An Interview with Nick Bostrom about His Argument That We May Well Be Computer Simulations

In "Teleotheism and the Purpose of Life" I wrote:

Traditional Christian theology, put into a hard science fiction straightjacket, is like the idea that we are all software programs inside a superbeing’s computer.  There is no way to know this is not true.  If it is true, miracles would just be a special case in the programming.  The normal laws of nature could be as simple and regular as they are simply because that was easier than programming more complex laws for the default case. 

The link above is to an interview with Oxford philosopher Nick Bostrom, who argues we should take this possibility seriously. 

Thomas Sowell on How to Succeed as an Ethnic Minority

"What’s disheartening, though, is that when you study ethnic groups around the world, the ones that are lagging behind are those where their leaders always tell the same story: that it’s other people holding you back, and that therefore you need to stand against those other people and resist their culture. But that culture may be the key to success. ...

Hume urged Scots to learn the English language... He didn’t do that because his job was that of an ethnic leader. He did it because he was an intellectual. ... One of the most miraculous advances of a people occurred in Scotland from the 18th century into the 19th, ... A wholly disproportionate share of the leading British thinkers was Scottish. I mean Adam Smith in economics, Hume in philosophy, Sir Walter Scott in literature, James Watt in engineering. You can run through the whole list. A people who were really far behind in one century had suddenly come out of nowhere and were on the forefront of human progress.

“[African Americans] can be [like the Scots in this way,] and for those who haven’t gotten into this corrosive new culture, they’re already doing that. But it’s going to be very hard. Both the media and academia promote the idea that people fall behind because others are holding them back.”

--Thomas Sowell

The Reserve Bank of Australia is Facilitating Cashless Payment but Needs to Do More to Bring Fees Down

The Reserve Bank of Australia is setting up a "New Payment Platform" to make cashless payments easier. This is a good development. Thanks to my brother, Joseph Kimball for pointing me to the article at the top, as he points me to so many other useful articles. 

There are two interesting things to note about this Australian initiative. First, the benefits of a possible future cashless economy for tamping down tax evasion are being emphasized in Australia. This is an emphasis right out of Ken Rogoff's book The Curse of Cash, which I wrote about here.

Second, there is too little discussion of the benefits of bringing down fees for cashless payments by if financial technology innovators are allowed to use the New Payment Platform. The top article above doesn't mention fees at all. The bottom article mentions that some retailers are leery of going more to cashless payment because they pay fees of 1.3% to 1.5%, writing as if that level of fees would continue into the future. That is not the way it should be.

The Reserve Bank of Australia should do all it can to overthrow the credit card oligopoly by making it easy for financial technology innovators to use the New Payment Platform. I suspect that a 1.3 to 1.5% decrease in the GST ("Goods and Services Tax") would be quite popular in Australia. A reduction in cashless payments fees to a nominal amount would have a similar effect on the Australian economy and Australian households—with the one difference that services provided by the government and the Australian government's credit rating can be preserved since the credit card companies take the hit rather than the government budget.

There are some fixed costs to a payment system. It is quite appropriate for the government to pay those fixed costs, then allow financial technology innovators to plug into the system at marginal cost. The lower fees, leading to greater use of cashless payments will ultimately help tax revenue more than enough to make up for paying that fixed costs and then letting competition among financial firms do the rest. 

Incumbent financial firms will want the government to put obstacles in the way of new competitors. A simple rule can avoid this. If any new financial firm demonstrates that it has 100% of its assets in reserves with the Reserve Bank of Australia, it should face only regulations about dealing fairly with consumers and about reporting potentially criminal activity, and should be exempt from other banking regulations. 

Human Beings as Social—and Trading—Animals

Aristotle famously said that human beings are political animals. Adam Smith said that human beings are trading animals. I believe both claims are right, in a quite literal sense: human being are evolved to live in groups and to trade with one another. Being able to navigate issues that arise when living in groups and being able to execute trades with others are evolutionary adaptations in same way that the even more basic instincts of interest in food and sex are evolutionary adaptations. The books above pursue these two themes of human beings as social animals and human beings as trading animals.

There are many who doubt the existence of "natural law." Natural law may be quite incomplete and fail to answer many key questions we face, but evolutionary adaptations for living in groups and for trading provide at least some limited corpus of "natural law" written on our genes. (Though when I say "written on our genes" I mean written on the genes of the majority of us who are not sociopaths.)

John Locke, in section 15 of his 2d Treatise on Government: On Civil Government, has a nice quotation from Richard Hooker on human beings as social animals:

To those that say, there were never any men in the state of nature, I will not only oppose the authority of the judicious Hooker, Eccl. Pol. lib. i. sect. 10. where he says, “The laws which have been hitherto mentioned, i. e. the laws of nature, do bind men absolutely, even as they are men, although they have never any settled fellowship, never any solemn agreement amongst themselves what to do, or not to do: but forasmuch as we are not by ourselves sufficient to furnish ourselves with competent store of things, needful for such a life as our nature doth desire, a life fit for the dignity of man; therefore to supply those defects and imperfections which are in us, as living single and solely by ourselves, we are naturally induced to seek communion and fellowship with others: this was the cause of men’s uniting themselves at first in politic societies.” But I moreover affirm, that all men are naturally in that state, and remain so, till by their own consents they make themselves members of some politic society; and I doubt not in the sequel of this discourse, to make it very clear.

One thing Hooker seems to take for granted, but is in fact quite remarkable, is the capacity of human beings to make solemn agreements and have those agreements mean something. The ability to make and keep promises—even if not 100 percent of the time—is an amazing ability that does a lot to help make us who we are. This ability to make and keep promises is crucial both for human beings as political animals and for human beings as trading animals. 

