What’s Wrong With Betting?

The forecasting model of Nate Silver, perhaps the best known pollster of the 2012 election cycle, predicts an Obama victory, and conservatives have been predictably upset by this fact. For example:

On MSNBC’s “Morning Joe” today, Joe Scarborough took a more direct shot, effectively calling Silver an ideologue and “a joke.”

Scarborough rejected the validity of Silver’s model. Silver’s response to Scarborough was, essentially, put your money where your mouth is. He challenged Scarborough to a bet whereby the loser would have to donate $1000 to charity, if their predicted candidate did not win the election. If Obama won, Scarborough would pay, and Silver would pay in the event of a Romney victory.

Alex Tabarrok defends the bet:

Overall, I am for betting because I am against bullshit. Bullshit is polluting our discourse and drowning the facts. A bet costs the bullshitter more than the non-bullshitter so the willingness to bet signals honest belief. A bet is a tax on bullshit; and it is a just tax, tribute paid by the bullshitters to those with genuine knowledge.

However, the Public Editor of the New York Times, where Silver works, criticized Silver. Her statement is bewildering. Challenging people to a bet is “a bad idea – giving ammunition to the critics who want to paint Mr. Silver as a partisan who is trying to sway the outcome.” Why? She doesn’t elaborate.

Perhaps the intuition is that calling people on bullshit is generally rude? And Silver’s rudeness to a Republican partisan demonstrated that he was a Democratic partisan? Perhaps calling out a friend or acquaintance on bullshit is rude, but the same consideration should not apply between pundits, particularly when one pundit has essentially called the other a partisan hack. A bet would be a strong signal that Silver wasn’t trying to sway the election, that he actually had independent faith in his model’s predictive strength. That’s an entirely appropriate signal for a pundit to give, particularly when his objectivity has been called into question.

The EU’s Peace Prize

The original historical justification for the EU was the belief that, in the absence of shared or even world government, conditions of scarcity would inevitably lead states into horrific resource wars. To some extent a similar concern generated American federalism. The old view now seems rather paranoid, though understandably so. The modern conception seems to be that peace is the general condition between liberal, developed, democratic societies, not the exception. The EU’s Nobel Peace Prize looks to me like an endorsement of the old, incorrect understanding. Why not give the award to “Democracy” or “Capitalism” instead? How about to mutually assured destruction? Or just to fragile economic complexity and the modern futility of acquisitive warfare?

The Ethics of Winding Down a Ponzi Scheme

A while back one of my friends made the following argument on Facebook:

It’s easy to call all poor/working poor people “irresponsible”, but let’s be frank. My grandmother is a small business owner. She built her business from the ground up, was a single mom, and raised 4 children. She paid into SS and Medicare her whole life. She earned those benefits. To call her “irresponsible” is the height of irresponsibility.

My response to this argument follows:

The issue is not whether poor people or your grandma are irresponsible or not. The issue is whether other people, who may already be paying far larger tax bills, should pick up the tab for false promises made to people like your grandma.

Frankly, your grandma is a victim of a Ponzi scheme. Whether she wanted to or not, she was forced to invest in a scheme that promised her an imaginary return on her benefits. I don’t know for sure that she is getting back more than she invested in nominal or real terms, but this is likely based on the fact that she is probably near or past retirement age now.

When you invest in a Ponzi scheme, you get hurt. There is no fair way around this. Your grandmother isn’t entitled to get everything she was promised just because she was the first to invest in the Ponzi scheme, or because she is a nice lady, or even just because she is your grandma. Clearly the facts that she had four kids as a single mother and started a business are irrelevant; those are just choices she made, not something she deserves a reward for from society.

In a Ponzi scheme, more is promised than can be delivered. Some of the promises have to be broken. The law has evolved a set of actual principles to deal with Ponzi schemes: recover profits paid to investors as reasonably possible, and distribute the proceeds pro rata among the underpaid victims. See this treatment of the Bernie Madoff Ponzi scheme, for example.

Sure, your grandmother may have expectations. She expected to get the money she was promised. But everyone else has expectations too. They expect to not have to bail out your grandma once the Ponzi scheme explodes. Now, maybe we should think of these Ponzi schemes as something that we are all victims of. If that’s the case, then perhaps the pain should be shared between people paying more taxes than they expected to, and people getting less benefits than they expected too. But your grandma isn’t entitled to get off scot-free.

