Saturday, May 1, 2021

An Addition to My The Big Five

I hate having to do this, but I feel it is necessary to add to my list of the low-hanging fruit of public policy where 90% solutions (improvements) on these issues are several orders of magnitude more important than 99% solutions on a thousand others. In my defense this was always filed under "partial list", and it continues to be. I just hate making a tag and then needing to update it. 

Keep in mind that I did issue addendums to the list shortly after first publication. This will take one of those and elevate it to the new big list.

The Big Six:
  • Drug Prohibition (end it--allow adults to make their own choices)
  • Education (privatize it--give the government an ever-smaller role)
  • Immigration (open it up--allow people to freely move and freely interact with other people)
  • Taxation (simplify and redirect it--efficiently tax the use of resources not the creation of resources)
  • War (move away from it--make postures less bellicose and violence less of an option).
  • ***AND*** Housing Development (greatly reduce the obstacles and restrictions so that the owners of capital can buy, build, and reconfigure real estate as they see fit)
First because of Kevin Erdmann's work and recently because of Bryan Caplan's current discussion and forthcoming work, I have become radicalized to make this addition to my reform agenda canon. 

Living in a historic district with all its well-intended nonsense, I see this issue close at hand. The HD seems to be a classic case of people being nostalgic for a past that didn’t actually exist. The effect is expense for homeowners, self-righteous satisfaction for busybodies, a jobs program for the rent-seeking suppliers and regulators, and general exclusion for those who don’t fit in or can’t afford to. 

Every day I see stark examples of the perfect being the enemy of the good. 



Wednesday, April 14, 2021

The Local Maximum Problem

Ever since being introduced to this concept, I’ve been intrigued by it and see examples of it more and more throughout life, business, and public policy. This is the problem that occurs when people get stuck in a situation that is the best near-term or near-possible outcome but is not the best possible yet reasonable long-term outcome. 

The analogy is to imagine four people playing a game that has them blindfolded and linked arm-in-arm in a square configuration. Each member of this team is responsible for one of the cardinal directions (north, south, east, and west). Their goal is to locate the highest point possible. They experiment by taking steps to see if a step in that direction is up or down. If the step is down, they don’t take it. If the step is up, they take it. They keep walking until none of the four can make a step that is in the upward direction. This point is the conclusion of their game by reaching the local maximum. However it is most likely not the highest point on the surface where they’re walking. They just can’t reach (or detect) a higher point by virtue of their own rules. 

I believe governments are particularly susceptible to this problem. The rewards for experimentation that drive one out of a local maximum are very dispersed or completely irrelevant to those bearing the costs of experimentation. This is more than just people not wanting their cheese moved or having their apple cart disrupted. This is the very legitimate concern that an ambitious idea is going to have significant negative outcomes or the potential rewards will not accrue to those bearing the risk. It is an acute combination of asymmetric risk-reward and principal-agent problems.

The many, many public and private failures in the COVID pandemic are vivid examples. Perhaps the most costly in the United States were the CDC and FDA's insistence on using their own developed testing (staying with the controllable and familiar) and as important if not more so the refusal to allow challenge trials to speed the vaccine development process. Sadly this list goes on and on from "pausing" the Johnson & Johnson vaccine to not approving AstraZeneca's. 

The position those in power have taken are understandable but completely inexcusable. And we have ourselves to blame as these mistakes are just the latest examples of how the FDA works against medical advancement and is a deep net cost to society. 

To be sure individuals, firms, and other organizations are also susceptible to the LMP. Notice, though, the degree to which these entities are somewhat or greatly better structured and incentivized to resist and correct it.  

As a general rule, the more insulated and protected an entity is from competition, the more vulnerable they are to a local maximum. Hence, traditional banks are more vulnerable than are start-up fintech firms. 

To whom a firm or organization is held responsive has strong implications for its fragility to local maximums. As a firm is more responsive to those who reap rewards proportional to risk taken, it will better prevent the LMP. Hence, non-profits (highly responsive to donors rather than customers) are more at risk than are profit-seeking firms (highly responsive to owners and customers). 

