Economics

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Read: The Cult of Statistical Significance

I think my first “contact” with Deirdre McCloskey was when I got seriously interested in scientific writing and in particular in how to improve my writing. I read her Economical Writing at about the same time as Strunk & White’s The Element of Style. That must have been during the middle or shortly before finishing my PhD. Yes, that late. The Rhetoric of Economics followed very soon. Here I got a first glimpse at her battle against the evil p-value and the misuse of statistics. I have to admit even though I agree with her main critique I do not follow all her advice — I think that is one of the big problems she sees in empirical economists. They agree but still do otherwise. I also had the good luck to meet Gerd Gigerenzer, a psychologist and fellow warrior against the misuse of statistics, and discuss this particular topic with him during a sociable evening after a long day full of presentations at a remote conference venue of the Max Planck Society. Yes, there is something wrong with our (that is the economist’s) way of relying on, reporting, and interpreting statistics and specifically statistical significance.

How the Standard Error Costs Us Jobs, Justice, and Lives is not only the subtitle of Ziliak and McCloskey’s manifesto The Cult of Statistical Significance it is quite indicative of their (strong) rhetoric.

The book can be roughly divided in two parts that are devoted to different “themes”. The first is an updated and extended rehash of their earlier articles on the current practice of relying on statistical significance in various fields. If you have not read their articles so far read this and be shocked. You will see the author’s outrage in every paragraph. The second part and theme is a historical account that tries to shed light on how we ended up where we are. This part is rather filled with bitterness and repugnance for R. A. Fisher and compassion for the neglected Mr. Student, William Sealy Gosset.

Ziliak and McCloskey’s rhetoric is unique, yet it is not always to their benefit. Though, they certainly make their point and at least in private you have to agree with them. All in all, the book is entertaining and instructive. Even so, I would not assign this book to a class for reading I would rather recommend the 2004 special issue of the Journal of Socio-Economics on this topic. On the other hand, every empirical scientist and every policy maker relying on scientific research (shouldn’t they all?) should be aware that, first, size matters and that precision of measurement should not be the only decision criteria.

Read: Drive - The Surprising Truth About What Motivates Us

Pink’s Drive is about motivation in the workplace and yet I have a feeling that he does not know the typical workplace or the dominant type of jobs in the developed world. Or, that the book is not about motivation in the workplace after all.

He gets a lot of things right. There are two very different types of jobs. One type consists of mainly routine work, the other is of mainly creative (problem solving) nature. He correctly identifies the categories of motivation, extrinsic and intrinsic, that can be improved by different measures each and that can be linked more successfully to either the routine or the creative type of work. Further, he identifies three motivators that are particularly important for intrinsic motivation: Autonomy (People like to have control over their work), Mastery (People like to get better at what they do), and Purpose (People like to be part of something that is bigger than they are). 

Finally, he correctly points out that extrinsic incentives may have adverse effects on intrinsic motivation.

Pink, however, fails in several other important aspects.

Routine work still needs to be done. Outsourcing does not help. Somebody still has to do the work. Even if job growth is faster for creative jobs nowadays, routine work is a dominant part of work in public administration and public enterprises. Not every job can be re-designed to emphasize the creative part. Consequently, just for this reason alone relying on intrinsic motivation cannot be an universal solution. In short, I think he grossly overstated the relevance of creative jobs.

Second, extrinsic motivation is not just money. There is at least praise, promotion (ok this is money in the end), reputation and the admiration of peers. How do they interact with the different types of work and motivation? Not a single word. How do extrinsic and intrinsic motivation complement each other? Not a single word. In short, he grossly understated the relevance of extrinsic motivation.

Third, his exposition is very unbalanced and lop-sided. If he mentions studies he ignores results that do not support his point. Studies that show the success of extrinsic rewards are not mentioned. They do not support his point. If he concedes that certain extrinsic incentives can be effective he fails to explain to what extend and when this is true . His book is full of inconsistencies. Why do most “flow” experiences (this is something good) happen at work if the workplace is dominated by the horrid carrots and sticks, if-then rewards? Why are the free time for creativity programs only implemented for certain types of employees, i. e. the engineers? Inconvenient truths are sometimes alluded to, never are they discussed in detail.

In the end, Drive is more like a self-help book and about personal development and not about the workplace and how to implement more successful personnel strategies. Indeed, a major part of the book contains a toolkit for self-improvement and ancedotes and conservation starters. The book is about something that fascinated the author. It is not about enlightening the reader.

There was nothing really surprising (except the lopsidedness) and Pink does not offer the (whole) truth. This is really a pity as Pink certainly is a skilled author and the topic is important.

Books on behavioral and experimental economics

At Geary Behavioural Economics Blog @LiamDelaneyUCD is looking for books on behavioral economics. Given my interest in the field, I would like to add a few books. I add a few on experimental economics, too, as both fields are close relatives.

First, let’s see what he already has on his list:

  • “Judgement Under Uncertainty: Heurisics and Biases” edited by Kahnemann, Slovic, and Tverky
  • “Choices, Values, and Frames” edited by Daniel Kahneman and Amos Tversky
  • “Heuristics and Biases: The Psychology of Intuitive Judgement.” edited by Thomas Gilovich, Dale Griffin, and Daniel Kahneman

These three books were indeed among the first books on behavioral economics that I bought myself at the beginning of my PhD. They are good collections of a number of great papers.