Eventually my generation will be expecting benefits from Social Security and Medicare. Perhaps, unlike past generations, we will expect back less from the program then we paid in. We’ll think this means that we are getting back “our” money and getting what we “deserve”. We’ll be just as wrong as my friend on Facebook. We weren’t paying for our benefits, we were paying for the grandparents or parents of someone working today. That’s how a Ponzi scheme works.

Caplan, Online Education, Signalling

Caplan defends hedging his prediction of online education’s dismal prospects:

My recent post on online education specifies:

When I talk about “online education,” I don’t just mean students at existing brick-and-mortar colleges taking some classes from their dorm rooms.  I mean students enrolling in virtual colleges instead of physical colleges.

Tyler objects:

I would say he is defining away the most likely model, namely a hybrid model which has a significant on-line component.

I think my definition is much closer to standard usage than Tyler’s.  In any case, though, there’s a simple rationale for my usage: If online education in my sense takes off, education will become drastically cheaper, and most existing schools will crumble into bankruptcy.  In contrast, if online education in Tyler’s hybrid sense takes off, education will be at most marginally cheaper, and most existing schools will stay in business.

As Caplan kind of admits here, I think his previous posts on the subject substitute the question of whether the signalling model of education is correct for the more difficult question of whether online education will succeed.

The analogy that I keep coming back to is Latin. Once upon a time, arcane subjects like Latin and religion were considered rather important parts of the curriculum. Plugged into Caplan’s previous signaling story, students who stopped taking these classes would fail to participate in the signalling and suffer accordingly.

The problem with this narrative is that it provides no reason to think that “Latin and religion” were actually part of the signal, rather than, say, going to the right university. More likely, the university is a large part of the signal itself, because getting in to a particular university can be quite hard. Once inside, the effort required to maintain good grades completes the signal. The subject matter taken hardly matters, so the grades sort students according to a relevant measure of their aptitude.

Likewise, there doesn’t seem to be any important reason to think that the physical or online nature of an institution should play a large role in the success of educational signalling. A less “pure” signalling model of education might provide reasons to doubt the prospects of online education, but signalling alone only seems to demonstrate that a valuable online education will still be expensive.

Daniel Kahneman on Experts

When should you trust an expert’s empirical predictions? Says Daniel Kahneman in Thinking Fast and Slow:

When do judgments reflect true expertise? When do they display an illusion of validity? The answer comes from the two basic conditions for acquiring a skill:

  • an environment that is sufficiently regular to be predictable
  • an opportunity to learn these regularities through prolonged practice

When both these conditions are satisfied, intuitions are likely to be skilled. Chess is an extreme example of a regular environment, but bridge and poker also provide robust statistical regularities that can support skill. Physicians, nurses, athletes, and firefighters also face complex but fundamentally orderly situations. The[ir] accurate intuitions… are due to highly valid cues that the expert’s [intuitive] System 1 has learned to use, even if [the rational] System 2 has not learned to name them. In contrast, stock pickers and political scientists who make long-term forecasts operate in a zero-validity environment. Their failures reflect the basic unpredictability of the events that they try to forecast….

Some regularities in the environment are easier to discover and apply than others. Think of how you developed your style of using the brakes on your car. As you were mastering the skill of taking curves, you gradually learned when to let go of the accelerator and when and how hard to use the brakes. Curves differ, and the variability you experienced while learning ensures that you are now ready to brake at the right time and strength for any curve you encounter. The conditions for learning this skill are ideal, because you receive immediate and unambiguous feedback every time you go around a bend: the mild reward of a comfortable turn or the mild punishment of some difficulty in handling the curve if you brake either too hard or not quite hard enough. The situations that face a harbor pilot maneuvering large ships are no less regular, but skill is much more difficult to acquire by sheer experience because of the long delay between actions and their noticeable outcomes. Whether professionals have a chance to develop intuitive expertise depends essentially on the quality and speed of feedback, as well as on sufficient opportunity to practice….

Some aspects of any professional’s tasks are much easier to learn than others. Psychotherapists have many opportunities to observe the immediate reactions of patients to what they say. The feedback enables them to develop the intuitive skill to find the words and the tone that will calm anger, forge confidence, or focus the patient’s attention. On the other hand, therapists do not have a chance to identify which general treatment approach is most suitable for different patients. The feedback they receive from their patients’ long-term outcomes is sparse, delayed, or (usually) nonexistent, and in any case too ambiguous to support learning from experience.