Within a firm the dominant force becomes existing and entrenched stakeholders who are in comfortable, conventional positions. Hence, no one in marketing will ever suggest the firm experiment by not running ads

The degree to which a person faces public scrutiny or cannot capitalize on public adoration, the more they will rest once finding the local maximum. Hence, a public figure with a lot to lose/little to gain will tend to play it safe. 

Risk bearing requires compensation in the form of return, and this risk-return should be commensurate, symmetrical, and willfully accepted. Those are tough hurdles to achieve. All the more so when we are relying on force rather than persuasion. 


P.S. I believe Arnold Kling deserves credit for introducing me to this concept.

Sunday, March 28, 2021

Winkler's Wager

Let me state upfront I know that for the most part (if at all) I am not breaking new ground here. 

Are we all basically agnostic? Or all basically believers? How much of the rejection of belief (disbelief) is just a rejection of the behavior and style and beliefs of individuals or institutions the nonbeliever (believer) finds amiss or reprehensible or simply unconvincing? 

Years ago in thinking about this topic and in preparation for this blog post specifically I polled two friends. These are each very thoughtful, highly intelligent people. One is correctly described as a strong believer in God. One is correctly described as a strong disbeliever. Separately I asked them simply "What is the probability God exists?" leaving it fairly open ended for their own interpretation. Both of these people know how probability works and why 100% and 0% are bad answers. 

The believer stated that he wanted to say 100%, knew that was technically impossible, knew that faith might be a reason to actually make it legitimate, but settled on 90% (all of this recollection conditional on if memory serves; it was 5 years ago). He gave a good explanation for his thinking to support the answer.

The disbeliever answered via email, so I have his response. After sleeping on it, he answered 20% with a thorough account of his reasoning. 

I don't want to make this about their specific answers. This was just an experiment regarding my prediction about what they would say and why they would say it. Why I completely understood what they said and why they said it (it basically matched my prediction as well), I do not feel fully compelled by either. 

Similarly, I ran this twitter poll recently:
Obviously, this was not a meaningful sample size. But that isn't the point as much as the split among the choices I presented gives some indication that I think resembles how people tend to think about this.

Faith = ???... belief in the face of doubt? That definition would imply that 100% and 0% are not legitimate answers. Doubt seems essential for faith to have meaning. And the existence of doubt pushes one toward the unsatisfactory middle point of 50/50.

I think this is more easily seen in the case of a believer. But it is true at the antithesis as well. Atheism (certainty there is no God) is a faith by the atheists' own definition--one cannot prove a negative (e.g., there is no God); therefore, atheism cannot be scientifically proven. 

Ask a believer and a disbeliever this question: What it would take for them to reverse their view? This leads me to believe all in this debate are "believers" ultimately. And yes I know the problems with this over simplicity.

To the point of many in the atheist community, a point Penn Jillette makes in this piece, no one is really agnostic. A person always will find a way to dismiss evidence or argument offered against the view they hold in their heart of hearts. 

I think this gets to the crux of the question. The right answer is perhaps +/-50% with faith in God or faith in not God (something beyond the material realm) pushing one off of this center point of pure agnosticism toward one of the two faiths. The existence of God is a non-falsifiable conjecture; therefore, using science or reasoning to "prove" either the existence or the nonexistence of God is futile and fallacious thinking. 

Can we at least point to arguments to guide our judgments on God's existence? It would seem this is quite hard beyond simply an exercise in persuasion for those already tempted to be on the same side of the argument--we can never change the minds of those on the other side. Yet, minds do change and in both directions. The links in the P.S. sections allude to this.

So much of this ageless debate is people talking past one another. Adjacent to this is the determinism versus free will debate. Usually there is confusion on the part of those arguing for free will between determinism and fatalism, and usually there is confusion on the part of those arguing for determinism between free will and randomness. 

Sam Harris makes a strong case for determinism but only on the back of a reductivism I don't think can be denied--yes, there are always causes . . . it is cause and effect all the way down. Yet this basically amounts to a tautology that avoids the important parts of the question. Can we hold ourselves and others responsible for actions taken? What does it mean to choose? To act? To fail to act? 

