pro libertate net

In 2000, George Akerlof and Rachel Kranton published Economics and Identity in the Quarterly Journal of Economics proposing a way on how to acknowledge the influence of identity in the standard economic framework. The published paper was surprisingly non-technical, it focused rather on empirical examples that are consistent with their model than on theoretical derivations, i.e. the rigorous use of mathematics to obscure any intuition one might have. Their book Identity Economics follows in the same tradition. It is basically an accessible summary of their papers on the topic that they published so far. In a number of chapters they present first the intuition of their model and than some applications by enumerating a long list of empirical observations that are consistent with their model.

This style of presentation is both fortunate and unfortunate. It is fortunate because the book becomes consequently accessible to a non-economist audience. Though I doubt that a lay-person may actually be interested in how economists deal with the influence of identity on economic decision making and in the fact that they (the economists) did not care to do so previously. After all, identity is not really a new concept. Ask a sociologist or psychologist about this… Therefore, the general style and choice of content of the book is also unfortunate. The actual audience may rather consist of economist and researcher from fields that have acknowledged identity as an important factor long ago. This audience – and here I include myself – is certainly also interested in the underlying math. A technical appendix would have been nice. Luckily, Rachel Kranton published some material (an earlier, more technical version of their paper Identity and the Economics of Organizations) on her webpage.

In a nutshell, identity determines the optimal choice for someone belonging to a certain identity class. If the individual deviates from this “class action” her individual utility is reduced. Hence, utility is just the sum of the standard utility and an identity penalty term. The problem, of course, is then to define identity categories, to define the optimal “class action”, to assign an individual to such a category, and to determine the appropriate penalty.

All in all, the whole approach is rather interesting. I like that the individual is finally put into a (social) context. It certainly enhances the descriptive power of the standard model. Its prescriptive power is, however, rather ambiguous. There are too many unknowns. Consequently, the general reception of these ideas in economics seems rather lukewarm (as already noted in another review at whimsley worth reading). Nevertheless, others are picking up on the topic. There will be, for instance, another book on it published this winter by Cambridge University Press: Individuals and Identity in Economics authored by John B. Davis that seems rather interesting as it promises a more broader overview and also some more rigorous illustrations.

Recent years have seen a massive surge in popular economics books for the uninitiated masses. The list ranges from books advocating standard economics and its applications to everyday phenomena – like Landsburg‘s The Armchair Economist, Cowen’s Discover Your Inner Economist, and Harford’s The Undercover Economist – to books that tell of unexpected links of standard economics and real world behavior, e.g. Levitt & Dubner’s Freakonomics, to books that present a blend of economics and psychology, questioning the standard economics’ focus on flawed assumptions on human behavior, stressing the schism between neo-classical normative (standard) economics and positive (behavioral) economics – like Ariely’s Predictably Irrational and Thaler & Sunsteins’s Nudge.

The Brafman brother’s Sway belongs to the last category. In contrast to Ariely et al. they do not present there own original research as they are not active researchers in the field of behavioral economics. Thus they follow the current standard recipe of success of other popular economics books authors, they tell a lot of more or less connected anecdotes illustrating behavior that is not conforming to standard economic theory or an intuitive definition of rational behavior.

Sway has two main topics. About two third of the book is dedicated to the sunk cost fallacy, even if the Brafmans use different labels, most notably commitment (to a lost cause). In brief, due to being loss averse people tend to commit to behavior and opinions that are not in their best interest or rational since they already invested some resources and do not want to loose their initial investment. The remaining third is then about the interdependency of social norms and preferences and explicit incentives, the crowding out of intrinsic motivation by extrinsic incentives.

All in all, Sway is rather well written, entertaining and instructive. Indeed, once you start reading you will want to go on. Given the that Sway is just under 200 pages it may well serve as a nice teaser to the field of behavioral economics and other books and maybe academic programs that can provide more depth.

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.

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 lop-sidedness) 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.

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.

Experimental philosophy is not as young an academic field as it might seem. Not only do I know philosophers that already relied on (economic) experiments far longer than wikipedia dates the birth of the field, Appiah quite correctly points to a number of ancient and classical philosophers who relied on empirical research. And he points to a number of empirical scientist in psychology, sociology, and economics who without hesitation can be classified as philosophers as well. Indeed, I am quite convinced that all these academic disciplines not only share some of their objectives but have a substantial overlap.

Appiah’s Experiments in Ethics is a remarkable historical and methodological account of morality from the philosopher’s perspective. He offers a balanced view, he never sugarcoats problems with the philosophical methodology and does not shy away from picking to pieces what he thinks is a futile exercise in thought experiments. He advocates a joint approach of the different disciplines to “sustain what’s good in our lives.” He never entertains the illusion that there is a simple answer. In contrast, he candidly admits the complexity of research on morality, what constitutes goodness.

Even though the book – as seems typical for a philosophical treatise – poses more questions than it offers answers I rather enjoyed reading it…

In the end, one of the most important insights that Appiah is offering his readers is in my opinion: “In life, the challenge is not so much to figure out how best to play the game; the challenge is to figure out what game you’re playing.”