Re: Imperfect Reasoning (was: reading recommendation)
Robin Hanson wrote: > People talk a lot about their difficulty in committing to long term plans. > They choose savings plans that they can't get out of. They take efforts to > avoid being around tempting candy bars. These look more like conflicting preferences to me than "meta-rationality." But I'll agree that we see a fair amount of this. > People talk a lot about various irrationalities > that they might fall into and ways they try to compensate for that. > People talk about realizing that each person tends to think highly of > him/herself, and trying to compensate for that. People "talk a lot" about this?! Maybe in a few odd sub-cultures. I can't recall any family member every talking this way, for example. Maybe you're meta-rational, but I can't think of anyone else who resembles you in this way. :-) -- Prof. Bryan Caplan [EMAIL PROTECTED] http://www.gmu.edu/departments/economics/bcaplan "[W]hen we attempt to prove by direct argument, what is really self-evident, the reasoning will always be inconclusive; for it will either take for granted the thing to be proved, or something not more evident; and so, instead of giving strength to the conclusion, will rather tempt those to doubt of it, who never did so before." -- Thomas Reid, _Essays on the Active Powers of the Human Mind_
Re: Upward Sloping Demand Curves
You can download it at: http://papers.ssrn.com/paper.taf?ABSTRACT_ID=232542 Scott Merryman --- > Where's the paper printed? I did a search on Econlit and couldn't find > anything. > > Daljit Dhadwal
Re: upward sloping demand curves
On Tue, 26 Sep 2000, Cyril Morong wrote: > My understanding of the upward sloping demand curve is that consumers may > be willing to buy more of a product if the price is higher because the > higher price may signal better quality. If the perception is that it is of better quality, then it is a different product, and the demand curve, which is for just one product, does not slope up. > What about attributes of the product? Isn't that what we really demand? Yes. So the demand curve is for just one set of characteristics. Fred Foldvary
Re: Upward Sloping Demand Curves
Where's the paper printed? I did a search on Econlit and couldn't find anything. Daljit Dhadwal > > > All this time I've been living under the impression that there wasn't a Santa Claus >and that upward sloping demand curves were the unicorns of economic theory. Alas, I >was wrong. > > The current presidential race had already convinced me that Santa Claus does in fact >exist afterall, and he even comes with a running mate. And now I've finished reading >the Anderson/Simester study (May 2000): > > The Role of Price Endings: Why Stores May Sell More at $49 than at $44 > > First, Santa Claus - and now I've had to throw in the towel on upward sloping demand >curves as well. > > This joint Chicago/MIT study, utilizing a large catalog field test, found that >increasing the price of an item from $44 to $49 may actually increase demand of that >item (quantity demanded for the anal-retentive on the List) by up to 30%. This >paradox is related to the "fact" that $9 price endings lead to favorable customer >price perceptions and increased customer demand. However, overuse of the $9 price >ending dilutes this effect, as does the simultaneous use of sale signs. > > Furthermore, the study suggests that this is all a quite rational response to a >marketing cue. > > Let's ponder the ramifications of this study. Now we have the possibility of >parallel demand and supply curves . . .the absence of an equilibrium price and >quantity . . .sacrilege! > > J. Morrison > New York, NY > >
Re: Upward Sloping Demand Curves
[EMAIL PROTECTED]
Re: Underpaid workers message dated "Tue, 26 Sep 2000 21:59:16 +0200."
