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Chicago’s Booth school surveys select Economics faculty (the IMG panel)  on a variety of questions. Panelists are emailed a question and respond electronically, if so moved. They are asked to state whether they agree, strongly agree, disagree, are uncertain etc. as well as provide a level of confidence and, if they wish, some words of explanation. Here is one of the questions:

Using surge pricing to allocate transportation services — such as Uber does with its cars — raises consumer welfare through various potential channels, such as increasing the supply of those services, allocating them to people who desire them the most, and reducing search and queuing costs.

The correct answer to this question is: it depends. See below for the explanation. Back to the IMG panel. What is its purpose? According to the web site:

This panel explores the extent to which economists agree or disagree on major public policy issues. To assess such beliefs we assembled this panel of expert economists. Statistics teaches that a sample of (say) 40 opinions will be adequate to reflect a broader population if the sample is representative of that population.

Yes, but what is the underlying population? The IMG site does not say, instead it summarizes the cv’s of the sample:

The panel members are all senior faculty at the most elite research universities in the United States. The panel includes Nobel Laureates, John Bates Clark Medalists, fellows of the Econometric society, past Presidents of both the American Economics Association and American Finance Association, past Democratic and Republican members of the President’s Council of Economics, and past and current editors of the leading journals in the profession. This selection process has the advantage of not only providing a set of panelists whose names will be familiar to other economists and the media, but also delivers a group with impeccable qualifications to speak on public policy matters.

This is the high table of Economists, a group so select that the sample probably is the population. Why bother with the remarks about sampling?

How did the panelists respond to the surge pricing question? One  strongly agreed with the statement but with a level of confidence of 1 (which I think is the lowest). This panelist also provided an explanation that makes clear that the reported confidence level  was incorrect.  Another,  offers an `Agree’ with level of confidence of 3. Why not declare `uncertainty’? Or is the panelists trying to say: generally true but with some exceptions. The other responses suggest busy people  trying to be helpful (recall Truman) on a task that is low priority for them.

Only one panelist provides an answer that can be interpreted as `it depends’. That panelist reports being uncertain with a level of confidence of 10. This panelist also provides an explanation:

`Consumer plus producer surplus should rise but in the absence of competition consumer surplus may not. With competition consumers will gain.’

Two make things concrete, consider a monopolist who faces two states of the world characterized by two demand curves: peak and off-peak, with off-peak state occurring most of the time. Now compare consumer surplus in two scenarios: same price in both states of the world, different price in each state. In which scenario will consumer surplus be higher? Which is a lovely intermediate micro question! In addition, if buyers are liquidity constrained, a price mechanism will not efficiently match rides to riders who value them the most.

I think the answer to the question posed reveals less about agreement on policy than the default  assumption of the responder about the nature of the underlying market (passenger transportation).

hardy's 11

G. H. Hardy leading his cricket team out onto the pitch.

The recent turmoil in Baltimore and the news of Ray Fisman’s impending move to Boston University reminded me that he (along with Tim Sullivan) had penned a column for Slate on Jan 7, 2013 entitled:

Excellent Police: What the Baltimore P.D. can teach your office about multitasking and incentives.

In hindsight, the title seems ironic. The article itself is an excerpt from the author’s book on Organizations (in the genre pioneered by Freakanomics) and can be interpreted as illustration of Goodhart’s law. The article itself does not align perfectly with the title. Apparently, what the Baltimore PD has to teach us is what not to do as the following quote suggests:

To illustrate the double-edged sword of arrest incentives, Moskos recounts the example of a fellow officer who decided to set a record for monthly arrests. His plan: lock people up for violating bicycle regulations. At night, all bikes need a light. The officer would stop cyclists in breach of the bike light rule (which was most of them), ask for ID, and pull out his pad to write a citation. Most riders, though, were biking without ID, and since all offenses become arrestable without identification, the officer’s little scheme netted 26 arrests in a single month. A record. His sergeant was thrilled, telling Moskos, “Look, I don’t know what his motivations are. But I think it’s good. He’s locking people up, which is more than half the people in this squad.”

Finally got around to reading the PCES report on economics education at Manchester. The Francis Urquhart  half of my dual selves was duty bound to dislike it. My Urquhart self, would urge the authors to switch subjects and find  fulfilling careers in one of the caring professions, like, personal incontinence counselor. My milquetoast self prevailed and I buckled down to read it.

The report raises two issues and its writers have made the mistake of conflating them or at least not separating them clearly enough. The first is the effectiveness with which economics is taught. The second is what is to be taught.

On the first, the report makes for depressing reading. It summarizes an economics education as dull as ice fishing. For those unfamiliar with ice fishing, it is a sport (and thats being charitable) practiced by the inhabitants of Minnesota and the remoter parts of Wisconsin. In dead of winter, one drives a large vehicle over a frozen lake. If that were insufficient to tempt fate, one then cuts a hole in the ice for the ostensible purpose of catching fish. In practice one sits around the hole drinking prodigously while trying not to fall in. Beans, flatulance and an absence of sanitation figure prominently.

On the second, the report’s authors write

Our economics education has raised one paradigm, often referred to as neoclassical economics, to the sole object of study. Alternative perspectives have been marginalised. This stifles innovation, damages creativity and suppresses constructive criticisms that are so vital for economic understanding. Furthermore, the study of ethics, politics and history are almost completely absent from the syllabus. We propose that economics cannot be understood with all these aspects excluded; the discipline must be redefined.

