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(Message started by: BenVitale on Jul 15th, 2009, 11:49pm)
Title: Economics: other topics
Post by BenVitale on Jul 15th, 2009, 11:49pm
Sources ;

Bernard Madoff (http://en.wikipedia.org/wiki/Bernard_Madoff)

Madoff investment scandal (http://en.wikipedia.org/wiki/Madoff_investment_scandal)

Ponzi scheme (http://en.wikipedia.org/wiki/Ponzi_scheme)

Fairness Judgments: Genuine Morality or Disguised Egocentrism? (http://www.in-mind.org/special-issue/fairness-judgments-genuine-morality-or-disguised-egocent-2.html)

Jan-Willem van Prooijen's research articles (http://www.psy.vu.nl/fpp.php/departments/socialpsychology/people/details.html?id=171)

Retributive justice and social categorizations: the perceived fairness of punishment depends on intergroup status (http://www3.interscience.wiley.com/journal/114114611/abstract?CRETRY=1&SRETRY=0)

------------------------------------------------------
Why the bias?

In the wake of news about Bernie Madoff's Ponzi scheme people called for his head on a pike as well as victim compensation but the focus tended toward the former. A typical blog comment  "Going to prison" -- no matter what happens there -- is still too easy a fate.

We often feel more lust for the blood of the perpetrator than sympathy for the victim...according to Jan-Willem van Prooijen.

In one study subjects were asked how much a mugger should pay his victim. People's named a higher price when the payment was framed as punishment than when it was framed as compensation.

In another study, when asked to decide whether justice would prevail in a criminal case, people sought more details about the perpetrator's likely comeuppance than the victim restitution.

Why the bias?

Jan-Willem van Prooijen says victims are easy to ignore or even blame -- unless they're close to us -- but offenders can strike again. Few want to think about strangers who made bad investments, but a threat to our own bank account demand immediate actions.
Title: Re: Economics: other topics
Post by towr on Jul 16th, 2009, 1:00am

on 07/15/09 at 23:49:46, BenVitale wrote:
Why the bias?
Culture.
The Anglo-Saxons (before the Norman invasion), for instance, had a compensation culture; if you injured someone you had to pay compensation, and that was it (to the best of my knowledge). But we have, I think, a roman law culture; which is geared at punishment.


Quote:
In one study subjects were asked how much a mugger should pay his victim. People's named a higher price when the payment was framed as punishment than when it was framed as compensation.
Is that surprising? The reverse would be illogical, because paying compensation is included in the punishment and so the latter cannot be smaller than the former. They can either be equal, or the punishment must be higher.  And considering there are two interests, compensating the victim and ensuring the offender doesn't repeat, the latter makes the most sense.

One can additionally take into account that over-compensating a victim might lead to people trying to abuse the system, making false accusation to make a profit (such as does indeed happen with insurance fraud).
Title: Re: Economics: other topics
Post by BenVitale on Jul 16th, 2009, 10:01am
I was a bit surprised ... but now, there's empirical evidence.

At first I tried to put the blame on evolution, then I searched for any evolutionary benefits to any type of behavior ... and then try to figure out how I can use it in Game theory

With these sorts of questions -- questions about human behavior -- I search for empirical evidence and proofs.

I found this comment interesting


Quote:
You watch enough mystery shows or read enough mystery stories, and you notice a certain trend: Sometimes, the murder victim (as these stories usually center around a murder) is an asshole.


http://tvtropes.org/pmwiki/pmwiki.php/Main.AssholeVictim

The frequent impression left is that "the victim had it coming".

--------------------------------------------------

Should we let criminals purchase clemency?

What about Bernie Madoff? Would you want him to stay in jail or pay an amount of $$ to stay out of jail?

Say that a captured criminal offers to compensate his victim in return for the victim dropping all charges.

If the victim agrees, should the government go along?

Game theory shows that people can be too forgiving.

Imagine that you have just been mugged. It can be a traumatic experience.

People lose far more than just their stolen property.

Suppose a mugger got $30 from you, and caused you $$ (a certain amount of money) worth of anguish.
Your lawyer advise you to set the amount to $9,000 for your mental anxiety.

Luckily, the mugger was caught and faces one year in jail.

Enter the negotiations :

Say $9,000 is too much. The mugger would rather do one year jail.

But he offers you $3,000

What do you think? You still have to give a 30% cut to your lawyer (you live in a big city)

Would you accept?
Title: Re: Economics: other topics
Post by towr on Jul 16th, 2009, 10:59am

on 07/16/09 at 10:01:19, BenVitale wrote:
http://tvtropes.org/pmwiki/pmwiki.php/Main.AssholeVictim

The frequent impression left is that "the victim had it coming".
A murder mystery needs a motive for the murder. Sometimes it's money, sometimes it's hate. And people don't want to watch shows where nice people get killed.


Quote:
What about Bernie Madoff? Would you want him to stay in jail or pay an amount of $$ to stay out of jail?
I think many of his victims would prefer to have his money back, if that were an option.


Quote:
Say that a captured criminal offers to compensate his victim in return for the victim dropping all charges.

If the victim agrees, should the government go along?
The government has a duty to its people to prevent future criminal activity. So it would depend on the likelihood of recurrence.


Quote:
Game theory shows that people can be too forgiving.
I think that you mean that game theory shows that some people are more forgiving than a perfectly rational (for some quaint definition of rational) agent would be in ideal circumstances that bear little resemblance to anything you encounter in real life.
Undoubtedly it also shows that in other circumstances people are too unforgiving by this same flawed metric.


Quote:
Say $9,000 is too much. The mugger would rather do one year jail.

But he offers you $3,000

What do you think? You still have to give a 30% cut to your lawyer (you live in a big city)

Would you accept?
I'd probably consider it. It does neither of us any good if he sits in jail. But I think I would want reassurance that he doesn't do it again, so maybe I'd insist on a probational sentence.
Title: Re: Economics: other topics
Post by BenVitale on Jul 17th, 2009, 12:01am
Key concepts:

Homo economicus (http://en.wikipedia.org/wiki/Homo_economicus)

Definition of Irrational Exuberance (http://www.irrationalexuberance.com/definition.htm)

Black swan theory (http://en.wikipedia.org/wiki/Black_swan_theory)

We know now that the rational man theory of economics has not worked.

