Tag Archives: being and seeming

Why princesses and princes are described as attractive

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.

Political parties claim inconsistent patience

If the stated preferences of politicians are taken at face value, then they have inconsistent patience across different policy areas. Left-wingers want to invest in education, infrastructure and prevention of climate change. These investments have a present cost and a long-delayed benefit, which suggests patient preferences (high discount factor, low discount rate). On the other hand, the left wants to increase borrowing, redistributive transfers and government spending in general, which have a current benefit (including electoral, but focus on societal for now) and a future cost. Preferring a current benefit and a future cost implies impatience.

For right-wing parties, these preferences are switched (impatient on education, climate, but patient on redistribution), so their inconsistency is the mirror image of the one described above. In summary, both sides of the political divide claim policy preferences that simultaneously imply patience and impatience, which suggests motives other than societal benefit. One way to reason about these other motives is described in https://sanderheinsalu.com/ajaveeb/?p=1015

M-diagram of politics

Suppose a politician claims that X is best for society. Quiz:

1. Should we infer that X is best for society?

2. Should we infer that the politician believes that X is best for society?

3. Should we infer that X is best for the politician?

4. Should we infer that X is best for the politician among policies that can be `sold’ as best for society?

5. Should we infer that the politician believes that X is best for the politician?

This quiz illustrates the general principle in game theory that players best-respond to their perceptions, not reality. Sometimes the perceptions may coincide with reality. Equilibrium concepts like Nash equilibrium assume that on average, players have correct beliefs.

The following diagram illustrates the reasoning of the politician claiming X is best for society: M-diagram of politics In case the diagram does not load, here is its description: the top row has `Official goal’ and `Real goal’, the bottom row has `Best way to the official goal’, `Best way to the real goal that looks like a reasonable way to the official goal’ and `Best way to the real goal’. Arrows point in an M-shaped pattern from the bottom row items to the top items. The arrow from `Best way to the real goal that looks like a reasonable way to the official goal’ to `Official goal’ is the constraint on the claims of the politician.

The correct answer to the quiz is 5.

This post is loosely translated from the original Estonian one https://www.sanderheinsalu.com/ajaveeb/?p=140

Platform providers fake being popular

Crowdfunding platforms, stock exchanges and other providers of two-sided markets want to appear popular, because having more buyers attracts more sellers and vice versa. The platform’s revenue is usually proportional to the number of users, because it charges a commission fee on trades or advertisers pay it to show ads to users. The exchange’s marginal cost of a user is close to zero, giving it an incentive to fake a high volume of trades, a large limit order book and a small bid-ask spread.

The platform’s cost of posting a great volume of outstanding buy and sell orders at a small spread is that many investors try to trade at these favourable bid and ask prices. Either the market maker has to take the other side of these attempted transactions or is found fraudulent. Taking the other side results in a large loss if some investors are better informed than the exchange.

The platform could falsely display a large trading volume, but keep the order book honestly small by adding fake trades at prices between the bid and the ask only, so no investor’s real limit order is ignored. This seems difficult to detect, unless one side of the limit order book is empty (e.g. no buyers) and at least one at-market order on the other side (e.g. a sell) is outstanding. In this case, any trades occurring would have to satisfy the at-market order. However, the platform or real investors can then take the other side of the at-market order at a very favourable price to themselves, which discourages at-market orders. A large trading volume with a thin order book is still slightly suspicious, because it requires that crossing buy and sell orders between the bid and ask prices arrive almost simultaneously, in order to be matched without appearing on the order book for long, and without triggering the real limit orders. Displaying the fake buys and sells on the order book risks attracting actual matching trades, which the platform would have to honour (at a cost).

Without automated quote matching, there are no at-market orders, for example on the Funderbeam crowdfunding platform. Instead, everyone either posts a limit order or picks an order from the other side to trade with, e.g. a buyer chooses a sell. Investors can pick an order with a worse price (higher sell or lower buy) on the other side, which frequently occurs on Funderbeam. Choosing a worse price is irrational, unless the traders in question are colluding, so the asset is effectively not changing ownership. Reasons to carry out such seemingly irrational trades are to manipulate price and volume, e.g. price can be raised or reduced by targeted trades outside the bid-ask interval. Volume can only increase after added trades, rational or not, but such seemingly greater activity is exactly what benefits the stakeholders of the platform. The employees of the market maker have a natural motive to fake-trade between themselves to make their firm look good, even without any inappropriate pressure from their boss.

