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Thursday, April 23, 2009

Don't Let Me Be Misunderstood

“I am not ashamed to confess I am ignorant of what I do not know.” - Marcus Tullius Cicero

You may have noticed Maxwell's comment on my last article, about the shortcomings of making predictions based on rather limited models. This post originally started as a comment addressing some of his points, but after considering it, I think there's a larger idea here that deserves a full post of its own. As always, I leave it to you, our dear readers, to be the final judges.



Your point about altruism is absolutely correct - and somewhat of a sore point between ('experimental') economists and psychologists. The argument, at least, from the rather biased point of view of the economist goes like this:

Economist: "If we model payoffs in X way, and we model actions in Y way, then, we can make prediction Z."

Psychologist: "Well, I tried that, and we don't get Z, we get Z'. Therefore, your theory must be wrong."

Economist: "Actually, you thought you were testing people with payoffs X and actions Y, but you were actually testing people with payoffs X', and actions Y'. If we alter our model, so that it's talking about X' and Y', we do get (at least something much closer to) Z'. In fact, here's an exact measure of Z-Z', and X-X'. So shut up."

Yes, it's a childish-sounding argument. But, unfortunately, this is often what happens when economists pretend to be psychologists and vice versa, and often in any situation where individuals from different backgrounds meet.

You're correct in saying that the Prisoners' Dilemma, when it just takes into account time served, give us 'bad' predictions. But, if instead of time served, we were able to come up with some measure of 'overall value,' that included time served, what type of facility the time was served in, whether you'll get shanked as punishment for snitching, loyalty to your partner, and so on.

In this case, assuming that we've properly included all the relevant costs and benefits, we would be perfectly justified in performing some calculation, and coming to some conclusion based only on the numbers.

Which brings me to the larger idea of this post: understanding what, exactly, economic theory and the assumptions it must always be based on, actually mean.

This goes along with the idea that Maxwell put forth a few months ago: that claims that 'science has been wrong before' are incorrect, and that a proper statement of the claim would be, 'science has made incorrect predictions before.' It's important to understand the difference between process and product, whether in relation to science, economics, government/political systems, or any other complex field of study.

The field of economics, like essentially all modern sciences, is based at least partly in mathematics. Math gives us an incredibly powerful set of tools to work with, and a convenient shorthand for talking about problems, but we have to be able to translate everything we do from 'economics' to 'mathematics' and back again. Thus, while math is one of our chief tools, it is not necessarily the 'basis' of the field, but merely a tool used by it.

Economics is based, then, on an axiom and a definition.

First, we assert that, given a set of options - where this set can be almost anything imaginable - individuals will choose certain of those options. That is, for each individual, given a set of options, there is a set of choices they will make.

Most commonly, we think of this in terms of 'bundles of goods.' When you go to the supermarket, there are 'bundles' such as (+12 eggs, -$1.35), (+1 gallon skim milk, -$1.89), (+nothing, -nothing), and so on. Given these options, which may include things like the time of day, how hungry you are, and anything else that may or may not influence your decisions, you make certain choices.

Secondly, we define 'preferences' as some function that takes in a set of 'options' and spits out a set of 'choices.' Thus, we claim that there is some 'mapping' from (all the possible bundles of goods, which include all the relevant information about everything in the state of the world) to (some subset of that set) that describes how you actually behave, and we call this your 'preferences' (or, your 'preference relation,' and so on).

So that's it. Essentially all of economics consists of some 'model' of the above, which we then use to try and answer some question we consider interesting about the world.

How does this relate to the 'translation' to math mentioned earlier? Well, it turns out that, under certain conditions, we can come up with a mathematical representation of preferences as a a normal mathematical function that takes a bunch of numbers representing an option (X) and gives us a number that, in some sense, tells us 'how much you like X.'

This is, of course, the infamous concept of 'utility' - the idea that, inside each of us, there's a part of our brain that's constantly evaluating our options and plotting them on a line somewhere, and directing us to simply grab the highest one. This has, over the history of the field of economics, led to a number of arguments, much confusion, and conclusions that, while technically correct, are often useless.