Shiller's book "Irrational Exuberance." (http://www.irrationalexuberance.com/) --  this book was named after Alan Greenspan's "irrational exuberance" quote

The most compelling rebuttal of the rational model, paradoxically, was delivered by the ultimate rationalist, Alan Greenspan (http://en.wikipedia.org/wiki/Alan_Greenspan). "I made a mistake in presuming that the self-interests of organizations, specifically banks and others, were such that they were best capable of protecting their own shareholders" ... Alan Greenspan's rational-actor model wouldn't let him.

People tend to overlook problems "Black swans" to use former trader Nassim Nicholas Taleb's phrase, that people assumed wouldn't happen in the near future because they hadn't occurred in the recent past.

Read about the Black swan theory (http://en.wikipedia.org/wiki/Black_swan_theory)
Title: Re: Economics: other topics
Post by BenVitale on Jul 17th, 2009, 12:18am

on 07/16/09 at 10:59:08, towr wrote:
..............
I'd probably consider it. It does neither of us any good if he sits in jail. But I think I would want reassurance that he doesn't do it again, so maybe I'd insist on a probational sentence.


I'm looking at Credible threats and promises (http://www.pubmedcentral.nih.gov/picrender.fcgi?artid=1693069&blobtype=pdf) and Non-credible threat (http://en.wikipedia.org/wiki/Non-credible_threat)

Once someone has harmed you, it is often impossible to reverse the damage. If you would profit from continuing your relationship with the transgressor, however, it would be in your interest to forgive. Unfortunately, people are more likely to harm you if they expect to receive your future forgiveness.

I'll work on a solution to the problem of the mugger
Title: Re: Economics: other topics
Post by BenVitale on Jul 19th, 2009, 1:26pm
Going back to the problem of the mugger:

- A mugger got $30 from you.
- You estimate that he caused you $9,000 worth of anxiety.
- The mugger was caught and faces one year in jail.
- $9,000 is too much. The mugger would rather sit in jail.
- But he offers you $3,000.
- Your lawyer takes 30% (so if you accept the offer you'll end up with $2,000.)

Do you take the deal?

--------------------------------------

Let's assume that if the mugger escapes his jail sentence, you're extremely unlikely to become one of his future victims.

The mugger did $9,030 of damage to you, and he's offering only $3,000.
If he goes to jail, you get nothing.
So you're better off accepting the mugger's offer.

Unfortunately, there may be a downside to this:
being able to pay off victims could make muggers more bold.

Consider the game where the mugger first decides whether to mug you at A.
If he mugs, then nature moves at B.

Nature represents the random forces of the universe that determine whether the mugger gets caught.


(Criminal)...mugs......... (Nature)...criminal caught 1% of time.........(You)....press charges.....
--- A -------------------- B -------------------------------------- C -----------------------
OR.........does not mug ..........criminal caught 99% of time..............drop charges for $3,000


The mugger perceives that there's a 1% chance that he'll be caught at B.

If the mugger is caught at B, then you decide at C whether to send the mugger to jail or get paid $3,000.

Let's make the likely assumption that the mugger would prefer paying $3,000 to going to jail.

Thus, from the point of view of the mugger, it is more beneficial to mug you if at C you would accept
the $3,000 because in the 1% of the time the mugger gets caught he won't go to jail.

True, if the mugger gets caught and pays you $3,000, he's worse off for having mugged you.

Reducing the harm of getting caught, however, makes the mugger more likely to strike.

At C you're probably better off accepting the $3,000.

Since you have already been harmed, sending the mugger to jail won't erase the trauma.

Of course, ideally you wouldn't get mugged at A.

The mugger might have attacked only because he knew it would be in your interest at C to accept the money.

Thus, you might have been better off if in the beginning of the game you could credibly promise
to send the mugger to jail if the game reached C.

In the game this promise not to accept the mugger's money lacks credibility.

Consequently, you would benefit from a law that forbids you to drop charges in return for a monetary
payment from the mugger.

Players often have insufficient incentives to punish those who have done them wrong.

------------------------------------------------------------
To forgive or not to forgive?

Once someone has harmed you, it is often impossible to reverse the damage. If you would profit from continuing your relationship with the transgressor, however, it would be in your interest to forgive. Unfortunately, people are more likely to harm you if they expect to receive your future forgiveness.

It depends on the situation. To forgive or not to forgive involves "threats," and "promises" credible or not-credible and "sequential games."

Would anyone like to construct a "turn-the-other-cheek" game?
----------------------------------------------------------------
Here's an interesting article: Credible threats and promises (http://www.pubmedcentral.nih.gov/picrender.fcgi?artid=1693069&blobtype=pdf)
Title: Re: Economics: other topics
Post by BenVitale on Jul 20th, 2009, 1:03pm
In 2003, Tim Harford visited Washington, D.C. He had plenty on his mind: a new job, a new city, a new country (He's British) and a baby on the way. The World Bank offered him a job. The World Bank provides a small office to help new staff understand the health care system, the way the local bureaucracies operate, and where to live in Washington.

He said that he truly felt the nation's capital is a city divided.

He wanted to live downtown near the bank itself. The bank's housing officer unfolder a large map and told him that the northwest quadrant of the District of Columbia (Georgetown and Cleveland Park). She told him, "This is all safe."

Then, she took out a blue ballpoint pen and slowly drew a line along 16-th Street. The line began at the White House and ran North.

She said, "A Realtor isn't legally allowed to say this, but I am. Stay on the west side of that line."

The precise location of "that line" is a matter of controversy in D.C., but its existence does not seem to be.

What you experience in D.C. depends overwhelmingly on where you live.

In the area carved in two by 16-th Street and the ballpoint pen, the police department's third district, there were 24 homicides in 2005.

Elsewhere the situation is much worse: across the river, in Anacostia, the 7-th district, where he was repeatedly advised never to venture, there 62 homicides in 2005. Yet in leafy Georgetown and Cleveland Park, the police department's second district, there were none at all.