Miles Kimball, Colter Mitchell, Arland Thornton and Linda Young-Demarco—Empirics on the Origins of Preferences: The Case of College Major and Religiosity

Arland Thornton is a past president of the Population Association of America and former director of the Population Studies Center at the University of Michigan. He is the originator of the field of Developmental Idealism; here is a link to…

Arland Thornton is a past president of the Population Association of America and former director of the Population Studies Center at the University of Michigan. He is the originator of the field of Developmental Idealism; here is a link to developmentalidealism.org

I have had a series of recents posts on economists as social scientists:

  1. Economics Needs to Tackle All of the Big Questions in the Social Sciences
  2. Defining Economics
  3. On Bringing the Questions and Concerns of Sociology into Economics (storify)

So I thought it might be a good time to demonstrate that I practice what I preach in this regard. Today let me tell of a bit of my research at the traditional border of sociology and economics. 

Arland Thornton is one of my closest friends. We met in a Mormon congregation in Ann Arbor when I moved to Ann Arbor in 1987 back when I was still a Mormon. I thought it would be fun to do a research project with Arland convinced him to join me in one. We decided to look at the effect of college major on religiosity. We were fortunate enough to enlist Colter Mitchell and Linda Young Demarco in the project as well.

Much of the border between economics and sociology is called demography—the study of population and populations. I was the token economist on the team. Arland, Colter and Linda are sociologists. But put another way, we were all demographers on this project. 

The idea for this project came from our observation that the dental students in our congregation had dramatically more conservative religious attitudes than the relatively liberal attitudes of the medical students and the PhD students in the Arts and Sciences. The paper that arose from this effort is at this ungated link:

(We also have a related paper "The Reciprocal Relationship between College Major and Values: Family, Careers and Society" which you can find here.) Let me give you a taste of this paper by setting out below the Abstract and the part of the Introduction before the discussion of the strategy for statistical analysis. But before you read the abstract, try to guess which college major has the most negative effect on religiosity. 

Link to Colter Mitchell's webpage

Link to Colter Mitchell's webpage

Abstract:  Early life experiences are likely to be important for the formation of preferences. Religiosity is a key dimension of preferences, affecting many economic outcomes. This paper examines the effect of college major on religiosity, and the converse effect of religiosity on college major, using panel data from the Monitoring the Future survey as a way of gauging the extent to which various streams of thought, as taught in college, affect religiosity. Two key questions, based on the differences in college experience across majors, are whether either (a) the Scientific worldview or (b) Postmodernism has negative effects on religiosity as these streams of thought are actually transmitted at the college level. The results show a decline in religiosity of students majoring in the social sciences and humanities, but a rise in religiosity for those in education and business. After initial choices, those respondents with high levels of religiosity are more likely to enter college. Of those who are in college, people with high levels of religiosity tend to go into the humanities and education over other majors.

The simple answer to the question I posed above is that humanities have the most negative effect on religiosity. And this is despite the fact that those who are religious to begin with are often drawn to the humanities. You might have thought it was the natural sciences, but natural science professors typically don't even talk about religion in class, while literature and other works in the humanities often make it natural for humanities professors to talk about religion, which they often do so from a stance of skepticism.

The social sciences (but not business, and therefore also probably not economics within the social sciences) have a negative effect on religiosity that is not as strong as the humanities, but is still substantial. To check out some of the results efficiently, see Colter's Powerpoint file here. 

In the Introduction that follows, one thing worth noticing is the sentence

Human mortality guarantees that the fate of civilizations and cultures depends on how ideas are transmitted from one generation to the next.

This sentence was the kernel of the idea for my later Quartz column "That Baby Born in Bethlehem Should Inspire Society to Keep Redeeming Itself." 

Also note that the discussion of Bayesian updating in the first footnote has some early glimmerings of discussions in "The Unavoidability of Faith" and "Cognitive Economics." (However, early fragments of the paper "Cognitive Economics" may have been written before the first footnote below.)


Introduction

In economic theory, the trinity of preferences, technology and the structure of strategic interactions (including information structures) generates economic behavior, while this trinity plus chance generates economic outcomes. A deep understanding of Economics requires answer to the three origin questions: “What determines the level of technology?” “What determines the structure of strategic interactions?” and “How are preferences determined?” In this paper, we address one dimension of this third question about the determinants of preferences, focusing on those aspects of preferences associated with religion.

