Monthly Archives: August 2019

Privacy reduces cooperation, may be countered by free speech

Cooperation relies on reputation. For example, fraud in online markets is deterred by the threat of bad reviews, which reduce future trading with the defector. Data protection, specifically the “right to be forgotten” allows those with a bad reputation to erase their records from the market provider’s database and create new accounts with a clean slate. Bayesian participants of the market then rationally attach a bad reputation to any new account (“guilty until proven innocent”). If new entrants are penalised, then entry and competition decrease.

One way to counter this abusing of data protection laws to escape the consequences of one’s past misdeeds is to use free speech laws. Allow market participants to comment on or rate others, protecting such comments as a civil liberty. If other traders can identify a bad actor, for example using his or her government-issued ID, then any future account by the same individual can be penalised by attaching the previous bad comments from the start.

Of course, comments could be abused to destroy competitors’ reputations, so leaving a bad comment should have a cost. For example, the comments are numerical ratings and the average rating given by a person is subtracted from all ratings given by that person. Dividing by the standard deviation is helpful for making the ratings of those with extreme opinions comparable to the scores given by moderates. Normalising by the mean and standard deviation makes ratings relative, so pulling down someone’s reputation pushes up those of others.

However, if a single entity can control multiple accounts (create fake profiles or use company accounts), then he or she can exchange positive ratings between his or her own profiles and rate others badly. Without being able to distinguish new accounts from fake profiles, any rating system has to either penalise entrants or allow sock-puppet accounts to operate unchecked. Again, official ID requirements may deter multiple account creation, but privacy laws impede this deterrence. There is always the following trilemma: either some form of un-erasable web activity history is kept, or entrants are punished, or fake accounts go unpunished.

Committing to an experimental design without revealing it

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Pre-registering an experiment in a public registry of clinical trials keeps the experimenters honest (avoids ex post modifications of hypotheses to fit the data and “cherry-picking” the data by removing “outliers”), but unfortunately reveals information to competing research groups. This is an especially relevant concern in commercial R&D.

The same verifiability of honesty could be achieved without revealing scientific details by initially publicly distributing an encrypted description of the experiment, and after finishing the research, publishing the encryption key. Ex post, everyone can check that the specified experimental design was followed and all variables reported (no p-hacking). Ex ante, competitors do not know the trial details, so cannot copy it or infer the research direction.

Avoiding the Bulow and Rogoff 1988 result on the impossibility of borrowing

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Bulow and Rogoff 1988 NBER working paper 2623 proves that countries cannot borrow, due to their inability to credibly commit to repay, if after default they can still buy insurance. The punishment of defaulting on debt is being excluded from future borrowing. This punishment is not severe enough to motivate a country to repay, by the following argument. A country has two reasons to borrow: it is less patient than the lenders (values current consumption or investment opportunities relatively more) and it is risk-averse (either because the utility of consumption is concave, or because good investment opportunities appear randomly). Debt can be used to smooth consumption or take advantage of temporary opportunities for high-return investment: borrow when consumption would otherwise be low, pay back when relatively wealthy.

After the impatient country has run up its debt to the maximum level the creditors are willing to tolerate, the impatience motive to borrow disappears, because the lenders do not allow more consumption to be transferred from the future to the present. Only the insurance motive to borrow remains. The punishment for default is the inability to insure via debt, because in a low-consumption or valuable-investment state of affairs, no more can be borrowed. Bulow and Rogoff assume that the country can still save or buy insurance by paying in advance, so “one-sided” risk-sharing (pay back when relatively wealthy, or when investment opportunities are unavailable) is possible. This seemingly one-sided risk-sharing becomes standard two-sided risk-sharing upon default, because the country can essentially “borrow” from itself the amount that it would have spent repaying debt. This amount can be used to consume or invest in the state of the world where these activities are attractive, or to buy insurance if consumption and investment are currently unattractive. Thus full risk-sharing is achieved.

More generally, if the country can avoid the punishment that creditors impose upon default (evade trade sanctions by smuggling, use alternate lenders if current creditors exclude it), then the country has no incentive to repay, in which case lenders have no incentive to lend.