That isn't the only way in which Georgetown and Cleveland Park are nicer places than Anacostia. Fewer than one child in 30 lives in poverty, 15 times fewer in Anacostia. The overall poverty rate is 7.5%,
5 times lower. There were just two violent crimes per one thousand people, 10 times fewer.

And who gets to enjoy the difference in conditions?

Suffice to say that Georgetown and Cleveland Park are 80% white and Anacostia is 93% black.

There does not seem to be any rational reason why a city like Washington -- the nation's capital -- incorporates such deep pockets of deprivation, nor why segregation remains so stark.
Title: Re: Economics: other topics
Post by towr on Jul 20th, 2009, 2:38pm

on 07/20/09 at 13:03:43, BenVitale wrote:
There does not seem to be any rational reason why a city like Washington -- the nation's capital -- incorporates such deep pockets of deprivation, nor why segregation remains so stark.
? Poverty and misery is to an extend heritable. And people that have the means to escape such a situation/place do.

What would you expect? That the upper class moves into the ghetto? That people stay there, even if they can move to a nicer place? That people without opportunity suddenly get top jobs and are liberated from poverty? That a criminal environment fosters a better behaved next generation?

It's not that anyone chooses for that situation to continue. But it's just how things go. As for the racial segregation, that's a historical artifact. The abolition of slavery made them a free, but impoverished, underclass. As big a step up as that may be, it didn't suddenly make them economic equals. And it takes a very, very long time for that difference to ebb away.
Title: Re: Economics: other topics
Post by BenVitale on Jul 21st, 2009, 1:17am
Tim Harford wrote:

"... the geography of the inner cities is not rational -- it is pathological."

He meant, even though each person makes rational choices, the result can be something that none of them wanted; you might say that rational behavior by individuals can produce irrational result for society.

I shall go into details ...

... at the way city neighborhoods work and the way mild preferences and smart decisions from individuals can produce desperate, extreme outcomes for neighborhoods.

... why neighborhoods can get locked into deprivation and why the rational responses of ordinary people perversely make their neighborhoods extremely difficult to rescue.

In Washington, D.C., there's a connection between city geography and race : The most deprived areas are often ghettos, packed with immigrants or with African Americans, Latinos and shunned by whites.
Title: Re: Economics: other topics
Post by BenVitale on Jul 21st, 2009, 1:22am
The Logic of Life: Racial segregation (http://www.youtube.com/watch?v=JjfihtGefxk)

This YouTube video file shows us that rational decisions from individuals can produce tragic outcomes for a society as a whole.

Thomas Schelling's chessboard :
Tim Harford has this excellent description of Thomas Schelling's chessboard experiment that sought to explain how hetergenous groups or societies invariably end up segregating among themselves.

First, though, we'll look at a juncture of race and geography : the extreme racial segregation in
some American cities. That segregation seems to suggest deep racism, but that might be a misleading impression. Segregation -- by race, by class, by income level -- can be a stark symptom of surprisingly mild prejudices. Given some simple props, you can prove that to yourself in the comfort of your own home.

Find yourself or imagine a chessboard, or better yet view on YouTube the Thomas Schelling's chessboard presented by Tim Harford.

But if you have a chessboard in front of you, then place the pieces on alternate squares of the chessboard, black-white-black-white-black-white-black-white- ...

Leave the 4 corner squares blank.

Now pretend that these little black and white pieces are two different types of person: black and white is the obvious possibility, but it could be native and immigrant or rich and poor. Each one has up to 8 neighbors or as few as 4, for those near the corners. Each is motivated by a single concern, which is to avoid being dramatically outnumbered in her own immediate neighborhood. Everyone is perfectly happy to live in a mixed neighborhood, even to be slightly outnumbered, but if anyone finds that more than 2/3 of her/his neighbors is of the other color, s/he will become unhappy and move.


It's getting late, I need to catch some zzzzz..
Title: Re: Economics: other topics
Post by towr on Jul 21st, 2009, 1:22am

on 07/21/09 at 01:17:01, BenVitale wrote:
He meant, even though each person makes rational choices, the result can be something that none of them wanted; you might say that rational behavior by individuals can produce irrational result for society.
That's just the age old prisoner's dilemma.


Quote:
In Washington, D.C., there's a connection between city geography and race : The most deprived areas are often ghettos, packed with immigrants or with African Americans, Latinos and shunned by whites.
And shunned by anyone else that can avoid them. Barack Obama isn't going to live there just because he's black, you know.
Title: Re: Economics: other topics
Post by BenVitale on Jul 21st, 2009, 9:43pm

on 07/21/09 at 01:22:51, towr wrote:
That's just the age old prisoner's dilemma.


Yes, it is the iterated prisoner's dilemma.

Researchers have for a long time looked to the iterated Prisoner's Dilemma (IPD) game to explain the evolution of human cooperation.

However, experimental evidence show that there's a higher degree of cooperation among humans and non-humans than predicted, leaving me wondering whether Harford missed that and why do they (humans and non-humans) cooperate to the extent they do.  why does natural selection favor such cooperation?

Is Tim Harford wrong again? What do you think, towr?

I think that the iterated Snowdrift game (ISD) is a better model of an integrated society.

Snowdrift game goes as follows:

The situation of the Snowdrift game involves two drivers who are trapped on opposite sides of a snowdrift. Each has the option of staying in the car or shoveling snow to clear a path. Letting the opponent do all the work is the best option (with a pay-off of 300 used in this study), but being exploited by shoveling while the opponent sits in the car still results in a pay-off of 100. (The other two possibilities, both shoveling and both sitting, have pay-offs of 200 and 0, respectively.)



I only recently started to read the following document:

Human cooperation in social dilemmas: comparing the Snowdrift game with the Prisoner’s Dilemma (http://www.zoo.ox.ac.uk/group/west/RolfK/Rolf_pdfs/Kummerli_PRSB_2007.pdf)




Quote:
And shunned by anyone else that can avoid them. Barack Obama isn't going to live there just because he's black, you know.


