The Last Lecture

Or Really Achieving Your Childhood Dreams, delivered by Randy Pausch at Carnegie Mellon.

Set aside an hour seventeen minutes to watch this; it's entertaining, useful and moving. To give you another reason, I generally can't stand this sort of 'inspirational' talk, and the fact Randy Pausch was looking forward to 3 to 6 months to live at the time would not be anywhere near enough to sway me over.

One of the best lectures ever delivered; ladies and gentlemen, this is Randy Pausch's Last Lecture:



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Honey, I shrunk the sample covariance matrix

What a title! The paper starts:

The central message of this paper is that nobody should be using the sample covariance matrix for the purpose of portfolio optimization.

...so you know whether it's worth reading it. Personally, I don't find that type of thing a turn-on.

Don't believe everything you read in the papers

Academic papers that is:

When I read an article in a reputable journal, I expect that a reviewer has double-checked the results. Am I naive?

I fear that you are. Except in the simplest papers, it is impossible to describe everything that has happened to the data in the text. Only the data themselves can do that, together with the computer code. Reviewers are usually not expected to reproduce all regressions. They usually trust the authors. In contrast, reviewers of theoretical analyses are expected to confirm all equations and proofs.

The pointer is from Marginal Revolution. The situation has been getting better, but estimation remains a laborious business. We'll get there eventually, but at least as far second tier journals are concerned it's not going be in a hurry.

Quantifying rationality

Administer a time-bound maths test to subject A, taking care to explain what the notation means ,etc.

If subject A fails to get a 100%, you can safely conclude subject A is not Homo Economicus. Subject A is acting irrationally.

You can now quantify the degree of rationality. Subject A getting 60% in a test covering the math of optimal asset allocation directly maps to Subject A being 60% rational when it comes to asset allocation decisions.

And so economics began...

Economist's view links to videos of the Nobel Prize lectures in Economics. Here's how Roger Myerson started his:

The scope of economics has changed. Economics began with Xenophon's paper Oeconomicus more than two thousand years ago, in which a model citizen of ancient Athens goes out to the countryside, to his farm, to monitor and motivate the workers he has there to make sure they are working. Then he comes back into the city to participate in various political institutions that are necessary to maintain his political status so that he can keep owning his farm.

Agents' incentives and political institutions are central concerns of economics today as they were then; they weren't always. Sixty years ago or so Schumpeter saw Xenophon as somewhat marginal or outside the scope of economic inquiry.

Here's the full text by Xenophon in English (tranlated as 'The Economist') from Project Gutenberg. Here is a previous Bluematter. post on Xenophon's work.

I wholeheartedly agree with Myerson. But we have only scratched the surface so far: despite the recent focus on the importance of institutions, 'government' (and for that matter morality) remains an exogenous influence in the vast majority of economic models, which is a shame given we can potentially model the behaviour of the various political actors almost as well as that of market participants. This ommission wouldn't account for much if as a profession we were content with only commenting on small, closed systems ('this is how you should design your auction', 'this is how you can allocate hamburgers efficiently'). But we aren't, so academic economics' 'won't bother with politics' attitude is one of the main taboos we ought to overcome.

In other words, we are never lucky enough to be advising a benevolent dictator. We should finally stop pretending this is the case and approach the issue in the systematic way that is the hallmark and great pride of the profession.

Our second failing is more fundamental, and it relates to our inability - so far - to make information a more tangible, and better measurable, quantity. Related to this is our failure to view homo economicus as rational across all possible models of reality (rather than just the 'correct one'), and to develop a general theory of 'biases' (no, atheoretical statistics are not enough). This probably deserves a post of its own; stay tuned.

And another aside: I was struck to see how many empty seats there were at the lecture theater. No, I didn't expect tickets to be selling for thousands of Kronas at the black market, but I didn't expect this either.

