Tag Archives: society

Identifying useful work in large organisations by revealed preference

Some members of large organisations seemingly do work, but actually contribute negatively by wasting other people’s time. For example, by sending mass emails, adding regulations, changing things for the sake of changing them (and to pad their CV with „completed projects”) or blocking change with endless committees, consultations and discussions with stakeholders. Even if there is a small benefit from this pretend-work, it is outweighed by the cost to the organisation from the wasted hours of other members. It is difficult to distinguish such negative-value-added activity from positive contributions (being proactive and entrepreneurial, leading by example). Opinions differ on what initiatives are good or bad and how much communication or discussion is enough.
Asking others to rate the work of a person would be informative if the feedback was honest, but usually people do not want to officially criticise colleagues and are not motivated to respond thoughtfully to surveys. Selection bias is also a problem, as online ratings show – the people motivated enough to rate a product, service or person are more likely to have extreme opinions.
Modern technology offers a way to study the revealed preferences of all members of the organisation without taking any of their time. If most email recipients block a given sender, move her or his emails to junk or spend very little time reading (keeping the email open), then this suggests the emails are not particularly useful. Aggregate email activity can be tracked without violating privacy if no human sees information about any particular individual’s email filtering or junking, only about the total number of people ignoring a given sender.
Making meetings, consultations and discussions optional and providing an excuse not to attend (e.g. two voluntary meetings at the same time) similarly allows members of the organisation „vote with their feet” about which meeting they find (more) useful. This provides an honest signal, unlike politeness-constrained and time-consuming feedback.
Anonymity of surveys helps mitigate the reluctance to officially criticise colleagues, but people may not believe that anonymity will be preserved. Even with trust in the feedback mechanism, the time cost of responding may preclude serious and thoughtful answers.

The most liveable cities rankings are suspicious

The „most liveable cities” rankings do not publish their methodology, only vague talk about a weighted index of healthcare, safety, economy, education, etc. An additional suspicious aspect is that the top-ranked cities are all large – there are no small towns. There are many more small than big cities in the world (this is known as Zipf’s law), so by chance alone, one would expect most of the top-ranked towns in any ranking that is not size-based to be small. The liveability rankings do not mention restricting attention to sizes above some cutoff. Even if a minimum size was required, one would expect most of the top-ranked cities to be close to this lower bound, just based on the size distribution.

The claimed ranking methodology includes several variables one would expect to be negatively correlated with the population of a city (safety, traffic, affordability). The only plausible positively size-associated variables are culture and entertainment, if these measure the total number of venues and events, not the per-capita number. Unless the index weights entertainment very heavily, one would expect big cities to be at a disadvantage in the liveability ranking based on the correlations, i.e. the smaller the town, the greater its probability of achieving a given liveability score and placing in the top n in the rankings. So the “best places to live” should be almost exclusively small towns. Rural areas not so much, because these usually have limited access to healthcare, education and amenities. The economy of remote regions grows less overall and the population is older, but some (mining) boom areas radically outperform cities in these dimensions. Crime is generally low, so if rural areas were included in the liveability index, then some of these would have a good change of attaining top rank.

For any large city, there exists a small town with better healthcare, safety, economy, education, younger population, more entertainment events per capita, etc (easy examples are university towns). The fact that these do not appear at the top of a liveability ranking should raise questions about its claimed methodology.

The bias in favour of bigger cities is probably coming from sample selection and hometown patriotism. If people vote mostly for their own city and the respondents of the liveability survey are either chosen from the population approximately uniformly randomly or the sample is weighted towards larger cities (online questionnaires have this bias), then most of the votes will favour big cities.

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.

Putting your money where your mouth is in policy debates

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.

Volunteer work is less efficiently allocated than paid work

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).

Volunteer parking wardens may benefit the environment

Reducing the utility from car use and ownership motivates substitution towards other forms of transportation, which benefits both the environment and public health. One way to cut the convenience of driving is enforcing parking regulations, because drivers have to park further from their destination when the option of illegal parking becomes less attractive. Parking at a greater distance also makes people walk more – a minor health benefit.