I am a dualist on the issue. When I play pool, my choice of where to aim the cue ball and how to hit it are my free will, the resulting actions of the balls on the table are pure determinism. The determinist would entreat, "Is it not just a higher order of underlying causes that lead you to 'chose freely' how to strike the cue'?" My answer is "Yes, of course, and that isn't interesting for the matter at hand." Daniel Dennett says it better

Similarly, believers in God and disbelievers in God tend to talk past one another. They mischaracterize the other side's position and misunderstand what the other side means. This is not helped by how poorly the believers tend to understand their own position or how dismissively the disbelievers tend to assume past the implications of their own position. Believers wish to put God in a box and disbelievers live out the story of the Apostle Thomas. Taken to logical ends most believers' understanding of God can be disproven and most disbelievers' reasoning forces them to reject all knowledge and facts about the world. Experiments to this end: 
  1. Ask a believer to convince you that their belief is genuine as opposed to something that makes them feel good.
  2. Ask a disbeliever to explain why their expectation that their car will get them to work tomorrow morning is not predicated on faith or many small faiths they themselves cannot prove. 
Each will often struggle: In the first case because it is hard for a believer to identify a reason for faith beyond a desire for faith; In the second case because most people do not know how an automobile works and the existence of the future is continually theoretical--I'll prove tomorrow exists . . . tomorrow.

We should not depend on the ill-equipped be the strawmen foils for our favored positions. 

Consider my work as a practitioner within the investment management profession. My most sophisticated client would find the way I explain my job to my young children and the way my young children understand what I do to be quite unimpressive and perhaps even unattractive. That doesn't invalidate the philosophies I hold or the method I employ or the track record I've achieved professionally. Likewise part of what I do and any successes or failures associated with it might be simply due to luck. My efforts and explanations are at least to some degree counterproductive, irrelevant, and orthogonal to their associated outcomes. My shortcomings, imperfections, and activities themselves within financial money management neither prove nor deny the existence of financial money management.

Perhaps the most challenging part for believers is to separate God from being simply a personification of truth, love, and perfection. 

Perhaps the most challenging part for disbelievers is to build a foundation of truth (moral, mathematical, and physical) without the identification of God as this foundation. 

Both sides accuse the other of shortcuts for the sake of certitude. Both sides make the mistake of looking to religious texts as scientific works. If you do this, you are gravely missing the point. Newtonian/Einsteinian physics can't speak to ethics or morality. Likewise, the Bible, et al. are not going to serve your quest for scientific truth. 

Along the journey of building this post over the past few years these fellow travelers were helpful: 



Here is another very good, related conversation.

From this comes this insightful item: “Religion has nothing to fear from science, and science need not be afraid of religion. Religion claims to interpret the word of God, and science to reveal the laws of God. The interpreters may blunder, but truths are immutable, eternal and never in conflict.” If I could be so bold, I would like to add a corollary. Faith and religion are very poor at discovering and developing legislation to govern society and scientific facts to explain the universe and world around us. Faith and religion are very well-suited for the discovery of righteous first principles and guideposts for how to love and live among one another. Likewise science cannot teach us right from wrong but can teach us true from false.

P.S. Is God math?

And

P.P.S. How should a Christian Bayesian react to the Mayans, et al? Should they heavily discount the evidence and slightly shift their prior or slightly discount the evidence and heavily shift their prior? Is this question a risk of confirmation bias?

P.P.P.S. I avoided the heresy of an adjacent issue: that perhaps believers of all types (Christians, Muslims, Buddhists, ... Mathematicians?, Universists? ("let the Universe decide..."), et al.) are all yearning and seeking to follow the same ultimate God. 






Saturday, March 27, 2021

A Paradox of Choice

When well-meaning fools lament the plethora of choices we have in a free market society, they make a crucial mistake. They ignore the necessary condition for which those choices emerge and simply assume a result. 

I can imagine a very well constructed study done that proves, truly proves in a way that most all could agree, that ~99% of why a consumer chooses A versus B comes down to irrational affiliations or random luck. For example the determination of what car one chooses to buy between a Honda Accord and a very similar Toyota Camry would be shown to be nothing more than stuff like a person's prior cars happened to be Hondas or their parents bought Hondas or they buy the car they last saw an ad for or their favorite color is red and the car the dealer first showed them was red, etc.