Another way to attract issuers and investors is to demonstrate successful initial public offerings, meaning that the funds are raised quickly (good for issuers) and the price of the newly listed stock (or other asset) goes up, which benefits investors. Adding fake capital-raisers is difficult, because potential investors will check the background of the supposed issuer. Inserting spoof investors into an actual funding campaign is costly, because real money would have to be invested. One way to manipulate popularity upward is to simultaneously add a fake issuer and fake investors who satisfy its funding need. The idea is to not leave time for real investors to participate in the campaign, by pretending that the capital-raiser achieved its target funding level before most investors could react. This is easier in markets with a small number of real investors and without an auto-invest feature. However, the real investors who were supposedly pre-empted may still research the supposedly very popular issuer.

A costless way to briefly boost the popularity of a real fundraising campaign is to add fake investors after the target funding is achieved, and forbid issuers from increasing the target or accepting funds from those who subscribed after the goal was reached. Any campaign meeting its target can then be made to look heavily oversubscribed. However, if the issuers are informed in advance of the restriction not to increase the target, then they may find an alternative unrestricted platform to raise funds. On the other hand, if the restriction is not mentioned beforehand, then it will likely anger the issuers who will then create negative publicity for the platform. Competition between exchanges thus curtails their manipulation incentives.

The platform can motivate real investors to raise their bids when the campaign reaches its target by rationing demand: bidders in an oversubscribed share issue get only a fraction of what they wanted to buy. Anticipating this, buyers will increase their requested quantities so that the fraction of their new bid equals their actual demand. This makes the campaign look oversubscribed and creates a feedback loop: if other investors increase their quantities, then rationing reduces the fraction of a given investor’s demand that will be satisfied, so this investor raises her or his requested amount, which in turn makes others increase theirs.

If investors know of the bid rationing in advance, then they may select a rival market provider without this restriction, but if rationing takes them by surprise, then they may leave and publicly criticise the platform. Capital-raisers compare exchanges, so if many market providers inflate demand and the issuers pay attention to the level of oversubscription (instead of the fraction of campaigns reaching the target, which is what should matter to the capital-raiser), then the biggest inflator wins. Of course, platforms may not want to reveal unsuccessful campaigns (e.g. Funderbeam does not), so public data on the fraction of issuers who achieved their funding goal is unlikely to exist.

Theoretically, the feedback from bid rationing to increased quantity demanded could lead to infinite amounts requested. A countervailing incentive is that with positive probability, other investors do not honour their commitment to buy, in which case a given investor may be required to buy the amount (s)he demanded, instead of the lower amount (s)he actually wanted. If there is no commitment to buy (for example, on Funderbeam the bids are only non-binding indications of interest), then the danger of overcommitting is absent, so the rational choice seems to be requesting an infinite amount. Investors do not indicate infinite interest, so either they are irrational or some other penalty exists for outbidding one’s capability to pay.

Star job candidates benefit from appearing to be worse

Employers have a cost of making a job offer: filling out forms, getting approval, not being able to make other offers simultaneously in case too many job candidates accept, etc. A company who believes that it is not the top choice of candidates would want to avoid making an offer to a star applicant (one who is likely to receive better alternative offers from top employers, thus turn down the lower-ranked company’s offer).

If the star job-seeker is uncertain about the offers she or he will get, or wants a bargaining chip to use with the most preferred company, then (s)he prefers to obtain the lower-ranked employer’s offer, even when planning to reject it. A way to entice the company into offering a job is to pretend to be more attainable (have a worse outside option) by faking lower talent and potential when interviewing with lower-ranked employers. For this pretence to be (partly) credible, it must have a cost for the job-seeker, otherwise all the best candidates would pretend to be worse and increase their chance of obtaining offers from their backup employers. Then the next-best candidates would have to fake being less good to receive jobs, etc. This race to the bottom would only end once all candidates look like the worst possible, which does not seem realistic.

One potential cost is that faking lower talent has a random outcome, which may be so bad that the employer does not want to offer a job at all. This would temper the incentive to appear worse. Another cost is information leakage – if bad performance at a less desirable interview becomes known to higher-ranked employers, then the candidate may forfeit her or his most preferred interviews and jobs. It could also be that the top job-seekers cannot hide their quality, for example because their genius shines out despite their best effort, or employers base offers solely on recommendation letters, which the candidate cannot see or affect around the time of applying.