"Francois-Rene Rideau <[EMAIL PROTECTED]>" wrote: > Isn't one of the reasons why some highly qualified people feel underpaid > the fact that in many structures, they feel they have a value > that is unacknowledged or unexploited by their hierarchy? That is exactly right. Professional athletes are considered to be overpaid, but they are subject to the strange economics of zero-sum competition. How much would you pay for a person or service that dramatically improves your chances of success? For example, do you think the people of Chicago chagrined the $36 million one-year guaranteed contract Michael Jordan got in his final year? Academia is almost a negative-sum game. People are simpy trying to survive (i.e, get tenure), with no hope really of discovering something profitable. This is changing somewhat, esp. in biology with medical applications. I'm glad to see all the sweet cars (MBs, BMWs, Jaguars) and motorcycles (Yamaha YZF-R1s, Ducati 996s, Harley customs) in the parking lot next to the biology building (Bldg. 68) at MIT. I hope that the physics people like myself come upon such riches in the near future, but I won't be unhappy if they don't; in the interim, I don't mind if I drive my dad's hand-me-down Oldsmobile. The solid-state folks are making some headway ... > This may be particularly true when the hierarchy doesn't grasp > the technicalities of the work and/or the far reaching effects > that make the work add value, as compared to other works with > more immediate effects (sale, finance). This is a short-term, local consideration. Once someone starts making hard cash on their skills, everyone jumps on the wagon. > In summary, people are paid according to the value their employer expects > them to bring; but their own expectation about that value differs, > and they will feel underpaid (and complain) or overpaid (and be happy). True -- it takes a few enterprising souls to shoot through and expose an untapped revenue source. Once the cash starts flowing, people can start making competetive distinctions from one another based on how much value they produce. In academic research w/o market interests, it's hard to gauge the value in objective terms. There are ancillary considerations, like fame, cachet gained from Nobel Prizes and gov't. appointments, etc. Regards, Sourav Mandal Sourav K. Mandal [EMAIL PROTECTED] http://www.ikaran.com/Sourav.Mandal/ "In enforcing a truth we need severity rather than efflorescence of language. We must be simple, precise, terse." -- Edgar Allan Poe, "The Poetic Principle"
upward sloping demand curves
My understanding of the upward sloping demand curve is that consumers may be willing to buy more of a product if the price is higher because the higher price may signal better quality. This seems to imply that two factors are changing. I always thought that along a demand curve just one factor was changing, the price. If two factors are changing at the same time, what is it that we are talking about? Is it still the demand curve? What about attributes of the product? Isn't that what we really demand? If you pay more for quality, maybe you are not actually paying more per quality unit, like CPU second or sweetness of the orange. Cyril Morong San Antonio College
Re: Upward Sloping Demand Curves
This reminds me of a paper I read as an undergrad in micro theory. I think it was by Harvey Liebenstein and titled Bandwagon, Snob, and Veblen Effects. I don't remember the journal, but it was probably from the 1960s or early 1970s. Art Woolf On Tue, 26 Sep 2000 [EMAIL PROTECTED] wrote: > > All this time I've been living under the impression that there wasn't a Santa Claus >and that upward sloping demand curves were the unicorns of economic theory. Alas, I >was wrong. > > The current presidential race had already convinced me that Santa Claus does in fact >exist afterall, and he even comes with a running mate. And now I've finished reading >the Anderson/Simester study (May 2000): > > The Role of Price Endings: Why Stores May Sell More at $49 than at $44 > > First, Santa Claus - and now I've had to throw in the towel on upward sloping demand >curves as well. > > This joint Chicago/MIT study, utilizing a large catalog field test, found that >increasing the price of an item from $44 to $49 may actually increase demand of that >item (quantity demanded for the anal-retentive on the List) by up to 30%. This >paradox is related to the "fact" that $9 price endings lead to favorable customer >price perceptions and increased customer demand. However, overuse of the $9 price >ending dilutes this effect, as does the simultaneous use of sale signs. > > Furthermore, the study suggests that this is all a quite rational response to a >marketing cue. > > Let's ponder the ramifications of this study. Now we have the possibility of >parallel demand and supply curves . . .the absence of an equilibrium price and >quantity . . .sacrilege! > > J. Morrison > New York, NY > > Art Woolf Phone: (802) 656-4711 Vermont Council on Economic Education 219 Kalkin Hall University of Vermont email: [EMAIL PROTECTED] Burlington, VT 05405
Re: Imperfect Reasoning (was: reading recommendation)