The incorrect conclusion a well-meaning fool might jump to is that we have unnecessary redundancy in our free market economy. We should stop wasting resources on the competition because the differences between these artificial choices are illusory. Just build the Acamry and be done with it!

The fact that there are minor, subtle, and hidden differences between all such choices are lost on those drawing such conclusions. But more importantly they are making a dangerous mistake to neglect how we got to the magnificent state of the world where we have such amazing choices that a purchase decision settled by a coin flip likely leaves the consumer equally well off. 

There are no instructions from the universe for how to build the optimal mass-consumer sedan. We need a process to discover this and continually rediscover and improve upon the outcome. We need the right incentives to reward incremental success, punish incremental failure, and fully stop efforts going down a bad path. The capitalist free market is this process. It is the sine qua non for progress--as broadly defined as one can imagine it.





PS. Or maybe this is optimal?

Monday, March 8, 2021

A Greater Sage Theory

Just a few wondering thoughts on the latest techno-investing development--non-fungible tokens or NFTs.

What gives a collectible object value? Are NFTs like Beanie Babies or Picasso paintings? 

Think of this as a spectrum between pure speculation and pure intrinsic value. An object never lies entirely on one end or the other of this dimension. Where it resides is also not necessarily stable.

Fine art is "fine" in that it has a low degree of speculation relative to perceived intrinsic value. 

Gold is the ultimate financial consensual hallucination – – we can easily, reliably believe that it will have value across societies and well into the future. It is much more difficult to believe that Beanie Babies will have that quality. Picasso paintings are somewhere in between.

Scarcity is an important quality for determining marginal value, but it doesn't say much of anything about intrinsic value. This is the crux of the diamond-water paradox. I think there are two important subtypes of scarcity as it relates to collectibles: organic and manufactured.

Organic scarcity is producing 10,000 Babe Ruth cards and only 1,000 survive decades into the future. Manufactured scarcity is knowing that 10,000 Derek Jeter cards are desired but only producing 1,000 of them. 

Organic scarcity might be thought of as "authentic", but that too is in the eye of the beholder. The 1,000 Babe Ruth cards aren't any rarer in the example above given those parameters.

NFTs are a manufactured scarcity. However that is not very important except to the extent that someone values genuine authentic scarcity--the organic kind--as opposed to fabricated scarcity. Yet I can easily see an appreciation for the manufactured scarcity nature of NFTs. So don't be too quick to dismiss the limited denominator as a factor for these collectibles.

To the extent you can believe that people will continue to value the interestingness of NFTs along with the thing (art work, sports moment, etc.) that a particular NFT is associated with, you can credibly and reliably believe that that specific NFT will have value. 

At this point they are obviously deep on the speculation side of the speculation vs intrinsic value spectrum. Time will tell.




Sunday, March 7, 2021

My Friends Are All Wrong For Different Reasons

I have always prided myself on the diversity of friends I have been blessed with. This goes along with an ability to be a welcomed part of many different social groups. (At least I think I have been a welcomed part . . .)

To take one example, senior year of high school my first class was Leadership with all the cool kids--the ones who were popular enough to be class officers, etc. The bulk of the day was honors classes with the smart kids--"nerds" was strictly a putdown back then. The last class was gym with all the others--misfits who in many cases lived in fringe realms and in some cases it was amazing they hadn't dropped out of school already. I don't know of anyone in my class of 600+ who could actually approach my level of diverse and deep integration. 

At my best I am a social chameleon. At my worst I'm a jingle you can't get out of your head.

Among other things, this quality has given me a chance to learn from lots of different people as well as compare key difference among groups. Painting with a broad brush, here is one thing I notice.

My friends on the right tend to naively believe the rhetoric of the politicians they admire. They think the things they hear are sincerely believed and will be sincerely pursued. 

My friends on the left have the opposite problem. They tend to naively believe that the rhetoric espoused by the politicians they admire should be ignored—that the true pursuits will be reasonable, noble, and unarguably worthwhile. 