The Worst Paper Ever Written: A Tribute

This incredible 2007 paper by Satoshi Kanazawa published in the Journal of Social, Evolutionary, and Cultural Psychology (free access - HT Crooked Timber) is the worst piece of academic work I have ever come across. It's so bad it's actually great*. So great in fact, that despite suffering from severe sleep deprivation I feel I have the moral duty to present an abridged version to you - lest you are too busy to read the whole thing and you miss out on a true gem of scholarly endeavour.

Below are selected, edited excerpts from the paper, arranged in such a way so as to preserve the flow of the reasoning and cover the main ideas expressed by the author. For the most part, I am quoting Kanazawa verbatim. My 'contributions' and comments appear in bold or in parentheses, marked DC.

Brace yourselves:


WHY YOU CAN’T GET A DATE ON A SATURDAY NIGHT
AND WHY MOST SUICIDE BOMBERS ARE MUSLIM


Abstract:

I discuss how one’s difficulty in dating might be connected to the current world war.

Introduction (DC: including the unavoidable drivel that signal the paper is written by a great antrhopologist):

Social and cultural factors impact human behavior only through the evolved human nature. The evolutionary psychological imagination reminds us that, in the words of inimitable Laura Betzig, “people are animals” (Betzig, 1997).

Amazing insight #1:

If you are chronically spending every Saturday night alone, despite valiant and persistent effort to find a date, then chances are there’s something wrong with you, at least in this area of life.

(DC: But don't despair brother!)

You may be comforted to know that you are not alone in your plight; there are losers like you everywhere in the world, and for the same reasons. (DC: yeah, you are all busy playing Super Mario Galaxy)

The root of the problem

Your personal troubles are not entirely your own doing; there are larger forces at work to keep you alone on a Saturday night. For example, if you consistently find yourself dateless, chances are you are a young man, not a young woman. On any given Saturday night, more young men than young women find themselves dateless.

This is because humans are naturally polygynous. The mathematical consequence of polygyny is most obvious in societies that sanction and practice (simultaneous) polygynous marriage, such as many African tribes and Muslim societies in the Middle East. If every married man has four wives, for example, it means that, given a 50-50 sex ratio, three-quarters of men are left mateless. A large majority of men in such societies are in the same situation as you are; they find themselves alone on a Saturday (and every other) night.

The more polygynous the society, the more young men face the distinct possibility of ending their lives as complete reproductive losers. Such is the mathematics of polygyny.

The problem

Thomas L. Friedman predicted that the first major war in the 21st century, after the end of the Cold War which characterized the latter half of the 20th, would not be fought between nations. It would instead be declared by what Friedman called “super-empowered angry men”.

In his September 13, 2001, NYT column, Friedman once again predicted that the events in New York and Washington two days earlier signified the start of World War III. Nearly six years later, we are still in the middle of World War III.

It appears that, for our current enemies, the murder and destruction is the goal, rather than means to political goals. Why? (whyyyyyy?) Why are our current enemies in World War III so different from traditional terrorists?

The diagnosis

While suicide missions are not always religiously motivated, when religion is involved, it is always Islam.

What distinguishes Islam from other major world religions is that it sanctions polygyny, and, as we saw earlier, polygyny increases competitive pressure on men, especially young men of low status, who are most likely to be left without reproductive opportunities when older men of higher status marry polygynously. Polygyny therefore increases the likelihood that young men resort to violent means to gain access to mates because they have little to lose and much to gain by doing so, compared to men who already have wives.

However, polygyny by itself, while it increases violence, is not sufficient to explain suicide bombings. The other key ingredient is the Koran’s promise of 72 virgins waiting in heaven for any martyr in Islam.

This creates a strong motive for any young Muslim men who are excluded from reproductive opportunities to commit suicide bombings. Now a vague promise of 72 virgins waiting in heaven may not sound so appealing if they have even one real mate on earth, which monogamy in the context of a 50-50 sex ratio mathematically guarantees. However, for young, low-status Muslim men who are excluded from any mating opportunities because of polygyny among older, higher-status men, even such a vague promise in the afterlife begins to be appealing in light of their bleak reproductive prospect on earth.