The point is that these numbers, our 'utility,' don't really mean anything in any real sense. They are merely a mathematical convention, a container that we must put our ideas in before we can use the tools provided by mathematics. Of course, once we 'do math,' we have to translate the results back into 'economics' - unpacking the container, if you will.

Let's return to the argument between the Economist and the Psychologist again. The economist, in his model, says that if individuals have actions X, and preferences Y, and the 'game' they play is set up according to a set of rules, G, then we should see them do Z. Often, these games are designed to be like the Prisoners' Dilemma - we actually try to find places where, given a model that seems reasonable, the conclusions we come to don't match what we see in the real world. From this, we find ways to change and grow our models: is there a problem with what we included in X, Y or G? Is there something about the way we're coming up with Z that's wrong? Are we actually seeing Z, but not recognizing it, because we were expecting it in a different shape/form?

This type of thinking leads us to be able to say more useful things then just, 'The model (X, Y, G, Z) is wrong.' One way to do this is to ask, 'how wrong is the model?' If we can come up with a rule for saying when it's 'really wrong' versus when it's 'not too wrong,' we might be able to figure out where the problems are. Maybe Z is very different from Z', but it turns out if we change X a little bit, we get something very close to Z'.

Which is, essentially, what the Economist and Psychologist are arguing about. The Psychologist says, "Well, there's obviously something wrong here," and the Economist responds, "Yeah, I noticed. Here, tweak this knob, and see if it works."


To wrap up, it's important to understand that there's a difference between process and product. The prediction that 'people will all throw litter on the ground' is correct, if we've set up our model properly. The concepts that this conclusion is based on are axiomatic - they are essentially true by definition. The fact that the prediction differs from reality is important - it's crucial, in fact, if we ever want to be able to say anything 'useful' in the sense of answering interesting questions about the world.

- Tiro

PS - My apologies to Maxwell - I really don't mean to sound like I'm disagreeing with you, or disregarding the issues you mentioned. You're absolutely right!

Tuesday, April 21, 2009

Room for Debate

There are secret places on the internet that no one is watching. They are places where children romp and grownups stomp, and the seeds of a thousand villainies are laid and hatched.

For the most part they are designed to avoid confrontations of an undesirable nature, for their inventors and designers and tenders find confrontation does not profit them. Some of them are even moderated privately or safeguarded with filters.

Nonetheless, in these rooms I have uncovered politics and lives beyond my pale. I have discussed taxes with middle-easterners and tariffs with Serbians. Law-enforcement with Swedes. I have asked South Africans how the ANC is doing and received politically incorrect answers for which there will be no penalties.

After all, no one is watching these places. No one thinks they have value, or imagines them dangerous.

These places are “games.”

The effect is most pronounced in a game in which I have immersed myself more recently, EVE Online. I won’t waste your time with the mechanics of the game itself, but the game has only one server, and that server hosts people from just about everywhere. We don’t all speak the same language, and sometimes we don’t even use the same alphabet on our keyboards. We collide in channels and clusters and local spaces where we trade words, curses, philosophies and politics with a freedom even the founding fathers would have found daunting.

I have trafficked in these spaces (in dozens of games) with politicians, businessmen, physicists, political scientists and laborers, students, professors, teachers of music, artists and all manner of other men who have found their way to these spaces from places so far from my understanding it begs questions of the consistency of space-time.

I have argued with religious men, with atheists, with priests and with paupers, with the young and with the old.

If I were inclined to be a censor, I would encourage the government to take an active interest in those spaces it is presently ignoring. But I am not, and (fortunately) no government agency is going to be easily persuaded to take these spaces seriously. So instead, this rather takes the form of an invitation to those of you inclined to such things, to search these spaces out with an open mind and a bone to pick.

‘Games’ have come a long way while you were sleeping.

Wake up.

