Capitalism is Wrong?

The most cogent argument I’ve seen.

The Creation of the Paragraph

The paragraph has only been around since about 1795, and the generally accepted rules for paragraphs have only been around since about 1865. That’s when Alexander Bain came up with six rules for building paragraphs. For example, each paragraph should have a topic sentence that summarizes the main idea of the paragraph. Bain’s six rules were whittled down to three by successive generations of grammarians, but the general form remained.

But it turns out that the rules were wrong. More recently academics have analyzed writing samples and it turns out that, for example, only 10% of the paragraphs have topic sentences, and that is using a generous definition of topic sentence. Most good writing doesn’t follow the Bain rules. This might have been obvious if teachers had checked, yet these rules were believed for over 100 years.

Name That Cognitive Bias

Like most people of pronounced seniority he reads the obituary page with attention, and had a morning of quiet triumph last winter when two insurance shamans, a past president of the Actuarial Society of America and the vice-president of a major company, died on the same day aged sixty-two and fifty-four respectively. “I bet they avoided excitement, late hours, high blood pressure, tasty food and intoxicating liquors and had themselves periodically examined with stethoscopes, fluoroscopes, spectroscopes and high-powered lenses,” the Colonel said. “The result was inevitable and to be expected, the result of a morbid preoccupation. The anxious fielder drops the ball.”

I twitted him with the vigorous old age attained by Mrs. Ella Boole, past president of the Woman’s Christian Temperance Union, who recently passed on in their ninety-fourth year, but the Colonel had a ready explanation of her survival.

“She must have been a secret tippler,” he said.

 

 

From The Honest Rainmaker. And, by the way, it’s confirmation bias. I’ve been running into this one everywhere.

What’s wrong with GDP?

Lots

Are Pensions Better Than 401k’s?

Maybe, but maybe pensions are severely underfunded. Tyler links to two viewpoints, so you can make up your own mind. It’s important to note that if my 401k underperforms it doesn’t take down everyone else with me.

More Money Less Performance? Not from me!

Jon links here and asks if CEO pay will be improved by more money. The economics in this video has one major problem, a couple of things I would quibble about, and one solid challenge to the conventional economic view, which can be salvaged, but at the risk of seeming less plausible than alternative explanations.

Dan Pink explains some recent discoveries in behavioral economics that show that when people are given excessive future monetary incentive they will tend to under perform. This is true particularly when the task requires thinking. He claims that people are motivated not by profit per se, but rather by doing the interesting work. He gives several examples of people doing things that aren’t for pecuniary reward, but are instead hobbies. These include Linux and Wikipedia. I’ll note as an aside that these types of ventures, which improve the lives of virtually everyone in the US, are one of the reasons that inequality inequality measures aren’t very useful. They don’t capture improvements that can’t be recorded in monetary terms.

The major problem with this video is that standard economics doesn’t posit that people are solely motivated by profits and money. Economics posits that people are seek to maximize utility. Many times value is converted into monetary measures for ease of comparison, but it should always be understood that people are choosing to maximize their utility, or at least they are being modeled as choosing to maximize their utility.

There is no way to directly measure utility, so generally economists will assume that individuals are utility maximizers and follow that postulate where it leads.  When a person chooses to edit wikipedia article rather than work another hour of overtime, they are revealing that they value editing wiki’s more than they value the monetary compensation that they would have received. Since the monetary value can be measured, we can determine how much they value that hour of contributing to wikipedia. This is a consequence of the persons revealed preference. If you were to ask the person whether they would rather have more money or fix a wikipedia entry, they may claim that they would rather have the money, but their revealed preference is that they value the time editing wikipedia more.

The quibble is more my lack of knowledge of all the data used in the study. Pink claims that people underperform when too much is on the line, but I’m guessing that is on average. I’m guessing that some people perform better when there is more pressure on. I knew people in grad school who couldn’t even start to think about doing a project until there was only a day left. Michael Jordan was clutch. Some folks just work better under pressure. Some people probably do better when they’re given a huge monetary incentive that is just waiting to be had. Not most, but I’m sure that some people do. I’m not sure, but it’s possible that these are the types of people who become CEO’s.

The big challenge for the utility theory approach is from the expectation that money is a positive good. If people are utility maximizers, and money is a positive good, then we should expect people to perform better when they are offered more monetary compensation for better work. One way to salvage the utility approach is to posit that subconsciously most people self-sabotage in some sense. Our subconsciousness isn’t completely open to us, so maybe people don’t really want the higher reward. Maybe deep down they think they don’t deserve it. Just based on self-reflection, that doesn’t seem like the right answer to me, but it is possible.

I do hope that more companies look at this research and companies use it to improve their incentive process. In any case, I trust the market to find better incentive far more than I trust the government to find them.