To the extent that preferences are determined by nature and genetics, questions about the origin of preferences border on Evolutionary Psychology. On the other hand, to the extent that preferences depend on nurture and culture, questions about the origin of preferences border on Developmental Psychology and Sociology. Sociologists often use the term “values” where economists would use the term “preferences.” (We will use the terms interchangeably.) Among the dimensions of preferences determined primarily by nurture and culture, those associated with religion bulk large in importance.[1] Emphasizing the Economics literature, and to a lesser extent the Sociology literature, religiosity and religious affiliation have been related, among other things, to education (Freeman, 1986; Claudia Goldin and Lawrence Katz, 1999; Lehrer, 2004; Kraig Beyerlein, 2004), employment and work hours (Richard Freeman, 1986) wages, income and wealth accumulation (Claudia Goldin and Lawrence Katz, 2000; Lisa Keister, 2003; Evelyn Lehrer, 2004a,b); mate choice, cohabitation, marital stability, fertility and female labor force participation (Thornton et al 2007; Lehrer, 2004a; Charles Manski and Joram Mayshar, 2002); intergenerational transfers (Scott Myers, 2004), tobacco use (Frank Chaloupka, Michael Grossman and John Tauras, 1997; Chaloupka and Grossman, 1997; Tauras and Chaloupka, 1999), alcohol use (Rosalie Pacula, 1998), substance abuse and other types of social deviance (Freeman, 1986; Pacula et al., 2000; Richard Gorsuch, 1995), suicide (Emile Durkheim, 1897), child abuse (Sara Markowitz and Grossman, 1996), physical and mental health (David Williams, et al. 1991; Valerie Dull and Laurie Skokan, 1995; W. Larry Ventis, 1995; Christopher Ellison, 1998; Jeffrey Levin and Robert Taylor, 1998), subjective well-being (David Blanchflower and Andrew Oswald, 1997; Jeffrey Levin and Robert Taylor, 1998), organ donation (Naci Mocan and Erdal Tekin, 2005), work ethic  (Robert Barro and Rachel McCleary, 2006), trust, attitudes about lawbreaking and about the fairness of the market (Luigi Guiso, Paola Sapienza and Luigi Zingales, 2002, 2006), political differences (Edward L. Glaeser and Bryce Ward, 2005) and the preferences reflected in the individually assessed importance of recognition, ambition, accomplishment, being capable, comfort, pleasure, excitement, personal independence, intellectuality, being logical, freedom, peace, beauty, helpfulness, forgiveness, lovingness, honesty, salvation, obedience, and security (Shalom Shwartz and Sipke Huismans, 1995). We include in this list analyses that treated religiosity or religious affiliation as control variables, rather than as the main subject of analysis, as long as they found statistically significant effects of religiosity or religious affiliation. It should also be noted that religiosity and religious affiliation are often associated with preferences for mystical experience and notional supernatural goods (Rodney Stark and William Bainbridge, 1987).

There have been a number of serious efforts to identify the causal effects of religiosity and religious affiliation. Jonathan Gruber (2005) uses the local density of other ethnic groups that share an individual’s religion as an instrument for religiosity. He finds that the additional religiosity due to higher market density of one’s own religion leads on average to “higher levels of education and income, lower levels of welfare receipt, higher levels of marriage, and lower levels of divorce.” Robert Barro and Rachel McCleary (2002, 2003) use differences across countries in the presence of a state religion, state regulation of religion, a measure of religious pluralism and religious composition as instruments for church attendance and belief in an afterlife. They find that in the dimensions scoped out by the instruments, economic growth depends on the extent of believing in an afterlife relative to the level of religious attendance.[2]

One possible definition of religion could be that religion is the process by which human beings determine what their ultimate values are, to the extent that those ultimate values go beyond what are determined genetically. In other words, it would not be entirely unreasonable to define religion as the cultural component of the determination of preferences. However, this definition, by itself, is too broad for our purposes, since it does not explain the difference visible in observed behavior between those individuals with high levels of religiosity and those with low levels of religiosity.

For our purposes, the view of religion given by Durkheim (1915) provides a helpful perspective. Durkheim argues that religions are functional organizations that use striking ideas to foster collective action and the interests of the religious community as a community, including influence over both daily interactions among members and relationships with those outside. This view has been taken up more recently by the evolutionary theorist David Sloan Wilson (2002).

Concepts from biological evolutionary theory can be helpful even in studying Cultural Evolution. For example, even preferences determined primarily by nurture and culture are subject to demographic selection pressure as potential parents with certain characteristics have more children than those with other characteristics, and raise them to have somewhat similar characteristics. In the case of religious preferences, based on the positive relationship between religiosity and fertility, it is clear that for at least the last century, demographic selection pressure toward the preferences of especially prolific parents would operate in the direction of greater religiosity. Indeed, this is one of the key forces helping to maintain a high level of religiosity in the United States.

Nevertheless, there have been periods of pronounced secularization in Europe and a relative steadiness in the United States of the overall level of religiosity even in the face of demographic pressure toward greater religiosity that suggests the existence of other important influences on religious preferences beyond parental influences. In this paper, we focus our empirical sights on one prime suspect: the influence of the college experience--which is often the first time people are separated from their parents for an extended period of time. Among nonparental influences on preferences, the college experience is one for which there is real hope of getting some statistical power from micro-data, as opposed to trying to look at unrepeatable macro shocks.

Human mortality guarantees that the fate of civilizations and cultures depends on how ideas are transmitted from one generation to the next. In the last few centuries, formal education has played an increasingly important role in this intergenerational transmission of ideas. One of the key aspects of higher education is that it comes at an age when students are able to compare and contrast a variety of streams of thought and to begin to forge their own individual worldviews out of these various streams of thought. How an idea fares at this nexus can have an important bearing on the degree of influence an idea will have in the culture. Indeed, in countries like the United States, the large fraction of the total population that attends college makes it possible to talk about mass intellectual culture---intellectual culture that is not the property of a few elites, but affects a large swath of society.

A great deal of research has found that college majors exhibit important correlations with values.[3] One possible explanation is that students in different majors are exposed to strikingly different sets of ideas (not only from formal instruction but also from the extra time they spend with peers in the same major.) Another possible explanation is that students with different values sort differentially into different majors. We are interested in studying how the specific contents of the curriculum a student is exposed to (along with classmates) affect students’ values during these formative years, carefully distinguishing these effects from patterns of selection into majors. To give a focus to these questions, we consider the effects of different college experiences on religiosity an appropriate place to start.

Bruce Sacerdote and Edward Glaeser (2001) document some of the effects of education on religiosity overall. They find that the effects are very different in different countries, which they conjecture is due to the different content of education in different countries. They use the following example: “Socialist countries appear to use the power of the state over education to quash religious beliefs. We interpret this as suggesting that the education-religion connection is not intrinsic but rather a function of curriculum design and the objectives of those who control education.” We argue that even within a single university, the curriculum and the objectives of those controlling it can be very different in different departments.