The creditors know that once the country has run up debt to the maximum level they allow, it will default. Thus rational lenders set the maximum debt to zero. In other words, borrowing is impossible.

A way around the no-borrowing theorem of Bulow and Rogoff is to change one or more assumptions. In an infinite horizon game, Hellwig and Lorenzoni allow the country to run a Ponzi scheme on the creditors, thus effectively “borrow from time period infinity”, which permits a positive level of debt. Sometimes even an infinite level of debt.

Another assumption that could realistically be removed is that the country can buy insurance after defaulting. Restricting insurance need not be due to an explicit legal ban. The insurers are paid in advance, thus do not exclude the country out of fear of default. Instead, the country’s debt contract could allow creditors to seize the country’s financial assets abroad, specifically in creditor countries, and these assets could be defined to include insurance premiums already paid, or the payments from insurers to the country. The creditors have no effective recourse against the sovereign debtor, but they may be able to enforce claims against insurance firms outside the defaulting country.

Seizing premiums to or payments from insurers would result in negative profits to insurers or restrict the defaulter to one-sided risk-sharing, without the abovementioned possibility of making it two-sided. Seizing premiums makes insurers unwilling to insure, and seizing payments from insurers removes the country’s incentive to purchase insurance. Either way, the country’s benefit from risk-sharing after default is eliminated. This punishment would motivate loan repayment, in turn motivating lending.

Asking questions of yourself

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To make better decisions, ask about all your activities “Am I doing this right? Is there a better way?” I would have benefited from considering such questions about many everyday tasks. For example, I brushed my teeth wrong (sawing at the roots) until late teens, brushed my teeth at the wrong time (right after a meal when the enamel is soft) until my 30s. I only learned to cut my own hair in my mid-20s, and this was the highest-return investment I ever made, because a hair clipper costs as much as a haircut, so pays for itself with the first use.

Peeling a kiwi with a spoon is far easier than slicing with a knife. All it took to learn this was one web search, but it required asking myself the question of whether I was peeling fruit optimally. Same for extracting the seed from an avocado.

Cracking the shell of a hard-boiled egg, making two holes at the ends and blowing air under the membrane before peeling is another trick I wish I had known earlier.

Microwaved food is cooler in the centre, so to avoid scalding one’s mouth, it is helpful to start eating it from the middle. Cooked food left in a covered cooking pot or transferred to a storage container while still mildly hot does not go bad at room temperature for several days – doing this experiment required posing this hypothesis. Drinking without touching the bottle with one’s mouth turns out to be quite easy and is widespread in India.

Only after learning to drive did I start meaningfully using gears on a bicycle, and it took about 15 years more to start shifting approximately correctly (pedalling cadence 60-100 rotations per minute, downshifting before stopping, avoiding cross-geared riding). Similarly for basic bike maintenance like cleaning and oiling the chain, selecting the appropriate front and rear tire pressure given one’s weight and tire widths. Seat height is one thing I figured out early, but not handlebar height.

As a teenager, I would have benefited from asking myself whether I was overtraining, whether my nutrition was reasonable, how soon to return to training after various injuries and whether to seek medical assistance with these. Questioning the competence of coaches and doing a simple web search for sports medicine resources would have prevented following some of their mistaken advice.

Sometimes asking yourself the question reveals that you are already doing the task correctly. On the internet, people claim that they do not use shampoo, just water, and their hair stays clean-smelling and more lush than using detergent. An experiment not to use shampoo was a failure for me, causing greasy hair and lots of dandruff after a few days. The optimality of shampoo may depend on individual scalp and hair characteristics. On the other hand, a single-blade disposable razor and cold water give me a better shave than multi-bladed fancy brands with foam (that get clogged), and the disposable razor stays sharp enough for a month or two of everyday shaving.

When going to teach, it may be worth asking whether the room is the correct one, even if some students show up and the room is free, because once in this situation I was in a room with the right label, but in the wrong building.

On the other hand, constantly doubting oneself is unhealthy and unhelpful. If enough evidence points one way, then it is time to make up one’s mind.