Bryan Caplan wrote: > > ... If people have time-inconsistent preferences, but realize this fact, > > then it can be enough to give them means to commit to future choices. > > If people can neglect possible ways a contract can go bad, but realize > > this fact, they can give arbitrators discretion to deal with this when > > settling contract disputes. > >I think the reason they ignore it is that they think it is too >far-fetched to be worthwhile studying. Have you got any empirical >evidence to overcome that burden of proof? People talk a lot about their difficulty in committing to long term plans. They choose savings plans that they can't get out of. They take efforts to avoid being around tempting candy bars. People choose contracts that give arbitrators discretion. People talk a lot about various irrationalities that they might fall into and ways they try to compensate for that. People talk about realizing that each person tends to think highly of him/herself, and trying to compensate for that. How is this so far-fetched? Robin Hanson [EMAIL PROTECTED] http://hanson.gmu.edu Asst. Prof. Economics, George Mason University MSN 1D3, Carow Hall, Fairfax VA 22030- 703-993-2326 FAX: 703-993-2323
Re: Imperfect Reasoning (was: reading recommendation)
Robin Hanson wrote: > To me the central issue is instead human meta-rationality. If cognitive > errors make workers sometimes miss-estimate the safety of a job, but > workers realize that they might make such errors, then wiser-than-thou > academics just need to *tell* workers that their particular job is > more or less safe than they realize, and that should fix the problem. > If people have time-inconsistent preferences, but realize this fact, > then it can be enough to give them means to commit to future choices. > If people can neglect possible ways a contract can go bad, but realize > this fact, they can give arbitrators discretion to deal with this when > settling contract disputes. > > In contrast, those who see large policy implications from imperfect > reasoning tend to assume that people are not meta-rational. This may > be true, but most of the evidence presented just show cognitive errors, > and is silent on the issue of meta-rationality. I think the reason they ignore it is that they think it is too far-fetched to be worthwhile studying. Have you got any empirical evidence to overcome that burden of proof? One thing that interests me: You might call my notion of "rational irrationality" a form of meta-rationality. But my model doesn't imply that you can make people compensate for their irrationality by pointing it out to them; the only thing that works is raising price of error. -- Prof. Bryan Caplan [EMAIL PROTECTED] http://www.gmu.edu/departments/economics/bcaplan "We may be dissatisfied with television for two quite different reasons: because our set does not work, or because we dislike the program we are receiving. Similarly, we may be dissatisfied with ourselves for two quite different reasons: because our body does not work (bodily illness), or because we dislike our conduct (mental illness)." --Thomas Szasz, *The Untamed Tongue*
Re: reading recommendation
Bryan wrote: === This is almost orthogonal to my original point, but not quite. It wouldn't be interesting if the expected cost of bad judgment was $100/year, would it? So even taking a policy perspective, expected value of error matters. Agreed, but I think the evidence here is that cognitive anomalies can cause big losses. Sure the vast majority of the time confusing .01 with .1 doesn't make much difference in ones life, but if people consistently confuse the two when making decisions about (for example) occupational safety and health, that can have big effects in the aggregate the might be addressed by policy. -- Bill Dickens William T. Dickens The Brookings Institution 1775 Massachusetts Avenue, NW Washington, DC 20036 Phone: (202) 797-6113 FAX: (202) 797-6181 E-MAIL: [EMAIL PROTECTED] AOL IM: wtdickens
Underpaid workers
Isn't one of the reasons why some highly qualified people feel underpaid the fact that in many structures, they feel they have a value that is unacknowledged or unexploited by their hierarchy? This may be particularly true when the hierarchy doesn't grasp the technicalities of the work and/or the far reaching effects that make the work add value, as compared to other works with more immediate effects (sale, finance). Of course, competition among employers will work toward reducing this effect; however, protectionist laws, economic inertia, small market size, information lag in emerging or quickly evolving market, and the general cultural gap between the profession of employers and that of employees work toward increasing it. You'll tell me: in a really free society, such information gaps are an _opportunity_ for someone to come and fill the gap for a fee. Experience seems to show that we (at least in France) are not in a really free society, with that respect. In summary, people are paid according to the value their employer expects them to bring; but their own expectation about that value differs, and they will feel underpaid (and complain) or overpaid (and be happy). [ François-René ÐVB Rideau | Reflection&Cybernethics | http://fare.tunes.org ] [ TUNES project for a Free Reflective Computing System | http://tunes.org ] "No man's life, liberty, or property is safe while the legislature is in session." -- Judge Gideon J. Tucker, 1866.