Wednesday, April 15, 2009

Putting Down the Lighters (Again)

"Certain signs precede certain events." - Marcus Tullius Cicero

First, I must apologize to Maxwell -- I don't mean to pick on his post about burning our wallets again, but the events of the day have turned my mind back to the subject of money, its value, and some of the more interesting ramifications thereof.

I am speaking, of course, of the new report released today by the Bureau of Labor Statistics, which can be found here.

In short, March's inflation rate (as determined by the Consumer Price Index for all Urban Consumers - the "CPI-U"), when adjusted for seasonality, was negative. Granted, the change in the CPI-U was small - only -0.1 percent - but let us examine the reasons behind the change.

The report indicates that most of this drop came from the decline in energy prices - particularly fuel oil, natural gas, and motor fuel - which led to a 3 percent drop in the energy index. The food, housing, apparel, and transportation indices also showed a drop, although transportation was the only one of these which posted a change of more than 1 percent.

When removing food and energy from the CPI, though, we see a slight positive change of 0.2 percent -- over sixty percent of which, according to the report, comes from an 11 percent increase in the index for tobacco and smoking products.

So, why should we care about this? In short, this is exactly what I was talking about the other day. For people like myself, who are in relatively secure jobs, with a relatively low, essentially fixed income, the deflation that is occurring in some areas of the economy - particularly for food and fuel - is beneficial. I mean, we're getting to the point at which storing your money in your mattress is almost becoming a profitable investment.

So why is deflation often seen as one of the four horsemen of the apocalypse? I had no clear idea myself until I began researching the subject a few weeks ago, and the answer is one of those things that seems so obvious in retrospect. In the simplest terms, the answer is 'loans.'

In short, anyone who has borrowed money in the past, with the requirement of paying it back tomorrow, suffers during periods of deflation. As the 'value of money' (for those of you who care, I mean, the price of money in terms of real goods) increases, the 'cost' of paying back that debt increases. A loan which would have originally cost 'one 24" flat screen TV,' or 'one additional R&D scientist' to pay back may now cost 'one 42" flat screen TV,' or 'two additional R&D scientists.'


But how does this relate to the original issue, that of burning our wallets? Well, Maxwell's argument has a definite place, and there is often value to controlling inflation by, essentially, destroying currency (or otherwise keeping its supply limited). The problem with this is that the destruction of currency is an example of what is known as the 'Prisoners' Dilemma' in economics.

Two men are captured by the police, who have only limited, circumstantial evidence against both of them. Both are offered the option of confessing, and turning on their accomplice. If neither confesses, they serve a year in a minimum security facility, and if both confess, they both serve three years in a minimum security facility. If only one confesses, however, he gets off with only probation, while his partner receives 5 years of jail time.

Thus, the best overall outcome, from the perspective of the prisoners, occurs when no one confesses, and the worst occurs when they both confess. The problem, though, is that if the two cannot coordinate somehow - and more importantly, if they cannot commit themselves to some strategy - it is in each man's interest to confess, regardless of the other's actions, and thus we expect them to end up serving three years each.

This situation - in which individuals have a strong incentive to a way contrary to the 'greater good' - can be seen in countless everyday examples: US bank runs, prior to the establishment of the FDIC; arms races between enemy powers; people throwing trash on the ground, rather than in trash cans.

The last is a particularly interesting example, because it goes against our intuition. How many of us, when trying to get away with something like this, have been asked (perhaps by a parent), "What would happen if everyone did that?" The answer, of course, is that the place would be a mess, and thus we shouldn't litter. But the problem is that it doesn't matter -- regardless of whether everyone else does it or not, it's still in our best interest to take the easy way out.

Of course, this doesn't always happen, because we've found ways of dealing with these problems. Often, government is the solution - we force everyone to contribute, by way of taxes, and then hire others to take the costly actions for us, and we all end up better off. Social conventions, guilt, and other 'punishment mechanisms' also may serve this role.

But to get back to the subject at hand, we have one of those exact situations with the issue Maxwell describes. If inflation is destroying the value of the money we all hold, we will end up being better off - in some sense - if we can remove some of the currency from circulation. The problem with this is that, regardless of whether others burn their money or not, as long as my money isn't completely worthless, there is a strong incentive for me to hold on to it.