My theory is cool, and I'm cool by association

Sometimes the evolutionary psychological imagination allows you to see things that few others do. On March 11, 2004, ten bombs exploded nearly simultaneously on four crowded commuter trains in Madrid, killing 191 people and injuring almost 1,800.

Within minutes of the explosions, the Spanish government publicly accused ETA for the terrorist act. And I immediately said to myself, “No, it ain’t ETA. It’s Muslim suicide bombers.” (DC: Kanazawa repeats this last sentence three times in the space of a paragraph)

(The kabalistic significance of the date -- that March 11 is the calendrical opposite of September 11 -- had not occurred to me or many others at first.)

Oh my research is so relevant to current events - approaching the grand finale

It is instructive to note that the Iraqi insurgents, who commit suicide bombings on a daily basis, have actually killed more than six times as many Iraqis as Americans (2,466 American troops vs. 6,004 Iraqi military and police personnel plus 10,131 civilians, as of January 29, 2007). It is as if the Iraqi insurgents are trying to eliminate as many of their intrasexual rivals (fellow Iraqi men) as possible, rather than killing American troops (the infidels and occupiers).

Conclusion

Maybe the Muslim suicide bombings are not “terrorist” acts, as the term is usually used. Maybe it has nothing to do with Israel or the American and British troops. Maybe it’s all about sex, as everything else in life is. Men do everything they do in order to get laid (Kanazawa, 2003). Maybe young Muslim men are no exceptions.

THE END

And in case you missed it, let me repeat this last, most fundamentalist (sic) of insights:

Men do everything they do in order to get laid (Kanazawa, 2003).

Amen.

*My theory is that this paper is meant as a joke, a sneaky critique of modern sociology/anthropology/psychology. Failing that, it may have been written to attract some publicity for Kanazawa's new book. At the very least, it's an active bid (pick me! pick me!) for the Ignobel prize. That said, Kanazawa has had other dodgy work published in the past. Who knows, maybe the world is going bonkers after all.

On the third hand...

Economic Inquiry is taking humour seriously. A very welcome development, via Greg Mankiw.

1980s Endogenous Growth Theory Discovered in the 1960s

I may be a geek, but this is my idea of fascinating. A number of core ideas of endogenous growth theory that made up a massive (and ongoing) area of macroeconomic research in the 1980s and onwards were discussed but ignored in a barely-read article in the 1960s, Frankel (1963) (gated link here). This was unearthed by Edmund Cannon in 2000 (gated link here):

An important strand of the growth literature of the last decade or so is the assumption that factors which can be accumulated indefinitely may have marginal returns which do not fall to zero for society as a whole. The importance of this assumption lies in the consequence that a society’s growth rate will depend upon its propensity to save…

…The model in Frankel’s paper is of the “AK” variety, where the aggregate production function is linear in capital due to externalities at the firm level. As such it anticipates many of the features of the models found in Paul M. Romer (1986), Robert E. Lucas, Jr. (1988), and Sergio Rebelo (1991)…

…Frankel’s paper has lain unnoticed for the last 26 years…

Cannon goes on to discuss possible reasons why this paper was ignored at the time, but seems to conclude that this is essentially a mystery:

Why the paper was ignored at the time remains a bit of a puzzle and perhaps serves as a demonstration of the role of chance in the research and growth processes.

Ironically, the fact that an excellent pioneering paper on endogenous growth theory went unnoticed suggests R&D yield is substantially driven by chance, suggesting economics cannot do a good job of explaining technological growth, which in turn is a big argument in favour of Solow-style growth models in which technological growth is exogenous.

PS. for anyone currently formally studying growth or otherwise curious about Frankel's early discovery, I strongly recommend reading Edmund Cannon's short and very readable paper.

Cricket versus Baseball as an Engine of Growth

My previous post on parody and academic economics reminded me of the classic paper in this tradition, Howard Wall's 1995 'Cricket versus Baseball as an Engine of Growth' (free access). If you are a professional economist and haven't read this excellent paper before, do so now; it is only 3 pages long and is easily one of the most entertaining pieces ever to be published in an economics journal:

Until the pioneering work of Solow (1956) forced growth theorists to focus on things such as savings rates and capital accumulation, economists searched far and wide for engines of economic growth. One of the seemingly eccentric streams of the literature considered the relative effectiveness of sport in spurring economies along. Marshall (1889) was the first of the classical economists to suggest that the character-building aspect of sport may play an integral role in harnessing the capacities of an economy towards productive ends.