I'm referring to the Thomas Schelling's chessboard thought experiment ... It's a model that sought to explain how hetergenous groups or societies invariably end up segregating among themselves.


Key concept: Chicken (game), aka Hawk-Dove or Snowdrift game (http://en.wikipedia.org/wiki/Chicken_(game))
Title: Re: Economics: other topics
Post by towr on Jul 22nd, 2009, 12:35am

on 07/21/09 at 21:43:33, BenVitale wrote:
Yes, it is the iterated prisoner's dilemma.
No, it's the regular, non-iterated one.


Quote:
However, experimental evidence show that there's a higher degree of cooperation among humans and non-humans than predicted, leaving me wondering whether Harford missed that and why do they (humans and non-humans) cooperate to the extent they do.  why does natural selection favor such cooperation?
Because genes don't "care" about individuals. The genes are unequivocally better off if people cooperate, even if that is not true for the individuals bearing the genes. And therefore they have given people tendencies toward altruistic behaviour that defies their "rational" self-interest.
Title: Re: Economics: other topics
Post by BenVitale on Jul 22nd, 2009, 10:54am
I thought of the iterated prisoner's dilemma because it has been extensively studied as a model of social interaction in which a kind of cooperative behavior can occur ... there are other models, such as, the prisoner's dilemma, the Ultimatum game, the Snowdrift game, the dictator game, ...

In the model I posted: the Thomas Schelling's chessboard thought experiment -- a model where we have a chessboard with white and black pieces, representing white and black people.

It is interesting to explore "altruism" and the conditions in which reciprocal altruism can arise.

In the iterated prisoner's dilemma (IPS), in each round of the game, two players choose to either "cooperate" (C) or "defect" (D). Each player then receives a payoff depending on the pair of choices. Two players interact some number of rounds, and the payoff for each player at the end of
the interactions is the total of the payoffs received each round.

The payoffs are:

If one player defects and the other cooperates, the defector receives the "traitor" payoff (T) and the other player receives the "sucker" payoff (S).

If both players cooperate, they both receive the "reward" (R).

If both players defect, they both receive the payoff (P).

T > R > P > S and 2R > T + S
Title: Re: Economics: other topics
Post by BenVitale on Jul 24th, 2009, 12:33pm
Please view: The Logic of Life: Racial segregation (http://www.youtube.com/watch?v=JjfihtGefxk)

And, Schelling's segregation model from page 28 to page 32 (http://hopfensitz.courses.googlepages.com/Lecture7.pdf)

A puzzle (page 28) :

Half of the white residents of LA and a few other U.S. cities prefer neighborhoods with 20% or more black residents

Almost none live in such neighborhoods

Why do we observe equilibrium racial segregation among weakly discriminatory individuals?

--------------------------------------------------
Thomas Schelling's segregation model

Thomas C. Schelling (Micromotives and Macrobehavior, 1978) developed a model to explain how this situations might evolve.

> Placed pennies and dimes on a chess board

> Moved them around according to various rules.

> Interpreted board as a city, each square representing a house or a lot.

> Interpreted pennies and dimes as agents representing any two groups in society (two races, two genders, smokers and non-smokers, etc.)

> Neighborhood of an agent consisted of the squares adjacent to agents location. (8 for inside, 3 or 5 for edge)

> Rules specified if an agent was happy in his neighborhood or not.

> If he was unhappy the agent tried to move away.
Title: Re: Economics: other topics
Post by BenVitale on Sep 30th, 2009, 1:29pm

How do you cancel a lunch meeting without revealing you are meeting with a competitor?
Title: Re: Economics: other topics
Post by towr on Sep 30th, 2009, 2:44pm

on 09/30/09 at 13:29:39, BenVitale wrote:
How do you cancel a lunch meeting without revealing you are meeting with a competitor?
Don't tell them why you're canceling? Or lie?
In any case, I don't think you're obliged to tell them you're meeting a competitor.
Title: Re: Economics: other topics
Post by BenVitale on Oct 1st, 2009, 1:54pm
I'll start with 2 humorous quotes:

"An economist is a man who states the obvious in terms of the incomprehensible."

                      --- Alfred A. Knopf ---

In other words, it is the painful elaboration of the obvious

"An economist is an expert who will know tomorrow why the things he predicted yesterday didn't happen today."

               -- Laurence J. Peter --


on 09/30/09 at 14:44:50, towr wrote:
Don't tell them why you're canceling? Or lie?
In any case, I don't think you're obliged to tell them you're meeting a competitor.


Basically, I agree with you.

I started by asking myself, "How thinking like an economist can I shape my personal decisions?

Well, thinking like an economist means thinking in terms of opportunity cost.

For example, I gave up on chess to spend more time on math and economic theory ... because the opportunity cost was just too high for me.

To address the question I posted (How do you cancel a lunch meeting without revealing you are meeting with a competitor?) I've tried to look at it from the perspectives of :

Business etiquette, economic theory, behavorial psychology, game theory.

I didn't concern myself too much with etiquettes.

Lying?

Lying comes very easy for many people.
Research suggests that people lie to those they love quite often, and to people they they interact face-to-face in their workplace.

There are ways to lie effectively and to avoid suspicion.

Then, I asked myself, "Is it rational to be a loyal employee? "

I answer, "No."

Loyalty can slow down your success.

(I may be wrong on this)

A company exists to maximize profits.
As an employee, you’re being compensated a fair market rate for providing a service, or creating a product; nothing more, nothing less.

Many companies offer perks or do have a positive impact in their communities. They do it because it is in their best self-interest ... it can be seen in the context of increasing the bottom line.

Now, how about meeting the competitor? How to meet him/her?

It depends on the situation:
By leveraging virtual technologies. To utilize social media. By conversing virtually, I may not have to cancel the meeting.

But if I must cancel the meeting, then what?

If I find myself in such a situation, I'll have to act calm, and have a plausible, not overly detailed answer ready

What are your thoughts?


