Social sciences

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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: The Drunkard's Walk - How Randomness Rules our Lives

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…

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: Reason and Rationality

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.

Read: Morals and Markets - An Evolutionary Account of the Modern World

Dan Friedman’s Morals and Markets is a nice complement to the multidisciplinary collection Moral Markets that I read earlier. Friedman provides an historical account of the interdependence of well functioning markets and moral sentiments and thus an evolutionary perspective that is not limited to economics as he also discusses the respective impact on societal structures and vice versa.

Friedman offers a rather balanced discussion of the benefits and perils of a moral society, when markets need morals and when markets are choked by them. Solely the joint discussion of terrorist and religious groups may seem a bit controversial.

Morals and Markets is not an academic textbook. It tells a coherent story by a sequence of (true) anecdotes that is easily accessible to anyone. In fact, it is quite entertaining while still being instructive.

In the end, Friedman argues convincingly that the major challenge will be to realign morals and markets such that they work together and thus help to improve our society.

Read: Moral Markets

Is economics an amoral science? No, though sometimes it seems so. Look at what is taught at most business schools and economics departments and you might certainly get this impression. Indeed, the focus on the rational decision maker – a rather selfish sociopath – in most curricula in business, law and economics may be a cause for the rather unscrupulous behavior that can be observed in the current business world: Greed is good.

The world is not amoral. Even markets are not. Successful economic exchange without trust, reciprocity, honesty and some sense of fairness seems hardly possible. At least if you listen to the diverse team of authors of Moral Markets. And I tend to agree.

Moral Markets is the result of several years of collaborative research and discussion (the list of contributors is rather impressive). It reviews the critical role of social norms in the economy from a diverse set of fields and points of view. The discussion ranges from biology, the animal world and evolutionary arguments to philosophical questions (and answers) and an analysis of our current perception of the economy to the interdependence of social norms and law and of course (economic) behavior. The main message is clear. Without a social conscience we would not be as successful as we were so far. And it is unlikely that we will keep up the pace if we forget the importance of social norms, values and virtues.

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