We hypothesize that students in college are confronted to varying degrees with at least three powerful streams of thought that bear on attitudes toward religion: Science, Developmentalism and Postmodernism. Science--or Scientism, to emphasize the worldview aspect--consists primarily of a commitment to truth, the scientific method and to an open-ended responsiveness to evidence. The pursuit of the scientific method has led to a particular picture of the universe that has important implications for religion. Developmentalism consists primarily of a commitment to freedom and to progress. Although these ideas are widely shared by Americans, many do not know the intellectual arguments that have historically undergirded the conviction of the importance of freedom and progress. Postmodernism consists primarily of a commitment to relativism and to the idea that truth and morality are not absolute but are determined by those who are powerful.

Each of these three streams of thought could interact in important ways with religious attitudes and values. For example, it seems reasonable to suppose that Science insists that religious beliefs be amenable to evidence. Developmentalism influences people toward optimistic rather than pessimistic religious attitudes and causes a focus on the practical benefits of religion as opposed to its other-worldly benefits alone. As for Postmodernism, a typical undergraduate might experience Postmodernism’s commitment to relativism as hostile to religious claims to truth. (Postmodernism’s commitment to relativism is also sometimes antagonistic to scientific claims to truth.) We return to a discussion of these tensions with religion in the following section.

College majors differ in important ways in the extent to which each major incorporates each stream of thought. The Humanities and some of the Social Sciences typically have a strong Postmodernist content. The Natural Sciences have a strong Scientist content. Economics and Business typically have a strong Developmentalist content. The different ideational content of different majors makes it possible to test at a practical level the three hypotheses that Postmodernism, Science and Developmentalism have a negative effect on religiosity by relating college major to religious attitudes, as well as attitudes toward science and relativism, one can see if the effects of these three streams of thought are as we hypothesize. Of course, while studying the effects of these three streams of thought motivates our analysis, studying the effects of different college majors on religiosity should be of interest even for those who have a different assessment of the ideational content of various college majors.

[1]  Given the limitations of our data, we will not be able to separate differences in religious preferences from differences in religious beliefs, so we will not emphasize this distinction and treat religious differences as a matter of preferences. In terms of effects on choices, there is a high degree of substitutability between differences in religious beliefs and differences in religious preferences. It is likely, though, that the cognitive or belief element of religious differences is particularly susceptible to being affected by education. Thus, a deep microtheoretical explanation of how the mechanisms we identify in this paper operate would require one to deal more fully with the beliefs/preferences distinction in a religious context. Such a micro-theoretical explanation of how people’s religious beliefs and preferences are altered is beyond the scope of this paper; the job we have taken on is attempting to identify some of the effects that would need to be explained by such a theory.

James Montgomery (1996) discusses the issue of whether religious differences are matters of belief or matters of preferences. He argues that, to the extent religious beliefs are not governed by common knowledge and Bayesian updating, that the distinction is not as central a theoretical distinction as it is in areas where beliefs are governed by common knowledge (at some point), plus Bayesian updating (perhaps with private information). Although a Bayesian approach can be quite useful in judging religious beliefs within a culture that admits only a few different possible religious beliefs, in general it faces the difficulty that it would be almost impossible to specify a reasonable prior probability distribution over all possible structures of ultimate reality. Even in scientific contexts, the difficult of specifying an adequate prior probability distribution over all possible structures of ultimate reality is an important argument for Frequentists in their ongoing argument with strict Bayesians.

Pascal’s Wager (see the Stanford Encyclopedia of Philosophy) is a good illustration of how easily preferences and probability can get mixed up in a religious context. Pascal’s Wager is the (still often influential) argument that one should believe in God because the cost of believing in God if in fact there is no God is small, while the cost of not believing in God if in fact there isa God is large. Note how this argument assumes one can and should choose optimal beliefs rather than using Bayesian updating and in its simplest statement assumes a prior with only two major possibilities for the structure of ultimate reality.

[2]  They argue as follows: “These results accord with a perspective in which religious beliefs influence individual traits that enhance economic performance. The beliefs are, in turn, the principal output of the religion sector, and church attendance measures the inputs to this sector. Hence, for given beliefs, more church attendance signifies more resources used up by the religion sector.

[3] See for example Newcomb (1943), Newcomb et al. (1967), Thistlethwaite (1973), Duff and Cotgrove (1982), Biddle et al. (1990), Alwin et al. (1991), Easterlin and Crimmins (1991), Jennings (1993), Easterlin (1995), Hogner (1996), Kolenko et al. (1996), Zlotkowski (1996), Ethington and Wolfle (1988) Guimond (1999), Ridener (1999), Shiarella and McCarthy (2000), Leppel et al. (2001), Hodgkinson and Innes (2001), Sidanius et al. (2003), and Bécares and Turner (2004), Kimball, Mitchell, Thornton and Young De-Marco (2005).

 

 

Defining Economics

I am delighted that in her post "How much do current debates owe to conflicting definitions of economics?" Beatrice Cherrier engaged the argument I made in "Economics Needs to Tackle All of the Big Questions in the Social Sciences." I recommend Beatrice's post in its entirety, but in this post I'll just react to her quotations from me. 

                                                         Modeling and Quantifying

Beatrice writes:

...another shift has arguably been taking place in the last decades: the replacement of a subject-based definition with a tool-based one. The hallmark of the economist’s approach would not be its subject-matter –any human phenomenon is eligible-, but its use of a set of tools designed to confront theories with quantitative data through models. See for instance this recent post by Miles Kimball: “economics needs to tackle all the big questions in the social sciences,” he titles, adding that “what is needed [for economists to influence policy] is a full-fledged research program that does the hard work of modeling and quantifying.”