Among medical specialties, anesthesiologists benefit from good feedback, because the effects of their actions are likely to be quickly evident. In contrast, radiologists obtain little information about the accuracy of the diagnoses they make and about the pathologies they fail to detect. Anesthesiologists are therefore in a better position to develop useful intuitive skills.

Bernstein on Posner

David Bernstein comments on Richard Posner’s self-described ideological drift:

I find Posner’s claim that he’s “become less conservative since the Republican Party started becoming goofy” strange, for two reasons. First, he claims to still admire Ronald Reagan and Milton Friedman. What policies is the modern conservative movement, or the modern Republican Party, pursuing that Reagan wouldn’t endorse? None that I can think of, except perhaps a tougher line on immigration. And the four GOP presidential nominees since Reagan have all been substantially less conservative than he was, suggesting that if Posner doesn’t like the modern GOP, he should become more conservative. And what economic policies is the GOP endorsing that would offend Milton Friedman for being too conservative? Friedman would surely think that Paul Ryan’s budget plan doesn’t go nearly far enough in cutting federal spending.

The second oddity is that the purported goofiness of the modern GOP, if it is such, would have any effect on his own ideas. I’ve certainly found occasion to be embarrassed to call myself a libertarian because of the antics of other libertarians, but my own substantive views never changed because of that, and I don’t see why they would.

What Posner almost seems to be saying is that he finds the GOP to be goofy, and if he is identified in the public mind as a conservative, some of that goofiness will be attributed to him, and affect his own reputation. So he publicly espouses policies that will separate him in the public mind from the GOP’s goofiness, thus preserving his own reputation.

Posner’s drift makes sense according to the group affiliation model of ideology. Posner is an educated person and no doubt likes to affiliate with educated people in general. It is my impression that progressive views are predominant among the college-educated, and there is at least some data to back this up. As conservative politics become more closely associated with the less educated, it becomes uncomfortable for the more educated to associate with conservative politics, regardless of whether the GOP’s politics have shifted substantively. If the demographics really have changed since the days of Reagan, perhaps Posner has changed with them.

Signalling Model and Online Education

Bryan Caplan discusses the prospects for online education under a signalling model of education:

Perspective #3: Signaling model.

Analysis: Brick-and-mortar colleges are primarily places where students signal a combination of intelligence, conscientiousness, and conformity.  Online education suffers from a severe adverse selection problem, because the students most eager to avoid traditional education tend to be deficient in one or more of these traits – especially conformity to the established social norm that young people should go to a traditional college.

Prediction: Brick-and-mortar colleges are here to stay.  Online education may be a niche good, but the labor market will usually penalize its graduates with a low wage premium.

I’m not convinced by this story. As Caplan’s co-blogger Arnold Kling notes

Something that is a status good in one era can be the opposite in another.

I don’t think Caplan’s signalling model, by itself, predicts the failure of online education.

Once upon a time Greek and Latin used to be an important part of the curriculum. In Caplan’s story, they should never have dropped out of the curriculum, because students who failed to take these courses would not have been signalling their intelligence, conscientiousness, and conformity. Yet today, classics education is not at all a prerequisite for a successful career.

If Harvard decided tonight that all of its classes would henceforth be online, would it make sense for businesses to infer that its identical student body had failed to signal “a combination of intelligence, conscientiousness, and conformity”? What if Harvard (more reasonably) gradually transitioned to an increased reliance on online education over the course of many decades, while maintaining the same admissions/tuitions/grading structure?

Wouldn’t the proper inference be that the Harvard students were still the same highly intelligent, conscientious, and conforming group of people they were before the switch/transition, while students at low-end online schools were not? Signalling is currently institution-specific. The signalling model doesn’t by itself provide any reason to believe that online education should be any different.

Perhaps the signalling model in conjunction with another model, like the status-good model could provide a better explanation for the future failure of online education?

Perspective #2: Status good model.  

Analysis: Online education will soon be a great way to teach marketable skills.  But colleges are primarily places where young elites (and their tuition-paying parents!) bond.  In Arnold’s words:

[G]oing to a top college today is like belonging to the right church in 1850 or the right country club in 1950. When you are supplying a status good, ostentatiously wasting money on buildings can increase demand.

Prediction: Brick-and-mortar colleges are here to stay.  However, online education will easily compete for the segment of students who only want to acquire marketable skills.  Students who opt for online education will earn a wage premium comparable to that of brick-and-mortar grads.