At the time, Marshall proposed that the sports that would best serve as an engine of growth were those that "involved the carrying, and sometimes the tossing, of a ball; and the frequent collision of opposing bodies." Subsequent research naturally looked towards gridiron football in the US, and rugby football in the UK.

Marshall’s case for gridiron and rugby did not last long. In a footnote to a theorem on the existence of irrational numbers in σ-dimensional lattices, Russell and Whitehead (1908) found an error in Marshall’s result. Russell and Whitehead had stumbled onto something would keep economists at odds for nearly fifty years. They found that the necessary, but not sufficient, conditions for a sport to be an engine of growth are (1) that it uses an ash implement to strike a round object; and (2) that at any time the majority of players spend their time standing idly in an expanse of grass, or sitting on a wooden bench doing nothing.

Within months of this result becoming public, opposing schools of thought developed, separated, as they often are, by the Atlantic Ocean. Cricket and baseball very quickly became the centers of growth theorists’ attention.

The debate raged until the entire field fell into disrepute in the early 1950s. The backlash began with attacks by the French economist Maurice Le Point. As a Frenchman, Le Point could not see any point in cricket nor in baseball, and failed to see how either could have anything at all to do with the economy. His most biting insight, which purportedly came to him while attending a St. Louis Browns baseball game, roughly translates as "there is a fine line between playing baseball and standing in a pasture dressed like an idiot." Although aimed at baseball, this certainly rings true for cricket as well.

So powerful was Le Point’s attack that nearly all traces of the two schools have been purged from the economics literature. The early works began to disappear from libraries, and later editions of Keynes (1936) do not include the original twenty-fifth chapter on the role of cricket in ending the Great Depression.

The purpose of the present paper is to revive and answer this long-forgotten question. With today’s statistical techniques and the availability of data for a large number of countries, the question of cricket versus baseball can be addressed once and for all [...]

The empirical results speak for themselves. For emerging countries without a history of cricket or baseball, baseball instruction and subsidies should be an immediate priority. The difficult problem is in devising a plan to eradicate the cricket-induced malaise of the cricket-playing countries. Clearly this is a task of Herculean proportions, rivalled only by the economic reform of formerly-communist countries. Like communism, years of cricket have polluted the very souls of these countries, and we need to measure the pace of reform in decades, not merely in years.

Postscript: Don't miss the references at the end of the paper.

On the Efficiency of AC/DC

Many an undesirable trait have been at times associated with economists ('dismal scientists' and all that), but surely no-one can accuse us of lacking a sense of humour. This is from Robert Oxoby's short paper On the Efficiency of AC/DC: Bon Scott versus Brian Johnson (free access), via MR:

The band AC/DC is considered one of the seminal hard rock bands, often compared to Led Zeppelin and Black Sabbath in influencing many subsequent hard rock and heavy metal bands. The band was formed in 1973 by Angus and Malcolm Young who took the band’s moniker from the back of their sister’s sewing machine. In its 35 year history, the band has sold more than 150 million albums.

Among musicologists, researchers of popular culture, and rock and roll lovers of all ages there exists a common debate. That is, with respect to the rock band AC/DC, who is the better vocalist: Bon Scott or Brian Johnson?

[...] using tools from the field of experimental economics, we consider which vocalist results in individuals arriving at more efficient outcomes in a simple bargaining game. Our results suggest that having participants listen to songs by AC/DC in which Brian Johnson served as vocalist results in participants realizing more efficient outcomes. Thus, in terms of a singer’s ability to implement efficient behavioral outcomes among listeners, our results suggest that Brian Johnson was a better vocalist than Bon Scott.