I wanted to clarify what I meant. First, although this definition is a tool-based definition, I don't view the set of tools defining economics as fixed. Rather, the set of tools defining economics is whatever set of tools are taught in the curricula of economics PhD programs as those curricula evolve over time. 

Thus, I am characterizing economists in terms of the human capital they have, and saying that economists ought to tackle the full range of problems that human capital gives them a comparative advantage at tackling. In my view, that includes a large share of all the big questions in the social sciences, and may include big questions in other areas (say, non-experimental studies of the effects of nutrition) that call for a level of statistical sophistication in dealing with messy situations that is not easy to obtain outside of economics PhD programs.  

In the nature of comparative advantage, the fact that such tools are especially valuable for traditional economics topics may, by raising opportunity cost, appropriately reduce the allure of some topics traditionally handled by other social sciences (or other sciences), but I argue that many social science questions outside of the traditional purview of economics are so important and have such a high scientific marginal product for the application of skills taught in economics PhD programs that economists should go after them. The purpose of my post "Economics Needs to Tackle All of the Big Questions in the Social Sciences" is to try to improve the chances that academic rewards for economists working on such questions are aligned with what I see as the high scientific and high social marginal product of addressing those questions. I would be honored if people working on important questions outside the traditional purview of economics showed "Economics Needs to Tackle All of the Big Questions in the Social Sciences" to their colleagues to help persuade those colleagues of the appropriateness of such research by economists.  

Second, out of context, the phrase "the hard work of modeling and quantifying" sounded much more narrow and tradition-bound than I meant. What I meant was simply persistently asking "Why?" and "How Much?" In my view, good answers to the questions "Why?" and "How Much?" both within the traditional purview of economics and outside it requires a expansive range of models.

A. Cognitive Economics. Let me give a few examples of what I mean by an expansive range of models. in my paper "Cognitive Economics" I argue for the importance (and discuss the technical difficulties) of models that avoid assuming that all the key actors are either infinitely intelligent or so smart that all the decisions they need to make are easy for them. To some, this permission and encouragement in the appropriate cases to do models in which agents are not all infinitely intelligent might be seen as a betrayal of the spirit of economics.

B. Psychological Production Functions. In my post "John Stuart Mill on Being Offended at Other People's Opinions or Private Conduct" I express my admiration for what some economists might think was an impermissibly ad-hoc psychological production function—a nice example of an approach that can do a lot to extend the effective range of economic modeling. Let me quote at some length from "John Stuart Mill on Being Offended at Other People's Opinions or Private Conduct":

Here I have in mind Ed Glaeser’s “The Political Economy of Hatred.” I liked the working paper version of this paper because of its model of a psychological production function for hatred in the working paper version of this paper. In the published version, that was replaced by a more rational model of hatred induction. The shift can be seen in the difference between the abstract of the working paper and the abstract of the published version. Here is the abstract of the working paper:

What determines the intensity and objects of hatred? Hatred forms when people believe that out-groups are responsible for past and future crimes, but the reality of past crimes has little to do with the level of hatred. Instead, hatred is the result of an equilibrium where politicians supply stories of past atrocities in order to discredit the opposition and consumers listen to them. The supply of hatred is a function of the degree to which minorities gain or lose from particular party platforms, and as such, groups that are particularly poor or rich are likely to be hated. Strong constitutions that limit the policy space and ban specific anti-minority policies will limit hate. The demand for hatred falls if consumers interact regularly with the hated group, unless their interactions are primarily abusive. The power of hatred is so strong that opponents of hatred motivate their supporters by hating the haters.

By contrast, here is the abstract of the published version:

This paper develops a model of the interaction between the supply of hate-creating stories from politicians and the willingness of voters to listen to hatred. Hatred is fostered with stories of an out-group’s crimes, but the impact of these stories comes from repetition not truth. Hate-creating stories are supplied by politicians when such actions help to discredit opponents whose policies benefit an out-group. Egalitarians foment hatred against rich minorities; opponents of re-distribution build hatred against poor minorities. Hatred relies on people accepting, rather than investigating, hate-creating stories. Hatred declines when there is private incentive to learn the truth. Increased economic interactions with a minority group may provide that incentive. This framework is used to illuminate the evolution of anti-Black hatred in the United States South, episodes of anti-Semitism in Europe, and the recent surge of anti-Americanism in the Arab world.

C. Cultural Evolution Tools and Markov Transition Matrices to Study Memetics. In the 1990's I became very interested in evolutionary theory. In the University of Michigan's 2-month May-June semester in 1997 and 1998, I taught a course called "Economics, Life and Philosophy," that focused on evolutionary theory. (Here is a link to my syllabus for that class.) By 1999, I had connected up with folks involved in the University of Michigan's Evolution and Human Adaptation program, including Randolph Nesse and Joseph Henrich among many others. I was struck by how close the thinking of those into evolutionary theory is to economists. But unlike finance and many other branches of business that essentially are economics, evolutionary theory has a distinct set of tools. Many economists have borrowed from the tools of evolutionary theorists, but many other economists are missing out by not knowing about the tools of evolutionary theory. 