If students in the future who prefer brick-and-mortar colleges as a status good also have higher levels of intelligence, conscientiousness, and conformity, then perhaps a signalling equilibrium prevents the emergence of prestigious online education programs.

Don’t Trust Your Instincts

I’ve advocated trusting instincts and suspecting advice before. Of course, there are times where you really shouldn’t trust your judgment, particularly when it comes to complicated statistical judgments. Robin Hanson, makes the case that your instincts really aren’t better than prediction markets. Here is a preview:

Imagine someone said:

Of course I believe in science – I’m no nut job. I’m a modern guy. But scientists sometimes get it wrong, so we can’t just believe everything they say – we have to use our judgement. For example, my judgement tells me that astrology just makes sense. Well not today – today’s horoscope suggests I drink less, while I know I can handle my benders. But usually my horoscope feels right. And usually I feel no objection to what scientists say. Which is what I mean when I say that I believe in science.

Yes, every source errs sometimes, making it seem oh so sophisticated to say you don’t take sides, you just use your judgement in each case. But that is often just an excuse to believe whatever you feel like.

 

Think About a Different Society

In discussions about welfare and health care reform it’s common to hear progressives insist, “I want to live in the kind of society where the poor are taken care of.” Common variants include, “Don’t you want to live in a society where the poor are taken care of?” “What kind of society allows the poor to suffer without taking care of them?” and “What does it say about a society that it would allow the poor to suffer?”

A common claim is that either we are part of a society that cares for the poor or we are not, with no middle ground. This is true in the sense that any society we are a part of either allows the poor to suffer or it does not, but we absolutely can be part of both societies which do and do not allow the poor to suffer.

The reason is that people are simultaneously part of many different societies. I’m a citizen of the United States, a voter in the State of Virginia, an inhabitant of the town of Charlottesville, an alumnus of Harvard University, a law student at the University of Virginia, and a member of Aetna’s University of Virginia Student Health Insurance Plan. All of these things could reasonably be described as “societies.”

Want to be part of a society that makes sure its sick are taken care of? Well you could push for legislation that requires all Americans to sign up for health insurance, like the ACA. Or you could sign up for an Aetna health plan, or enroll in the University of Virginia, which requires all of its students to have health insurance. Or you could start some new “society” with the relevant desired traits. In any of these situations, you would literally become part a society that ensures care for its sick members.

People who say “I want to be part of a society that takes care of its sick” overwhelmingly mean something like the ACA. They would probably be unimpressed by the incidence of insurance within the UVA community and sneer openly at the idea that Aetna represents a mutual insurance “society.” When they say they want to be part of a “society” they really mean that they want to be part of a “nation.”

But what’s so important about a nation? It’s just a geographically bounded institution with a monopoly on the scope of accepted violence. Is it really important to have your societal preferences represented by a geographical entity? Or do the smaller constituent societies not satisfy our ambitions of ideal society membership? Is it psychologically dissatisfying to be part of a small ideal society rather than a large ideal society? I don’t really think any of these hypotheses explains our preferences for national legislation. Instead I offer two further thoughts:

1. People don’t really care what sort of society they are a member of. Instead, they have preferences of universal applicability. Advocates for the ACA probably don’t really want just members of their society to be taken care of. They would also and for the same basic reasons want poor people in a totally separate society to be taken care of by their own society (people, for example, in New Guinea, or on Mars). The nation just happens to be the largest arena in which they can hope to see their preferences advanced.

2. When people focus on national society, they are often choosing not only for themselves, but also for everyone else. They determine what sort of society everyone else must be a part of, and what kind of societies they may not be a part of. The ACA does not merely allow us to live in a society where we are forced to care for the poor. It requires us to do so, and forbids us to do otherwise. The supporters of the ACA chose not merely for themselves, but for everyone else. While they could have taken part voluntarily in any number of charitable mutual insurance societies, they instead opted to coerce the participation of people who did not share their vision. I suggest that while it is entirely appropriate to work to shape a society for ourselves that suits our preferences, it is morally inappropriate to claim authority to prescribe the terms by which all of others’ societies must function.