Of course, there's always the possibility that Maxwell had all this in mind when writing his earlier post, and that the entire article was simply an 'investment' of sorts....

- Tiro

Sunday, April 12, 2009

Somalian Pirates

I feel obliged to thank the Somalian pirates who, in failing to steal, failing to kill, and failing to dodge gave us all a reason to feel good on Easter. Congratulations are in order to the captain, his family, the (badass) crew of his ship, and lastly-not-least to the Navy SEALs who waxed the bad guys.


That said I think it wise to remember that the pirates in question were desperate, poverty-stricken fishermen who, in the unlikely event of success, call their captured target in to a central hub of 'real' pirates who move the stolen property. Thus, in the usual noncommittal manner of The Report, I shall follow my congratulations to the soldiers and crew for the slaying of the pirates by suggesting a moment of prayer (to whatever god you claim) for the families of the fishermen who died this day.

Sometimes I wish issues existed which had only one side... but I suppose if they did we wouldn't learn much from them.

Friday, April 10, 2009

Rhetoric, Revisited

I have recently found myself browsing ZDnet forums for information about the conficker worm, which I anticipate needing to remove from a number of friends’ computers in the coming weeks. Normally, I contain myself to reading the actual articles, but for some reason I found myself reading an article about the most recent chain of Windows commercials, and my eye was drawn beneath it to the spam of comments from what shall, henceforth, be referred to as “Mactards,” “Wintards” and “Linux fanboys.” Effectively the argument (copied out a thousand times in a thousand languages) always goes one way:

Wintard: “Macs suck.”
Mactard: “What? Windows has viruses!”
Wintard: “Macs cost too much.”
Mactard: “That’s because they’re better.”
While (x <= Num_tards) {
Wintard: “No they’re not.”
Mactard: “Yes they are.”
Wintard: “You don’t have games.”
Mactard: “I’m too cool to play games.”
Linux Fanboy: “Linux is free and it has no viruses.”
Mactard + Wintard: “shut up, fanboy, you’ve only got like 5% of the market share.”

(If the Mactard starts it, simply ignore line 1)

Normally I would ignore this redundant spam altogether and hunt for meaty meaningful and/or original tardspam, but I had, at this particular time, recently been browsing political forums, and I discovered something interesting.

The rhetoric is identical.

Democrat: “Republicans suck.”
Republican: “Republicans are stronger on national security.”
Democrat: “Yeah, but they’re fat bastards.”
Republican: “That’s because they’re smarter and more successful than your dumb ass.”
While (x <= Num_tards) {
Democrat: “No they’re not.”
Republican: “Yes they are.”
Democrat: “You have no domestic policy.”
Republican: “Good thing we have all the launch codes.”
Democrat: “Wait, what?”
Lin... err... Libertarian: “If everyone voted Libertarian you wouldn’t have these problems.”
Democrat + Republican: “Shut up. You’ve only got like 5% of the voting base.”

Now this is, of course, a gross oversimplification of what I’m sure is a very complex set of issues, but given that none of the Detards, Retards, and Libertardians making said arguments actually understand any of the issues they’re arguing about, it strikes me that really, it might be simpler if everyone just shut up.

Now, in the name of hypocrisy:

The present administration just upheld the Bush reinvigoration of that “government secrets” bullshit. Essentially the way it works is, government misconduct is a “government secret” and therefore inadmissable in court. In other words, evidence that the government has been behaving badly is actually, by virtue of being evidence the government has been behaving badly, inadmissable in court.

Detard, retard, Libertardian, whatever, you have to admit that checks and balances are probably a good thing... them being the single most essential component of our governing system.

Stop shouting at each other for a minute and start fucking paying attention. We have a new administration, but that doesn’t mean we can stop breathing down its neck. Quite the opposite. We’re still going to hell in a handbasket, and even after that fall has been aborted, it is ultimately the responsibility of the American people to ensure that they do not lose the rights with which they have been endowed.