One fact worth knowing is that among working anthropologists and evolutionary theorists, memetics  usually goes by the name "cultural evolution." Robert Boyd and Peter Richerson did a lot of work on formal models of cultural evolution that are collected in their book The Origin and Evolution of Cultures. But that is only the tip of the iceberg. Googling or typing into the Amazon searchbox "cultural evolution" reveals a wealth of resources. Searching for "meme," "memes," or "memetics," will lead to more low quality hits, but will also lead to some very interesting things. There is a lot of great inspiration for economists here. (One reaction I have to some of these models is that for certain topics, a simpler approach of using continuous-time Markov transition matrices or simply systems of differential equations might often work.)

                                 The Right Amount of Respect for Other Social Sciences

Beatrice's other quotation from "Economics Needs to Tackle All of the Big Questions in the Social Sciences."

To me, Miles Kimball’s post has clear Marschakian overtones: first, define what your economics identity is. Then, go and engage other social sciences on any question you wish. Writes Kimball:

That doesn’t mean the economists should ignore the work done by other social scientists, but neither should they be overly deferential to that work. Social scientists outside of economics have turned over many stones and know many things. Economists need to absorb the key bits of that knowledge. And the best scholars in any social science field are smarter than mediocre economists. But in many cases, economists who are not dogmatic can learn about social science questions outside their normal purview and see theoretical and statistical angles to studying those questions that others have not. 

I totally reject any claim of turf ownership by other social scientists. It is only to the extent that the training in other disciplines in fact makes non-economists better able to address a question that economists should leave that question to non-economists. (Of course "better able" could include being able to address a question equally well but more cheaply or only a little less well and much more cheaply.)  

Also, I think that for most academics, self-confidence is helpful for one's productivity—even self-confidence somewhat beyond what can be factually justified. So it should not be consider any great crime or faux pas to believe in one's heart of hearts that one is smarter than one's competition in addressing a question. Politeness requires not being too obvious in this belief, and retaining a semblance of wisdom requires not overdosing on such a belief. But believing that one is smarter than one's competition should certainly be permissible if true, and permissible even in some degree beyond what an impartial observer might judge to be true. 

Moreover, I think high average levels of statistical sophistication among economists are a fact. Many, many topics in the social sciences can be better addressed with a high level of statistical sophistication than without. And while how valuable economic theory tools are outside of economics is more of an open question, the perspective of economic theory is likely to lead at least to conjectures worth testing that someone unversed in economic theory would be unlikely to come up with.  

That said, it is good to avoid misplaced arrogance. An approach to a question isn't better because it is more "scientific," as that word is sometimes used polemically. An approach is better only if it is more likely to lead to the truth. The best scholars in every field tend to think deeply about their approaches and tools and what is best suited for different kinds of tasks. Moreover, the best scholars in every field make the case to other scholars for their approach from first principles. That is, the best scholars in every field make the case to other scholars in a way that befits a scientific advocate facing a scientific jury. It is lesser scholars who use methodological dicta they do not question—and therefore do not understand—as cudgels to try to subdue the competition. 

In Beatrice's quotation of me above, I emphasize the respect that should be accorded scholars in other disciplines for their knowledge of relevant facts. I also want to emphasize the respect that should be given to the judgment of scholars in other disciplines for the importance of the issues they study. They may make some mistakes in judgments of the importance of different topics, but are likely to have identified many key issues.

                                                                   Crossing Boundaries

In two articles, Moises Naim rightly urges that economists have overshot the optimal level of arrogance and hence undershot the optimal level of humility. In his Atlantic article, "Economists Still Think Economics Is the Best," he writes: 

Ten years ago, a survey published in the Journal of Economic Perspectives found that 77 percent of the doctoral candidates in the leading American economics programs agreed or strongly agreed with the statement "economics is the most scientific of the social sciences."

In the intervening decade, a massive economic crisis rocked the global economy, and most economists never saw it coming. Nevertheless, little has changed: A new paper from the same publication reveals how economists continue to believe that their science is superior to all other social sciences, such as political science, sociology, anthropology, etc.

The subtitle of his October 20, 2009 Foreign Policy essay has the same message: "Economist Class: Practitioners of the 'dismal science' should stop sneering at their academic cousins in the social sciences -- and start learning from them." But I want to highlight another message from that article. I have argued that economists should invade the territory of other disciplines, with all due respect (but not excessive respect) for the current inhabitants. Moises Naim recommends that those who travel through such now foreign territories should be on the lookout for approaches worth importing (or worth hybridizing) into economics as well:

A science that relies on luck to explain the fate of billions of people is a dismal science indeed. True, other social sciences aren’t in much better shape, but economists would still be well advised to trade in their intellectual haughtiness for a more humble disposition. Albert O. Hirschman, a superbly original economist, borrowed freely from other disciplines and aptly titled one of his books Essays in Trespassing. We need more trespassers. Fortunately, a few of today’s economists are beginning to hurdle professional fences and mine neurology, psychology, sociology, and political science to enrich their analysis.

To be sure, most of these attempts at boundary crossing won’t yield much of value, and they render economists vulnerable to charges of consorting with the methodologically impure. But given the dismal condition of the dismal science, intellectual trespassing is a risk worth taking.

For more on boundary crossing, and more on the need for greater humility on the part of economists, see the storified tweets in "On Bringing the Questions and Concerns of Sociology into Economics." I found the complaints there from various quarters about the arrogance of economists especially revealing. 

Don’t miss these other posts on posts on being human, on being a scientist and on being an economist.

Deregulation of Social Science as a Free Speech Issue

Update October 29, 2017: Here is a nice Powerpoint file on the changes to human subjects review regulations.