Social welfare functions derived from revealed preference

The social welfare functions used in policy evaluation typically put more weight on poorer people, justifying redistribution from the rich to the poor. The reasoning is that the marginal benefit of a unit of money is greater for the poor than the rich. However, people with a greater marginal value of money are more motivated to earn and save, other things equal, so more likely to become rich. In this case, the rich have on average a higher marginal benefit of money than the poor, or a lower marginal cost of accumulating it. If the justification for redistribution is an interpersonal utility comparison, then revealed preference suggests a greater Pareto weight for richer people, thus redistribution in the opposite direction to the usual.

If the marginal utility of money decreases in wealth or income, then people earn until the marginal benefit equals the marginal cost, so the comparison between the rich and the poor depends on their marginal cost of earning, evaluated at their current wealth and income. The cost and benefit of earning may both be higher or lower for richer people. In a one-shot model, whoever has a greater benefit should receive redistributive transfers to maximise a utilitarian welfare criterion. Dynamic indirect effects sometimes reverse this conclusion, because incentives for future work are reduced by taxation.

Those with a high marginal utility of money are more motivated to convince the public that their marginal utility is high and that they should receive a subsidy. The marginal utility is the difference between a benefit and a cost, which determine whether the poor or the rich have a greater incentive to lobby for redistributive transfers. The marginal cost of an hour of persuasion equals the person’s hourly wage, so depends on whether her income is derived mostly from capital or from labour. For example, both rentiers and low-wage workers have a low opportunity cost of time, so optimally lobby more than high-wage workers. If lobbying influences policy (which is empirically plausible), then the tax system resulting from the persuasion competition burdens the high-wage workers the heaviest and leaves loopholes and low rates for capital income and low wages. This seems to be the case in most countries.

A tax system based on lobbying is inefficient, because it is not the people with the greatest benefit that receive the subsidies (which equal the value of government services minus the taxes), but those with the largest difference between the benefit and the lobbying cost. However, the resulting taxation is constrained efficient under the restriction that the social planner cannot condition policy on people’s marginal costs of lobbying.

Food calories are not directly related to obesity

It seems that the change in bodyweight should be a strictly increasing function of calories eaten minus calories spent. The first caveat to this claim is that calories in the food eaten do not equal the calories absorbed, which is what matters for weight gain. People differ in the efficiency of their digestion – that is what bariatric surgery relies on. Also, food labels use calories measured by the burn method (dry the food, burn it, measure the heat output), which ignores for example that coarsely chewed food chunks pass through the digestive tract relatively unchanged, thus contribute few nutrients to the organism. An extreme example is wholegrain flax (linseeds) that remain undigested due to a waxy coating. In nature, seed dispersal by birds relies on the indigestibility of the seeds.

Even if calories absorbed could be accurately measured, the type of food eaten would still matter for weight gain due to imperfect willpower. Some foods are more addictive than others, notably those rich in refined carbohydrates – an easy example is drinks that are essentially sugar-water. Consuming a given amount of calories from high-glycaemic-load sucrose makes people eat more sooner on average than ingesting the same calories from slowly digested whole grains or unsaturated fat. Similarly, ignoring willpower limitations is why abstinence-based programs to prevent sexually transmitted infections, which naively might be expected to be 100% effective, are in fact ineffective (Underhill et al 2007, doi:10.1136/bmj.39245.446586.BE).

There are various tricks to circumvent limited willpower to win the game against one’s future tempted self. To reduce temptation, food should be out of sight outside mealtimes (in cupboards, drawers, fridge) and unhealthy snacks should not be bought at all. Even seeing dishes and cutlery may trigger cravings, in which case these too should be placed out of sight when not in use.

Avoiding grocery shopping while hungry is an old piece of advice, which may be taken further by having someone else buy your food. Two people can even agree to grocery-shop for each other according to shopping lists exchanged beforehand. Online ordering may be a solution, but of course the merchants want customers to buy more, so advertise tempting foods with photos on their website. These ads can be blocked with some effort. A more sophisticated solution is to have one’s own user interface (front end) interact with the merchant’s website – scrape the data on inventory and prices, send commands to buy.

