. Someone also invariably suggests auctioning off the slots.

This, Sanderson says, illustrates the core tradeoff of economics: fairness and efficiency. If you auction off the slots, they will go to the people to whom they are worth the most, which is best for the economy as a whole.* If we assume that taking the class will increase your lifetime productivity and therefore your lifetime earnings by some amount, then you should be willing to pay up to the present value of that increase in order to get into the class. An auction therefore ensures that the slots will go to the people whose productivity will go up the most. But of course, this isn’t necessarily fair, especially when you consider that the people who will get the most out of a marginal chunk of education are often the people who have the most already.

...

But I think the picture is still a bit more complicated. Even if we assume for a moment that allocative efficiency is the only thing we care about, it’s far from clear than an auction will give it to us. If people could (a) predict their increased productivity from taking the class, (b) predict their increased lifetime earnings, (c) discount those earnings to the present (which implies knowing the proper discount rate), and (d) borrow up to that amount of money at the risk-free rate, then, yes, everything would work out OK. But this is clearly not the case, since then people would be bidding thousands if not tens of thousands of dollars to get into the class.

Still, you might say that people’s willingness to pay for the class — even if it’s just that one person is willing to pay $60 and another is only willing to pay $5 — is a valid proxy for the value of the class to them. So instead of thinking in terms of lifetime productivity, we’re thinking of the class as a short-term consumption good, and it would provide $60 of utility to one person and $5 of utility to the other. (Note that we’ve given up the idea of maximizing the ultimately economic impact of the class.) But then we have to ask whether money is a valid proxy for utility, and at this point the chain of reasoning breaks down. My willingness to pay for various goods might reflect their relative utility to me, but saying that different people’s willingness to pay for the same good reflects the relative utility of that good to those people is a much greater leap. Most obviously, a rich person will be willing to pay more for some goods than a poor person, even if those goods would provide more utility to the poor person. Assume for example that the rich person has a wool overcoat, the poor person has no overcoat, and the good in question is a cashmere overcoat.

I'm not against the language of the marketplace

I'm against using it where it doesn't apply.

From Rashi Fein, via Paul Krugman:

A new language is infecting the culture of American medicine. It is the language of the marketplace, of the tradesman, and of the cost accountant. It is a language that depersonalizes both patients and physicians and describes medical care as just another commodity. It is a language that is dangerous.

"On Public Funding of Colleges and Towards a General Theory of Public Options"

The U.S. has the best university system in the world. Mike Konczal has some important things to say about the way we fund it.

As a rule, the Centers for Disease Control give better health advice than Gawker

Not much posting this weekend but I did have to take a moment to make the point in the subject line. This might seem too obvious to bother with but the otherwise very smart people at naked capitalism missed it.

The post in question was by Seth Abramovitch:

Hand Sanitizers Will Not Save You From the Coming Plague

The Food and Drug Administration has issued a caveat today, reminding consumers that any hand sanitizer or antiseptic product claiming to be effective against antibiotic-resistant infection is telling you a Bald. Faced. Lie.

No. They're. Not.

This is a complicated issue and our resident expert is otherwise occupied but I think I can lay out the basics. Rubbing alcohol and chlorine bleach both do well against MRSA and other antibiotic-resistant strains. We can get into a discussion of acceptable wording here which is what the FDA was getting at (admittedly in a poorly written statement) and we can talk about side effects, but if the active ingredient of a product is alcohol or bleach then it probably is effective.

How about hand sanitizers specifically? Wikipedia has a good summary (emphasis added):

The Centers for Disease Control says the most important way to prevent the transmission of dangerous diseases is to frequently wash your hands with soap and water and/or use a hand sanitizer. If soap and water are not available it is recommended to use a hand sanitizer that contains at least 60 percent alcohol.[16][17] Alcohol rubs kill many different kinds of bacteria, including antibiotic resistant bacteria and TB bacteria. It also has high viricidal activity against many different kinds of viruses, including enveloped viruses such as the flu virus, the common cold virus, and HIV, though is notably ineffective against the rabies virus.[18] [19] [20] Alcohol rub sanitizers are not very effective against Norovirus (winter vomiting virus) unless they are combined with benzalkonium chloride in a hand sanitizer.[21] Alcohol rubs also kill fungi.[22] University of Virginia Medical School researchers concluded that hand sanitizing is more effective against fighting the common cold than hand washing.[23] Alcohol kills both pathogenic (disease causing) microorganisms as well as resident bacterial flora, which generally do not cause illness. [24] Research shows that alcohol hand sanitizers do not pose any risk by eliminating "good" germs that are naturally present on the skin. The body quickly replenishes the good germs on the hands, often moving them in from just up the arms where there are fewer harmful germs.[25] Alcohol also strips the skin of the outer layer of oil, which may have negative effects on barrier function of the skin. However, washing with detergents, such as commonly used hand soaps, results in a greater barrier disruption of skin compared to alcohol solutions, suggesting a increased loss of skin lipids.[26] [27]

Fortunately, not everyone missed the CDC angle.

Silence

I am about to be travelling for a bit so the blog might be lightly updated until May 2nd.

In the meantime, I strongly recommend trying a few other good sites:

http://www.stat.columbia.edu/~cook/movabletype/mlm/

http://worthwhile.typepad.com/worthwhile_canadian_initi/

http://marginalrevolution.com/

as these are all blogs with good runs of posts. Not on my blog-roll, but also worth noting is Matt Yglesias who has also been putting out some very goos stuff lately.

When people are willing to pay extra not to use your enhancement...

... you may have a problem.

Via Gizmodo by way of Salmon, here's a place that sells glasses that allow you to watch 3D in glorious 2D. If they can just do something about the murky color they'll be onto something.

For more on the failings of 3D, check here.

Cool yet useful -- typography edition

From John D. Cook, here's a site that will identify fonts in JPEGs.