It was a huge week for social scientists. An article in the Chronicle of Higher Education by my University of Michigan colleague Richard Nisbett (a renowned psychologist) and University of Chicago cultural anthropologist and cultural psychologist Richard Shweder reported a plan for significantly reducing regulation of social science research:

The exempted research activities include surveys, interviews, and other forms of free communication between researchers and human adults, aptitude testing, the observation and recording of verbal and nonverbal behavior in schools and public places (for example, courtrooms), benign behavioral interventions (including ordinary psychology experiments), secondary-data analysis, and other low-risk projects and research procedures.

They also talked about an important deregulatory proposal that is under serious consideration, but not yet approved

The decision as to whether a project should be exempt is left to the researcher, presumably using a plainly defined, self-administered exemption tool.

After my coauthor and former student Mark Fontana let me know about this article, I tweeted it and got an extraordinary response, which you can see in my Storify story "On the Deregulation of Social Science Research."

Upon reflection, the Twitter response that struck me the most is this from Katherine Fierlbeck:

This is SO important—I can't interview ppl w/o cumbersome ethics review, but journalists can do so at will w/o any ethical baggage. 

With a day's delay, this tweet made me realize that being able to survey people is a free speech issue. If I ask someone a question, that is free speech on my part. If someone chooses to answer, that is free speech on their part. We would be aghast at the prior restraint involved in asking journalists to undergo government-mandated ethics review before asking anyone a question. Similarly, we should be shocked at social scientists having to undergo government-mandated ethics review before asking people questions—which might reveal things the government would rather were not revealed. 

Let me say right away that it is totally legitimate to expect people to keep their promises—including promises about confidentiality. So everything I say here is based on the assumption that those conducting surveys keep their promises, plus fulfilling anything that a reasonable survey respondent would consider an implicit promise given the situation and what those conducting the survey have said. 

Let me also say that survey researchers should definitely talk to other people about ethics issues raised by their research and voluntarily listen and follow good advice on that score. It is very difficult for someone to close to a research project to see all of the ethical issues involved. But despite the potential issues of making someone uncomfortable by asking them a question, the principles of free speech—and in the US, the First Amendment to the Constitution—should forbid mandatory rules restricting what questions can be asked on a survey, and also forbid rules restricting what can be reported about the findings, as long as that reporting keeps all explicit and implicit promises that have been made. 

Surveys are subject to more involved ethics review when they ask about "sensitive" questions, that might make people uncomfortable. But surely "sensitive" questions are an area where free speech protections are particularly needed. Every culture has taboos surrounding talking about certain things. But those are often some of the most important things to talk about. 

Recently, trying to understand continuing high levels of traffic for some of my back catalog, I discovered that (in incognito mode) if I type into Google

John Stuart Mill Free Speech

OR

John Stuart Mill Freedom of Speech

The second Google result is my post "John Stuart Mill's Brief for Freedom of Speech." It was a remarkable experience for me to blog through John Stuart Mill's On Liberty at about one blog post per paragraph. John Stuart Mill actually gives the arguments for free speech, rather than treating free speech as something whose goodness one takes on authority. I suspect that the lack of commitment to free speech I see in the ostensibly free world these days has much to do with the fact that the arguments in "On Liberty" in favor of free speech are not taught to students in detail. This is a good time to dig into those arguments. Although my treatment of those arguments is much less scholarly than the likely treatment in the first Google results, the Stanford Encyclopedia of Philosophy article on "Freedom of Speech,"  you might find reading my blogger's treatment of John Stuart Mill's arguments more nearly painless to read. Many of John Stuart Mill's arguments are directly relevant to the regulation of social science surveys. Because the arguments for free speech apply, the principles of free speech for those who are persuaded by those arguments also apply. 

 

Why I Am Now a Bear

image source

image source

On August 1, 2012, I wrote "Why My Retirement Savings Accounts are Currently 100% in the Stock Market." (This was the post that Mitra Kalita noticed and motivated her to invite me to write for Quartz when it started up.) Today's post is an update on "Why My Retirement Savings Accounts are Currently 100% in the Stock Market."

John Hussman had the office next to me at the University of Michigan in the 1990's. By at least 1998, he was saying that the stock market was quite overvalued. Thanks to him, I was out of the market in 2000. I pulled out of the market a couple of years before the 2000 peak. The techniques John is using can't time market peaks exactly, they simply tell if the market is overvalued or undervalued.

On March 6, 2017, John put up a blog post entitled "The Most Broadly Overvalued Moment in Market History." Take a look at his first graph, of the expected 12-year stock-market return his equation predicts. In the graph, you can see the low expected stock returns that caused me to pull out of the stock market in about 1998. You can also see the low expected stock returns in the 12-year period beginning now. Of course, those returns need to be compared to what one could get in the bond market or other available investments.  For clarity in thinking, I like John's approach of first determining expected return on stocks, then comparing with bonds.

I read John's post last Wednesday morning (March 8), and found it convincing. So I changed my main account (my University of Michigan defined contribution pension)

FROM

  • 58.07% US Index Fund (FID TOT MKT IDX INS)
  • 26.65% International Index Fund (FID INTL INDEX INS)
  •  9.05% Real Estate Investment Trust Fund (VANG REIT IDX INST)
  •  6.24% Emerging Market Index Fund (VAN EM MKT ST IDX IST)

TO

  • 50% Money Market Fund (VANG TREASURY MM)
  • 50% Real Estate Investment Trust Fund (VANG REIT IDX INST)

(I was careful to choose a money market fund with a low expense ratio. There were high-expense money market funds available from Fidelity that I avoided.) For me, this was a very conservative portfolio. I didn't have time that morning to change a couple of smaller accounts (my NBER defined contribution pension and my new University of Colorado Boulder defined contribution pension) that combined would only be a fraction as large. 

