Tyler Cowen's Blog, page 64
January 3, 2015
The ever-finer rating and ranking of consumers
I talked about this phenomenon in Average is Over, here are some recent developments:
In two nonfiction books, scheduled to be published in January, technology experts examine similar consumer-ranking techniques already in widespread use. Even before the appearance of these books, a report called “The Scoring of America” by the World Privacy Forum showed how analytics companies now offer categorization services like “churn scores,” which aim to predict which customers are likely to forsake their mobile phone carrier or cable TV provider for another company; “job security scores,” which factor a person’s risk of unemployment into calculations of his or her ability to pay back a loan; “charitable donor scores,” which foundations use to identify the households likeliest to make large donations; and “frailty scores,” which are typically used to predict the risk of medical complications and death in elderly patients who have surgery.
That is from Natasha Singer, interesting throughout. And I just received a review copy of the relevant Bruce Schneier book Data and Goliath: The Hidden Battles to Capture Your Data and Control Your World.
MRU Collectibles!
Come to the MRU booth in the exhibit hall for at the AEA convention for coffee between 2 and 4pm today and collect economist cereal boxes!
January 2, 2015
My thoughts on quadratic voting and politics as education
That is the new paper by Lalley and Weyl. Here is the abstract:
While the one-person-one-vote rule often leads to the tyranny of the majority, alternatives proposed by economists have been complex and fragile. By contrast, we argue that a simple mechanism, Quadratic Voting (QV), is robustly very efficient. Voters making a binary decision purchase votes from a clearinghouse paying the square of the number of votes purchased. If individuals take the chance of a marginal vote being pivotal as given, like a market price, QV is the unique pricing rule that is always efficient. In an independent private values environment, any type-symmetric Bayes-Nash equilibrium converges towards this efficient limiting outcome as the population grows large, with inefficiency decaying as 1/N. We use approximate calculations, which match our theorems in this case, to illustrate the robustness of QV, in contrast to existing mechanisms. We discuss applications in both (near-term) commercial and (long-term) social contexts.
Eric Posner has a good summary. I would put it this way. Simple vote trading won’t work, because buying a single vote is too cheap and thus a liquid buyer could accumulate too much political power. No single vote seller internalizes the threshold effect which arises when a vote buyer approaches the purchase of an operative majority. Paying the square of the number of votes purchased internalizes this externality by an externally imposed pricing rule, as is demonstrated by the authors. This is a new idea, which is rare in economic theory, so it should be saluted as such, especially since it is accompanied by outstanding execution.
The authors give gay marriage as an example where a minority group with more intense preferences — to allow it — could buy up the votes to make it happen, paying quadratic prices along the way.
My reservation about this and other voting schemes (such as demand revelation mechanisms) is that our notions of formal efficiency are too narrow to make good judgments about political processes through social choice theory. The actual goal is not to take current preferences and translate them into the the right outcomes in some Coasean or Arrovian sense. Rather the goal is to encourage better and more reasonable preferences and also to shape a durable consensus for future belief in the polity.
(It is interesting to read the authors’ criticisms of Vickrey-Clarke-Grove mechanisms on p.30, which are real but I do not think represent the most significant problems of those mechanisms, namely that they perform poorly on generating enough social consensus for broadly democratic outcomes to proceed and to become accepted by most citizens. One neat but also repugnant feature of democratic elections is how they can serve as forums for deciding, through the readily grasped medium of one vs. another personae, which social values will be elevated and which lowered. “Who won?” and “why did he win?” have to be fairly simple for this to be accomplished.)
I would gladly have gay marriage legal throughout the United States. But overall, like David Hume, I am more fearful of the intense preferences of minorities than not. I do not wish to encourage such preferences, all things considered. If minority groups know they have the possibility of buying up votes as a path to power, paying the quadratic price along the way, we are sending intense preference groups a message that they have a new way forward. In the longer run I fear that will fray democracy by strengthening the hand of such groups, and boosting their recruiting and fundraising. Was there any chance the authors would use the anti-abortion movement as their opening example?
If we look at the highly successful democracies of the Nordic countries, I see subtle social mechanisms which discourage extremism and encourage conformity. The United States has more extremism, and more intense minority preferences, and arguably that makes us more innovative more generally and may even make us more innovative politically in a good way. (Consider say environmentalism or the earlier and more correct versions of supply-side economics, both innovations with small starts.) But extremism makes us more innovative in bad ways too, and I would not wish to inject more American nutty extremism into Nordic politics. Perhaps the resulting innovativeness is worthwhile only in a small number of fairly large countries which can introduce new ideas using increasing returns to scale?