Taxes and Growth

I think that this is the most insightful post I have read in ages:

Think about it this way: Grant to the tax skeptic all he wants about the idea that high taxes reduce the level of economic output. There’s an easy story to tell here. The quantity of economic output is, in part, a function of how much time and effort people want to put into doing market production. And the amount of time and effort any given person wants to put into market production is in part a feature of how much purchasing power extra time and effort put into market production will get him. Higher taxes—either on his labor or on his consumption of goods and services—reduces the purchasing power of extra time and effort on market production, and thus tend to reduce the amount of time and effort people put into it. You can tell a different, more leftwing story about this, but the point I want to make here is simply that this rightwing story about taxes and output is a story about levels not growth rates. If Americans started working the number of hours per year that South Koreans work, our per capita GDP would go way up.

But that’d be a onetime adjustment. Countries don’t grow over time by steadily increasing their number of hours worked. They grow, roughly speaking, because people think up better ways to do things and then businessmen either adopt those new better methods or else they get put out of business by those who did.

Taxes suppressing growth was a vicious argument because it suggested that it could (via compounding effects) lead to relative impoverishment over time. While it is true that less work could suppress some innovation at the margins, the story of changing absolute wealth actually seems more credible to me.

It focus the argument on what trade-offs are we willing to make between things like personal security and affluence. It also removes the idea that low taxes might spur growth levels and allow us to grow faster than thus reduce debt (as a proportion of GDP) via economic growth. But it is notable that more socialist and high tax countries (Sweden, Canada, The Netherlands) have not have a fall into relative poverty compared with the lower tax United States.

That is worth considering in these discussions.

"Great moments in marketing -- Charlie Sheen edition"

Even by the lax standards of contemporary journalism, it's hard to see how the meltdown of Charlie Sheen rises above the dog-bites-man standard. He's an actor with a history of drug abuse and manic-depressive (if not bipolar) tendencies -- not an unusual combination -- and his combination of denial and lashing out are absolutely typical for an addict.

I do, however, have to admit that the speed of development here is impressive. Back when I was doing marketing modelling, it took us forever to roll out a new product.

Cheap Beer, Paradoxical Dice, and the Unfounded Morality of Economists

Sometimes a concept can be so intuitively obvious that it actually becomes more difficult to teach and discuss. Take transitivity. We say that real numbers have the transitive property. That means that if you have three real numbers (A, B and C) and you know A > B and B > C then you also know that A > C.

Transitivity is just too obvious to get your head around. In order to think about a concept you really have to think about its opposite as well --

A > B, B > C and C > A. None too imaginatively, we call these opposite relationships intransitive or non-transitive. Non-transitive relationships are deeply counter-intuitive. We just don't expect the world to work like that. If you like butterscotch shakes better than chocolate shakes and chocolate shakes better than vanilla shakes, you expect to like butterscotch better than vanilla. If you can beat me at chess and I can beat Harry, you assume you can beat Harry. There is. of course, an element of variability here -- Harry might be having a good day or you might be in a vanilla kind of mood -- but on average we expect these relationships to hold.

The only example of a non-transitive relationship most people can think of is the game Rock, Paper, Scissors. Other games with non-transitive elements include the boomer classic Stratego where the highest ranked piece can only be captured by the lowest and my contribution, the game Kruzno which was designed specifically to give students a chance to work with these concepts.

While these games give us a chance to play around with non-transitive relationships, they don't tell us anything about how these relationships might arise in the real world. To answer that question, it's useful to look at another game.

Here are the rules. We have three dice marked as follows:

Die A {2,2,4,4,9,9}

Die B {1,1,6,6,8,8}

Die C {3,3,5,5,7,7}

Because I'm a nice guy, I'm going to let you pick the die you want. I'll then take one of the two remaining dice. We'll roll and whoever gets the higher number wins. Which die should you pick?

The surprising answer is that no matter which one you pick I'll still have the advantage because these are non-transitive dice. A beats B five out of nine times. B beats C five out of nine times. C beats A five out of nine times. The player who chooses second can always have better odds.

The dice example shows that it's possible for systems using random variables to result in non-transitive relationships. Can we still get these relationships in something deterministic like the rules of a control system or perhaps the algorithm a customer might use to decide on a product?

One way of dealing with multiple variables in a decision is to apply a threshold test to one variable while optimizing another. Here's how you might use this approach to decide between two six-packs of beer: if the price difference is a dollar or less, buy the better brand; otherwise pick the cheaper one.* For example, let's say that if beer were free you would rank beers in this order:

1. Sam Adams

2. Tecate

3. Budweiser

If these three beers cost $7.99, $6.99 and $5.99 respectively, you would pick Tecate over Bud, Sam Adams over Tecate and Bud over Sam Adams. In other words, a rock/paper/scissors relationship.

Admittedly, this example is a bit contrived but the idea of a customer having a threshold price is not outlandish, and there are precedents for the idea of a decision process where one variable is ignored as long as it stays within a certain range.

Of course, we haven't established the existence, let alone the prevalence of these relationships in economics but their very possibility raises some interesting questions and implications. Because transitivity is such an intuitively appealing concept, it often works its way unnoticed into the assumptions behind all sorts of arguments. If you've shown A is greater than B and B is greater than C, it's natural not to bother with A and C.

What's worse, as Edward Glaeser has observed, economists tend to be reductionists, and non-transitivity tends to play hell with reductionism. This makes economics particularly dependent on assumptions of transitivity. Take Glaeser's widely-cited proposal for a "moral heart of economics":

Teachers of first-year graduate courses in economic theory, like me, often begin by discussing the assumption that individuals can rank their preferred outcomes. We then propose a measure — a ranking mechanism called a utility function — that follows people’s preferences.

If there were 1,000 outcomes, an equivalent utility function could be defined by giving the most favored outcome a value of 1,000, the second best outcome a value of 999 and so forth. This “utility function” has nothing to do with happiness or self-satisfaction; it’s just a mathematical convenience for ranking people’s choices.

But then we turn to welfare, and that’s where we make our great leap.

Improvements in welfare occur when there are improvements in utility, and those occur only when an individual gets an option that wasn’t previously available. We typically prove that someone’s welfare has increased when the person has an increased set of choices.