I reported the action I had taken with that retirement account on Facebook and received some useful feedback. Reminding everyone that everything on my Facebook page is totally public, let me share some of that feedback with you. The best advice was from Einer Richard Elhauge, who wrote:

Terrific article and great analysis of the problem. But a few questions on the remedy. Vanguard Reit PE is 26. Isn't that just as overvalued and likely to collapse? The yield for Vanguard Treasury MM is 0.5% -- even less than the 1% yield this article predicts for US stock market. Why isn't a better remedy switching to foreign stocks?

I replied:

I am worried that border adjustment will cause the dollar to appreciate and hurt the dollar value of foreign stocks. Long-run Treasuries I am worried will come down when QE is unwound. Obviously, I need the market to come down in a lot less than 12 years for having money in T-bills to make any sense. Does anything have a below normal P/E?

I am very much a devotee of international diversification, as you can see in "Why My Retirement Savings Accounts are Currently 100% in the Stock Market." But I figure I don't need to take on the risk of whether border adjustment goes through or not—a risk that should be resolved within a 6 months time, I hope. You can see more of my thinking about border adjustment in my post "Border Adjustment vs. Dollar Depreciation." (Also see Olivier Blanchard and Jason Furman's post  "Who Pays for Border Adjustment? Sooner or Later, Americans Do," which addresses a question I have been thinking about in a way similar to my thinking:)

Many people scolded me for trying to do market timing. My response to that is a bit subtle. As I wrote in "Robert Shiller: Against the Efficient Markets Theory":

Can You Succeed at Contrarian Market Timing? The one thing I would add here to what Bob says is this about market timing. Some of Bob’s work, some of it joint with John Campbell, suggests that contrarian market-timing can be a good idea. In particular, their work suggests increasing one’s stock holdings when the price/dividend ratio is low and reducing one’s stock holdings when the price/dividend ratio is high. (Bob has also used the ratio of price to cyclically adjusted earnings or smoothed earnings as a way of gauging if the market is high and likely to fall or low and likely to rise.) I believe this works and try to do it myself. But it is hard to do without a contrarian personality. What makes the market too high is that some story is making people optimistic about the market–a story that is likely to infect you as well; what makes the market too low is that some story is making people pessimistic about the market–again a story likely to infect you as well. So doing any market timing subjects you to the danger of succumbing to the stories out there that, because most other people are succumbing to them at the same time, will make you likely to buy high and sell low. It is only if you naturally like stories other people don’t like and dislike stories that they like that you can be a contrarian investor without great intellectual and emotional self-discipline.

In other words, if the market is not fully efficient, it is because a mass of traders—whom I will call "noise traders"—are pushing it away from efficiency in a way that necessarily involves them buying high and selling low. So if the market is not efficient a lot of money has to be doing things exactly wrong. Therefore, anyone who is going to follow the herd will lose by trying to time the market. And unavoidably, most people who time the market must be following the herd—otherwise there wouldn't be a herd generally going one way. So it is absolutely right that it is generally good advice not to time the market. However, if one has a contrarian personality and finds it easy to go against the herd, then it should be a good idea for one to do some market timing, at least to go against serious mispricing. I consider myself to have a contrarian personality that finds it easy to go against the herd, so I am not worried in general about doing some market timing.

Consciously in response to Einer's arguments, and perhaps unconsciously in response to some of the scolding about market timing (which I don't rationally agree with), I decided I had overreacted and changed my portfolio allocation in my main account to

  • 35% Real Estate Investment Trust (VANG REIT IDX INST)
  • 33% Money Market Fund (VANG TREASURY MM)
  • 30% US Index Fund (FID TOT MKT IDX INS)
  • 1% International Index Fund (FID INTL INDEX INS)
  •  1% Emerging Market Index Fund (VAN EM MKT ST IDX IST)

(Revising my real estate investment holdings again so soon got me a scolding from the Fidelity computer for making a "roundtrip" on those real estate investment trusts.) My other much smaller accounts are mostly in that emerging market index fund. Despite the danger of a loss there because of border adjustment pushing the dollar up, I have always liked to have some in emerging market funds for diversification, and that fund has been flat for so long, it seems less likely to be overvalued. The 1% holdings are to help me remember the names of the funds I want to get back into once the uncertainty about border adjustment is resolved. 

I don't want to stay in Treasury bills very long (the money market fund), but these early months of the Trump administration seem like a time of yuge policy uncertainty. (People talked a lot about policy uncertainty under Barack Obama, but get real—isn't there more policy uncertainty right now?) So I am willing to accept a very low return on almost 1/3 of my visible portfolio until we see a little better what the Trump administration will do in economic policy. And the Fed will raise rates enough that the insurance premium I am implicitly paying will go down somewhat. 

Despite its relatively high valuation, I am still hoping that a diversified real estate investment trust will act a bit like a bond that hasn't been pushed up as much in price as the bonds the Fed has been buying in QE. Indeed, I expect a real estate investment trust to owe some money in the form of long-term bonds, so I hope there is an aspect that is a little like shorting long-term bonds. I could be doing my analysis wrong, but that is where I am coming from.

Also, I have some hopes that (a) real estate investment trusts are a bit safer than most stocks and so deserve a higher valuation than most stocks and (b) that the lingering psychological after-effects of the end of the house price bubble are still pulling down real estate investment trust valuations somewhat, so that I am not overpaying too much compared to other available investments. In any case, some substantial holdings of real estate seem sensible from the point of view of diversification.  

In any case, things in general are at high enough valuations that it is not easy finding investments with the expected real rate of return that I would like to find. As usual in life, nothing is perfect. But you can see how I am muddling along in my portfolio decisions. 

I would be glad for more feedback, especially from those who have gotten this far in reading this post.