Next came:

  • “Advances in Behavioural Economics” edited by Camerer, Loewenstein, and Rabin
  • Camerer’s “Behavioral Game Theory”
  • “Exotic Preferences” by Lowenstein which really is (I have to agree) a great overview of his work on preference formation, emotion and decision making

Just before I moved to Bremen and joined Jacobs University the following two books gained a place on my book shelf

I have not read so far

  • Frey and Stutzer’s “Economics and Psychology: A Promising New Cross-Disciplinary Field”
  • Peter Lunn’s recent book “Basic Instincts: Human Nature and the New Economics”

On the pop-economics front @LiamDelaneyUCD lists

And in the comments are a number of books mentioned that I have not read so far:

  • William Poundstone’s “Priceless”
  • Ori and Rom Brafman, Sway: The Irresistible Pull of Irrational Behaviour
  • Akerlof and Shiller, Animal Spirits

All three of them are already on my to-read-shelf.

Last but not least, everything by Herbert Simon, and in particular “Human Problem Solving” is mentioned.

Ok. What can I add to this list?

First, two collections:

  • “The Construction of Preferences” edited by Lichtenstein an Slovic
  • “Quasi Rational Economics” by Richard Thaler.
    Both are highly recommended!

On morals, ethics and (behavioral) economics:

On behavioral game theory

And finally, a few essential books on experimental economics:

  • “The Handbook of Experimental Economics” by Kagel and Roth
  • “Handbook of Experimental Economics Results” by Plott and Smith
  • “The Methodology of Experimental Economics” by Francesco Guala
  • “Experimental Economics – Rethinking the Rules” by Bardsley, Cubitt, Loomes, Moffatt, Starmer, and Sudgen

Enjoy!

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Read: Super Crunchers - Why Thinking-by-Numbers Is the New Way to Be Smart

After having read Ian Ayres’ Super Crunchers I feel more like listing what the book is not than what it is.

It is not about Super Crunchers. The title was chosen just for its appeal. Ayres explains that he experimented (using google ads) a little with different titles to find out what wold generate the most interest and consequently sales. Super Crunching is about data mining in huge data sets, Super Crunchers is more about raising the general awareness of the impact statistics can and should have on everyday decisions.

The book is not about the people that do the number crunching, it rather is a collection of anecdotal stories that point to the increasing possibilities data nowadays offer the decision maker.

Nor is the book a homage to statistical methods and theoretical research in statistics and econometrics. In his stories, Ayres sticks to the most simple statistics or jumps to something very far removed, neural networks. He presents some applications, some are first-hand (and never using huge data sets) others are only third-hand re-iterations. He adds a lot of personal details, politics and own business ventures. This makes the book kind of diverting to read. Yet I do not feel these diversions add to the supposed topic of Super Crunchers.

And finally, even though Ayres adds a little cautious note after a lot of praise what can be done with data and how we all surely will benefit from losing our informational self-determination, our privacy to the data mining industry and government, he falls short of any standard a lawyer should adhere to when it comes to privacy issues.

Having said all that, do not get me wrong: I enjoyed reading the book. Only afterwards I noticed all its different short-comings.

Read: Free Riding

Free riding — to an economist — is a rather opportunistic and consequentially rational behavior humans show in situations where they can reap private benefits from not participating in an action while still enjoying the public benefits of other’s participation. If, of course, everyone wants to enjoy the private benefits and nobody contributes there are no public benefits, and in the end, if everyone just behaves opportunistically, they may be worse off than if everyone, or at least a substantial number of people, contributed.

Richard Tuck poses the question whether this can indeed be rational behavior — again, to an economist, rational behavior is just behavior that is logically consistent with a person’s preferences that, in turn, need to conform to only a few innocuous axioms. (Ok, I am understating.) He argues that if an action is in some way efficacious and therefore causal for the ultimate result, it has to be rational to perform the action. He presents a rather long winded argument about negligibility that in my opinion ultimately does not necessarily support his conclusions. And it seems, this is not just my opinion

In brief, I do not agree with Tuck. At all. And this is not because I just do not like some of his implications. Still, his book is a rather nice historical account of the notion of rationality of cooperation in public good and competitive scenarios in philosophy, political science and economics.

Read: Why We Cooperate

While Michael Tomasello cannot give an ultimate answer to the question on why we cooperate his book is an interesting contribution to the ongoing discussion. And thus his book’s form is also more styled as an discussion. In the first part he presents his own research on primates and young human children and his own conclusions. In the second part some additional prominent scientists from the fields of developmental psychology, anthropology, and philosophy are allowed to respond with their opposing views on his interpretations based on their own research.

It is clear that the different authors do not agree on the details but there seems to be some overlap. All in all it is a nice cooperative effort. By allowing opposing views to be voiced the whole endeavor becomes more balanced and the reader gains a more comprehensive picture of the research on human cooperative behavior.

Though I was already more or less aware of the various approaches there was something I did not consciously know so far. Tomasello distinguishes three domains of altruism: goods, services, and information that translate to the actions sharing, helping, and informing. As Tomasello points out, these domains entail different costs and benefits. Therefore I am inclined to adopt this categorization for my own research.

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