Enforcing speed limits and other traffic rules that slow cars down increases the time cost of driving. This may reduce wear and tear on vehicles and roads, which benefits the environment.

An implication of is that people who want to reduce global warming or improve public health should become volunteer parking wardens and traffic police by reporting parking violations, speeding and dangerous driving (preferably with photo or video evidence from phones or dashboard cameras).

A possible countervailing effect of the enforcement of parking rules occurs if the illegally parked cars obstruct the movement of other cars enough to motivate some people to switch away from driving. Then stopping the parking violations may open the road up enough to encourage more use of cars, with an overall negative environmental and health effect. Similarly, if reckless drivers make the roads unsafe enough to reduce others’ car use, then making traffic civil again may attract risk-averse people back to driving. However, in most developed countries, illegal parking and the ignoring of rules of the road is not severe enough to deter driving significantly, so better enforcement is likely to reduce car use.

Slowing traffic down may increase congestion and emissions per kilometre travelled if there is little substitution away from driving. Again, in developed countries public transit and cycling are usually feasible options. Of course, some people always find excuses not to use these, and in remote rural areas public transit may indeed be economically unreasonable and distances may really be too great for bikes. Electric bikes are then an option. These increase the range of travel with less pollution and congestion than cars.

Golf as a cartel monitoring device for skilled services

Many explanations have been advanced for golf and similar costly, seemingly boring, low-effort group activities. One reason could be signalling one’s wealth and leisure by an expensive and time-consuming sport, another may be networking during a low-effort group activity that does not interfere with talking.

An additional explanation is monitoring others’ time use. A cartel agrees to restrict the quantity that its members provide, in order to raise price. In skilled services (doctors, lawyers, engineers, notaries, consultants) the quantity sold is work hours. Each member of a cartel has an incentive to secretly increase supply to obtain more profit. Monitoring is thus needed to sustain the cartel. One way to check that competitors are not selling more work hours is to observe their time use by being together. To reduce boredom, the time spent in mutual monitoring should be filled somehow, and the activity cannot be too strenuous, otherwise it could not be sustained for long enough to meaningfully decrease hours worked. Playing golf fulfills these requirements.

A prediction from this explanation for golf is that participation in time-consuming group activities would be greater in industries selling time-intensive products and services. By contrast, if supply is relatively insensitive to hours worked, for example in capital-intensive industries or standard software, then monitoring competitors’ time use is ineffective in restricting their output and sustaining a cartel. Other ways of checking quantity must then be found, such as price-matching guarantees, which incentivise customers to report a reduced price of a competitor.

Disagreement over policy due to preferences vs beliefs

Disagreement about the best policy is due to different preferences or beliefs, or both. Believing that different preferences cause the opinion differences discourages debate (no point arguing over taste after all), leads to polarisation and partisanship. For example, right-wingers may believe that left-wingers prefer to disincentivise entrepreneurs with high taxes, and left-wingers may believe that right-wingers prefer to harm the poor by reducing government transfers. To put it starkly: the other side just prefers evil policy by nature.

By contrast, believing that disagreement over what should be done is caused by differing beliefs assumes that the other side is good-hearted, but mistaken. For example, left-wingers may believe that right-wingers mistakenly believe that transfers to the poor disincentivise them from working or finance their addictions. Right-wingers may believe that left-wingers mistakenly believe that entrepreneurs are not discouraged by higher taxes – being entrepreneurial by nature, they start companies because it is interesting, not out of greed. Mistaken opponents’ opinions can be corrected using data and logic, patience and understanding.

Even if policy disagreement is interpreted as coming from divergent preferences, some such differences are interpreted as less evil than others. For example, impatience is perceived as better than selfishness. Many policies trade off non-simultaneous benefits and costs: invest in infrastructure now to use it after some years, mitigate climate change now to reduce harm to future generations. Paying a current cost for a future benefit may be optimal for patient people, but not for impatient, causing a policy disagreement. The same opinion difference may be due to altruistic people wanting to invest to help others (future users of the infrastructure or the environment), but selfish ones preferring to keep the money now. Believing the same disagreement to be due to selfishness polarises people more than perceiving unequal patience as the cause.