[N.B. I posted this question on businessHarvard blog to which I got no reply.]
Title: Re: Economics: other topics
Post by towr on Oct 1st, 2009, 2:55pm

on 10/01/09 at 13:54:24, BenVitale wrote:
Then, I asked myself, "Is it rational to be a loyal employee? "
Moreso than to be known as a disloyal one. Because you will quickly be fired as someone that cannot be trusted. Of course up to that point it's just an argument to feign loyalty.


Quote:
Loyalty can slow down your success.

(I may be wrong on this)
I would say that in some cases you are. You're looking at things too abstractly. Because when you say:

Quote:
A company exists to maximize profits.
That is only true up to a point.
A company is also a social group. And especially in smaller companies, which have closer contact between management and other employees (or do not even have such a distinction), that can play a big role. If a company is also loyal to you, if it cares about the well-being of its employees and treats them as people rather than "resources", then it pays to be loyal to your company. Because another company might not care about you.
Title: Re: Economics: other topics
Post by BenVitale on Oct 2nd, 2009, 2:39pm

on 10/01/09 at 14:55:14, towr wrote:
Moreso than to be known as a disloyal one. Because you will quickly be fired as someone that cannot be trusted.


I meant acting loyal till one day you come across a better offer.


Quote:
Of course up to that point it's just an argument to feign loyalty.


Yeah, cooperate, then defect.


Quote:
I would say that in some cases you are. You're looking at things too abstractly.


Yes, you're right. I was reading this morning an article by the Harvard Business Reviews on the potential of agent-based modeling and  emergent phenomena ... I haven't finished it... so many pages to read.


Quote:
Because when you say:
That is only true up to a point.
A company is also a social group. And especially in smaller companies, which have closer contact between management and other employees (or do not even have such a distinction), that can play a big role. If a company is also loyal to you, if it cares about the well-being of its employees and treats them as people rather than "resources", then it pays to be loyal to your company. Because another company might not care about you.


You're right.

My previous post describes the process of choosing a path based strictly on one's own interests, without regard for how that choice may affect anyone else.

I'm also reading Tim Roughgarden's book Selfish Routing and the Price of Anarchy (http://theory.stanford.edu/~tim/slides/ectut.pdf)

I came across the Braess's Paradox (http://en.wikipedia.org/wiki/Braess's_paradox)

And, Pigou's example of selfish behavior. Pigou showed that it doesn't always work

http://www.americanscientist.org/bookshelf/pub/coping-with-selfishness


--- To be continued ---
Title: Re: Economics: other topics
Post by BenVitale on Oct 7th, 2009, 10:57am

on 10/01/09 at 14:55:14, towr wrote:
You're looking at things too abstractly.


Yes, it's too abstract, too broad.

I retract my analysis.

It may not necessarily work.

I should be looking at a particular model, because things vary from job to job and from industry to industry, and from organization to organization.

Game theory is a very fascinating field and it is very easy to get seduced by it. But the theoretical limitations are daunting ... Game theory provides an excellent framework, real business situations are beyond what the theory could describe. I ought to drop the theory and simply play games to investigate, for example, what emergent phenomena will arise from interactions of competitor, including companies that learn and adapt to the actions of others.

My analysis was from the top down, I ought to do the other way around, that is from the bottom up ... and explore this on what-if simulation this could be expensive and risky in the real world, because one, for example, could get fired or the management may not appreciate someone playing games, even for the sake of deepening our understanding of Game theory.
Title: Re: Economics: other topics
Post by BenVitale on Oct 7th, 2009, 11:17am
As for Emergent phenomena and agent-based modeling, I don't fully understand them.

To appreciate the full power of "agent-based" modeling one needs to understand the concept of "Emergent phenomena" and the best way to do that is by thinking of traffic jam. Although they are everyday occurrences, traffic jams are actually very complicated and mysterious. On an individual level, each driver is trying to get somewhere and is following or breaking certain rules and others slow down to let another driver change into your lane. But a traffic jam is a separate and distinct entity that emerges from those individual behaviors.

For example, gridlock on a highway can travel backward for no apparent reason, even as the cars are moving forward.

Emergent phenomena are not just academic curiosities but they lie beneath the surface of many mysteries in the business world.

As population densities and the number of interactions among people increase, so does
the probability of emergent phenomena. Businesses are becoming much more interconnected and complicated. Emergent phenomena have become very difficult to analyze, let alone predict.

adding new lanes to a highway often makes rush hour traffic jams far worse

See the Braess's paradox (http://en.wikipedia.org/wiki/Braess's_paradox)

People rationalize this by saying, of course adding a lane will increase traffic jams because drivers will change lanes more often, thus slowing down other drivers.
Title: Re: Economics: other topics
Post by BenVitale on Oct 7th, 2009, 11:23am
Here's a game that describes Emergent phenomena:

To see a simulation of this game, visit http://www.icosystem.com/game.htm


Imagine that we all started mingling, as if we were at a cocktail party. At random, you silently pick 2 other people (call them A and B) and then you always position yourself so that A is between B and you.

If everyone else were to do the same, what would happen?

Now, let's change the game slightly: You always position yourself so that you are between A and B.

Again, if everyone else were to do likewise, what would happen?

If there are several dozen of us, in the first game everyone will continue moving around the room for hours as we continuously try to keep ourselves in the right position.

An outside observer who was unaware of our game might think that the movement was random.

In the second scenario, the result is markedly different. Within seconds, we will have clumped into a single, almost stationary cluster. The same uninformed observer might think that our goal was to join together. In either case, our collective behavior -- the milling around or the clumping -- is the emergent phenomenon that has risen from our individual actions.

(1) emergent phenomena can be unpredictable and often counterintuitive.

What would happen, for example, if half of us followed the rule of the first game while the rest obeyed the other rule?

(2) a seemingly minor change in what we do individually within a group can radically alter our collective behavior.

(3) a logical link does not necessarily exist between our individual actions and the resulting emergent phenomenon. That is, why should the second -- and not the first -- game result in clumping?

Indeed, emergent phenomena often have a life of their own that is separate and distinct from
the behaviors of their constituent parts.