Deficit
Lawrence Summers and Brad De Long, among many others, are arguing that the productivity/investment/high-tech boom of the mid to late 1990's was caused by Clinton's reduction of the deficit. Summers and De Long basically argue that *all* of the deficit reduction went into investment. Neither gives any indication of Ricardian offsets and both are clear that what was good was *deficit* reduction (not spending reductions - of which there were none as far as I know). The Summers/De Long view is fast becoming the new CW, especially in the hi-tech business press. Yet, are the 1990s really a refutation of Ricardian thinking? It's well known that personal savings over this period have been falling, as Ricardian theory would predict. Comments from the armchair list? Anyone care to crunch the numbers? I'm not especially wedded to the Ricardian theory but I suspect nevertheless that DeLong and Summers are exagerating the evidence for the contra. Alex -- Dr. Alexander Tabarrok Vice President and Director of Research The Independent Institute 100 Swan Way Oakland, CA, 94621-1428 Tel. 510-632-1366, FAX: 510-568-6040 Email: [EMAIL PROTECTED]
Imperfect Reasoning (was: reading recommendation)
Bryan Caplan wrote: >At least on my reading, a lot of cognitive psychologists want to say >more than "People occasionally reason imperfectly, and policy might >improve on that." Rather, they are saying "We now know that human >judgment is quite poor, and economic models that presume otherwise are >kind of stupid." Of course, it depends on who you read, but I think >this triumphalist message appears in Nisbett and Ross, Kahneman and >Tversky, Thaler, Rabin, and others. These guys rarely stray into >policy, but they clearly think their work is cosmically important. Bryan calls attention to the issue of how large or frequent are cognitive errors, suggesting that standard economic analysis is reasonable when they are rare or small. To me the central issue is instead human meta-rationality. If cognitive errors make workers sometimes miss-estimate the safety of a job, but workers realize that they might make such errors, then wiser-than-thou academics just need to *tell* workers that their particular job is more or less safe than they realize, and that should fix the problem. If people have time-inconsistent preferences, but realize this fact, then it can be enough to give them means to commit to future choices. If people can neglect possible ways a contract can go bad, but realize this fact, they can give arbitrators discretion to deal with this when settling contract disputes. In contrast, those who see large policy implications from imperfect reasoning tend to assume that people are not meta-rational. This may be true, but most of the evidence presented just show cognitive errors, and is silent on the issue of meta-rationality. Robin Hanson [EMAIL PROTECTED] http://hanson.gmu.edu Asst. Prof. Economics, George Mason University MSN 1D3, Carow Hall, Fairfax VA 22030- 703-993-2326 FAX: 703-993-2323
Re: Teacher's income
Ed Dodson responding... John Samples wrote: > > ... complainers evaluate > themselves according to their (self ascribed) "merit". Labor markets, on the > other hand, evaluate them according to their value to others. Which > evaluation should we trust? Someone who is the judge in their own case or an > institution that assimilates the judgments of many individuals who have > practical concerns in mind? Labor market policies should be based on value, > not merit. Ed Dodson here: There is the theoretical competitive market and there is reality. Virtually every society is built on a system of law that secures and protects "rent-seeking" claims on the goods and services produced by others. Societies differ only by the extent to which such laws subsidize quasi-monopolistic enterprise. The quite natural response by people who provide their labor is to organize -- to form unions or professional associations and establish stringent licensing and other rules to restrict supply. Your example of tenured professors is one in which the original reason for establishing tenure (freedom of academic expression) seems to have had the oppositive effect; namely, the creation of academic orthodoxy, while intensifying competition at the margin for the smaller and smaller number of tenure-track positions that become available thru attrition. begin:vcard n:Dodson;Edward tel;fax:215-575-1718 tel;home:856-428-3472 tel;work:215-575-1819 x-mozilla-html:TRUE org:Fannie Mae;Housing and Community Development, Northeast Regional Office (NERO) version:2.1 email;internet:[EMAIL PROTECTED] title:Senior Affordable Housing Business Manager note:If you need to reach me during non-business hours, send an email to: [EMAIL PROTECTED] adr;quoted-printable:;;1900 Market Street=0D=0ASuite 800;Philadelphia;PA;19103;U.S.A. fn:Edward J. Dodson end:vcard
Upward Sloping Demand Curves