Both can be willfully blind to the most grotesque, pandering, and ridiculous rhetoric. 

I admit this is an overgeneralization to make a point, but it is still a generalization based in truth. While there are many exceptions to this rule, in the cases where it holds I don't find the friends usually to be in contempt. They are almost always unintentionally wrong rather than willfully guilty. Political cognitive dissonance is a very real and rationally held phenomenon

My ultimate takeaways:
  • Looking inward first, I should be on guard for both of these problems in my own thinking and behavior. 
  • To change minds on the right where I agree with a friend on the policy desire, I should emphasize how politicians and political solutions fail to pursue our common cause.
  • To change minds on the left where I agree with a friend on the policy desire, I should emphasize how politicians and political solutions work against our common cause.
Changing minds on the right or left where I disagree with a friend on the policy desire is much more daunting. It probably starts by inquiring as to why they want what they want in the first place. From here it is very often the case that we have the same desired ultimate outcome. It is just that we disagree about how to achieve it. Without first finding common ground, a discussion inevitably becomes an emotional argument rather than a fruitful search using logical arguments.* 

For example, trying to change a paternalist's mind on the drug war cannot constructively start until he understands that you are not advocating unconditional, rampant drug use. He will imagine chaos on the streets and label you extremely dangerous. He has been conditioned to believe that opposition to drugs because they are bad = support for the drug war. 

Likewise, you cannot begin to alter the position of a supporter of the minimum wage until you firmly establish the common ground that you both want the best for low-wage workers.



*People have always misunderstood my love of argument thinking that I love to be in arguments. 

A Hypothetical SARS-CoV-2 Study

Perhaps this already exists, but I doubt it. At least I do not expect this ambitious of a study has been attempted at the rigor I desire. And I know it is a lot to ask. 

Nevertheless, here is the rough outline of what I'd love to see done well.

Independent variables examined using county-level data for the U.S.:
  • 20-day trailing average humidity
  • 20-day trailing average temperature
  • Latitude 
  • Population density
  • Stringency measure (government-mandated restrictions)
  • Mobility measure during COVID relative to the same mobility measure average value for 2019
  • Median income
  • Proportion of population 65+
  • Percentage of elderly in LTC facilities
  • Population proportion by ethnic/race ancestry (hypothesizing that prior immunities are associated different geographies)
  • Date of first case within y-hundred miles (adjusting for treatments, interventions, etc. changing over the timeline)
Results:
  • I would like to see the cross sectional results of confirmed COVID deaths by standardized timeline (from date of first case; from date of first death; from x days past first case within y-hundred miles).
  • I would also like to see the time series analysis in total and by various cohorts for confirmed COVID deaths. 
My general hypothesis is that every thoughtful observer will find the results somewhat surprising. These same, thoughtful observers come at the problem with their own biases and priors as well as some unintentional agendas (the intentional agendas are for the unthoughtful observers). I think they tend to emphasize the areas they find compelling while somewhat negligently remaining silent or quiet on the areas they actually don't disagree about but feel are overemphasized by others. To that extent there is a lot of talking past one another. I am very specifically thinking about the realms of both the libertarian/classical liberal/neoliberal/generally freedom-championing thinkers and the economists/social and public policy thinkers. 

The problem is the audience has very much grown and diversified for these thinkers. It is very hard for the casual observer to understand the nuance and the starting positions of general agreement. For example, the public has always been completely oblivious about the fact that economists agree fundamentally to the vast extent that they do.

In the case of COVID this problem has been greatly magnified. And at the same time the slippage into hyperbole has been greatly amplified too. The result is painting ourselves into corner solutions. When the narrative has been taken to the extent that many so often and so easily have taken it (myself included of course), our narratives tend to fall apart. Again, this is for the thoughtful observers

P.S. Yes, at first glance I can see potential problems with the independent variables, and I assume there are many more I can't yet imagine. The covariance between stringency and mobility might force one of them out of the analysis. In that case I would like to see a rigorous comparison between just these two--Phil Magness points to some of what I would expect in that voluntary mobility changes dominate policy. After all, politicians follow rather than lead.