A traffic jam, for example, cannot always be understood by studying what each individual driver is doing. Examples of emergent phenomena in the business world include organizational behavior that is shaped (or misshaped) thru employee bonuses and incentives, free markets in which prices are set thru the myriad interactions of buyers and sellers, and consumer buzz that propels sleeper products into runaway successes.
Title: Re: Economics: other topics
Post by towr on Oct 7th, 2009, 2:15pm

on 10/07/09 at 11:17:16, BenVitale wrote:
For example, gridlock on a highway can travel backward for no apparent reason, even as the cars are moving forward.
There have been experiments showing that it can be due to variations in people's speed, and the latency in their response.
http://www.youtube.com/watch?v=Suugn-p5C1M


Quote:
adding new lanes to a highway often makes rush hour traffic jams far worse
Often? Are you sure?
Just because it has been shown that it can do so in theory doesn't mean it does so often in practice. I only know of a few cases where it has been objectively verified that closing off a piece of road increased traffic flow; and I'm not even sure that wasn't because people knew about it and there were less travelers because of it.
Title: Re: Economics: other topics
Post by towr on Oct 7th, 2009, 2:24pm

on 10/07/09 at 11:23:29, BenVitale wrote:
Indeed, emergent phenomena often have a life of their own that is separate and distinct from
the behaviors of their constituent parts.
Only in as much as you cannot predict the emergent behaviour from the behaviour of the constituent parts. But it is still fully, utterly, and totally determined by it.
Of course that's nothing remarkable, you can have computer algorithms that have results that cannot be predicted except by doing the equivalent of running the program. (Which gives rise to the halting problem.)
Title: Re: Economics: other topics
Post by BenVitale on Oct 7th, 2009, 2:31pm

on 10/07/09 at 14:15:59, towr wrote:
There have been experiments showing that it can be due to variations in people's speed, and the latency in their response.
http://www.youtube.com/watch?v=Suugn-p5C1M


Thanks for the youtube file, I'll go and check it out.

Quote:
Often? Are you sure?

No, I'm not sure. The theory says so.


Quote:
Just because it has been shown that it can do so in theory doesn't mean it does so often in practice. I only know of a few cases where it has been objectively verified that closing off a piece of road increased traffic flow; and I'm not even sure that wasn't because people knew about it and there were less travelers because of it.


I can comment on this. I need to reflect on this.
Title: Re: Economics: other topics
Post by BenVitale on Oct 7th, 2009, 2:32pm

on 10/07/09 at 14:24:20, towr wrote:
Only in as much as you cannot predict the emergent behaviour from the behaviour of the constituent parts. But it is still fully, utterly, and totally determined by it.
Of course that's nothing remarkable, you can have computer algorithms that have results that cannot be predicted except by doing the equivalent of running the program. (Which gives rise to the halting problem.)


Okay, but from Game theory perspective, it is hard... I still don't get it.
Title: Re: Economics: other topics
Post by towr on Oct 7th, 2009, 2:57pm

on 10/07/09 at 14:31:08, BenVitale wrote:
No, I'm not sure. The theory says so.
The theory says it can happen. I don't think it says it does happen often in the real world.
That makes an important difference when you want to translate theory to practice.


on 10/07/09 at 14:32:56, BenVitale wrote:
Okay, but from Game theory perspective, it is hard... I still don't get it.
Multiple agents and emergent behaviour quickly makes a situation too complex to analyze with game theory. Just determining the payoffs of strategies is hard enough, let alone find out the equilibriums. It's more easily approached with population simulations, I would say. (Although it's not as definite.)
Title: Re: Economics: other topics
Post by BenVitale on Oct 7th, 2009, 3:52pm

on 10/07/09 at 14:57:26, towr wrote:
The theory says it can happen. I don't think it says it does happen often in the real world.
That makes an important difference when you want to translate theory to practice.


I'll go and check on what the theory says.


Quote:
Multiple agents and emergent behaviour quickly makes a situation too complex to analyze with game theory. Just determining the payoffs of strategies is hard enough, let alone find out the equilibriums. It's more easily approached with population simulations, I would say. (Although it's not as definite.)


I'll explore this on what-if simulation...in the classroom it's much easier. I was told that this is a new field.

In a simulation each participant is a virtual person making decisions based on his preferences and on what the others (or what he thinks other might do) ... these modelings can capture reality.

And on a related topic:

Autopia : MIT Hopes to Exorcise ‘Phantom’ Traffic Jams (http://www.wired.com/autopia/2009/06/phantom-jams/)

Traffic Modeling - Phantom Traffic Jams and Traveling Jamitons (http://math.mit.edu/projects/traffic/)
Title: Re: Economics: other topics
Post by towr on Oct 8th, 2009, 12:51am

on 10/07/09 at 15:52:25, BenVitale wrote:
I'll explore this on what-if simulation...in the classroom it's much easier. I was told that this is a new field.
Depends on what you compare it to, and how you demarcate the field. Population simulations have been around a while, agent based simulations are a bit more recent. Cheap computation makes it easier to do more complex modeling.


Quote:
In a simulation each participant is a virtual person making decisions based on his preferences and on what the others (or what he thinks other might do) ... these modelings can capture reality.
They try to. Reality is complex though. It's easy to forget to incorporate some significant variable in a model.
Title: Re: Economics: other topics
Post by BenVitale on Oct 15th, 2009, 4:59pm
I've just come across a study : Most men don't wash after the toilet (http://www.msnbc.msn.com/id/33325670/ns/health-skin_and_beauty/wid/11915773?GT1=31037)

British study finds people more likely to soap up if they're being watched

People are more likely to wash their hands properly after using the toilet if they are shamed
into it or think they are being watched, scientists say.

when prompted by an electronic message flashing up on a board asking: "Is the person next to you washing with soap?," around 12% more men and 11% more women used soap...

The researchers also noted "intriguing differences" in the behavior of men and women: While women responded to simple reminders, men tended to react best to messages that invoked disgust, such as "Don't take the loo with you — wash with soap," or "Soap it off or eat it later."