When we make that assumption (which is hotly contested by some people, especially psychologists), we essentially assume that the fundamental objective of public policy is to increase freedom of choice.

But if these rankings can be non-transitive, then you run into all sorts of problems with the very idea of a utility function. (It would also seem to raise some interesting questions about revealed preference.) Does that actually change the moral calculus? Perhaps not but it certainly complicates things (what exactly does it mean to improve someone's choices when you don't have a well-ordered set?). More importantly, it raises questions about the other assumptions lurking in the shadows here. What if new options affect the previous ones in some other way? For example, what if the value of new options diminishes as options accumulate?

It's not difficult to argue for the assumption that additional choices bring diminishing returns. After all, the more choices you have, the less likely you are to choose the new one. This would imply that any action that takes choices from someone who has many and gives them to someone has significantly fewer represents a net gain since the choice is more likely to be used by the recipient. Let's say we weight the value of a choice by the likelihood of it being used, and if we further assume that giving someone money increases his or her choices, then taking money from a rich person and giving it to a poor person should produce a net gain in freedom.

Does this mean Glaeser's libertarian argument is secretly socialist? Of course not. The fact that he explicitly cites utility functions suggests that he is talking about a world where orders are well defined, and effects are additive and you can understand the whole by looking at the parts. In that world his argument is perfectly valid.

But as we've just seen with our dice and our beer, we can't always trust even the most intuitively obvious assumptions to hold. What's more, our examples were incredibly simple. The distribution of each die just had three equally probable values. The purchasing algorithm only used two variables and two extremely straightforward rules.

The real world is far more complex. With more variables and more involved rules and relationships, the chances of an assumption catching us off guard only get greater.



*Some economists might object at this point that this algorithm is not rational in the strict economics sense of the word. That's true, but unless those economists are also prepared to argue that all consumers are always completely rational actors, the argument still stands.

Post-weekend Gaming -- five-penny backgammon

[We haven't forgotten about games here at OE. Quite the opposite. I've been working on a post about games of perfect and imperfect information for a while now and it should be going up soon. While I was thinking about the backgammon section of the post, I remembered a variant for math teachers I've been meaning to write up for a few years now.]

FIVE-PENNY BACKGAMMON

Played exactly like traditional backgammon except:

The dice are replaced with five coins;

instead of rolling the dice, each player tosses the five coins using the cup, adds one to the number of heads then repeats the procedure a second time;

the two (h + 1) totals are treated like the results from rolling a pair of dice.

For example, tossing two heads then tossing three would be the same as rolling a three and a four.



PLAYER'S CHOICE

In this variant, the player can choose dice or coins on a turn-by-turn basis.




FIVE-PENNY BACKGAMMON IN THE CLASSROOM

Though this is largely matter of preference, I would introduce five-penny games well before any kind of formal or semi-formal introduction to the underlying probability theory. This gives the students a chance to become comfortable with these examples before they see them in lectures and it also gives them the opportunity to discover on their own that there's a difference between having the same possible outcomes and having the same probabilities associated with those outcomes.

Mark Thoma makes an important point

From Economist's View:

That was a mistake, but what is the lesson? One is that we should not necessarily ignore something just because it cannot be found in the data. Much of the empirical work prior to the crisis involved data from the early 1980s to the present (due to an assumption of structural change around that time), sometimes the data goes back to 1959 (when standard series on money end), and occasionally empirical work will use data starting in 1947. So important, infrequent events like the great Depression are rarely even in the data we use to test our models. Things that help to explain this episode may not seem important in limited data sets, but we ignore these possibilities at our own peril.

But how do we know which things to pay attention to if the data isn't always the best guide? We can't just say anything is possible no matter what the data tell us, that's not much of a guide on where to focus our attention.

The data can certainly tell us which things we should take a closer look at. If something is empirically important in explaining business cycles (or other economic phenomena ), that should draw our attention.

But things that do not appear important in data since, say, 1980 should not necessarily be ignored. This is where history plays a key role in directing our attention. If we believe that a collapse of financial intermediation was important in the Great Depression (or in other collapses in the 1800s), then we should ask how that might occur in our models and what might happen if it did. You may not find that the Bernanke, Gertler, Gilchrist model is important when tested against recent data, but does it seem to give us information that coincides with what we know about these earlier periods? We can't do formal tests in these cases, but there is information and guidance here. Had we followed it -- had we remembered to test our models not just against recent data but also against the lessons of history -- we might have been better prepared theoretically when he crisis hit.

Removing Uncertainty

One of the arguments that has been made a lot is that it is important to remove sources of uncertainty to make business investments less susceptible to political changes. However, this need to make things less uncertain doesn't appear to apply in the public sector:

Every one of Detroit's public school teachers is receiving a layoff notice -- but that doesn't mean they will all be fired.

The layoff notices were sent to the 5,466 unionized teachers "in anticipation of a workforce reduction to match the district's declining student enrollment," according to a Detroit Public Schools statement. The layoff notices are required as part of the Detroit Teachers Federation collective-bargaining agreement. Non-Renewal notices have also been sent to 248 administrators, and the layoffs would go into effect by July 29.

Even though the risk of an actually losing a job might be low, imagine having to plan around how to pay for a mortgage or a lease if one's job might not be there? How can this possibly be a good way to organize an economy?

Because it's Saturday

Then and now -- Paul Ryan edition

Jonathan Chait digs up an interesting Robert Novak column from 2001:

The most enthusiastic congressional supporters of President Bush's proposed tax cut consider it much too small, but that's not all. They have reason to believe that government estimators, in both the administration and Congress, are up to their old tricks and badly underestimating tax revenue.

Lawrence Hunter, chief economist of the Empower America think tank, has made calculations that lead him to believe that the Congressional Budget Office has lowballed its estimated 10-year surplus of $ 5.6 trillion. He figures the realistic number is at least $ 1 trillion higher and probably another $ 1 trillion above that. Those numbers not only would permit a considerably larger tax cut than Bush's, estimated to lose $ 1.6 trillion in revenue, but in fact would mandate it.