All this time I've been living under the impression that there wasn't a Santa Claus and that upward sloping demand curves were the unicorns of economic theory. Alas, I was wrong. The current presidential race had already convinced me that Santa Claus does in fact exist afterall, and he even comes with a running mate. And now I've finished reading the Anderson/Simester study (May 2000): The Role of Price Endings: Why Stores May Sell More at $49 than at $44 First, Santa Claus - and now I've had to throw in the towel on upward sloping demand curves as well. This joint Chicago/MIT study, utilizing a large catalog field test, found that increasing the price of an item from $44 to $49 may actually increase demand of that item (quantity demanded for the anal-retentive on the List) by up to 30%. This paradox is related to the "fact" that $9 price endings lead to favorable customer price perceptions and increased customer demand. However, overuse of the $9 price ending dilutes this effect, as does the simultaneous use of sale signs. Furthermore, the study suggests that this is all a quite rational response to a marketing cue. Let's ponder the ramifications of this study. Now we have the possibility of parallel demand and supply curves . . .the absence of an equilibrium price and quantity . . .sacrilege! J. Morrison New York, NY
Harris again
OK, Bryan is right (as was Alex) and I'm wrong. This from the horses mouth (a note I got today from Judith Harris): === My theory is definitely not an excuse for people to throw up their hands and say "We give up -- there's nothing we can do!" Because (as you said) children are socialized first at home, any aspect of socialization that is common to the majority of the children in a given group is likely to be effective. If the majority of the parents in a given neighborhood decided to teach their children to nod their heads three times whenever someone gave them something, then that custom would probably become standard behavior in their neighborhood; children who were new to the neighborhood would quickly pick it up. That's how cultures are passed on. That's why it matters where you raise your kids and where they go to school. When people choose a neighborhood in which to raise their kids, what they're doing is trying to find a place where the other parents have attitudes and customs that are similar to their own. By doing that, they maximize the chances that their children will retain the attitudes and customs they acquired at home. = and = Thanks for enclosing the note from Bryan Caplan (actually, N = 2). Yes, Caplan is right, and Dan Quayle had a point. When you're looking for a neighborhood in which to raise your kids, it's a good idea to look for one in which most of the kids have fathers. The reference to a sample size of 2 comes from earlier in the note in which she had said that she had concluded that economists were very smart but that that was based on a small sample (N=1). So I guess that Bryan impressed her. -- Bill Dickens William T. Dickens The Brookings Institution 1775 Massachusetts Avenue, NW Washington, DC 20036 Phone: (202) 797-6113 FAX: (202) 797-6181 E-MAIL: [EMAIL PROTECTED] AOL IM: wtdickens
Re: Teacher's income
>So, are professors really underpaid? A few thoughts. When people say that teachers are underpaid I don't think that they are mainly referring to professors. I think its K-12 where unfavorable comparisons are often made between the salaries paid to BA teachers and HS grad semi-skilled manual laborers. In fact, in a minute I will argue that there sense in which an economist would say that these people may be thought of as underpaid (as may nurses). In general I think that when one hears complaints about people being underpaid it is because their earnings are low compared to what other people with similar credentials are being paid. In my experience most people don't think in terms of markets setting salaries. They think in terms of employers deciding what to pay and they think that employers can pretty much pay whatever they want. Pay is viewed as unfair if it doesn't reward the things that are supposed to be rewarded according to norms (talent, education, and experience). Economists have very different views of the reasons why people are paid for these things having to do with their scarcity and the cost of acquiring the characteristic. Our view would have little to do with fairness. However, I think that there is one place where the economists' view of what's "fair" and the common person's view leads to similar conclusions. I would argue that in both K-12 teaching and in hospital nursing the dominance of large institutions (often government run) have led to a situation where monopsony is common. In the classic monopsony, wages are set too low and the individual monopsonists are always complaining about under supply. Evidence: 1) You are always hearing about teacher and nursing shortages. 2) Public schools do seem to set wages in a way which is typical of a price leader (quality adjusted pay is lower than the private sector unless there is a union). 