Models Often “Ignore the Messiness of Reality”

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Source of book image: http://www.namingandtreating.com/wp-content/uploads/2011/04/SuperCooperators_small.png

(p. 18) Nowak is one of the most exciting modelers working in the field of mathematical biology today. But a model, of course, is only as good as its assumptions, and biology is much messier than physics or chemistry. Nowak tells a joke about a man who approaches a shepherd and asks, ”If I tell you how many sheep you have, can I have one?” The shepherd agrees and is astonished when the stranger answers, ”Eighty-three.” As he turns to leave, the shepherd retorts: ”If I guess your profession, can I have the animal back?” The stranger agrees. ”You must be a mathematical biologist.” How did he know? ”Because you picked up my dog.”

. . .
Near the end of the book, Nowak describes Gustav Mahler’s efforts, in his grandiloquent Third Symphony, to create an all-encompassing structure in which ”nature in its totality may ring and resound,” adding, ”In my own way, I would like to think I have helped to give nature her voice too.” But there remains a telling gap between the precision of the models and the generality of the advice Nowak offers for turning us all into supercooperators. We humans really are infinitely more complex than falling apples, metastasizing colons, even ant colonies. Idealized accounts of the world often need to ignore the messiness of reality. Mahler understood this. In 1896 he invited Bruno Walter to Lake Attersee to glimpse the score of the Third. As they walked beneath the mountains, Walter admonished Mahler to look at the vista, to which he replied, ”No use staring up there — I’ve already composed it all away into my symphony!”

For the full review, see:
OREN HARMAN. “A Little Help from Your Friends.” The New York Times Book Review (Sun., April 10, 2011): 18.
(Note: ellipsis added.)
(Note: the online version of the review has the date April 8, 2011, and has the title “How Evolution Explains Altruism.”)

The full reference for the book under review, is:
Nowak, Martin A., and Roger Highfield. Supercooperators: Altruism, Evolution, and Why We Need Each Other to Succeed. New York: Free Press, 2011.

Sticking with Expected Utility Theory as an Example of “Theory-Induced Blindness”

(p. 286) Perhaps carried away by their enthusiasm, [Rabin and Thaler] . . . concluded their article by recalling the famous Monty Python sketch in which a frustrated customer attempts to return a dead parrot to a pet store. The customer uses a long series of phrases to describe the state of the bird, culminating in “this is an ex-parrot.” Rabin and Thaler went on to say that “it is time for economists to recognize that expected utility is an ex-hypothesis.” Many economists saw this flippant statement as little short of blasphemy. However, the theory-induced blindness of accepting the utility of wealth as an explanation of attitudes to small losses is a legitimate target for humorous comment.

Source:
Kahneman, Daniel. Thinking, Fast and Slow. New York: Farrar, Straus and Giroux, 2011.
(Note: bracketed names and ellipsis added.)

A Marshmallow Now or an Elegant French Pastry Four Years Later

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Source of book image: http://images.amazon.com/images/G/01/richmedia/images/cover.gif

(p. 19) Growing up in the erratic care of a feckless single mother, “Kewauna seemed able to ignore the day-to-day indignities of life in poverty on the South Side and instead stay focused on her vision of a more successful future.” Kewauna tells Tough, “I always wanted to be one of those business ladies walking downtown with my briefcase, everybody saying, ‘Hi, Miss Lerma!’ “

Here, as throughout the book, Tough nimbly combines his own reporting with the findings of scientists. He describes, for example, the famous “marshmallow experiment” of the psychologist Walter Mischel, whose studies, starting in the late 1960s, found that children who mustered the self-control to resist eating a marshmallow right away in return for two marshmallows later on did better in school and were more successful as adults.
“What was most remarkable to me about Kewauna was that she was able to marshal her prodigious noncognitive capacity — call it grit, conscientiousness, resilience or the ability to delay gratification — all for a distant prize that was, for her, almost entirely theoretical,” Tough observes of his young subject, who gets into college and works hard once she’s there. “She didn’t actually know any business ladies with briefcases downtown; she didn’t even know any college graduates except her teachers. It was as if Kewauna were taking part in an extended, high-stakes version of Walter Mischel’s marshmallow experiment, except in this case, the choice on offer was that she could have one marshmallow now or she could work really hard for four years, constantly scrimping and saving, staying up all night, struggling, sacrificing — and then get, not two marshmallows, but some kind of elegant French pastry she’d only vaguely heard of, like a napoleon. And Kewauna, miraculously, opted for the napoleon, even though she’d never tasted one before and didn’t know anyone who had. She just had faith that it was going to be delicious.”

For the full review, see:
ANNIE MURPHY PAUL. “School of Hard Knocks.” The New York Times Book Review (Sun., August 26, 2012): 19.
(Note: the online version of the article is dated August 23, 2012.)

The full reference for the book under review, is:
Tough, Paul. How Children Succeed: Grit, Curiosity, and the Hidden Power of Character. Boston, MA: Houghton Mifflin Harcourt, 2012.