There are senior Bush policymakers who privately admit that Hunter and his allies in Congress have a point. But these officials claim they cannot change the rules in the middle of the game. Nor can they adjust unrealistic methods that bloat the revenue loss from Bush's cuts. Thus, Washington's high-tax establishment is able to use underestimated surplus projections and overestimated tax losses to claim the country cannot afford the president's program.

"It's too small," Rep. Paul Ryan of Wisconsin, the most junior member of the Ways and Means Committee but a leading House supply-sider, told me. "It's not big enough to fit all the policy we want."

It's possible, of course, to put too much weight on the historical record. Just because we went from deficit to surplus under Clinton and back to deficit under Bush does not mean that Ryan is wrong. It's possible that things are different now, that we should be taking the Bush tax cuts further rather than letting them expire.

But you can't just ignore history either. Ten years ago, Ryan was making basically the same recommendations he's making today based on the same economic and philosophical assumptions. The experience of the past dozen years seems to argue for doing the opposite. That puts the burden of proof squarely on his shoulders.

Weekend pop culture blogging -- comic strip edition

The birth of a medium invariably consists overwhelmingly of crap (think Sturgeon's Law raised to the next level), but new media also has a way of producing the occasional work on stunning originality.

An obvious example here is the work of Winsor McCay (arguably the first acknowledged genius of both comics and animation, though fans of Herriman and Feininger might dispute the comics part), but even McCay's astoundingly innovative work can't match the originality of the Upside-Downs by Gustave Verbeek.

Verbeek's weekly strip told a twelve panel story in a six panel space. He did this by... Oh, hell, you really need to see this for yourself.





How's that to start your weekend?

For more Verbeek weirdness check here.

Tale of two tax rates

The following came via either Mark Thoma or Felix Salmon. I don't know which but I don't see that it matters. Both write blogs that you should check on a daily basis and both hold David Cay Johnston in high esteem (Thoma cites him frequently and Salmon calls him "the dean of tax reporters").

Here's Johnston on corporate taxes:

Just as the individual income tax falls more heavily on the affluent than the super-rich, so too does the corporate income tax. The giants of American business pay at lower effective cash rates than much smaller corporations.

That regressivity is an important aspect of the general trend in U.S. tax policy, which at both the federal and state levels is focused on pushing burdens down the income ladder.

But the broader issue has gotten zero attention in the hubbub that began March 24 with The New York Times exposé on General Electric Co.'s income taxes.¹

GE itself has said it paid no tax federal income tax last year, but complains it was maligned -- although it has been unable to point to a single factual error in the Times. We'll get to the dispute over how GE was treated, its response, and its statement that it is "scrupulous" about its worldwide tax compliance. But first let's look at the distribution of corporate income taxes, starting with a comparison of two of the best-known brand names in the country: GE and the New York Times Co.

Warning: You may want to take a deep breath right now because the numbers that follow may leave you gasping for air.

GE made a nearly $194 billion profit over the last 10 years and paid nearly $23 billion in income taxes. That's a real tax rate of 11.8 percent, about one-third the statutory rate of 35 percent.

The New York Times Co. made less than $2 billion in profit over the same 10 years and paid almost $1.4 billion in income taxes. That's a real tax rate of 71 percent, paid in cold, hard cash.

So the newspaper company that exposed GE paid more than twice the posted U.S. corporate rate, and its real tax rate was more than six times GE's real tax rate.

Quote of the day

From Comrade Physioprof:

When you ask people overly simplistic and broad "gotcha" questions in a provocative and accusatory manner, you shouldn't be surprised to receive glib uninformative answers. If you develop genuine professional relationships with people within NIH and treat them like the fellow scientists they are, you will receive more thoughtful honest answers.

This concept has broad applicability in many areas of debate and it is worth keeping in mind when one tries to bring up difficult questions. Sometimes you need to be able to build bounds of trust to deal with delicate issues and, while not as "cool" as being the crusader, it may be the way towards real reform.

Prediction is hard

President George W. Bush in 2001:

Many of you have talked about the need to pay down our national debt. I listened, and I agree. We owe it to our children and our grandchildren to act now, and I hope you will join me to pay down $2 trillion in debt during the next 10 years. At the end of those 10 years, we will have paid down all the debt that is available to retire. That is more debt repaid more quickly than has ever been repaid by any nation at any time in history.

I think that the core issue here, presuming good faith on all sides, is that second order effects are really hard to model. So tax cuts (both business and individual cuts) are seen to stimulate the economy. But accurately predicting that is very hard in a large and non-linear system like the United States economy. It's even possible that tax cuts could have perverse effects of lowering growth (I am not saying that they do -- it's just that complex, non-linear systems which are sensitive to initial values are very hard to predict).

So perhaps the real lesson here is to focus on first order effects. Link tax cuts directly to program cuts. And vice versa, new programs should have taxes that are linked to them. In my world, that would include wars (notice how World Wars I and II led to large tax increases to finance) which would make the debate about military intervention a lot more involved. I don't know if this would be a complete solution to deficit woes, but I worry that the current approach relies way too heavily on statistical models to predict the consequences of tax and budget policy (and, as we know from chaos theory, these types of models are notoriously difficult to use for prediction).

Online gambling meets artificial intelligence, sort of...

Nice story from Marketplace. I particularly liked this quote:

Michael Bowling helped build the best bot. He runs the Computer Poker Research Group at the University of Alberta.
...

But Bowling doubts that the commercial poker bots that are usually sold for around $80 are any good. Otherwise, why would they be for sale?

Bowling: If you had created a program that could actually win money from other players, would you be selling it to somebody else or would you be using it to win money?

You have to admit it does simplify things quite a bit

From Jonathan Chait:

There are a great many questions that can be easily explained by letting go of the assumption that people in positions of wealth and power must have some intelligent reason for what they're doing. I hate to constantly bring everything back to the role of luck in market outcomes, but this is a fundamental philosophical divide with wide-ranging implications. My belief is that a capitalist economy will produce, through sheer luck, a great deal of rich dopes. Donald Trump is a great case in point.