Putting your money where your mouth is in policy debates

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Climate change deniers should put their money where their mouth is by buying property in low-lying coastal areas or investing in drought-prone farmland. Symmetrically, those who believe the Earth is warming as a result of pollution should short sell climate-vulnerable assets. Then everyone eventually receives the financial consequences of their decisions and claimed beliefs. The sincere would be happy to bet on their beliefs, anticipating positive profit. Of course, the beliefs have to be somewhat dogmatic or the individuals in question risk-loving, otherwise the no-agreeing-to-disagree theorem would preclude speculative trade (opposite bets on a common event).

Governments tend to compensate people for widespread damage from natural disasters, because distributing aid is politically popular and there is strong lobbying for this free insurance. This insulates climate change deniers against the downside risk of buying flood- or wildfire-prone property. To prevent the cost of the damages from being passed to the taxpayers, the deniers should be required to buy insurance against disaster risk, or to sign contracts with (representatives of) the rest of society agreeing to transfer to others the amount of any government compensation they receive after flood, drought or wildfire. Similarly, those who short sell assets that lose value under a warming climate (or buy property that appreciates, like Arctic ports, under-ice mining and drilling rights) should not be compensated for the lost profit if the warming does not take place.

In general, forcing people to put their money where their mouth is would avoid wasting time on long useless debates (e.g. do high taxes reduce economic growth, does a high minimum wage raise unemployment, do tough punishments deter crime). Approximately rational people would doubt the sincerity of anyone who is not willing to bet on her or his beliefs, so one’s credibility would be tied to one’s skin in the game: a stake in the claim signals sincerity. Currently, it costs pundits almost nothing to make various claims in the media – past wrong statements are quickly forgotten, not impacting the reputation for accuracy much.

The bets on beliefs need to be legally enforceable, so have to be made on objectively measurable events, such as the value of a publicly traded asset. By contrast, it is difficult to verify whether government funding for the arts benefits culture, or whether free public education is good for civil society, therefore bets on such claims would lead to legal battles. The lack of enforceability would reduce the penalty for making false statements, thus would not deter lying or shorten debates much.

An additional benefit from betting on (claimed) beliefs is to provide insurance to those harmed by the actions driven by these beliefs. For example, climate change deniers claim small harm from air pollution. Their purchases of property that will be damaged by a warming world allows climate change believers to short sell such assets. If the Earth then warms, then the deniers lose money and the believers gain at their expense. This at least partially compensates the believers for the damage caused by the actions of the deniers.

Book-like screen arrangement

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Office computer screens are mostly kept in the landscape orientation, but are usually used for documents, which are in the portrait format. Modern screens can be rotated to portrait mode, which makes reading print-view documents easier, or at least allows a larger fraction of the document to be displayed. Taking this one step further, for markup languages (XML, LaTeX) or programming, it is often helpful to see both the code and the compiled output side by side. This may be displayed on one large split screen in landscape orientation or two vertically oriented screens in a book-like arrangement, as in the following image.

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Why princesses and princes are described as attractive

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The bards and scribes who recorded events for posterity received their income essentially in the form of tips from the rulers and the rich, so had an incentive to flatter, describing their patrons as more attractive, virtuous, brave, etc than they really were.

In addition to the exaggeration of their actual attractiveness in reports that have reached us, the children of the wealthy probably really were more beautiful than the poor. Richer youth were better fed and cared for, thus had fewer developmental abnormalities (e.g. bent legs from calcium deficiency) and diseases. The poor were malnourished, lived in dirty conditions and were subject to violence, therefore were more likely stunted, stank and had skin diseases, missing teeth and scars. The latter two distinctions in looks have to a lesser extent lasted to the present day, for the same reason.

Attractiveness consists of the visual, audible and olfactory signals of a fit mate (healthy, fertile conspecific), because organisms evolved to consider fit mates attractive. In times when most people were malnourished and diseased, a well fed and healthy rich person would have been much fitter than most, thus a preferred sexual partner for others.

