Economics degree

I get the feeling here "philosophy degree" could be perfectly swapped for "economics degree".

Just to give an example.

Economists...the truth might not be beautiful

I once heard a professor at my faculty say that computer simulations are not economics. That's at the very least naive. Take away numerical solutions from physicists and we probably wouldn't have cellphones. Economists strongly prefer beautiful math over more insightful potentially less beautiful things, and that is hurting the field as a science.

... the economics profession went astray because economists, as a group, mistook beauty, clad in impressive-looking mathematics, for truth ...

How did economists get it so wrong? @NYT

How fair is that some are smarter?

How willing people are to give to others depends on what they like and what they believe. There's (between-individual and between-group) differences in what is considered (believed) to be fair...

...Turning to the effects of the belief variables, our results showed that these too vary significantly across countries. Believing that coming from a wealthy family is important to get ahead in some countries had basically no effect while in others it involved an over 20 percentage point increase in the probability of supporting redistribution. The effect of believing effort to be an important income determinant varied from being statistically non-discernible from zero to decreasing the probability of supporting redistribution with around 15 percentage points. With respect to believing intelligence/skills to be rewarded the results were mixed, with both negative and positive but in most cases statistically insignificant effects.

Isakssona and Lindskog. Preferences for redistribution- A country comparison of fairness judgements. Journal of Economic Behavior & Organization.

Predictably Irrational

Economists usually assume that people are rational. This has a very specific formal meaning, but it basically means that people know exactly what they want, know everything there is to know about their options, and make choices in a way that maximizes their own happiness - whatever this may mean. People are assumed to be selfish and very good at computing and pondering their options. This framework can capture human behavior in some situations, but as everybody knows (including economists) is just far from what happens in the real world...most of the time. People deviate from rationality, but fortunately tend to do so in a systematic way (of course, we know that we make the same "mistakes" over and over...). Finding and modeling deviations from rationality is the business of behavioral economists (such as these).

In "Predictably Irrational" Dan Ariely explains how we deviate from rationality, and how it may be useful to somehow be aware of such deviations. Useful for us, in life, and useful for economists (and social scientists in general)! The book has 13 chapters, and explains how we fail to estimate pain, how context changes our decisions, why we like free things beyond reason, and how we may or may not adhere to social norms. How emotions mess up with our decisions, why we all love procrastination, and why we all cheat sometimes are also very appealing parts of the story. Experiments with human subjects are described nicely and intuitively, just like a story. The whole thing reads pretty fast, which I see as a plus here. If you want academic rigor or are too fastidious with written-like-prose science, then you can always go get the paper - all the references are there. It is a good book, good popular science, which is hard to achieve.

Here's Ariely's TED talks (1 and 2)....

Google's economist

In Isaac Asimov's first Foundation Trilogy, there was a character who basically constructed mathematical models of society, and I thought this was a really exciting idea. When I went to college, I looked around for that subject. It turned out to be economics

That's Hal Varian, talking about Google and the math of AdWords on WIRED.

Fundamental differences at the core of social science

Why did wealth and power become distributed as they now are, rather than in some other way?

... As of the year A.D. 1500, when Europe's worldwide colonial expansion was just beginning, peoples of different continents already differed greatly in technology and political organization...Of course those technological and political differences as of A.D. 1500 were the immediate cause of the modern world's inequalities.

(Jared Diamond's Guns Germs and Steel)

Before 18000 income per person varied across societies and epochs. But there was no upward trend...short-term gains in income through technological advances were inevitably lost through population growth. Thus the average person of 1800 was no better off than the average person of 10.000 BC... The Industrial revolution a mere two hundred years ago changed forever the possibilities for material consumption. (Gregory Clark's A Farewell to Alms)

Cuba and peak oil

Will the whole world go through "special period"?

The Power of Community: How Cuba Survived Peak Oil
(trailer)

War, guns and votes

Colombia: "El éxito de tomarse el poder político por las armas es hoy del 25%, y hace 25 años era tan sólo del 1%".

War, guns and votes by Paul Collier
(see review here at the marginal revolution)

Is spreading democracy a good thing? No, if it is incomplete. It is actually adverse when it comes to just an election device says Paul Collier. A whole lot of checks and balances have to be implemented as as well. Any economic growth without that "threshold of governance" is bound to be short-term only.

The tragedy going on now in some parts of South America, including Colombia, is that the election mechanism itself has been deviously turned upside-down to get rid of fragile checks and balances. And so they mess up in the name of democracy....and they keep us bound to be a part of the bottom billion.

More on brain drain

There are two reactions to the article on brain drain I featured here a while ago. One assumes the conventional wisdom position: brain drain is bad for developing countries. One praises brain drain and promotes open borders when it comes to science.