Intriguing, indeed! How to explain that?
Title: Re: Economics: other topics
Post by BenVitale on Oct 16th, 2009, 9:20pm
Check this file: behavior change theory (http://en.wikipedia.org/wiki/Behavioural_change_theories#Transtheoretical.2FStages_of_Change_Model)
Title: Re: Economics: other topics
Post by BenVitale on Oct 17th, 2009, 10:06am
Here's another example of behavorial modification/change :

Youtube : Piano stairs - Rolighetsteorin.se - The fun theory (http://video.google.ca/videosearch?hl=en&source=hp&q=Youtube+:+Piano+stairs+-+Rolighetsteorin.se+-+The+fun+theory&um=1&ie=UTF-8&ei=1_PZStaNEozgswPtqIGHBg&sa=X&oi=video_result_group&ct=title&resnum=1&ved=0CBQQqwQwAA#)

It is a viral video from Volkswagen Sweden. They installed piano stairs next to an escalator

The goal is to improve decisions about health ... to encourage behavior that is good for both individuals and societies.

They believe that the easiest way to change people's behavior for the better is by making it fun to do.

They call it The fun theory. See Here (http://www.rolighetsteorin.se/)

They ask: Can we get more people to choose the stairs by making it fun to do?

They claim : 66% more people than normal chose the stairs over the escalator.

Fun can obviously change behavior for the better.

See also The Fun Theory: Volkswagen Masters the Viral Video (http://mashable.com/2009/10/11/the-fun-theory/)
Title: Re: Economics: other topics
Post by towr on Oct 17th, 2009, 10:55am

on 10/17/09 at 10:06:03, BenVitale wrote:
They claim : 66% more people than normal chose the stairs over the escalator.
I think the novelty would soon wear off. And when the regular commuters start to find it annoying, they may even start to avoid the stairs.
Title: Re: Economics: other topics
Post by BenVitale on Oct 19th, 2009, 12:43am
In the British study "Wash your hands, you're being watched," both men and women are more likely to wash their hands properly after using the toilet because they feel they're being watched.

We’re motivated too often by a sense of guilt, fear, or regret.

Experts who study behavior change agree that long-lasting change is most likely when it’s self-motivated and rooted in positive thinking


on 10/17/09 at 10:55:16, towr wrote:
I think the novelty would soon wear off. And when the regular commuters start to find it annoying, they may even start to avoid the stairs.


I agree with you.
It's clever, cute, but I'm skeptic that this will bring any permanent behavorial change.

What about if we introduce 'fun'? Here comes the 'piano stairs' experiment:

In the second experiment, the people know that they're being watched.

What would would happen if there are no cameras?
What if someone were to fall down those stairs and decided to drop a lawsuit?
What if you were to find this almost everywhere?

Making healthy changes is easier said than done. Even when we’re strongly motivated, adopting a new, healthy habit — or breaking an old, bad one — is not easy.

Childhood obesity is on the up in Sweden especially in girls. The Swedes are puzzled by an unusual blip in the data: little girls are more likely to be fat than little boys.

I wonder whether they had the self-perception theory (http://en.wikipedia.org/wiki/Self-perception_theory) in mind.

According to this theory, people pay more attention to the incentive, and less attention to the enjoyment and satisfaction that they receive from performing the activity.

But according to a new animal study, obesity may be hard-wired into the brain from birth :

Read this article (http://www.sciencedaily.com/releases/2008/02/080205121745.htm)

And, Obesity Starts In The Head? (http://www.sciencedaily.com/releases/2009/01/090108082908.htm)
Title: Re: Economics: other topics
Post by BenVitale on Oct 21st, 2009, 3:54pm
There is growing concern in developed countries, especially in the U.S., about the increase in consumption of fats and sugar, and the related increase in obesity.

Should we impose a 'sin tax' on on foods that contain high quantities of saturated fat in the hope of cutting down consumption of these foods?
How about a “sin tax” on soda and other sugary beverages?

According to the Law of Demand, a tax on saturated fat/soda and other sugary beverages would raise the price of these products, and thereby would reduce their consumption.
Title: Re: Economics: other topics
Post by towr on Oct 22nd, 2009, 12:51am

on 10/21/09 at 15:54:39, BenVitale wrote:
According to the Law of Demand, a tax on saturated fat/soda and other sugary beverages would raise the price of these products, and thereby would reduce their consumption.
That's not necessarily true, raising the price may raise the apparent value and desirability, and thus increase sales and consumption. We do not live in a world of perfect information and populated by homo economicus.
Price affects perception. A $40 wine tastes better than a $10 wine, even if it's the same wine from the same bottle.
Title: Re: Economics: other topics
Post by BenVitale on Oct 22nd, 2009, 3:07pm

on 10/22/09 at 00:51:15, towr wrote:
That's not necessarily true, raising the price may raise the apparent value and desirability, and thus increase sales and consumption. We do not live in a world of perfect information and populated by homo economicus.


Right. The theory doesn't always reflect what's happening in the real world. I shall reflect on this 'tax' and come back later to it.


Quote:
Price affects perception. A $40 wine tastes better than a $10 wine, even if it's the same wine from the same bottle.
Title: Re: Economics: other topics
Post by BenVitale on Oct 23rd, 2009, 12:18am

on 10/22/09 at 00:51:15, towr wrote:
Price affects perception...


That reminds an article I read:

In a blind tasting, it turns out that most of us actually prefer to drink cheaper wine, as long as we don’t know it’s cheap wine.

Antonio Rangel, an associate professor of economics at Caltech, and his colleagues found that changes in the stated price of a sampled wine influenced not only how good volunteers thought it tasted, but the activity of a brain region that is involved in our experience of pleasure. In other words, "prices, by themselves, affect activity in an area of the brain that is thought to encode the experienced pleasantness of an experience

Read more at : Wine Study Shows Price Influences Perception (http://media.caltech.edu/press_releases/13091)
Title: Re: Economics: other topics
Post by BenVitale on Oct 23rd, 2009, 12:29am
And it also reminds me of a story I read in Dan Ariely's book; fortunately, parts of his book are available on the net.