More on deficit reduction

Following up on Joseph's previous post, the Center on Budget and Policy Priorities has (via DeLong) an analysis of the Ryan plan that argues he has greatly exaggerated the savings that would be produced by his recommendations. The part about defense spending was particularly instructive:

About $1.3 trillion of the claimed $5.8 trillion reduction in spending, however, comes simply from taking credit for spending less in future years for the wars in Iraq and Afghanistan, as a result of the already-planned drawdown in the number of troops fighting in those countries. While this accurately reflects the difference between spending for the wars in Ryan’s plan and spending for the wars projected in CBO’s baseline, it does not represent savings or deficit reduction resulting from any change in policy proposed by Ryan....

CBO follows the baseline rules established in the Budget Enforcement Act of 1990 (as subsequently modified). For taxes and mandatory spending, the baseline projections generally assume that there will be no changes in current laws governing taxes and mandatory programs. But for discretionary spending... assuming current law does not make sense.... [B]aseline rules require CBO to assume that for each account and activity, Congress will provide the same amount of funding in each year the baseline projections cover as it provided in the most recently enacted appropriation bills (adjusted for inflation). This generally serves as an adequate proxy.... There is, however, one large anomaly — funding for the wars in Iraq and Afghanistan — that causes the current baseline projections to vary significantly from what it will cost to continue current policies. Following the baseline rules, CBO projects that in every year from 2012 through 2021, appropriations for the wars will remain at the current annual funding level.... Yet a drawdown in troops is already well underway in Iraq and is planned for Afghanistan.... Chairman Ryan’s budget merely plugs in the CBO’s estimate of the war costs under the President’s proposal, without changing them.

This difference of about $1.05 trillion between the war costs in the Ryan budget and those in the CBO baseline thus does not represent new savings that result from Ryan’s budget proposals. Yet Ryan counts this $1.05 trillion, plus the $250 billion reduction in interest costs that such a $1.05 trillion spending reduction would produce, as $1.3 trillion in spending cuts and deficit reduction....

Ryan himself said in a February interview that savings in the Obama budget that come from the troop drawdown should not be considered real savings or deficit reduction. Ryan commented that the Obama budget showed savings of $1.1 trillion because the costs under the proposed withdrawal were compared to a baseline that assumed “they’re going to be in Afghanistan and Iraq at current levels for ten years,” and called these “phantom savings.” Ryan was correct to term these “phantom savings.” And if the phantom savings are not counted as real savings, the amount of spending cuts that Ryan’s proposals produce is $1.3 trillion less than Ryan claims...

If we're going to get anywhere with this debate... Hell, if we're going to get anywhere with any of the debates that are necessary for a functioning democracy, we have to hold to certain standards like consistency about classifications, appropriate weighting of authority such as the CBO and acceptance of shared axioms like the properties of real numbers (I so wish I were being sarcastic about that last one).

To be blunt as a ball-peen hammer, Paul Ryan and a large segment of others on the right have decided to trade intellectual standards for some short-term policy gains. This is a horrible mistake, not because their policies are all bad (I'm not prepared to make a blanket condemnation), but because no policy gain is worth that cost.

Deficits

This is a point that I have also argued and it bears repeating:

Once we understand that there’s no way that one Congress can hold a future Congress to a deficit deal, the discussion can stop right there. The last time there was a surplus, Republicans literally argued that the disappearance of the national debt was a problem that needed to be solved by massive upper-class tax cuts. There’s no reason to think it wouldn’t happen again

I would find the current discussion a lot more comforting if the early George W. Bush years had not begun with an argument that a balanced budget was a serious problem. I'd at least be more sympathetic to the current discussion if it began with a lot of "we were completely misguided . . . " retractions of past policy.

Catching up

As mentioned before, I've gotten in the habit of using the quit-and-save option when I run across something that I'd like to blog about later. Surprisingly, this procrastination-based method can lead to some problems so I occasionally just have to clean out the cache.

Here are some of those potential posts:

You know those stories where a foreign company moves manufacturing overseas but gets in trouble because it arrogantly refuses to adapt to the host country's management practices? This is not one of those stories.

I am very close to a big post on this topic.

Strictly in terms of sound business practices, I question the wisdom of the reliance on big-budget remakes.

Frances Woolley raises a lot of questions here.

Thank goodness Joel Klein is on the case.

This Felix Salmon piece on philanthropy got me thinking about proxy metrics and how they can go wrong. Maybe I should explain that one further in a future post.

Being a country boy by birth and blood, I am routinely offended by the coverage of rural and agricultural matters. This smart piece by Monica Potts is a deeply appreciated exception to the rule.

Spade = Spade time. Some people, particularly those of a Straussian bent, find independent, in-depth journalism inconvenient. Those people want to kill NPR.

California has arguably the world's best university system and we're on the verge of dismantling it. Aaron Brady has some interesting things to say on the subject.

And on the subject of things that are great about California but may not stay that way, despite years of mismanagement by the Tribune Company, the LA Times remains one of the country's best papers, still holding up well against that over-rated paper on the other coast. Felix Salmon apparently agrees.

While on the LA Times website, make sure to check out Michael Hiltzik.

A big recommendation and a small caveat for "The Test Generation"

Dana Goldstein has a great piece of education reporting over at the American Prospect. It's balanced and well-informed, though one section did make me a bit nervous:

Colorado politicians don't need to travel as far as Seoul, however, to get a look at education reform that prioritizes good teaching without over-relying on standardized testing or punitive performance-pay schemes. In 2009, in the southwest Denver neighborhood of Athmar Park -- a Latino area studded with auto-body repair shops, tattoo parlors, and check-cashing joints -- a group of union teachers opened the Math and Sciences Leadership Academy (MSLA), the only public school in Colorado built around peer evaluation. The elementary school borrows some of the cooperative professional development tools used in other countries: Every teacher is on a three-person "peer-review team" that spends an entire year observing one another's classrooms and providing feedback. The teachers are grouped to maximize the sharing of best practices; one team includes a second-year teacher struggling with classroom management, a veteran teacher who is excellent at discipline but behind the curve on technology, and a third teacher who is an innovator on using technology in the classroom.

