Matt Yglesias

Accuracy and Flourishing

Via Tyler Cowen, research indicating that being sad has its virtues:

Bad moods can actually be good for you, with an Australian study finding that being sad makes people less gullible, improves their ability to judge others and also boosts memory.

The study, authored by psychology professor Joseph Forgas at the University of New South Wales, showed that people in a negative mood were more critical of, and paid more attention to, their surroundings than happier people, who were more likely to believe anything they were told.

Put this in a box with a growing body of researching indicating that there’s a problematic relationship between what’s good for you to think and what’s accurate. For example, how well you fare in life is largely due to socioeconomic circumstances and luck. But individual initiative does play a role. And consequently people who overestimate the role of individual initiative tend to do better in life than those with more accurate perceptions, plausibly because getting this stuff wrong inspires you to try harder. There’s also a substantial literature on “depressive realism” indicating that people suffering from depression have more accurate perceptions about many things.

The Psychology of Health Reform

James Suroweicki takes an interesting look at the politics of health reform through the lens of the literature on loss aversion from psychology and behavioral economics. The lesson: People fear change. His advice:

Still, just because you can’t change human nature doesn’t mean you can’t change health care. The key may be to work with, rather than against, people’s desire for security. That’s surely one reason that Obama has consistently promised people that if they like the health insurance they currently have they can keep it. This promise will make whatever reform we get more inefficient and less comprehensive, but it also assuages people’s anxieties. It might even be possible to use the endowment effect and the status-quo bias in the argument for change. After all, although people tend to feel that they own their health insurance, their entitlement is distinctly tenuous. Because it’s hard for individuals to get affordable health insurance, and most people are insured through work, keeping your insurance means keeping your job. But in today’s economy there’s obviously no guarantee that you can do that. On top of that, even if you have insurance there’s a small but meaningful chance that when you actually get sick you’ll find out that your insurance doesn’t cover what you thought it did (in the case of what’s called “rescission”). In other words, the endowment that insured people want to hold on to is much shakier than it appears. Changing the system so that individuals can get affordable health care, while banning bad behavior on the part of insurance companies, will actually make it more likely, not less, that people will get to preserve their current level of coverage. The message, in other words, should be: if we want to protect the status quo, we need to reform it.

This seems sensible. However, two problems remain.

One is that along the same lines as the research Surowiecki is talking about, people find the experience of contemplating potential future loss to be intensely unpleasant. Insofar as people are already walking around filled with anxiety about loss of employer-provided coverage or rescission, then this kind of message will appeal to them. But if you run around trying to tell people they don’t have things as good as they think you do, will they embrace your policies or just decide you’re an unpleasant jerk? Nobody likes the bearer of bad news.

The other is that in politics you not only need a message but also messengers. Not just a plan for change, a constituency for it. And the main constituency for health reform consists of people who don’t think the present system is fundamentally sound. That’s a big part of the reason the public plan element of Obama’s proposals has become such an emotional touchstone for the left. The public plan is a fairly modest part of a fairly modest package of reforms, but it’s the slice of the package that holds out the prospect of eventual transformation of the system into something quite different and less driven by corporate profits.

The Psychodynamics of the “Death Panel” Fraud

Very interesting post from Andrew Sabl asks the question of why would anyone believe something so nutty as that Barack Obama has a secret plan to create “death panels” to kill old people:

I think it has to do with the dynamics of self-interest and self-deception. Some of the most virulent opponents of health reform are the elderly, who already have government-provided health insurance. While some may be too silly to know that that’s what they have, a great many assuredly do know it, and are happy to pull up the ladder behind them. Medicare is already very successful and very generous. Under universal coverage, it’s unlikely to get much better (except for prescription drug coverage, but not all the elderly take a huge number of pills). And it could, for all one knows, get worse. To avoid that risk, better that some youngsters go without.