Why rational agents may react negatively to honesty

Emotional people may of course dislike an honest person, just because his truthful opinion hurt their feelings. In contrast, rational agents’ payoff cannot decrease when they get additional information, so they always benefit from honest feedback. However, rational decision makers may still adjust their attitude to be more negative towards a person making truthful, informative statements. The reason is Bayesian updating about two dimensions: the honesty of the person and how much the person cares about the audience’s feelings. Both dimensions of belief positively affect attitude towards the person. His truthful statements increase rational listeners’ belief about his honesty, but may reduce belief in his tactfulness, which may shift rational agents’ opinions strongly enough in the negative direction to outweigh the benefit from honesty.

The relative effect of information about how much the person cares, compared to news about his honesty, is greater when the latter is relatively more certain. In the limit, if the audience is completely convinced that the person is honest (or certain of his dishonesty), then the belief about his honesty stays constant no matter what he does, and only the belief about tact moves. Then telling an unpleasant truth unambiguously worsens the audience’s attitude. Thus if a reasonably rational listener accuses a speaker of „brutal honesty” or tactlessness, then it signals that the listener is relatively convinced either that the speaker is a liar or that he is a trustworthy type. Therefore an accusation of tactlessness may be taken as an insult or a compliment, depending on one’s belief about the accuser’s belief about one’s honesty.

If tact takes effort, and the cost of this effort is lower for those who care about the audience’s emotions, then pleasant comments are an informative signal (in the Spence signalling sense) that the speaker cares about the feelings of others. In that case the inference that brutal honesty implies an uncaring nature is correct.

On the other hand, if the utility of rational agents only depends on the information content of statements, not directly on their positive or negative emotional tone, then the rational agents should not care about the tact of the speaker. In this case, there is neither a direct reason for the speaker to avoid unpleasant truths (out of altruism towards the audience), nor an indirect benefit from signalling tactfulness. Attitudes would only depend on one dimension of belief: the one about honesty. Then truthfulness cannot have a negative effect.

Higher order beliefs may still cause honesty to be interpreted negatively even when rational agents’ utility does not depend on the emotional content of statements. The rational listeners may believe that the speaker believes that the audience’s feelings would be hurt by negative comments (for example, the speaker puts positive probability on irrational listeners, or on their utility directly depending on the tone of the statements they hear), in which case tactless truthtelling still signals not caring about others’ emotions.

Democracy may be the best system due to political economy constraints

Democracy picks the leader who is best at getting elected, not necessarily the best at leading the country. The ability to become a leader differs from the ability to lead. For example, populism and overconfidence in oneself may help one’s election prospects but harm performance at governing.

Even if there was some very accurate way to select the best leader (e.g. test their honesty, intelligence, work ethic, in addition to electability), it may be not be feasible in practice to make this person govern for long. The reason is the political economy constraint that someone better at obtaining power can depose the best leader (one whose government would maximise social welfare, however defined). The disruption resulting from the coup may even harm society more than the difference between being governed by the best leader as opposed to the best power-grabber. In this case, the leadership of the most electable person may maximise welfare, subject to assumptions like „the best power-grabber is also good enough at retaining power, preventing coups once in government”.

The skills of getting elected and organising a revolution probably differ, so an elected government has some of the same vulnerability as the best leader. The political economy constraint of preventing a coup may then favour making the strongest dictator or the most dangerous revolutionary lead the country. However, this may not be the best system for selecting leaders due to a tradeoff between the ability to govern and the ability to overthrow a government. The welfare-maximising selection system subject to the political economy constraint would pick the person who is best at governing among those who can successfully resist a coup. Democracy may be such a compromise, choosing reasonably popular leaders who have a low probability of being overthrown and are adequate at governing. On the one hand, democracy may avoid a ruthless dictator whose rule is very stable, but harmful, and on the other hand a saintly leader who would be deposed quickly.