Seasonings may reduce the variety of diet

Animals may evolve a preference for a varied diet in order to get the many nutrients they need. A test of this on mice would be whether their preference for different grains is negatively autocorrelated, i.e. they are less likely to choose a food if they have eaten more of it recently.

Variety is perceived mainly through taste, so the mechanism via which the preference for a varied diet probably operates is that consuming a substance repeatedly makes its taste less pleasant for the next meal. Spices and other flavourings can make the same food seem different, so may interfere with variety-seeking, essentially by deceiving the taste. A test of this on mice would flavour the same grain differently and check whether this attenuates the negative autocorrelation of consumption, both when other grains are available and when not.

If seasonings reduce variety-seeking, then access to spices may lead people to consume a more monotonous diet, which may be less healthy. A test of this hypothesis is whether increased access to flavourings leads to more obesity, especially among those constrained to eat similar foods over time. The constraint may be poverty (only a few cheap foods are affordable) or physical access (living in a remote, unpopulated area).

A preference for variety explains why monotonous diets, such as Atkins, may help lose weight: eating similar food repeatedly gets boring, so the dieter eats less.

Claims that tickets are running out

Both for paid and free events, the organisers often advertise that only a few tickets or places remain. The ad sometimes explicitly tells the viewer to register or buy now. Such advertising is costly, so there should be a benefit to the organiser. If the tickets have already sold out, then the benefit is zero, or at least smaller than if the event is not fully booked. The positive benefit from advertising a sold-out event is to build reputation for the future as an organiser of popular events, similarly to real estate agents putting a „Sold” sign in front of a house on which they closed the deal.

Given that the benefit of costly advertising is smaller when no tickets remain, some sellers should decide to advertise if and only if the event has not sold out. More generally, the probability of advertising should increase in the number of tickets remaining. In this case, rational buyers should treat advertisements saying that limited spaces remain as signals of the opposite – frequent ads show a desperate seller facing low demand. If most buyers think this way, then such advertising is counterproductive, because buyers want to delay their purchases when the probability of being able to buy in the future is large enough. The option value of waiting comes from the possibility that the buyer’s preferences change – a better event may become available, or some emergency may prevent the buyer from attending. Getting a refund for a ticket already bought is at least a hassle and may even be impossible.

The widespread claims of limited space remaining suggest that these ads boost purchases. One reason may be buyer attention – ads make them notice the opportunity to buy, which some of them wish to take advantage of. However, any ads draw attention to the event, so raising awareness cannot be the reason for the specific claim that tickets are running out.

For most events, buyers do not want to coordinate with the largest possible crowd, only with their friends, so do not prefer a fully booked event to a half-full one. Thus claims that the event is almost sold out are difficult to explain by the seller trying to coordinate buyer actions.

Some irrationality of buyers or the seller seems necessary to explain messages that demand is low. Either the buyers take the claim literally instead of using Bayes’ rule to infer the opposite, or the seller advertises despite ads decreasing demand.

It is an empirical question whether the target audience of ads saying that space is running out interprets these as signalling high or low demand, and whether these messages make people delay their purchase or speed it up.

Slippery sidewalk paving

In Singapore, the streets are well planned and maintained, smooth and clean like everything else. However, the sidewalks have one illogical aspect: the pavement is smooth stone, which gets very slippery when wet. Singapore is tropical and humid, with frequent rain. When initially paving the sidewalks, it would be easy and probably cheaper to use rougher covering (asphalt for example) that would not get slippery in the rain. After the smooth pavement has been laid down, changing it is of course costly, and if the locals have adjusted to the slipperiness, then switching the sidewalk cover may not be worth it.

The University of Queensland has a similar problem with the sidewalk in front of its main building. The sidewalk is coarse, like yellow asphalt with 1 cm stones in it instead of sand. One would expect such a coarse surface to provide good grip in all conditions, but unfortunately the looks are deceiving. When that sidewalk gets wet, it becomes slippery like polished glass. Again, it would be cheaper and more practical to pave that sidewalk with asphalt.

A broader point generalising the above observations is that things should be field-tested in realistic conditions before putting them to widespread use. For example, the sidewalk stones should be walked and biked on under all local weather conditions before paving a street with them.

Perhaps the smooth stones in Singapore are meant to make street cleaning easier. Still, there are materials that do not become slippery when wet and are smooth enough for mechanised cleaning and cheap enough to use as pavement.