My reaction for the conventional wisdom one:

Setting just opinions aside the main argument is that causation does not equal correlation in the case of medical doctors emigrating from Africa. That is, it may be that the health system of countries that do not force their foreign-trained doctors back is good for a start, and that's the reason health professional are encouraged to stay abroad. This might make sense if you assume that in host countries the guys hiring do care about the guests' basic medical education, and assume that how well the system at home does is a signal for such basic skills. This does not sound too convincing to me, since guest students have the time to prove themselves during grad years, up to the standards of local professionals. The whole argument fails to convince me since academics grading foreign PhD applications often complain about how hard it is to compare basic education programmes from different countries. Maybe I am overlooking something?

My reaction for the praise on brain drain:

I cite:

...we should be encouraging the brain drain in. All PhD research studentships could be open equally to anyone in the world. Even those who then go back to their home country make a contribution in addition to the work they have done here: in a few years' time they start sending us their best output as PhD students or young postdocs, and the cycle repeats itself, with some of the new crop staying on

I agree with this paragraph but it does not fit the core of the discussion in my view. The point is not that the ones that go back harm the developed country at which they educated (surely they do but that is not a big issue of brain drain, compared to how poor countries are harmed). The point is that the ones that stay abroad do indeed help poor countries from the diaspora.

Then the respondent says:

If all the New Zealanders with good scientific jobs around the world tried to return to New Zealand, the country would burst!

I'd say New Zealand is not precisely a developing or underdeveloped country. This brings me to my take-home message. I think the situation is very country and context-dependent. I stick to praise brain drain when the developing nation in question has a very weak research system. Moreover, the main message is far from being "brain drain is always good" (black or white conclussion?). I believe brain drain is mostly good, but above all I'd say : education and migration policies based on conventional wisdom should be revisited on the basis of data, we have the data and the techniques so why bother speculating.

Brain Drain or Do visas kill?

A lot of people here in the Netherlands ask me whether I plan to go back to Colombia when I am done with my PhD. Most people think that you should go back, specially if you come from a troubled country. I have always disagreed with that view.

In the case of people that do research, postdoctoral years usually turn out to be the most productive ones. But back in a country with an immature research system, those years are mostly wasted, teaching and trying to do research without students and funding, if you are lucky, or trying to find a job if you are not. I believe that spending postdoctoral years abroad is a much more efficient choice from the society's viewpoint. Those years are key for publishing and networking, and these in turn benefit not only your personal career, but your country.

Government's help for graduates to go abroad in Colombia is usually tied to the condition that you must return immediately after getting the degree (in most cases you actually have to go back to start paying debt). I think this doesn't make much sense, but that appears to be the dominant policy worldwide. Now some research is countering this consensus, even in the extreme case of medical staff emigrating from Africa. There's an editorial in Nature covering Michael Clemens' work.

From the editorial:

Countries and professions with more openness and greater mobility of personnel are more likely to be in touch with global trends — and more likely to attract able trainees in the first place. The worst public healthcare systems, Clemens says, are in French-speaking West Africa, where staff are least likely to emigrate, as France won't let them.

The tendency of perhaps half of today's emigrants to return home later on in their careers is another factor. So is remuneration and the large amounts of cash that migrants send back home. These changes make the old model of immigrant 'donor' societies obsolescent. Communities can benefit, financially and intellectually, from those who have left. It is the degree to which these benefits counteract the unquestionable initial loss that is open to question.

I could not agree more.

Titles in economics: Rage Against the Machines

Rage Against the Machines:
How Subjects Learn to Play Against Computers

We use an experiment to explore how subjects learn to play against computers which are programmed to follow one of a number of standard learning algorithms. The learning theories are (unbeknown to subjects) a best response process, fictitious play, imitation, reinforcement learning, and a trial & error process. We test whether subjects try to influence those algorithms to their advantage in a forward-looking way (strategic teaching). We find that strategic teaching occurs frequently and that all learning algorithms are subject to exploitation with the notable exception of imitation. The experiment was conducted, both, on the internet and in the usual laboratory setting. We find some systematic differences, which however can be traced to the different incentives structures rather than the experimental environment.

This title reminds me of something. Here the paper.

Titles in Economics: Paying not to go to the gym

Economists seem to be more creative with titles, hence this series:

Paying not to go to the gym.

How do consumers choose from a menu of contracts? We analyze a novel dataset from three U.S. health clubs with information on both the contractual choice and the day-to-day attendance decisions of 7,752 members over three years. The observed consumer behavior is difficult to reconcile with standard preferences and beliefs. First, members who choose a contract with a flat monthly fee of over $70 attend on average 4.3 times per month. They pay a price per expected visit of more than $17, even though they could pay $10 per visit using a 10-visit pass. On average, these users forgo savings of $600 during their membership. Second, consumers who choose a monthly contract are 17 percent more likely to stay enrolled beyond one year than users committing for a year. This is surprising because monthly members pay higher fees for the option to cancel each month. We also document cancellation delays and attendance expectations, among other findings. Leading explanations for our findings are overconfidence about future self-control or about future efficiency. Overconfident agents overestimate attendance as well as the cancellation probability of automatically renewed contracts. Our results suggest that making inferences from observed contract choice under the rational expectation hypothesis can lead to biases in the estimation of consumer preferences.


Full article.