On the other hand, conditional on surviving to adulthood, the poor likely had better immune-related genes, because they were under stronger selection pressure. Poorer people also experienced more infections, thus acquired stronger immunity to more diseases if they survived. Then conditional on equal looks, a person from a poorer background would have been a fitter mate. Also, the ruling class intermarried to keep wealth in the family, so were inbred (hereditary diseases among European royalty are an example consequence). For these two reasons, it is not surprising that the rulers and the rich found some poor people sexually attractive, specifically the outwardly healthiest-appearing among those who reached maturity.

Multifunctional layered clothing

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Hiking websites recommend wearing layers, because these make adjusting between warm and cold weather or uphill and downhill walking simple. One thick garment would only work for cold, but taking it off when it gets too hot may leave only too thin clothing.

The same principle of layers applies for everyday clothes. My office is 12 degrees in winter mornings, so I wear two pairs of pants, sometimes two vests and a fleece. Instead of one thick pair of pants that would only suit cold temperatures, thin pants can be worn singly in warm weather and doubled up in cold.

For cycling in the cold, shorts can be worn under long athletic slacks. This principle should also work for hats – two thin fleece ski caps instead of one thick, but I have not tested it. Similarly, two pairs of socks. Although, just like with thick socks, if doubled socks make the shoes fit too tightly, then the reduced circulation increases the cold feeling.

Toe warmer making instructions on the internet suggest using the cut-off front parts of old socks. A more multifunctional option is to roll back existing socks halfway, so both the toe and the ankle part of the sock cover the toes, as in the following image.

Cut socks only work as toe warmers, but rolled-back socks can be used year round.

Volunteer work is less efficiently allocated than paid work

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In my experience, the labour of volunteers and low-wage workers is frequently wasted, just like other free or cheap resources. Unlike for expensive market work, there are no price signals to guide people to the most important tasks first. If activities are not prioritised based on how productive these are, then randomly allocating labour is likely to select work with low usefulness.

Within an organisation, competent managers of volunteers may direct them to the most productive work, but even with the best leaders managing some volunteering opportunities, it remains unclear which organisations do the most good and thus should get priority labour. There is a limited amount of work hours available, just like other resources. Even the best volunteers cannot do everything at once, so to maximise social welfare, the most helpful tasks should be done first. In market work, the employer at which a worker is most productive is generally willing to pay the most for this person’s services. Then if people follow the money, their labour gets allocated to the highest-value tasks.

Of course, markets are not perfect and the importance of some work is not accurately measured in money, but for reasonably rational agents, a noisy signal is better than no signal. Prices carry information and help efficient allocation of resources. One way to better allocate volunteer labour is to establish a pseudo-money for unpaid work: each nonprofit organisation gets a certain amount of credits initially and can spend these to “hire” voluntary workers. Credits used for one person cannot be used for another, so the organisation willing to give away the most for a given individual’s services is probably the one receiving the greatest benefit from that person. Volunteers can then use the credits offered to judge where they would be the most productive (could do the greatest amount of good).

Blind testing of clothes

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Inspired by blind taste testing, manufacturers’ claims about clothes could be tested by subjects blinded to what they are wearing. The test would work as follows. People put clothes on by feel with their eyes closed or in a pitch dark room and wear other clothes on top of the item to be tested. Thus the subjects cannot see what they are wearing. They then rate the comfort, warmth, weight, softness and other physical aspects of the garment. This would help consumers select the most practical clothing and keep advertising somewhat more honest than heretofore. For example, many socks are advertised as warm, but based on my experience, many of them do not live up to the hype. I would be willing to pay a small amount for data about past wearers’ experience. Online reviews are notoriously emotional and biased.

Some aspects of clothes can also be measured objectively – warmth is one of these, measured by heat flow through the garment per unit of area. Such data is unfortunately rarely reported. The physical measurements to conduct on clothes require some thought, to make these correspond to the wearing experience. For example, if clothes are thicker in some parts, then their insulation should be measured in multiple places. Some parts of the garment may usually be worn with more layers under or over it than others, which may affect the required warmth of different areas of the clothing item differently. Sweat may change the insulation properties dramatically, e.g. for cotton. Windproofness matters for whether windchill can be felt. All this needs taking into account when converting physical measurements to how the clothes feel.