Tyler Cowen's Blog, page 277

Bots in everything

Aaron Beppu writes:

But some bots are driven by somewhat more trolly motives. A prime example is @StealthMountain, which searches for people using the phrase “sneak peak” and replies with “I think you mean ‘sneak peek’”. Effectively, a coder somehwere has used twitter to greatly leverage his ability to be a grammar Nazi. But worse, it appears that the bot exists just to rile people. While most people seem to take this correction in stride, @StealthMountain’s favorites list (which is linked from his bio line) is populated with some of the recipients’ more colorful reactions. You too, dear reader, can laugh at those victims, and their absurd, futile anger towards the machine.

At the most outrightly hostile end of the spectrum, we find the now defunct bot @EnjoyTheFilm, which searched for mentions of particular films or television shows, and replied with plot spoilers. This is a bot designed to actively try to ruin people’s evening, just for the fun of it.

There is more here, including a proposal for a “Feel Better bot,” via Eric Jonas.

Assorted links

1. Ricardo Hausmann on the importance of tacit knowledge.

2. The General Secretary of the Ceylon Teachers Union is named Joseph Stalin.

3. What will the “new normal” for America be?

4. Podcast with New America Foundation on *Average is Over*.

5. Experience markets in everything, www.ifonly.com.

6. On the kingdoms of Spain.

*The Internal Enemy*

The author is Alan Taylor and the subtitle is Slavery and War in Virginia, 1772-1832.

This is one of the best history books I have read, ever.  Every sentence is excellent (is there higher praise?).  And let me add: 1) I hate reading books about Virginia, and 2) I feel “I’ve read enough books about slavery.”

I learned a great deal about a variety of topics including The War of 1812, how the British used escaped slaves against the Americans, the tensions between western and Tidewater Virginia, the early Virginia debates about how to eventually deport the slaves.  But that hardly gets at what makes this book special.  More importantly than any of those specifics, it brings an entire period to life in a memorable manner.

I read this one because Jon Elster urged me too.  Don’t forget, by the way:

In 1819 Virginia remained the preeminent slave state, home to nearly a third of the nation’s one and a half million slaves.

Very highly recommended, I hope it wins the National Book Award and it will be prominent on my forthcoming best books of 2013 list.

Do subsidies protect Obamacare against the adverse selection death spiral?

Jonathan Cohn writes:

What you may not realize (because few people do) is that the subsidies, by design, protect people from rising premiums. The law basically dictates what these folks pay for the typical, “silver-level” Obamacare plan, no matter what the insurer charges. This is critical. It means that rising premiums won’t affect the willingness of those people to enroll—which means, in turn, they’d still have incentive to sign up next year, as long as the technological bugs were gone and Obamacare online was working. (Subsides were a missing element of those ill-fated reform experiments in New Jersey and elsewhere.)

The economics here are tricky.  Insurance companies set prices both for those who receive subsidies and for those who do not.  Furthermore, the subsidy — when there is a subsidy — is determined by a process akin to a second-price auction, rather than matching the highest price in the market.  (How much collusion is there anyway, once all these prices are posted?)

One question is this: pre- “pressures for adverse selection death spiral,” where is the price sitting?  I don’t see an a priori answer to this query, so let’s work through two possibilities.

One option is that, at the margin, the price is already high enough that further price hikes would lower insurer profits and subsidies won’t make up for enough of that difference.  So the scenario goes like this.  A smaller number of “invincibles” sign up early on than initially had been expected, in part because of negative publicity about the exchanges.  Providers respond by lowering service quality rather than by raising posted prices.

Think of this as the “price stickiness scenario.” One big reason for holding back on the price, and instead lowering network quality, is the adverse selection problem itself.  If some of the invincibles are paying part of the price hike, higher prices will put them off.  Yet, if indeed they are invincibles, vague rumors about inferior network access may not put them off much at all.  They don’t expect to be using the network anyway.  But of course for sick people this change in quality and access will be a problem.

On top of that, might there be some stickiness in the posted price?  Many macroeconomists stress price stickiness even under normal circumstances.  And that means very often sticky in the upwards direction too, for fear of alienating customers.  Prices are all the more sticky in heavily regulated industries and in sectors which are under a good deal of policy debate and media scrutiny and where suppliers are not all that politically popular.  Prices are even stickier when there are easy ways of raising “true net price” by lowering quality, raising wait times, restricting access and delivery speed, and so on.  Those dimensions of the problem are harder for customers, regulators, and also media-mongers to monitor.

Access restrictions are also a way of checking ultimate financial risk in a way that price increases cannot be.  We can thank Joseph Stiglitz for this insight, as Joe pointed out that not only are prices sticky, but quantities can be sticky too, and risk-averse firms may wish to limit how much they are on the hook for.