Each teacher in the group will spend about five hours per semester observing her peer's teaching and helping him differentiate his instruction to reach each student. (MSLA is 92 percent Latino, and more than 97 percent of its students receive free or reduced-price lunch. Sixty percent of the student population is still learning basic English.) "It's kind of like medical rounds," explains Kim Ursetta, a kindergarten and first-grade English and Spanish literacy instructor who, as former president of the Denver Classroom Teachers Association, founded MSLA. "What's the best treatment for this patient?"

Peer review accounts for a significant portion of each MSLA teacher's evaluation score; the remainder is drawn from student-achievement data, including standardized test scores, portfolios of student work, and district and classroom-level benchmark assessments. MSLA is a new school, so the state has not yet released its test-score data, but it is widely considered one of the most exciting reform initiatives in Denver, a city that has seen wave after wave of education upheaval, mostly driven by philanthropists and politicians, not teachers. Alexander Ooms, an education philanthropist and blogger at the website Education News Colorado has written that MSLA "has more potential to change urban education in Denver than any other single effort."

When I visited MSLA in November, the halls were bright and orderly, the students warm and polite, and the teachers enthusiastic -- in other words, MSLA has many of the characteristics of high-performing schools around the world. What sets MSLA apart is its commitment to teaching as a shared endeavor to raise student achievement -- not a competition. During the 2009-2010 school year, all of the school's teachers together pursued the National Board for Professional Teaching Standards' Take One! program, which focuses on using curriculum standards to improve teaching and evaluate student outcomes. This year, the staff-wide initiative is to include literacy skills-building in each and every lesson, whether the subject area is science, art, or social studies.

Don't get me wrong. I think that MSLA is a great model for education reform but it's only one school (so the successes might due to an exceptional leaders like founder Ursetta or principal Nazareno) and it's new (so you have to figure in things like the Hawthorne effect and unsustainable practices).

Unlike many of its competitors, MSLA is based on sound ideas and I'd like to see more schools give these methods a try, but the history of education is filled with promising success stories that didn't pan out. Until a model is replicated and sustained, it should generally be approached with caution.

Conventional wisdom alert -- Who needs a graphing calculator?

Both Mike Croucher and John D. Cook have posts up questioning the use of graphing calculators in mathematics instruction. As Croucher puts it:

If you are into retro-computing then those specs might appeal to you but they leave me cold. They are slow with limited memory and the ‘high-resolution’ display is no such thing. For $100 dollars more than the NSpire CX CAS I could buy a netbook and fill it with cutting edge mathematical software such as Octave, Scilab, SAGE and so on. I could also use it for web browsing,email and a thousand other things.

I (and many students) also have mobile phones with hardware that leave these calculators in the dust. Combined with software such as Spacetime or online services such as Wolfram Alpha, a mobile phone is infinitely more capable than these top of the line graphical calculators.

They also only ever seem to be used in schools and colleges. I spend a lot of time working with engineers, scientists and mathematicians and I hardly ever see a calculator such as the Casio Prizm or TI NSpire on their desks. They tend to have simple calculators for everyday use and will turn to a computer for anything more complicated such as plotting a graph or solving equations.

One argument I hear for using these calculators is ‘They are limited enough to use in exams.‘ Sounds sensible but then I get to thinking ‘Why are we teaching a generation of students to use crippled technology?‘ Why not go the whole hog and ban ALL technology in exams? Alternatively, supply locked down computers for exams that limit the software used by students. Surely we need experts in useful technology, not crippled technology?

The only thing I'd add is the need for spreadsheet literacy. In the past twenty years, I have never seen anyone using a graphing calculator outside of a classroom and I have never come across a job, ranging from the executive to the janitorial, where Excel skills don't come in handy.

When I was teaching I taught all my kids to graph functions on Excel. If I were still teaching high school, I would strongly consider making something like Scilab or Python part of the curriculum (particularly for calculus), I might even consider requiring all students to have at least one programming based math class but I would still insist that all students knew their way around the graphics package of a spreadsheet.

In general though I think we're in general agreement that student should be taught technology that they are actually going to use.

"Do you know what 'synergy' is?"

The orientation for my first corporate job included a one-day ropes course. As an old country boy, I had spent much of boyhood in the tops of trees and had gone on to try some rock-climbing and repelling, so spending a spring day in the woods climbing towers was like being thrown back into the briar patch after four days of paperwork and jargon.

We were not, however, far enough from civilization to completely escape the business-speak. The medium in this case was a cheerful and bouncy instructor ('bouncy' in the literal sense -- she gave her entire memorized spiel springing from spot to spot on the balls of her feet).

With barely contained excitement she described the wonders of synergy, then asked, "Do you know what 'synergy' is?" Before anyone could answer, she continued, "It's centered energy."

[pause for comic effect]

Of the billions of dollars that corporations spend on consulting, training and motivation, a large chunk goes to what can only be described as scams. Collections of buzzwords, pseudo-science, faulty statistics and unsupportable claims that wouldn't fool the greenest mark are sold for astounding sums to CEOs who then make these programs central pillars of corporate culture.

It's difficult to estimate the true costs of these scams. The direct costs are not trivial but they are still probably smaller than what you get when you add up:

1. The opportunity costs of all these MBAs not studying something more useful;

2. The loss in productivity resulting from promotions and layoffs based partly on employees' ability to enthusiastically accept (or pretend to accept) absurd statements and claims;

3. The dangers of group-think (most of these programs emphasize teamwork, shared visions and positive attitude. This does not produce a conducive atmosphere for pointing out that the emperor has no clothes);

4. The influence these theories have had on non-corporate areas like education reform and policy making (where do you think the Bush administration got that make-your-own-reality stuff, not to mention those creepy backrubs?).

Along these lines, I recently came across this thoughtful 2006 article by Matthew Stewart, a former management consultant whose view of the field is, in some ways, darker than mine (thanks to Mike for the link). I've picked out a couple of interesting passages though you should really read the whole thing if you have the time.