Harassing the Church of Scientology is not Free Entertainment

Amusing facts from In re Henson, 289 B.R. 741 (Bankr. N.D. Cal. 2003):

Before the Court are two matters initiated by Religious Technology Center (“Creditor”), a creditor of H. Keith Henson (“Debtor”), who is the debtor in this Chapter 13 case:

FACTS

It is undisputed that Debtor left California to live in Canada at some point during 2001, shortly prior to being sentenced on criminal charges in Riverside County. Debtor stated in a pre-trial declaration that he had filed a petition for Canadian refugee status and could not leave that country while it was pending, and he filed a motion for leave to appear at trial by “contemporaneous video transmission” because he had moved to Canada and would “likely still be there” at time of trial. Debtor’s motion was denied for lack of the “good cause” and “compelling circumstances” that are required by Rule 43(a) of the Federal Rules of Civil Procedure (incorporated by FRBP 9017).

Debtor has been an outspoken critic of the Church of Scientology since at least 1995. He and his wife clearly believe that the Church is harmful and vindictive in general, and has behaved that way with respect to them in particular. Debtor’s public criticism of the Church has taken the form of standard political action such as picketing, as well as publishing Debtor’s critical views of the Church, its leaders, and at least one of its lawyers on the Internet. Debtor and some of his colleagues also play a form of game in which they rate among themselves the negative reactions they evoke from Church officials and lawyers.

Creditor and its lawyers strike at Debtor with a force and with resources that far exceed those available to Debtor ( e.g., the four different law firms who represent and appear for Creditor in this Chapter 13 *744 bankruptcy), appearing to expend funds that significantly exceed those expended on any Chapter 13 case of which this Court is aware, and far beyond the financial issues at stake. Moreover, the character of the litigation has been highly contentious and personal, unlike most Chapter 13 practice.

Debtor testified in a 1996 videotaped deposition, before commencement of this bankruptcy case, that he had never been a member of the Church, but had participated since at least 1995 in a group known as “alt.religion.scientology”, or “a.r.s.”, which was critical of the Church. The group awarded its members different levels of “status” depending on what kind of response was evoked by their acts toward the Church— e.g., greater status was achieved by being sued for copyright infringement than by being sent “cease and desist” letters. Debtor said in the 1996 deposition that he had made many FN4 postings on the Internet that were “critical or taunting” toward the Church, and considered eliciting responses to be “a major increment in status” within a.r.s., as well as “a great game”, “extremely amusing”, “screamingly funny”, “a lot of fun”, among his “hobbies”, and an activity that “comes off the recreation budget”.

FN4. Debtor testified that he did not know how many such postings he had made on the Internet. When asked a second time by counsel for Creditor to make an estimate, Debtor replied in a facetious tone that the number was 1,228.

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Kling on Open Minds

Arnold Kling writes:

Suppose we look at writing on issues where people tend to hold strong opinions that fit with their ideology. Such writing can

(a) attempt to open the minds of people on the opposite side as the author

(b) attempt to open minds of people on the same side as the author

(c) attempt to close minds of people on the same side as the author

So, think about it. Wouldn’t you classify most op-eds and blog posts as (c)? Isn’t that sort of pathetic?

If you think that the purpose of most political advocacy is to demonstrate group affiliation, this is not so surprising. If you do anything else, you risk signalling the weakness of your group affiliation.

Positive Sum Status?

Here is Katja Grace on fragmented status.

Maybe I feel good because I win at board games often, but you don’t feel bad if you don’t – you just quit playing board games and hang out with people who care about politics instead, because you have a good mind for that.

This is a popular retort to the fear that seeking status is zero sum, so any status I get comes at the cost of someone else’s status. I think it’s very weak.

That people split into different pools and think theirs is better than others suggests (though does not prove) that the net value of status is more than zero. Disproportionately many people think they are above average, so as long as status translates to happiness in the right kind of way, disproportionately many people are happy.

The interesting question though – and the one that the above argument is intended to answer – is whether my gaining more status always takes away from your status. Here it’s less clear that the separation of people into different ponds makes much difference:

The post is good throughout. I actually think the self-assessment issue is more interesting. As Grace also says, “status is about what other people think your status is.” Otherwise, what would be the point? Maybe people all do think themselves to be above average, but they really do care about their relative ranking in the eyes of other people, who will not be so biased. So they will act in ways that reflect a concern for their purely relative ranking in the eyes of others despite their apparent ability to promote themselves in personal assessments. In other words, probably not many positive sum status bargains are possible, and people are primarily concerned with zero sum adjustments to their status.