Our analysis has direct implications for policy and organizational design: when policymakers or employers are engaging in negotiations (or setting up environments in which other parties will negotiate) and are interested in playing the music of AC/DC, they should choose from the band’s Brian Johnson era discography.

Applause! Parody is a staple of political commentary; perhaps it can be put to good use in the field of academic economics as well.

Are data-miners made or born?

Green (1990) gave 199 students the same data but with different errors, and asked them to find an appropriate specification. All students had been taught that models should be specified in a theoretically sensible fashion, but some were also taught about how to use F tests and goodness-of-fit for this purpose. These latter students were quick to abandon common sense, perhaps because using clearly defined rules and procedures is so attractive when faced with finding a specification.

As with driving and flying fighter jets, the risk of 'accidents' when doing econometrics is at its highest amongst those with some, but not much, experience. The novice pilot, or econometrician for that matter, will take extra care to make sure everything is as it should be. Being concious of the possibility of disaster, she will not attempt flashy tricks, whether that's flying at mach-2 or drawing inferences from not-very-well-understood statistics.

As the student becomes more comfortable and builds up some confidence in her abilities, she will tend to underestimate the amount of care that needs to be applied when performing a given manoeuvre. Flight instructors are well aware of this tendency, but it is still the case that most accidents involve pilots that have had between 500-1000 hours of flying experience. A very similar risk profile holds for budding econometricians; we should be thankful that the aftermath of a 'crash' for the analyst is far less painful than for the pilot.

The quoted excerpt is from Peter Kennedy's excellent econometrics textbook, now in its fifth edition. As far as I'm concerned, the book is unique in its approach; it focuses on the intuition behind the various methods and techniques used in econometrics using simple English, with the underlying equations relegated to technical annexes.

I have long thought that the way undergraduates are being taught econometrics is far from ideal: what good is it learning the proof of why OLS is BLUE in your second week in an introductory econometrics course? Kennedy's approach is promising, and purchasing the book is a good idea for students that have had little experience with econometrics and are not yet proficient in 'translating' the maths into something that makes intuitive sense.

The issue of the Political Methodologist where Green's article comes from is here (free access), but I have to warn you that the quality of the scanning is poor.

Busted!

'Nature' Unmasks German Economist as Fabulist and Plagiarist: A 63-year-old German economist has for decades falsely claimed an affiliation with the University of Maastricht, in the Netherlands, according to an article in tomorrow’s issue of Nature. The economist, Hans-Werner Gottinger, also appears to be a serial plagiarist [...]

Mr. Gottinger’s deceptions began to unravel two months ago, after an attentive reader noticed that a paper he published in the journal Research Policy in 1993 had pilfered a string of complex equations from a 1980 issue of another journal. The editors of Research Policy started to sniff around — and their plagiarism investigation eventually turned into something much larger. [...]

In a 34-year career, Mr. Gottinger has published works on ethics, statistics, environmental policy, and the economic effects of technological change. His most recent English-language book, Innovation, Technology, and Hypercompetition, was published last year by Routledge.

Two years ago, Mr. Gottinger was a keynote speaker, alongside the Nobelist Thomas C. Schelling, at the annual meeting of the World Association for Sustainable Development. His biography has been scrubbed from the conference’s Web page, but this cached version describes him as “Director of the Institute of Management Science, University of Maastricht, the Netherlands, and Professor of Economics at the University of Osaka (KGU), Japan.” The Osaka affiliation was also false, according to Nature.

More here, via Tyler Cowen.

Malthus and Darwin

A few posts ago, I said that Malthus is dead: his ideas will never again be relevant for explaining a developed, and not-terribly-unequal, world - regardless of how much population grows.

This is not to say that Malthus was wrong at the time, or that his insights are not relevant in certain parts of the world today, or that his model was anything other than genius. This NYT article highlights another area where Malthus's thinking had a profound impact on: evolution through natural selection.

The tendency of population to grow faster than the food supply, keeping most people at the edge of starvation, was described by Thomas Malthus in a 1798 book, “An Essay on the Principle of Population.”