The thing that makes modern management theory so painful to read isn’t usually the dearth of reliable empirical data. It’s that maddening papal infallibility. Oh sure, there are a few pearls of insight, and one or two stories about hero-CEOs that can hook you like bad popcorn. But the rest is just inane. Those who looked for the true meaning of “business process re-engineering,” the most overtly Taylorist of recent management fads, were ultimately rewarded with such gems of vacuity as “BPR is taking a blank sheet of paper to your business!” and “BPR means re-thinking everything, everything!”

Each new fad calls attention to one virtue or another—first it’s efficiency, then quality, next it’s customer satisfaction, then supplier satisfaction, then self-satisfaction, and finally, at some point, it’s efficiency all over again. If it’s reminiscent of the kind of toothless wisdom offered in self-help literature, that’s because management theory is mostly a subgenre of self-help. Which isn’t to say it’s completely useless. But just as most people are able to lead fulfilling lives without consulting Deepak Chopra, most managers can probably spare themselves an education in management theory.

...

If you believed our chief of recruiting, the consulting firm I helped to found represented a complete revolution from the Taylorist practices of conventional organizations. Our firm wasn’t about bureaucratic control and robotic efficiency in the pursuit of profit. It was about love.

We were very much of the moment. In the 1990s, the gurus were unanimous in their conviction that the world was about to bring forth an entirely new mode of human cooperation, which they identified variously as the “information-based organization,” the “intellectual holding company,” the “learning organization,” and the “perpetually creative organization.” “R-I-P. Rip, shred, tear, mutilate, destroy that hierarchy,” said über-guru Tom Peters, with characteristic understatement. The “end of bureaucracy” is nigh, wrote Gifford Pinchot of “intrapreneuring” fame. According to all the experts, the enemy of the “new” organization was lurking in every episode of Leave It to Beaver.

Many good things can be said about the “new” organization of the 1990s. And who would want to take a stand against creativity, freedom, empowerment, and—yes, let’s call it by its name—love? One thing that cannot be said of the “new” organization, however, is that it is new.

In 1983, a Harvard Business School professor, Rosabeth Moss Kanter, beat the would-be revolutionaries of the nineties to the punch when she argued that rigid “segmentalist” corporate bureaucracies were in the process of giving way to new “integrative” organizations, which were “informal” and “change-oriented.” But Kanter was just summarizing a view that had currency at least as early as 1961, when Tom Burns and G. M. Stalker published an influential book criticizing the old, “mechanistic” organization and championing the new, “organic” one. In language that eerily anticipated many a dot-com prospectus, they described how innovative firms benefited from “lateral” versus “vertical” information flows, the use of “ad hoc” centers of coordination, and the continuous redefinition of jobs. The “flat” organization was first explicitly celebrated by James C. Worthy, in his study of Sears in the 1940s, and W. B. Given coined the term “bottom-up management” in 1949. And then there was Mary Parker Follett, who in the 1920s attacked “departmentalized” thinking, praised change-oriented and informal structures, and—Rosabeth Moss Kanter fans please take note—advocated the “integrative” organization.

If there was a defining moment in this long and strangely forgetful tradition of “humanist” organization theory—a single case that best explains the meaning of the infinitely repeating whole—it was arguably the work of Professor Elton Mayo of the Harvard Business School in the 1920s. Mayo, an Australian, was everything Taylor was not: sophisticated, educated at the finest institutions, a little distant and effete, and perhaps too familiar with Freudian psychoanalysis for his own good.

A researcher named Homer Hibarger had been testing theories about the effect of workplace illumination on worker productivity. His work, not surprisingly, had been sponsored by a maker of electric lightbulbs. While a group of female workers assembled telephone relays and receiver coils, Homer turned the lights up. Productivity went up. Then he turned the lights down. Productivity still went up! Puzzled, Homer tried a new series of interventions. First, he told the “girls” that they would be entitled to two five-minute breaks every day. Productivity went up. Next it was six breaks a day. Productivity went up again. Then he let them leave an hour early every day. Up again. Free lunches and refreshments. Up! Then Homer cut the breaks, reinstated the old workday, and scrapped the free food. But productivity barely dipped at all.

Mayo, who was brought in to make sense of this, was exultant. His theory: the various interventions in workplace routine were as nothing compared with the new interpersonal dynamics generated by the experimental situation itself. “What actually happened,” he wrote, “was that six individuals became a team and the team gave itself wholeheartedly and spontaneously to cooperation … They felt themselves to be participating, freely and without afterthought, and were happy in the knowledge that they were working without coercion.” The lessons Mayo drew from the experiment are in fact indistinguishable from those championed by the gurus of the nineties: vertical hierarchies based on concepts of rationality and control are bad; flat organizations based on freedom, teamwork, and fluid job definitions are good.

On further scrutiny, however, it turned out that two workers who were deemed early on to be “uncooperative” had been replaced with friendlier women. Even more disturbing, these exceptionally cooperative individuals earned significantly higher wages for their participation in the experiment. Later, in response to his critics, Mayo insisted that something so crude as financial incentives could not possibly explain the miracles he witnessed. That didn’t make his method any more “scientific.”

Mayo’s work sheds light on the dark side of the “humanist” tradition in management theory. There is something undeniably creepy about a clipboard-bearing man hovering around a group of factory women, flicking the lights on and off and dishing out candy bars. All of that humanity—as anyone in my old firm could have told you—was just a more subtle form of bureaucratic control. It was a way of harnessing the workers’ sense of identity and well-being to the goals of the organization, an effort to get each worker to participate in an ever more refined form of her own enslavement.

So why is Mayo’s message constantly recycled and presented as something radically new and liberating? Why does every new management theorist seem to want to outdo Chairman Mao in calling for perpetual havoc on the old order? Very simply, because all economic organizations involve at least some degree of power, and power always pisses people off. That is the human condition. At the end of the day, it isn’t a new world order that the management theorists are after; it’s the sensation of the revolutionary moment. They long for that exhilarating instant when they’re fighting the good fight and imagining a future utopia. What happens after the revolution—civil war and Stalinism being good bets—could not be of less concern.