This reasoning, though, is brutal–too brutal to acknowledge. While we’re a pretty selfish country, “I’m all right, Jack” is not an argument people comfortably make when others’ lives are at stake. But “if this passes, they’ll euthanize me and my friends” is another kind of argument altogether. It’s false, but easy to seize on as a morally comfortable pretext for opposing a bill that threatens one’s self-interest.

That seems right. One note I would make about Medicare, though, is that while people may not believe that reform will make it better, I think the odds are very good that reform will make it better. There’s been a tendency for the current debate to construe talk of cutting out unnecessary medical services as a way to save money. But it’s important to recognize that while access to beneficial health care services is an excellent thing, undergoing unnecessary medical treatments is annoying and potentially quite dangerous. Seniors may not believe it, but making Medicare more efficient will be good for them.

The Perception of Time

Interesting stuff from Tom Vanderbilt:

Talking about the city’s “Transit Tracker” program, which allows people to get real-time info on bus arrivals via their cell phones, Hansen mentioned a study that had been done in the U.K. of a similar program. What was noteworthy was that people using the service felt that the bus service itself had improved, that more buses were running, that they were running closer to schedule, even though none of this was empirically true.

I have a particular interest in the fluid nature of time, and the way travel, queuing, and even routing can play additive and subtractive games with this. Paco Underhill, for example, notes that people who wait in airport lines overestimate the time they waited by some 50 percent. I’ve also seen it noted that a train trip with a transfer feels longer to people than it really is, that people overestimate the time it will take to walk somewhere and underestimate the time it will take to drive somewhere. Of course, one of the masters of managing time is Disney, with its posted wait times (just posting the time makes it feel shorter for people) at queues, wait times which are then inflated — so the payoff at the end is even better: That wasn’t long at all!

Among other things, this is important because I think improving the level of objective and subjective service people get from the bus is important to our transportation future. Ultimately, I think rail is essential as the backbone of a major metropolitan area’s mass transit, but that rail backbone can have its utility massively extended if supplemented by good buses. This is also why if you’re ever taking the Subway in New York City you’ll generally be happier if you get on the local train rather than waiting for the express even if the express would be faster. Waiting around makes people very unhappy for some reason.

The Case for Crude Measures

David Brooks had a great column about the problematic relevance of behavior economics to the question of regulation:

If you start thinking about our faulty perceptions, the first thing you realize is that markets are not perfectly efficient, people are not always good guardians of their own self-interest and there might be limited circumstances when government could usefully slant the decision-making architecture (see “Nudge” by Thaler and Cass Sunstein for proposals). But the second thing you realize is that government officials are probably going to be even worse perceivers of reality than private business types. Their information feedback mechanism is more limited, and, being deeply politicized, they’re even more likely to filter inconvenient facts.

I think that makes more sense if you just change the last sentence to say “their information feedback mechanism is more limited so they’re even more likely to filter inconvenient facts.” But I think this is an important point — in just the areas where we’d most like effective regulation, we’re sort of unlikely to get it. If traders are likely to overestimate the effectiveness of their risk models, then regulators are prone to those exact same errors. Where does this leave us?

Brooks, I think, thinks it leaves us just as skeptical of regulation as we were before we took the behavioral turn. I think it arguably leaves us somewhere else. It leaves us with an appreciation of crude measures rather than hubristic efforts to get the regulations precisely right. Until the 1980s, banks couldn’t operate across state lines at all. This didn’t make any real sense. Some states (California, New York, Texas) are much bigger than others either in terms of land area or population or both. And of course New York City is much more integrated with parts of New Jersey (and even some parts of Connecticut) than it is with, say, Buffalo. So whatever the “right” rule was here, this clearly wasn’t it. At the same time, this rule, for all its arbitrariness, has the virtues of being clear and largely self-implementing. It doesn’t depend on anyone’s discretion being used wisely or honestly, and it doesn’t depend on anyone’s calculations being right. And it had the effect of limiting the size of banks so that you never had a really enormous bank failure.