Malthus’s book is well known because it gave Darwin the idea of natural selection. Reading of the struggle for existence that Malthus predicted, Darwin wrote in his autobiography, “It at once struck me that under these circumstances favourable variations would tend to be preserved, and unfavourable ones to be destroyed... Here then I had at last got a theory by which to work.”

A quantitative macroeconomist's self-portrait

Here. Warning: violence.

Thanks to Dave for the pointer.

Statistical significance, and all that jazz

About two years ago, I was a reasonable person who argued that tests of statistical significance were useful in some limited situations. After completing research [...], I have concluded that tests of statistical significance should never be used.

This is J. Scott Armstrong, quoted in Decision Science News (via Statistical Modeling).

Here's the paper. It's a very readable piece, and I agree with almost all the points Armstrong is making. Unfortunately, it is gated; here is my summary:

1a. As a diagnostic tool, tests of statistical significance are too blunt and unnecessarily miss useful information. In some respects, they are also arbitrary. They can mislead the researcher.
1b. To make matters worse, many researchers do no understand how to construct appropriate and/or informative tests, or how to interpret them. Furthermore, journals tend to place unwarranted importance on 'statistical significance'; and even authors who do know better bend over backwards to please them.

2a. Reporting statistical significance at the x% level is too blunt and unnecessarily conceals useful information.
2b. To make matters worse, many consumers of statistical research do not understand how tests of statistical significance should be interpreted, or even what statistical significance means. Misguided commentary by the researcher doesn't help either.

A particular problem arises because there's rarely a good reason why the null hypothesis should be 'favoured'. When testing for statistical significance, the null is considered innocent until proven guilty, and the burden of proof is excessively high at 'standard levels'. The example Armstrong uses has to do with assessing whether combining forecasts can improve accuracy - why should there be a presumption that it doesn't?

The author also provides a handy list of what to do once you get rid of tests of statistical significance altogether:

What should one do without tests of statistical significance? There are better ways to report findings. To assess—
• importance, use effect sizes
• confidence, use prediction intervals
• replicability, use replications and extensions
• generality, use meta-analyses.

Finally, are there any circumstances in which tests of statistical significance could be useful? Only when utilising prediction intervals, replications, extensions and meta-analyses is impossible or too 'expensive' for the purpose at hand, and the limited (to some extent arbitrary) information tests of statistical significance convey can offer some indications:

This does not rule out the possibility that statistical significance might help in other areas such as (1) in aiding decision makers by flagging areas that need attention; (2) as part of a forecasting procedure (e.g., helping to decide whether to apply a seasonality adjustment or when to damp trends); or (3) serving as a guide to a scientist who is analyzing a problem (e.g., as a quick way to highlight areas that need further study). On the other hand, this is mere speculation on my part.

Before leaving this post, here's a related short paper written by my favourite blogger and Hal Stern: 'The Difference Between “Significant” and “Not Significant” is not Itself Statistically Significant' (free access).

Google bans essay writing adverts

Big deal:

Google is to ban adverts for essay writing services - following claims that plagiarism is threatening the integrity of university degrees.

There have been complaints from universities about students being sold customised essays on the internet.

The advert ban from the Google search engine has been "warmly welcomed" by university authorities.

But it has angered essay writing firms which say this will unfairly punish legitimate businesses.

From next month, Google will no longer take adverts from companies which sell essays and dissertations - and the internet company has written to advertisers to tell them about the policy.

Google's forthcoming ban on adverts for "academic paper-writing services and the sale of pre-written essays, theses, and dissertations" means that essay websites join a blacklist of "unacceptable content" including adverts for weapons, prostitution, drugs, tobacco, fake documents and "miracle cures".

Don't expect much to change. I would think demand for 'academic paper-writing services' is pretty inelastic - if you are determined to cheat and are willing to 'pay' the cost of potentially getting caught, a small decrease in the amount of advertising should not do much to alter the cost-reward calculus.

Also, notice that Google only bans advertising, not search. The great advantage of Google ads, of course, is that they appear first on the list of search results - and thus have a higher probability of being selected. What Google is essentially doing is transferring advertising funds from itself to companies that specialise in helping websites 'work' Google's algorithm to achieve a top ranking in search results.