“Theory-Induced Blindness”

(p. 276) The mystery is how a conception of the utility of outcomes that is vulnerable to . . . obvious counterexamples survived for so long. I can explain (p. 277) it only by a weakness of the scholarly mind that I have often observed in myself. I call it theory-induced blindness: once you have accepted a theory and used it as a tool in your thinking, it is extraordinarily difficult to notice its flaws. If you come upon an observation that does not seem to fit the model, you assume that there must be a perfectly good explanation that you are somehow missing. You give the theory the benefit of the doubt, trusting the community of experts who have accepted it. . . . As the psychologist Daniel Gilbert observed, disbelieving is hard work, and System 2 is easily tired.

Source:
Kahneman, Daniel. Thinking, Fast and Slow. New York: Farrar, Straus and Giroux, 2011.
(Note: ellipses added.)

Premortem Reduces Bias from Uncritical Optimism

(p. 265) As a team converges on a decision–and especially when the leader tips her hand–public doubts about the wisdom of the planned move are gradually suppressed and eventually come to be treated as evidence of flawed loyalty to the team and its leaders. The suppression of doubt contributes to overconfidence in a group where only supporters of the decision have a voice. The main virtue of the premortem is that it legitimizes doubts. Furthermore, it encourages even supporters of the decision to search for possible threats that they had not considered earlier. The premortem is not a panacea and does not provide complete protection against nasty surprises, but it goes some way toward reducing the damage of plans that are subject to the biases of WYSIATI and uncritical optimism.

Source:
Kahneman, Daniel. Thinking, Fast and Slow. New York: Farrar, Straus and Giroux, 2011.

Economists Optimistic that Economy Can Adapt to Climate Change

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Source of book image: http://www.bibliovault.org/thumbs/978-0-226-47988-0-frontcover.jpg

(p. 222) Efficient policy decisions regarding climate change require credible estimates of the future costs of possible (in)action. The edited volume by Gary Libecap and Richard Steckel contributes to this important policy discussion by presenting work estimating the ability of economic actors to adapt to a changing climate. The eleven contributed research chapters primarily focus on the historical experience of the United States and largely on the agricultural sector. While the conclusions are not unanimous, on average, the authors tend to present an optimistic perspective on the ability of the economy to adapt to climate change.

For the full review, see:
Swoboda, Aaron. “Review of: The Economics of Climate Change: Adaptations Past and Present.” Journal of Economic Literature 50, no. 1 (March 2012): 222-24.

Book under review:
Libecap, Gary D., and Richard H. Steckel, eds. The Economics of Climate Change: Adaptations Past and Present, National Bureau of Economic Research Conference Report. Chicago: University of Chicago Press, 2011.

People “Reward the Providers of Dangerously Misleading Information”

(p. 262) As Nassim Taleb has argued, inadequate appreciation of the uncertainty of the environment inevitably leads economic agents to take risks they should avoid. However, optimism is highly valued, socially and in the market; people and firms reward the providers of dangerously misleading information more than they reward truth tellers. One of the lessons of the financial crisis that led to the Great Recession is that there are periods in which competition, among experts and among organizations, creates powerful forces that favor a collective blindness to risk and uncertainty.
The social and economic pressures that favor overconfidence are not (p. 263) restricted to financial forecasting. Other professionals must deal with the fact that an expert worthy of the name is expected to display high confidence. Philip Tetlock observed that the most overconfident experts were the most likely to be invited to strut their stuff in news shows. Overconfidence also appears to be endemic in medicine. A study of patients who died in the ICU compared autopsy results with the diagnosis that physicians had provided while the patients were still alive. Physicians also reported their confidence. The result: “clinicians who were ‘completely certain’ of the diagnosis antemortem were wrong 40% of the time.” Here again, expert overconfidence is encouraged by their clients: “Generally, it is considered a weakness and a sign of vulnerability for clinicians to appear unsure. Confidence is valued over uncertainty and there is a prevailing censure against disclosing uncertainty to patients.” Experts who acknowledge the full extent of their ignorance may expect to be replaced by more confident competitors, who are better able to gain the trust of clients. An unbiased appreciation of uncertainty is a cornerstone of rationality–but it is not what people and organizations want. Extreme uncertainty is paralyzing under dangerous circumstances, and the admission that one is merely guessing is especially unacceptable when the stakes are high. Acting on pretended knowledge is often the preferred solution.

Source:
Kahneman, Daniel. Thinking, Fast and Slow. New York: Farrar, Straus and Giroux, 2011.

Macaulay Argues that a Limited Government that Protects Property Will Promote Economic Growth

Our rulers will best promote the improvement of the nation by strictly confining themselves to their own legitimate duties, by leaving capital to find its most lucrative course, commodities their fair price, industry and intelligence their natural reward, idleness and folly their natural punishment, by maintaining peace, by defending property, by diminishing the price of law, and by observing strict economy in every department of the state. Let the Government do this: the People will assuredly do the rest.