3) There is an interesting study from a couple of years ago showing that market concentration in an MSA in the hospital industry is negatively associated with nurses wages and 4) I've had the personnel director for a large hospital in a major metropolitan area brag to me that she was personally responsible for saving millions of dollars in health care costs by coordinating the local cartel of hospitals to keep down nurses wages. Two minutes later she was complaining bitterly about how hard it was to hire competent nurses. When I asked her why she wouldn't think of raising wages I got the classic collusive monopolist's answer. She said that in the short run they might get a few more nurses, but that all the other hospitals would raise their wag! es and in the end they would all be paying a lot more and overall they wouldn't get that many new nurses. So here I would think that both the common person and an economist would agree that in a very real sense these jobs are underpaid. Are professors underpaid? If one thinks that there is chronic excess supply this hardly seems arguable. The argument against this view is that there is also an oversupply of aspiring NBA players, but that doesn't mean that current NBA players aren't being paid the value of their marginal revenue product. Those who aspire may not be able to perform at the level of the incumbents. One piece of evidence that might suggest that low paid professors are indeed the victims of monopsony is that the usual explanation for why economists, engineers, MDs and lawyers are paid more than classics profs etc. is that there is a market for their services outside of academia. Why should this matter (its obvious why if Universities exercise monopoly power)? It costs the individual more to get a degree in classics than in economics (fewer opportunities for relevant employment in grad school and fewer scholarships and grants) and if anything economists have it easier than classicists (in terms of ! perqs), so why should they earn less in equilibrium unless there is monopsony? Is being a classics professor that much more fun than being an economist? Or is it that the skills to be an economist are in relatively short supply? I won't push this very far mind you. The market for nurses and teachers is largely local because of career co-location decisions while the market for Profs is national. The local nature of the nurse and teacher markets makes monopsonistic coordination possible (the Personnel director I talked to didn't take seriously the notion that high wages for nurses in her city would attract more nurses "They're all married and they can't move." even while she was willing to allow that there would be an increase in supply from "burnt out" nurses reentering the field). -- Bill Dickens William T. Dickens The Brookings Institution 1775 Massachusetts Avenue, NW Washington, DC 20036 Phone: (202) 797-6113 FAX: (202) 797-6181 E-MAIL: [EMAIL PROTECTED] AOL IM: wtdickens
Re: Teacher's income
Once again, it goes back to supply and demand. People with good writing skills seem to be more numerous than those that can teach math. Thus, the price of writers should (and is) lower than mathematicians. -fabio > Are Humanities less real skills that, let's say, maths or economics? If > humanities classes produce teachers that help people speak and write proper > english (or german, or french, or whatever ) they are, at least, as useful as > any other academic disciplines. One could say that they are even more useful to > most people than economics (who really cares in the real world about what one > can read in the AER?). > If deconstrution is often ridiculous, so are many things in other disciplines. >
Re: reading recommendation
A belated reply to Bill: William Dickens wrote: > > >Sure, some important real world applications exist. But why is that > >interesting? I would think that the interesting question is: what's the > >*expected value* of the loss, averaging over situations of all > >importance levels? > > So would you argue that the interesting question about government policies is >whether averaging over all of them net welfare effects are positive? Wouldn't you >want to know something about particular policies with an eye towards identifying >which ones are better or worse. Even if you thought that on average they were bad you >probably couldn't convince most people that they shouldn't be considered on a case by >case basis. Your point seems reasonable, but I don't think it's the one that more triumphalist cognitive psychologists (and the economists they've influenced) are making. You're talking policy; they're talking human nature. At least on my reading, a lot of cognitive psychologists want to say more than "People occasionally reason imperfectly, and policy might improve on that." Rather, they are saying "We now know that human judgment is quite poor, and economic models that presume otherwise are kind of stupid." Of course, it depends on who you read, but I think this triumphalist message appears in Nisbett and Ross, Kahneman and Tversky, Thaler, Rabin, and others. These guys rarely stray into policy, but they clearly think their work is cosmically important. > Similarly, if you can identify even one situation in which judgement can be shown to >fail and design an intervention to minimize the cost of that failure isn't that >interesting? -- Bill Dickens This is almost orthogonal to my original point, but not quite. It wouldn't be interesting if the expected cost of bad judgment was $100/year, would it? So even taking a policy perspective, expected value of error matters. -- Prof. Bryan Caplan [EMAIL PROTECTED] http://www.gmu.edu/departments/economics/bcaplan "We may be dissatisfied with television for two quite different reasons: because our set does not work, or because we dislike the program we are receiving. Similarly, we may be dissatisfied with ourselves for two quite different reasons: because our body does not work (bodily illness), or because we dislike our conduct (mental illness)." --Thomas Szasz, *The Untamed Tongue*