Exposure to history, psychology and politics? Of course, yes. Within the US system this happens naturally as a function of breadth requirements. Students are not shy about trying to reconcile what they have learnt in Psychology and what they are mastering in Economics. It makes for a lively classroom.

What about these alternative perspectives? In for a penny in for a pound, so I decided to read a paper  by Steven Keen. Keen, as far as I can gather is one of the leading lights of these alternative perspectives. The paper I read (co-authored with Russell Standish) appeared in Physica A and can be found here. If you’ve not heard of it, there is a good reason for that. Continue to ignore it. Pauli might have described it thus:

Das ist nicht nur nicht richtig, es ist nicht einmal falsch!

Reading it lowered my IQ, something I can scarce afford to do. If this is representative of what passes for alternative perspectives, the writers of the PCES should leave economics and find fulfilling careers as incontinence counselors. Finally, for those who think my description of Keen and Standish uncharitable, I refer them to the following by Chris Auld.  Stamping out ignorance is a thankless task and one is cheered to see there are some who take it on.

The urge to promote these alternative perspectives is to be found  across the Channel as well. There, a sub group of scholars and  nescafe society currently wished to form a separate group so that they may be evaluated by different norms.  Jean Tirole, in a letter to  the State secretary in charge of Higher education and Research in France, argued against this. A response can be found here.

From the Fens of East Anglia comes a curious tale of a gift to Cambridge to endow a chair in honor of Stephen Hawking. The donor, Dennis Avery, put forward $6 million of which $2 million is to cover the costs of the Hawking chair. The balance is to be managed by charity, the Avery-Tsai foundation to, in the words of J. K. M. Sanders (Pro-Vice-Chancellor for Institutional Affairs),

“……advance education and promote research in the science of cosmology at the University of Cambridge for the public benefit, and in particular to support the University in securing the best possible candidate as the Stephen W. Hawking Professor of Cosmology.”

There are some unusual terms attached to the gift described below. Mr.Avery, however, passed away soon after the terms were negotiated. Renegotiation, now impossible, the University must decide whether to accept the gift as constructed or not at all.

What makes the gift unusual?

1) Monies held by the foundation can be used to `top up’ the salary, so paying the individual an amount in excess of what the University might pay its top chair holders (which I believe is around 130K pounds).

2) The chair is to be housed in the Department of Applied Mathematics and Theoretical Physics (DAMTP). The gift requires DAMTP to certify each year to the Trustees that the base salary of the Hawking Professor is at least the average of other Professors in the Department.

3) The holder is subject to annual review and the monies from the foundation are contingent upon the outcome of that review.

4) It limits the tenure of the Professor to seven years, renewable for five and exceptionally for a further five.

Let the fireworks begin. From the head of the DAMTP, P.H. Haynes and a supporter of the gift:

“The unusual detailed arrangements surrounding this Professorship have rightly triggered significant debate amongst my Departmental colleagues and they have required detailed and robust discussion between Department, School, and the University.”

Professor Goldstine of the DAMTP, responds with an objection to the circumvention of University rules with a delightful analogy to line integrals:

“In the field of thermodynamics there is the concept of a ‘state function’, a quantity that is independent of the path by which a system is brought to a given point. This is one of those. It does not matter whether the payment goes through the University payroll or not if the University itself is signing off on the agreement and the funds are in its endowment. The choice of path certainly does not matter in the court of public opinion. How can the University contemplate an arrangement whose purpose is to circumvent its own rules?”

He goes on to point out that it is inconceivable that a holder of the chair would accept a cut in pay upon expiration of the term. He is, by own admission rendered:

“….almost speechless at Paragraph 9 of the deed, which asserts that the Department must certify each year to the Trustees that the base salary of the Hawking Professor is at least the average of other Professors in the Department. First, the requirement itself indicates a profound level of distrust of the Department’s operations. But second, how can it possibly be fair to tie one Professor’s salary to that of others? All their hard work over their career to date is used to define a starting point for his salary, independent of his qualifications. Moreover, if the Department chose to pay that minimum (which it might in light of other financial burdens), then the Stephen Hawking Professor would automatically get a raise if any other Professor did. This cannot be fair. I thought we strove to have a meritocracy in this University.”

From an emeritus professor medieval history, G. R. Evans, clearly, a guardian of ancient rights:

“….opening the doors to allowing outside bodies or donors to fund Professorships has led to the opening of further doors and only those with long constitutional memories may remember how it all began. I speak today just to put a reminder into the record, for this proposal has a constitutional context and if it is accepted, it will undoubtedly have constitutional consequences.”

Dr. A. Pesci of the DAMTP opens with this gem:

“This Chair looks to me like that pair of shoes at the Christmas sale. They looked beautiful and were half price. They were also two sizes too small and buying the matching dress would lead to bankruptcy. Hence, if one buys them, they would have to be left vacant, for if one wears them, they would cause enormous irreversible long-term damage.”

The link to a full summary of the discussion can be found here. It is both interesting reading and amusing when compared with the earliest and best pamphlets on University politics that I know of: Microcosmographia Academica. I give one example from it:

The Principle of the Dangerous Precedent is that you should not now do an admittedly right action for fear you, or your equally timid successors, should not have the courage to do right in some future case, which, ex hypothesi, is essentially different, but superficially resembles the present one. Every public action which is not customary, either is wrong, or, if it is right, is a dangerous precedent. It follows that nothing should ever be done for the first time.


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