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.

Finally I took the time to read another of the classics, Richard Dawkins’ The Selfish Gene, on my to-read-bookshelf that waited there already for quite some time. Not being a biologist and having been trained in Game Theory I have to admit, I do not see the controversy this book had caused. Even when he starts to discuss implications for human society and culture, the evolution of ideas and, yes, social norms I do not feel the urge to object. But, it is the 30th anniversary edition. Things were different back in the seventies.

I was a bit surprised, though, to find extensive references – basically a renarration – to Robert Axelrod’s The Evolution of Cooperation in one of the two chapters that were added later to this book. It is certainly instructive and somehow fits the general theme. Yet, this chapter has a different “feel”.

Not surprising was, however, that you cannot fail to notice that Dawkins certainly is not a devout catholic. Other works of his make this more explicit. Yet, the Selfish Gene is already a good indication of his conviction about religion.

My conclusion: The Selfish Gene is still an interesting and instructive text that should (also) be read by social scientist – right before or when they start to learn some Game Theory.

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.

While Ayre’s Super Cruncher invited to find patterns in seemingly random data (and running controlled experiments to assess differences in treatments, e.g. maximizing sales revenue by the “right” choice of book title) Mlodinow’s The Drunkard’s Walk is more a warning of seeing patterns in seemingly non-random data.

Life is full of randomness and Mlodinow’s little book raises some awareness to the random factor in our lives. He gives a nice historical account of the concept of randomness in mathematics and other sciences as the disciplinary borders were once not as distinct as they are now. This reminded me a bit of Peter Bernstein’s Against the Gods. Though Mlodinow’s work is considerably shorter and more focused owing to the more directed topic of his book. My recollection may be wrong, yet I believe his work is also more sanguine.

In short, he did a very good job. The Drunkard’s Walk is entertaining, balanced and instructive and covers considerably more than just the economic side of randomness: the chance element in our lives, luck and misfortune, the misperception of probabilities and causality, and psychological biases. Finally, he also cautions all those who rely a little too much on their statistics…

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.

Jon Elster’s inaugural lecture at the College de France is an instructive essay on reason, emotions and their link to rationality. In contrast to most of his other books that are quite heavy tomes (in volume and content), Reason and Rationality is a nice little book that really invites the reader to open it.

I wonder whether his presentation was as well delivered as this little book was written. Maybe I will finally dare to start reading his other contributions that are waiting on my book shelf – some already for several years.