Also, almighty as it undoubtedly is, Google is by no means the only search engine around - let alone the only market for essays on demand. It is easy to be carried away given all the talk by Googlemaniacs (hooray, Google is going to conquer the world!) and Googlophobes (somebody stop them, Google is going to conquer the world) to think that all information today has to get the approval of the big G, but you would be wrong. There are other companies, and for that matter, other media too.

Google is trying to recover it's 'Do no evil' image, tarnished after its recent foray in China, by generating some hype from nothing; I expect its advertising revenues from 'academic paper-writing services' to be some negligible part of the total. An empty gesture, and an over-enthusiastic response.

Little known fact: The Greek Constitution makes it illegal for any business to refuse to serve a customer with the ability to pay. Companies are restricted to operating on a commercial basis, and are not allowed to run their own social policy.

I wonder where true libertarians stand on this - I would be grateful if readers could share their thoughts on the comments section or via email.

On Rationality, part I

Is rationality really optimal?

Economists love 'rationality': it makes for simpler models. Wikipedia offers the following definition of perfect rationality (the sort usually attributed to agents in economic models):

In economics and game theory, the participants are sometimes considered to have perfect rationality: that is, they always act in a rational way, and are capable of arbitrarily complex deductions towards that end. That is to say, they will always be capable of thinking through all possible outcomes and choosing the best possible thing to do.

Since rationality means agents will always choose the best possible thing to do, economists are not unreasonable in assuming it should be prevalent in any population that has been subject to a sufficiently long evolutionary process. Take a perfectly competitive market: The 'rational' companies survive, the ones that make production decisions according to the position of the stars will eventually vanish.

This, however, is not always the case; in a large number of situations, irrationality will lead to a superior outcome. In those cases, the 'evolutionary' argument for rationality falls apart.

Think of 'The Battle of the Sexes'. Dave and Pepy are dating. Dave likes bowling, Pepy likes ballet. Dave strongly prefers going bowling with Pepy to watching ballet with her, while Pepy's preferences go the other way round. Neither will enjoy going out at all if they are on their own.

If both Dave and Pepy are rational, they will as much as possible end up going to the same place: their nights will sometimes involve bowling and other times ballet. But now assume that Pepy is irrational and always chooses to go to the ballet regardless of what Dave does. Irrational Pepy achieves a superior outcome: she spends every night with Dave, while never having to set foot at the bowling alley.

Of course, Pepy does not really need to be irrational: a mere credible commitment to acting irrationally would do. Life, however, is a continuous stream of game theoretical situations as the one described above, during which a reputation is established. The sure-fire way to commit to act irrationally is to actually be irrational, at least to some extent.

Think of all the times you didn't punish your four month old baby for waking you up in the middle of the night. By virtue of being a baby, and so clearly irrational, it is allowed to go on asking for attention whenever it feels like without punishment.

If you are a dictator with potential access to weapons of mass destruction, it helps to have a reputation for being mad. It is difficult to commit to carrying out a nuclear strike if your country is invaded - if your goal is to protect yourself and national interests, such a strategy would be counterproductive. But what if you are mad? Your commitment becomes credible, and your adversaries would never dare invade in the first place.

While the above examples may appear to be quite particular, situations like these arise constantly. In a world where the imperfectly rational individual is rewarded over the large number of games that constitute life, it would be wrong to expect evolution to eventually produce the perfectly rational agents inhabiting economic models.

Two Nobel laureates on teaching

Richard Feynman was an American physicist known for expanding the theory of quantum electrodynamics, the physics of the superfluidity of supercooled liquid helium, and particle theory. He was also famous as an unscrupulous prankster. He was a proud amateur painter and bongo player. For his work on quantum electrodynamics, Feynman was a joint recipient of the Nobel Prize in Physics in 1965.

He assisted in the development of the atomic bomb and was a member of the panel that investigated the Space Shuttle Challenger disaster. In addition to his work in theoretical physics, Feynman is credited with the concept and early exploration of quantum computing, and publicly envisioning nanotechnology, creation of devices at the molecular scale.