Here's the link: The Fallacy of Supply and Demand (http://www.predictablyirrational.com/?page_id=130)

After analyzing his data, he found that the digits from the social security numbers serve as anchors
Title: Re: Economics: other topics
Post by towr on Oct 23rd, 2009, 1:40am

on 10/23/09 at 00:29:20, BenVitale wrote:
And it also reminds me of a story I read in Dan Ariely's book; fortunately, parts of his book are available on the net.

Here's the link: The Fallacy of Supply and Demand (http://www.predictablyirrational.com/?page_id=130)

After analyzing his data, he found that the digits from the social security numbers serve as anchors
That wouldn't work on me; well, not with those items. I don't like wine, I don't like cordless input devices (trackball, keyboard, mouse). The only thing I might have bid on was the design book. But I wouldn't without checking on the internet what it costs.
Title: Re: Economics: other topics
Post by BenVitale on Oct 24th, 2009, 8:57pm
As for dealing with the problem of obesity, we could either ....

(a) do nothing, and leave people alone to decide their own size

(b) tax overweight and obese people: people would submit an official Body Mass Index (BMI) report with their annual tax return

(c) impose a tax on junk food
Title: Re: Economics: other topics
Post by rmsgrey on Oct 25th, 2009, 4:34am

on 10/24/09 at 20:57:20, BenVitale wrote:
As for dealing with the problem of obesity, we could either ....

(a) do nothing, and leave people alone to decide their own size

(b) tax overweight and obese people: people would submit an official Body Mass Index (BMI) report with their annual tax return

(c) impose a tax on junk food


(d) Apportion healthcare and other resources based on BMI - I imagine being obese drives up the cost of health insurance...
Title: Re: Economics: other topics
Post by towr on Oct 25th, 2009, 8:39am
(e) shoot them and let "natural" selection take care of it
(It's my solution for everything. No people = no problems. ::) )

But perhaps a positive approach, rewarding people for a better lifestyle and making it more easily available to them, might be a better approach. Insurance companies might pay their customers back a part of their premium every time they go to the gym, or for eating healthier food.

Btw, BMI isn't a very good measure of how healthy someone's lifestyle is. Muscles weigh more than fat, so a healthier and slimmer person may have the same BMI as a fatter unhealthy person.
You can't condense "health" into a single number. You wouldn't combine you car's mileage, speed and petrol level into one number, would you? It may simplify the dashboard but it'd be useless.


on 10/25/09 at 04:34:24, rmsgrey wrote:
I imagine being obese drives up the cost of health insurance...
It's always hard to say, because they also die younger. Same with smokers.
Title: Re: Economics: other topics
Post by BenVitale on Oct 25th, 2009, 11:08am

on 10/25/09 at 08:39:38, towr wrote:
(e) shoot them and let "natural" selection take care of it
(It's my solution for everything. No people = no problems. ::) )[/url]

Harsh .... but funny


Muscles weigh more than fat, so a healthier and slimmer person may have the same BMI as a fatter unhealthy person.
.


Right. I've just read an article that says that Muscular people are often misclassifed as overweight or obese ... that it is a lousy statistical tool.

In wikipedia, BMI (http://en.wikipedia.org/wiki/Body_mass_index) is a controversial statistical measurement

it does not actually measure the percentage of body fat ... but still used to identify weight problems within a population

BMI is still the measurement of choice for most health professionals

Some researchers now argue in the following article
Is a Heavier America Healthier? Weighing the Evidence (http://pt.wkhealth.com/pt/re/aha/addcontent.11494581.htm;jsessionid=KkPYpJnd1HQFWZymBXpkQM68TSJCKdz6SWpH08dymKNs4S9JnpJC!-2135654213!181195629!8091!-1)

that it is a flawed and overly reductive measure, and it is skewing the results of research in public health.

So how do we now measure 'fatness'?
Title: Re: Economics: other topics
Post by towr on Oct 25th, 2009, 11:36am

on 10/25/09 at 11:08:19, BenVitale wrote:
So how do we now measure 'fatness'?
An accurate way would be to measure the actual fat percentage people have; but that's not a very easy measurement to take. A less accurate measure would be to measure how thick the layer of subdermal fat is, by pulling a fold of skin in your side and putting a set of calipers to it.
The major problem with the latter measure is that you don't measure the fat around your organs, even though this has the bigger impact on your health. And the two types of fatty tissue are not necessarily correlated.

I suppose you could also do an MRI scan; I think it can distinguish the types of tissue, and a computer program could calculate the volume of fat, and you'd also be able to see where in the body it is.
Title: Re: Economics: other topics
Post by BenVitale on Oct 26th, 2009, 1:42pm
I wonder how practical and economical this method is?

We need to find and implement an easy and cheap tool to modify behavior.
Title: Re: Economics: other topics
Post by BenVitale on Oct 26th, 2009, 1:49pm
Previously, I posted...

(a) do nothing, and leave people alone to decide their own size
(b) tax overweight and obese people
(c) impose a tax on junk food

We could tax bad behavior, or subsidize good behavior. So, I add...

(d) A fitness tax credit for children and adults.

That is to say, a non-refundable tax credit based on eligible fitness expenses paid by parents to register a child in a prescribed program of physical activity ... The children's fitness tax credit would let parents claim up to $X per year for eligible fitness expenses paid for each child who is under 16 years of age at the beginning of the year in which the expenses are paid.

and disability tax credit, if eligible, under the age of 18

ECONOMIC BENEFITS OF AN ADULT FITNESS TAX CREDIT (http://www.adultfitnesstaxcredit.ca/launch/FIC%20Long(eng).pdf)



--- To be continued ---
Title: Re: Economics: other topics
Post by BenVitale on Oct 26th, 2009, 1:53pm
(a) to do nothing is not an acceptable option as the health care costs associated with obesity now rival those attributable to smoking, according to a new study... Federal statistics show that more than half of Americans are obese or overweight, and that number has grown dramatically over the last decade. Researchers say the obesity epidemic poses a major threat to public health due to the clear association between obesity and a variety of chronic diseases...

Read more ... http://www.webmd.com/diet/news/20030515/obesity-costs-rival-smoking


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