Thursday 2013-11-07

Discover Your Inner Economist by Tyler Cowen

This is Cowen's Defense against the Dark Arts, where sometimes economics is one of those dark arts. We end up with a catalog of problematic incentives and some ways of mitigating them.

However, Cowen doesn't teach us how to analyze situations. Which turns the book into a handbook of Things Tyler Has Thought, and only arms us against the dragons that he has experienced.

That said, it does have some zingers.

We can take some limited group of these people and make them better off by selective health interventions. We should do this. But we should choose the targets of our benevolence carefully.
-- The Dangerous and Necessary Art of Self-Deception

Many of the limitations of markets are rooted in the imperfections of the human mind. Markets always interact with the complexities of human motivation, and when they are set up crudely or without much thought, they tend to misfire. Why don't we have more markets in self-improvement? No, I don't mean the self-help books we buy just to feel we are trying. I mean truly binding contracts, whereby we promise to lose weight, but if we don't we must pay money to a stranger. That's right, put up some money and hire someone to make you diet-it sounds simple enough. But no, that won't make you want to lose weight, and building up that desire is usually the only real long-term solution.
-- I Want a Banana; I Buy One
In other words, we should use money to motivate when effort matters, there is little intrinsic desire to do the job, and money boosts the recipient's social status....
I offer a couple of further qualifiers for using monetary rewards and penalties. For instance, we should be wary of offering rewards and penalties for individuals who are bringing faulty premises to bear on the problem, or individuals who overreact to feedback. I have no clue how to hit a golf ball down the course and into the hole. Paying me $1,000 for coming in under par would probably just intensify my application of bad habits. Sometimes trying harder makes everything worse.
-- How to Control the World, the Basics
Motivating latecomers or no-shows is hard for two reasons. First, the event in question might not be held regularly. That makes it hard to set a commonly understood policy or to establish precedents. Second, it is difficult to either reward or punish people who do not come at all.
-- How to Control the World, Knowing When to Stop
Behind our three parables, and the practical advice, is a broader social lesson. It is not easy to get incentives right. No single central planner or government bureaucracy has a good chance of doing so. No single company will, starting from scratch, have much of an idea how rewards and penalties in the workplace should operate.
-- How to Control the World, Knowing When to Stop
Most people buy only very recent music, rather than mining history for the very best music of the entire past.
Buying insurance is often about image...
My wife wants to make sure I am not one of these people with a careless or reckless self-image and therefore she expects me to buy lots of insurance. I would be happy with a general rider covering large liability suits, but in fact we end up with much more insurance than that.
Let us say that an innocent person has been captured and threat- ened with torture. He is, for whatever reason, entirely willing to betray the information he holds. His primary goal is to avoid pain. Imagine, for instance, that he was vacationing in Lebanon and was mistaken for a CIA agent...
In economic language, the captive is stuck in "the pooling equilibrium," which means he cannot distinguish himself from a real CIA agent. Trying to deny his lot only makes him worse off. It confuses the torturers. To get over their confusion, they are induced to torture him more. (What else can they do? They are unlikely to be masters of inductive reasoning and Bayesian inference.) The best the innocent captive can do is to receive the treatment that would be meted out to a real agent. This is scary.
How many of us would enjoy hearing a two-hour debate-Oxford style with formal rules-on the relative prominence of our virtues and flaws? Let's say-just to be generous- that the "virtue" side would win the debate. It might win hands down. Hearing the debate would still probably bring more pain than pleasure. If we wish to go through life as happy, productive people, fundamental doubts about how good we are need to be blocked from our conscious minds.
-- The Dangerous and Necessary Art of Self-Deception
Errands are most dangerous when we self-deceive ourselves into feeling we are accomplishing something. We are getting something done, it's just the wrong thing.
-- The Dangerous and Necessary Art of Self-Deception
When he does ask for criticism, it is often too late. I call it The Hammer. Most people are afraid of The Hammer. One key to success is to take doses of The Hammer when needed, yet without denting our (partially unjustified) optimism too much.
-- The Dangerous and Necessary Art of Self-Deception
Well, the trick to using home cooking properly is to figure out what you can't buy anywhere else, or what is especially cheap or tasty to make at home.
-- Eat Well, Bananas Aside
The current fancy trend is to buy "fair trade" coffee. Fair trade sells a product at a premium price, under the premise that the workers are treated better and paid more, or at least paid more steadily. It sounds so nice. We get our fancy, exotic caffeine fix, usually doused with cream and dairy, in a tony atmosphere, while thinking Africa is no longer doomed. But will those purchases benefit the poor? It depends. How about a product called "exploitation coffee"? You pay less, and they promise to treat the workers especially poorly. That wording is a less effective marketing ploy, but that is what the concept of fair trade boils down to. Whether we upgrade one option or downgrade the other is just semantics. A more neutral phrase would be neither "fair trade" nor "exploitation coffee," but rather, "quality differentiation." We can either have two classes of coffee (and workers), or one class of coffee (and workers). Splitting up the market into classes is good for the workers at the higher end, but it does not always help workers at the lower end. In fact it may hurt them. The jury remains out on this idea. Would you buy a product called "quality differ- entiation" coffee? Maybe not.
-- How to Save the World