Source:
Macaulay, Thomas Babington, Lord. “Review of: Robert Southey’s “Sir Thomas More; or, Colloquies on the Progress and Prospects of Society”.” In Critical and Historical Essays Contributed to the Edinburgh Review. London: Longman, Green, Longman, and Roberts, 1830.
(Note: the quote above appeared on the back cover of The Cato Journal 30, no. 1 (Winter 2010); Macaulay’s full review, including the quote, can be viewed online at: http://www.econlib.org/library/Essays/macS1.html )
(Note: the online version does not give page numbers, but gives what I think are “screen” numbers. The passage quoted is all of “SC.96” which appears at the very end of the essay.)

Renaissance Florence: “A Really Vibrant, Flexible, and Free-Market City”

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Source of book image: http://covers.booktopia.com.au/big/9781421400594/the-economy-of-renaissance-florence.jpg

(p. 176) Chapters 4 and 5 deal with manufacturing, by far the main source of employment in the city. The Florentine textile industry had developed thanks to the Arno River, which provided water and power, and had become a market leader in Europe for high-quality products. Production was based, as everywhere in Europe, on a putting-out system–but strictly confined to the city. The author describes the organization and its changes over time, stressing, as for international banking, the flexibility of firms and their high turnover. Workers were organized in guilds, but the author stresses their nature as political associations rather than their economic role. Florentine guilds did not restrict the access to profession nor stifle innovation. Chapter 6 describes the banks catering for urban market–including local branches of international banks as well as smaller local firms, plus pawnbrokers, both Catholic and Jews. Local banks appeared thoroughly modern in their business and the resort to banking services was quite widespread. Artisans and workers were routinely paid with checks and had bank accounts. And the whole system worked well with almost no state intervention, at least until the late sixteenth century.
. . .
. . . , the author argues that Florentine society was very upwardly mobile, at least for the standard of the time and that the distribution of wealth by household according to the 1427 Catasto was fairly equal (although inequality increased in the next century).
(p. 177) As a whole, at the end of the book one has the impression of a really vibrant, flexible, and free-market city. The standard of living was undoubtedly high and not only for the wealthy, as witnessed by the art treasures of the city, but also for the working class. Literacy and numeracy was very common, and the majority of children attended a primary school.

For the full review, see:
Federico, Giovanni. “Review of: The Economy of Renaissance Florence.” Journal of Economic Literature 48, no. 1 (2010): 175-77.

Book under review:
Goldthwaite, Richard A. The Economy of Renaissance Florence. Baltimore, MD: The Johns Hopkins University Press, 2009.

Big Firm CFOs Were Confident about Their “Worthless” Stock Forecasts

(p. 261) For a number of years, professors at Duke University conducted a survey in which the chief financial officers of large corporations estimated the returns of the Standard & Poor’s index over the following year. The Duke scholars collected 11,600 such forecasts and examined their accuracy. The conclusion was straightforward: financial officers of large corporations had no clue about the short-term future of the stock market; the correlation between their estimates and the true value was slightly less than zero! When they said the market would go down, it was slightly more likely than not that it would go up. These findings are not surprising. The truly bad news is that the CFOs did not appear to know that their forecasts were worthless.

Source:
Kahneman, Daniel. Thinking, Fast and Slow. New York: Farrar, Straus and Giroux, 2011.

Mitt Romney on Innovation and Creative Destruction

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Source of book image: http://mittromneycentral.com/uploads/No-Apology1.jpg

(p. 108) Innovation and Creative Destruction

The key to increasing national prosperity is to promote good ideas and create the conditions that can lead them to be fully exploited–in existing businesses as well as new ones. Government is generally not the source of new ideas, although innovations from NASA and the military have provided frequent exceptions. Nor is government where innovation is commercially developed. But government policies do, in fact, have a major impact on the implementation of innovative ideas. The degree to which a nation makes itself productive, and thus how prosperous its citizens become, is determined in large measure by whether government adopts policies that stimulate innovation or that stifle it.
The government policy that has the greatest effect on innovation is simply whether or not the government will allow it. It’s sad but true: Government can and often does purposefully prevent innovation and the resulting improvement in productivity. Recall my hypothetical example of a society in which half the farming jobs were lost due to innovation in the use of a plow? Some nations accept and encourage such “creative destruction,” recognizing that in the long run it leads to greater productivity and wealth for its citizens. But other nations succumb to the objections of those in danger of becoming unemployed and prevent innovation that may reduce short-term employment.
Two centuries ago, more than three-quarters of our workforce actually did labor on farms. Over the succeeding decades, innovations like irrigation, fertilizer, and tractors were welcomed, and eventually large farming corporations were allowed to prosper, despite protests from family farmers and the often heart-wrenching dislocations that accompanied consolidation of farmlands. The result was the disappearance of millions of agricultural jobs and the large-scale migration of Americans from rural regions to our cities. Once there, they provided the labor that powered America’s new industrial age. And at the same time, because farming innovation and productivity were allowed to flourish, America became the leader in agriculture education, research, and industry. Innovations from these sources have enabled us to produce sufficient food to feed not only our growing population but other parts of the world as well.

Source:
Romney, Mitt. No Apology: The Case for American Greatness. New York: St. Martin’s Press, 2010.
(Note: bold in original.)