Hamsters, fitness landscapes and an excuse for a repost

All Things Considered had an interesting little story today about the origin of the hamster. I was particularly intrigued by this part:

More troubles followed in the lab. There was more hamster cannibalism, and five others escaped from their cage — never to be found. Finally, two of the remaining three hamsters started to breed, an event hailed as a miracle by their frustrated caretakers.

Those Adam-and-Eve hamsters produced 150 offspring, Dunn says, and they started to travel abroad, sent between labs or via the occasional coat pocket. Today, the hamsters you see in pet stores are most likely descendants of Aharoni's litter.

Because these hamsters are so inbred, they typically have heart disease similar to what humans suffer. Dunn says that makes them ideal research models.

This reminded me of a post from almost a year ago on the subject of lab animals. It also reminded me that I still haven't gotten around to the follow-up I had in mind. Maybe all this reminding will translate into some motivating and I'll actually get the next post on the subject written.

In this post I discussed gradient searches and the two great curses of the gradient searcher, small local optima and long, circuitous paths. I also mentioned that by making small changes to the landscape being searched (in other words, perturbing it) we could sometimes (with luck) improve our search metrics without significantly changing the size and location of our optima.

The idea that you can use a search on one landscape to find the optima of a similar landscape is the assumption behind more than just perturbing. It is also the basis of all animal testing of treatments for humans. This brings genotype into the landscape discussion, but not in the way it's normally used.

In evolutionary terms, we look at an animal's genotype as a set of coordinates for a vast genetic landscape where 'height' (the fitness function) represents that animal's fitness. Every species is found on that landscape, each clustering around its own local maximum.

Genotype figures in our research landscape, but instead of being the landscape itself, it becomes part of the fitness function. Here's an overly simplified example that might clear things up:

Consider a combination of two drugs. If we use the dosage of each drug as an axis, this gives us something that looks a lot like our first example with drug A being north/south, drug B being east/west and the effect we're measuring being height. In other words, our fitness function has a domain of all points on our AB plane and a range corresponding to the effectiveness of that dosage. Since we expect genetics to affect the subjects reaction [corrected a small typo here] to the drugs, genotype has to be part of that fitness function. If we ran the test on lab rats we would expect a different result than if we tested it on humans but we would hope that the landscapes would be similar (or else there would be no point in using lab rats).

Scientists who use animal testing are acutely aware of the problems of going from one landscape to another. For each system studied, they have spent a great deal of time and effort looking for the test species that functions most like humans. The idea is that if you could find an animal with, say, a liver that functions almost exactly like a human liver, you could do most of your controlled studies of liver disease on that animal and only use humans for the final stages.

As sound and appealing as that idea is, there is another way of looking at this.

On a sufficiently high level with some important caveats, all research can be looked at as a set of gradient searches over a vast multidimensional landscape. With each study, researchers pick a point on the landscape, gather data in the region then use their findings [another small edit] and those of other researchers to pick their next point.

In this context, important similarities between landscapes fall into two distinct categories: those involving the positions and magnitudes of the optima; and those involving the search properties of the landscape. Every point on the landscape corresponds to four search values: a max; the number of steps it will take to reach that max; a min; and the number of steps it will take to reach that min. Since we usually want to go in one direction (let's say maximizing), we can generally reduce that to two values for each point, optima of interest and time to converge.

All of this leads us to an interesting and somewhat counterintuitive conclusion. When searching on one landscape to find the corresponding optimum of another, we are vitally interested in seeing a high degree of correlation between the size and location of the optima but given that similarity between optima, similarity in search statistics is at best unimportant and at worst a serious problem.

The whole point of repeated perturbing then searching of a landscape is to produce a wide range of search statistics. Since we're only keeping the best one, the more variability the better. (Best here would generally be the one where the global optimum is associated with the largest region though time to converge can also be important.)

The Anti-Hulu Hypothesis

In response to Joseph's comment about the availability of the Big Bang Theory online, I thought I'd mention that, for the moment, CBS is keeping the two most recent episodes up on its site.

CBS has long had the most complicated but (I suspect) best thought-out approach to online viewing, deciding whether or not to provide shows on a case-by-case basis. Of course, 'best thought-out' here is in respect to stockholders, not viewers. The interests of those two groups generally align when you're talking about quality of programming but have a way of diverging when you're talking about revenue streams and cannibalization.

[OT] Bioware's new Star Wars RPG

Based on a perceptive review by Trollsymth, It seems like the new Star Wars multi-player online game captures the music and atmosphere of Star Wars well. But it focuses on combat as the means to gaining experience. I think that this is a very unfortunate decision as Star Wars has a strong history of using guile in the place of brute force.

I think that this would make for a more interesting game and could have easily been accomplished with goal based experience points. Focusing on killing makes sense for the Sith but Jedi and Rebels would benefit from minimizing casualties.

Health Care and Confusion

One of the most important underlying issues preventing efficient markets for health care is explained in a Dilbert cartoon.

Some perspective

A nice quote from the comments on Worthwhile Canadian Initiative:

I'm sure we can all agree that in any organization the size of the Canadian federal gov't ($175 billion per annum in revenue!), there must be inefficiency somewhere. But the issue at hand is not "is there inefficiency?" but rather "is there $10-12 billion of annual waste?".

I think that it really puts questions into perspective.

And if you don't follow WCI, it really does have some of the best commentary around (right up there with Marginal Revolution at its best)

It's not often epidemiologists get pandered to

A clip for everyone in our target audience except Andrew Gelman.

"Cathie Black's Departure: Totally Predictable. Plus: Meet Dennis Walcott"

Dana Goldstein has a good, pithy post on the shake-up in NYC.

Another interesting Ryan graph from Krugman

I was listening to Talk of the Nation this evening (admittedly not NPR at its best or even second best) and I was struck by how different (and inferior) what I was hearing was to the wonk debate (Krugman, Thoma, Gelman, et al.). Journalists and pundits are arguing over whether Ryan is bold or extra bold while we should be arguing over the practicality and advisability of a recovery based on another housing boom.