And if the government doesn’t want judicial review of its actions, fine. So be it. We’ll review its actions with more straightforward, “traditional” methodology.

(There is, actually, another option - that the new administration not breaking with the old indicates that whatever secret is buried is so dirty that they can't bring it out in the light even to pin it on their political enemies.

But I'd rather not contemplate that one.)

Friday, April 3, 2009

Welcome to our Newest Author

I'll adjust this placeholder once he picks a pseudonym so I can refer to him "by name," but the long and short of it is that our newest author has for his credentials a masters in political science, a perspective I believe will be a nice addition to our literature. I'm not in the habit of giving out much information about authors who write on this site (if any), but suffice to say that comes with my recommendation and regard.

Those of you who know me personally probably realize that "comes with my recommendation and regard" means 90% of the human race is about to be mortally offended.

If any of said human race would like to bring arguments to bear against his article, which is deliciously confrontational, we will, of course, welcome said arguments to The Report. May they live long and prosper.

His first posting will be soon.

Carry on.

Wednesday, April 1, 2009


I am not an atheist. Quantum physics has given me a notion of God so large and so small that it works for me, as long as I don’t try to give that entity any particular attributes or humanize it for my own convenience.

I worship this God through my interest in the world around me. The structure of life, the mechanics of waves and particles and all the weird things electrons can do that they shouldn’t be able to do, all these things and more make up my bible. I believe that God’s nature can be understood only through understanding the nature of his universe.

I make no assumption that God created man, through evolution or otherwise, but we have come to pass in his universe and we thrive in the passing of his time, whatever time itself may be made of. We find ourselves surrounded by puzzles and toys and interesting things to see and do and discover, and in seeing and doing and discovering these things we pay homage to their creator.

So why, oh why, do the people who most claim to love god least seem to worship the universe he created? Why do they bury their heads in the sand and refuse to use the reason with which they were endowed? Why?

Why Texas? Why?

I cannot understand. Is the problem that evolution makes you feel humbler than you’d like? Aren’t you supposed to be humble? Did your god not specifically instruct you to view pride as a sin?

Is it so impossible that we, who must be to God as a pebble is to a mountain, might share a common ancestor with an ape? The new testament has freed you from the bonds of your infancy. Your bond with God is now a spiritual one, instead of a physical one, and your punishments do not come in the form of lost sheep and slain children. You wear what you like and come home whenever you so choose, because your father has said “you are an adult now, you can live as you like, and I will approve and disapprove from a greater distance.” Why is it so difficult for you to conceptualize that God might also have meant that you were free to give up childhood stories like the Stork and Santa?

When we are young, our parents lie to us because we cannot understand the truth, are unprepared for the truth, or the truth would hurt us. They tell us that the stork brings babies so they can avoid teaching us about sex until we are old enough to learn about it safely. They tell us that Santa brings toys so that we’ll go to bed early on Christmas Eve and let them lie down together on the sofa and hold each other like they did before we were born. They tell us not to touch the wall socket “because I said so” and not to climb that tree “because you’ll hurt yourself.”

Why should your experience with God the father be different? You are free to explore the universe in which you have been born. You are big enough now, and smart enough now, to know the risks behind the things you do. Wall sockets will hurt you because electricity will travel from them through your body and cause your brain to be unable to communicate with your muscles. With surprising slowness, you might die. Babies happen when a boy and a girl have sex, and in addition to this risk there are associated other risks of which you should be made aware. Both kinds of risks can be mitigated through the proper use of a condom. Leave some air at the tip to ensure it doesn’t break when you finish. Santa doesn’t bring toys, we do, and this year we’re very low on money so the toys are going to be simpler... it doesn’t mean you’ve been bad, it just means we’re on rough times at the moment.

The garden of Eden is your stork story. Evolution is your sex-education and the petri-dish antibiotics experiment (the one that shows you why it’s so important to finish all the medicine the doctor gives you) is your explanation of the proper uses of a condom.

It’s time to grow up.

And I’m not just talking to Texas when I say that.