I see a good chance that the price stickiness scenario holds.  And in that case the problem is not so much a price spiral but rather network quality moves to a much lower level and sits there.

I call the second and simpler scenario the “subsidies make up the difference” scenario.

In that scenario, the initial prices are low enough that they can be raised and the subsidies pick up the difference.  The companies don’t try to game the adverse selection problem with quality decreases and most would-be buyers are covered by the subsidies at the relevant margin.  The thought experiment then runs like this.  The initial quality of pool applicants suddenly worsens, but this time the main effect is that posted prices go up.  Because of the subsidies the real net prices to potential purchasers do not change very much and all still seems OK.

We do not know which scenario will occur, or to what extent, or in which states.  But I hardly think the law is in the clear in this regard.

Assorted links

1. The paperback version of Daniel Klein’s Knowledge and Coordination is out.

2. Profile of Samantha Power in Elle.

3. El Universal reviews *Average is Over* (in Spanish).  Here is Yahoo Finance on the book, and here too.  And a podcast with Jim Pethoukis.

4. Britain’s dysfunctional housing market, very good presentation.

5. 1:18 YouTube video on the future of statistics.

6. Austan Goolsbee and Sean Hannity.

7. Laura Miller on Ender’s Game.

Henry Aaron says suck it up: health insurance cancellation update

Via Brad DeLong, here is Aaron:

Rather than apologizing for these cancellations, [the administration] should be bragging about them…. Imagine a new law enacted to promote food purity. As it is being debated, you are told ‘if you like what you eat, you can keep on eating it.’ The new law takes effect, and one day you find that the market no longer carries certain foods you have been buying… [which] included elements found to be bad for your health. The pure food act barred their use.

…People should be no more shocked when substandard insurance plans are removed from the market than they would be if food purity legislation caused some products to be removed from a grocer’s shelf….Obamacare is removing insurance products from the market that are bad for your health.

I am a big fan of Henry Aaron, but I see this response as representing a miscalculation and also showing a tin ear to the ongoing worries.  I suppose I would not put Henry in charge of marketing.  I have a few questions:

1. How many of the cancelled people are already receiving treatment from preferred specialists, doctors, hospitals, and so on?  They are in any case the most important “subjects.”

2. How many of these people know that their new policies (if and when they can get them) will cover the same providers?  How can these people find out that information — now — in an easily verified manner?  And if they have to switch providers, how long will it take before their previous treatments are back up and running at an acceptable level?  What kind of publicly available information is available on this question?  Might their current providers start neglecting them, even before coverage is up, figuring they are “out the door” in any case?

3. How high is the anxiety level of these patients in the meantime?  And must they feel they are getting a better deal from the new law, once they have shed their previous “substandard” treatments and providers?  How confident should those patients feel about any promises being made to them right now?  How should they feel about Aaron’s proposal for Obama administration boasting?

4. Why is Aaron so convinced that the new policies will involve no negative trade-offs?

5. We hear so much about behavioral economics, and rightly so.  Doesn’t it teach us that endowment effects and status quo bias are very strong?  Or are those always feelings we should be forcing people to overcome?

6. Are the best French unpasteurized cheeses — which do carry some health risk — “substandard”?  Or is there an offsetting benefit?  How about sushi?  How about beans?  They are delicious and good for your health.  How about a more modest mandate for ACA?  How about a stronger grandfather clause?

I thank Megan McArdle for a useful conversation related to this post.

Addendum: Via Wonkbook, here is one relevant report:

“Many new health exchanges don’t yet let shoppers see which doctors accept which insurance plans. Where exchanges do post the so-called provider lists, they often contain inaccurate or misleading information, some doctors say, including wrong specialties, addresses and language skills, and no indication whether providers are accepting new patients. Exchange officials blame the insurance industry, where inaccurate and out-of-date provider lists are nothing new. “I don’t think we realized that the underlying data had quite this number of problems. Now, it’s becoming more transparent,” said Joshua Sharfstein, Maryland’s secretary of health and the chairman of its exchange…[I]n addition to providing wrong information, the lists may give consumers a false impression of how big the networks are, some physicians say.” Melinda Beck in The Wall Street Journal.

*The Power of Glamour*, the forthcoming Virginia Postrel book

The subtitle is Longing and the Art of Visual Persuasion.  I believe this is her best and most compelling book.  It is wonderfully researched, very well written, the topic is understudied yet of universal import, and the accompanying visuals are striking.

Here is Virginia’s list of personas to help us distinguish glamour and charisma:

Glamour: Barack Obama, Che, Thomas Jefferson, Jackie Kennedy, Michael Jordan, John Lennon, Leonardo, Spock, Tupac Shakur, Joan of Arc dead, and Early Princess Diana.