Now that’s not to say we should go back to the ban on interstate banking (I honestly have no idea), but I think it shows the general shape of what we should be looking at. The best you can hope from a regulatory regime is that it will be a satisficing solution wherein some fairly crude rule will improve on the outcomes generated by the unfettered market. When that’s not the case, we may as well let the market go unfettered even though that, too, will be somewhat sub-optimal. But at the same time when we’re looking at a regulatory regime that seems to be working okay, and the regulated parties start saying we need tweaks x and y and z and oh there’s no danger there we should be very suspicious. We shouldn’t count on being to fine-tune our results to perfection, we should either lean in with a heavy hand or else stay away.

Dow 36,000

Brad DeLong produces the following chart:

The Dow-Jones Industrial Average has spent 25 of the past 40 years–62%–between 800 and 1250 or between 8000 and 12500. These ranges comprise roughly 25% of the (logarithmic) total range of the Dow as a function of time.

It really looks like there may something special about the nominal value of a 1 followed by a bunch of zeros.

This is disturbing to me as an economist.

This seems like a proposition we could test by looking at other stock indexes. Nor do I really see why it should be all that shocking. We understand that expectations about market participants’ future behavior are relevant to rational market behavior. And it’s well known that decimal counting systems have an important role in human psychology. The tendency of goods to be priced at $9.99 rather than $10.01 is pretty well-understood.

Meanwhile, countries have been known to conduct their monetary policy in part by lopping off zeros. You’re in a situation where you’ve experienced a lot of inflation over the past twenty, so instead of $1 being equal to 600 francs, it’s now equal to 6,000 francs. To curb the inflation, you need to take some dramatic steps in “real” policy. But creating a “new franc” such that 1 new franc is equal to 1,000 old francs can also plausibly be part of the solution — it changes people’s thinking, and it symbolizes the new determination.

Maybe along these same lines we need to arbitrarily re-mark the nominal values of all our stocks, so that the DJIA will be equal to approximately 36,000 (to pick an arbitrary number) and then we can watch it slowly drift upwards until it gets into the 100,000 range. I’m not familiar enough with the workings of the system to say exactly how you would do that as a technical matter, but surely it can be done — it would just be a question of changing the meaning of labels.

Sarah Palin Controls Our Dreams

I didn’t want to mention that I had a dream about Sarah Palin (she was driving a piece of farm equipment back and forth on the football field of the high school catty-corner to my house, laughing maniacally and I was trying desperately to install some kind of codec on my laptop so they could capture it on video) because it just seemed to weird and creepy. But according to David Plotz, Palin-related dreams are a growing national trend and he’s taking submissions.

Sexy Subways

This interesting Wired item got a lot of play a few days ago:

David Moxon subjected 40 men and women to the sounds of a Maserati, Lamborghini and Ferrari, then measured the amount of testosterone in their saliva. He found everyone had higher levels of the stuff — a measure of their arousal — after hearing the revving exotics, but the amount the women had was off the charts.

The econobox, however, left everyone colder than a January day in Nome.

This was widely reported in the spirit of Wired’s headline: “Science Proves Exotic Cars Turn Women On.” But of course this didn’t study cars, it studied car sounds. Dave Alpert wonders:

Nature or nurture? How about playing background sounds of a Lamborghini in the subway? If subways were privately run, I suspect the operators would do just that, just like stores pipe in odors to draw out greater spending behavior.

Consider this a cousin to the public sector design issue. Private enterprise makes it its business to try to understand the ecology of civilization and how environments impact people, and smart public sector agencies will consider this kind of thing as well. When I was in Nizhny Novgorod they played Russian pop music on the buses, which I don’t recall as having been very pleasant. But why not pipe music into Metro stations? You could probably earn payola-style money. I feel like I recall some city (Rome?) where they did play music in the subway stations. Am I crazy?

Decisions Among the Undecided

Interesting new research indicates that a lot of people who say they haven’t made up their mind on an issue actually demonstrate strong subconscious bias toward one side or the other. What’s more, because those people have an “undecided” self-conception, they’re in some ways more vulnerable to their own biases than are people who are prepared to admit that they’ve made up their minds.