By elevating persuasion over trading in politics (at some margins, at least), we encourage centrist and majoritarian groups. We encourage groups which think they can persuade others to accept their points of view. This may not work well in every society but it does seem to work well in many. It may require some sense of persuadibility, rather than all voting being based on ethnic politics, as it would have been in say a democratic Singapore in the early years of that country.
In any case the relevant question is what kinds of preference formation, and which kinds of groups, we should allow voting mechanisms to encourage. Think of it as “politics as education.” When it comes to that question, I don’t yet know if quadratic voting is a good idea, but I don’t see any particular reason why it should be.
Addendum: On Twitter Glenn Weyl cites this paper, with Posner, which discusses some of these issues more.
Sentences from Kevin Drum
Friday assorted links
1. A debutante ball — better or worse than Match.com?
2. India to check on toilet use in “real time.”
3. A robot in Japan both cooks and paints your fingernails (warning: the BBC link makes some noise).
4. Academic job openings are up in economics, sociology, and communications, but way down in religion.
5. Robots are starting to break the law and nobody knows what to do about it.
The Flat White Comes to America!
In my 2013 report on Australian policy innovations I wrote:
The world owes Sydney barristas (New Zealand also) an enormous debt for the flat white, perhaps the best form of coffee yet perfected. The flat white has made its way to London but is only now becoming available in a few high end coffee shops in New York. I eagerly await for this trend to extend to Fairfax as I am already jonesing for another.
Eater reports that I have only a few more days to wait:
In what appears to be an effort to regain some of its coffee credibility after years of slinging sugared up lattes and Frappuccinos, Starbucks is adding a Flat White to its menu. The espresso-based drink — which was created in Australia in the 1980s — has started to gain a serious American following over the last year.
Do I expect the Starbucks version to be as good as what I had in Australia? No. But I do hope that this move will increase coffee innovation throughout the market, pulling us closer to the Australian model. The Great Stagnation ends in 2015!
Bangladesh fact of the day
Among the top ten largest malls in the world are two, perhaps surprisingly, in Iran, while even Bangladesh with a GDP per capita of $1,851 boasts a new mall far bigger than Pennsylvania’s “King of Prussia” (the same figure for the US is $51,749 according to the World Bank).
There is more here, mostly about the decline of the shopping mall in the United States. Here is Wikipedia on the Bangladesh mall. Here are photos.
January 1, 2015
What I’ve been reading
1. Hilda Hilst, With My Dog-Eyes: A Novel. Life as an academic, as viewed by the Brazilian avant-garde. This underappreciated novel is available in English for the first time, recommended to those who think they might like it.
2.Bengt Jangfeldt, Mayakovsky: A Biography. A non-fiction work translated from Swedish to English is virtually guaranteed to be good. This book brings major advances to our understanding of Mayakovsky’s life, although it is perhaps for those who already have an interest in the topic. That’s me.
3. Roberta A. Ness, The Creativity Crisis: Reinventing Science to Unleash Potential. A good overview of why innovativeness has declined and what might be done to restore it.
4. Tom Paulin, Writing to the Moment, Selected Critical Essays 1980-1996. I loved this book, which (by a very important metric) caused me to buy at least five additional books on Amazon. One of Ireland’s greatest poets writing an appreciation of other English-language poets and writers. A 1996 book, but one of my most exciting reads for the year.
5. E.M. Forster, A Passage to India. A very good reread, the Straussian in me remains convinced that the final “Hindu section” of the book somehow has to make sense.
Arrived in my pile is:
6. Andrew I. Gavil and Harry First, The Microsoft Antitrust Cases, which upon a brief perusal appears to be a very thorough and useful look at what the title promises.
New Year’s day assorted links
1. Chris Blattman blog update. Many of you get sick of us, it seems, as I once predicted.
2. One measure of the top female economists.
3. How financially literate are women?
4. Is complexity economics underrated?
5. Those interested in choice theory and social science should watch Black Mirror. I would say much more, but for fear of spoilers I cannot.
6. How durable are New Year’s resolutions?
7. Two stories about capitalism, which explain why economists do not reach agreement, by Jonathan Haidt. Text and videos. And here is Haidt on capitalist liberation and ethics, again text and videos. Very good work from Jonathan as always.
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