Charisma: Bill Clinton, Castro, Andrew Jackson, Eleanor Roosevelt, Earvin “Magic” Johnson, Janice Joplin, Raphael, Kirk, Snoop Dogg, Joan of Arc alive, and Late Princess Diana.

Except she does it in a nice vertical table which I cannot replicate.

She lists Ronald Reagan, Nelson Mandela, and Steve Jobs as having had both qualities.  The book is definitely recommended, and it is out in early November.

Here is her TED talk on the power of glamour.

Learning to Compete and Cooperate

What drives individualism and competitiveness as opposed to collectivism and cooperation? Leibbrandt, Gneezy and List have a great paper studying this question with an ingenious experiment. LGL study two types of fishermen in Northeastern Brazil. The two types live within ~50km of one another but one type are lake fishermen and the other sea fishermen. Lake fishing favors individual fisherman in small boats while sea fishing favors team production on larger boats.

LGL ask the fisherman to participate in a simple experiment, throw 10 tennis balls into a bucket. The participants choose how they are paid, 1 monetary unit per successful attempt or 3 units per successful attempt if they have more successes than an unknown competitor (chosen randomly and without their knowledge to avoid social effects; in case of a tie they are paid 1 unit per success). Fishermen could earn 1-2 days of income for less than an hour of work depending on how successful they were and the payment scheme chosen.

Perhaps you won’t be too surprised to learn that 45.6% of the lake fishermen chose to compete compared with just 27.6% of the sea fishermen. What makes the paper great is all the secondary tests the authors do to understand this result at a deep level. The result, for example, is not due to differences in throwing ability or risk preferences.

You might suspect that the different choices about whether to compete or not are driven by cultural differences. But that too is incorrect. The authors, for example, show that women–who do not fish in either the sea or lake villages–do not show differences in the choices to compete (both chose to compete less than the men but at the same rates in lake or sea villages).

Instead, what the authors demonstrate is that differences in the choice to compete or not appear to be learned differences. First, the lake villagers who chose to compete are among the most successful lake fishermen–that is, they have learned that competition increases income. In the sea villages there is no correlation between choosing to compete and fishing income.

Finally, and most tellingly, there is a dose-response relationship between competition and learning. In particular, the choice to compete or not increases with fishing experience with the experienced lake fisherman choosing to compete more and the experienced sea fishermen choosing to compete less (as shown at left).

The paper appears on the surface to be affirming the importance of cultural differences and to be agreeing with the kind of literature that stresses the idea of self-interest and individualism as western and contingent. Yet, in fact, the paper is suggesting that at a deeper level so-called cultural differences may not be transmitted down through the generations but instead are learned responses to very particular production techniques. Note that such learned responses may change rapidly as production techniques change and that the sea and lake villages are both unusual in the modern world in relying on just one dominant production technique with few other options for learning.

More generally, learning needs to be added to incentives, genetics, and culture as an independent yet entangled determinant of choice.

Japan markets in everything

While you’re probably aware of Tokyo’s cat cafes that let visitors cuddle up with a kitty while sipping some coffee, you’re unlikely to have heard of owl cafes, the latest craze to take hold in the Japanese capitol. Known locally as a “fukurou cafe,” some of the establishments offer owl-themed food and drink, and some even let you pet the owls in residence.

Some of the stores that garnered online attention late last year include Fukurou no Mise (“Owl Shop”) and Tori no Iru Cafe (“The Cafe with Birds”). Since then, more of the owl cafes have opened around Tokyo and Osaka including Fukurou Sabou (“Owl Teahouse”), Owl Family, and Crew.

There are photos at the link, hat tip goes to Ian Leslie.

The NSA, Google, and Yahoo: more than you thought

Via Kevin Drum, here is a new report:

According to a top secret accounting dated Jan. 9, 2013, NSA’s acquisitions directorate sends millions of records every day from Yahoo and Google internal networks to data warehouses at the agency’s Fort Meade headquarters. In the preceding 30 days, the report said, field collectors had processed and sent back 181,280,466 new records — ranging from “metadata,” which would indicate who sent or received e-mails and when, to content such as text, audio and video.

….The MUSCULAR project appears to be an unusually aggressive use of NSA tradecraft against flagship American companies. The agency is built for high-tech spying, with a wide range of digital tools, but it has not been known to use them routinely against U.S. companies.

Kevin adds:

This is apparently all done overseas in order to evade rules that govern domestic data collection. According to the story, “Two engineers with close ties to Google exploded in profanity when they saw the drawing.”

The full WaPo story is here.  The program hacks into internal networks and collects documents before they are encrypted.  At least on the surface, it appears Google and Yahoo were unaware of this snooping.

Update: Here are 65 things we have learned about the NSA.