As well as being an inspirational lecturer, bongo player, notorious practical joker, and decipherer of Maya hieroglyphs, Richard Feynman was regarded as an eccentric and a free spirit. He liked to pursue multiple seemingly independent paths, such as biology, art, percussion, and lock picking. Freeman Dyson once wrote that Feynman as "half-genius, half-buffoon", but later revised this to "all-genius, all-buffoon".

This is from Richard Feynman's entry in Wikipedia. The part that I find of most interest, however, is this:

He [...] eventually chose to work at the California Institute of Technology at Pasadena, California, despite being offered a position near Princeton, at the Institute for Advanced Study (which included such distinguished faculty members as Albert Einstein). Feynman rejected the Institute on the grounds that there were no teaching duties. Feynman found his students to be a source of inspiration and, during uncreative times, comfort. He felt that if he could not be creative, at least he could teach.

Feynman is sometimes called the "Great Explainer"; he took great care when explaining topics to his students, making it a moral point not to make a topic arcane, but instead accessible to others. His principle was that if a topic could not be explained in a freshman lecture, it was not yet fully understood.

Reading about Feynman, I remembered having seen similar sentiments expressed by someone closer to home. The following excerpt is from Robert Solow's Nobel acceptance speech:

I estimate that if I had neglected the students, I could have written 25 percent more scientific papers. The choice was easy to make and I do not regret it.

Of Economists and Men

Mark Harrison has a thought provoking piece on staff and student attitudes towards free trade at Warwick, a leading economics department in the UK. The results are striking, if not entirely unexpected. Loosely speaking, they can be seen to reflect the difference in opinion between professional economists and an intelligent, generally privileged subset of the population with a keen interest, and some experience, in economics.

Harrison asked first-year undergraduates and academic staff to state whether they agreed with six propositions about trade:

1. Industries can be classed as essential or inessential, or ranked in order of national priority
2. When competition takes place in international markets, some countries gain and some countries lose
3. Exports are a gain to each country, and imports are a loss
4. A sign of a country’s economic strength is the scale on which it attracts capital from the rest of the world
5. Import taxes and restrictions, and export subsidies, add to a country’s total employment
6. Actions that are undertaken for profit or self–interest are morally questionable for that very reason.

His results?

“Pop mercantilism” has majority support among first–year students: more than three fifths would agree that industries or activities may be ranked in terms of their importance to society, and that some countries lose from taking part in international trade.

Staff opinion was most divided on the questions whether or not some countries lose by taking part in trade, and whether or not a capital account deficit may indicate relative economic strength, but even here the dissenters were in a small minority. No member of staff would agree that the pursuit of self–interest is immoral per se.

The gap between student and staff attitudes is widest on the propositions that industries or activities may be ranked in terms of their importance to society (staff and student respondents disagreed in the ratio 86% to 21%), and that a country may lose from trade (64% to 29%).

While this study took place back in 2000, I doubt much has changed since then. This brings me to what has been a recurring theme on this blog: People, including the 'intellectual elite' at Warwick or Harvard, have trouble understanding the fundamental lessons of economics.

Economists now have a solid grasp of how the social world works and what steps we need to take to improve it. Unfortunately, we are not nearly as good at telling why some ideas fail to filter through to voters and policy makers.

Understanding public perceptions of economics and loosely branded 'economic policy' is a vastly under-researched area, and many academic economists seem to have taken science's definition as 'disinterested study' too close to heart. While I agree that in many cases reform runs into vested interests, it is usually economic illiteracy that allows these very interests to make a persuasive, if in reality flawed, case to voters and policy makers.

If our aim is not only to understand the world but also to make it better, we need to take a step back and redirect some of our energies away from understanding and towards explaining. And to do this we first need to grasp what the public biases are, why they are so persistent in the face of mounting evidence - and, most importantly, what we can do to overcome them.

Update: Bryan Caplan, via Alex Tabarrok, makes a similar, narrower argument about anti-market bias.