Re: Regulating Positional Goods

2004-12-09 Thread Wei Dai
I thought of one more positional-goods related policy: limiting the number
of hours in a work week. In other words, forced spending on leisure,
which as this survey indicates is non-positional:

Do You Enjoy Having More Than Others? Survey Evidence of Positional Goods

In a personal reply Robin suggested that the lack of heavier regulation on
positional goods may have to do with issues he wrote about in this

While not disagreeing with that, I suggest another reason may be that if
we didn't have to spend money on positional goods, the most productive
among us might choose to work 1/2 or even 1/10 the number of hours we do
currently. A majority of voters would lose because of reduction of income
redistribution and positive externalities from science and art.

Re: Regulating Positional Goods

2004-11-28 Thread Wei Dai
On Sun, Nov 21, 2004 at 07:27:32AM -0500, Robin Hanson wrote:
 I was at a workshop this weekend where we discussed the possibility of
 regulating human genetic enhancements, and it was suggested that positional
 goods were a valid reason for regulation.  It might make sense, for
 example, to tax the act of enhancing your kids to be taller than other
 folks' kids.

That seems similar to wearing high heels, which according to this page:, was regulated in 1430 Venice but
in the modern age only during national emergencies.

Some schools do have dress codes that forbid high heels. I think dress
codes are enacted at least partly for positional reasons.

Many positional goods are positional because they are used to attract
mates. Perhaps banning polygamy was done partly for positional reasons?

I can't think of anything else besides these rather weak examples. It's a
bit puzzling why positional goods are not more heavily regulated.

1% per day return

2004-11-09 Thread Wei Dai
According to page 18 of, for tax
reasons, the average price drop of a stock on the ex-dividend day is only
90% of the dividend.

Microsoft has declared a $3 per share special dividend, with the
ex-dividend day being November 15, 2004 (see This is
about 10% of the share price. So if you have a tax-exempt (e.g.,
retirement) brokerage account, you can buy Microsoft stock one day before
the ex-dividend day, then sell it on the ex-dividend day, and receive a 1%
return (10% of the 10% dividend).

I'm curious how commonly known this was. Did anyone else know about this
trick before reading this post? Are there other investment tricks like

Re: another use for idea futures (fwd)

2004-10-20 Thread Wei Dai
On Wed, Oct 20, 2004 at 02:13:23AM -0400, Robert A. Book wrote:
 I think what you want is the Banzhaf Power Index, developed by Banzhaf
 (surprise!) in the 1960s.  I forwarded your post to a friend of mine
 who's done some work on this, and discovered he's giving a talk on
 this very topic on Friday at the GWU math department.

 His summary, with a link to a more detailed web page, is below.

I read his web page quickly, but did not find it particularly relevant.
The Banzhaf Power Index is apparently about figuring out how much power
each voter has in a block voting system, where everyone is not equal in
the sense that your vote has a different probability of influencing the
election depending on where you live. But he starts off by assuming that
every voter has an independent .5 probability of voting for each
candidate. That makes the analysis useless for the purpose of computing
the expected utility of voting, because it ignores all of the relevant
information that we actually have about the likely outcome of the
election, such as the IEM market data.

Re: another use for idea futures

2004-10-19 Thread Wei Dai
On Tue, Oct 19, 2004 at 11:32:16AM -0700, Peter C. McCluskey wrote:
  I think it's harder than this to adequately model p(x), because it acts
 differently in close races because the incentive for the losing side to
 cheat is highest when it's most likely to change the result.

Yes, to be more realistic, we need to compute the probability that my vote
discourages the non-preferred candidate from cheating, or encourages the
preferred candidate to cheat. I think it can be argued that after taking
this into account, the probability of my vote deciding the outcome is
still close to p(0), where p is the probability function for the actual
vote without cheating (presumably with a normal distribution), not the
final certified result.

  What I really want is something which would quantify the probability my
 vote will affect what interest groups future candidates pander to. I suspect
 this is higher than the chance of affecting the identity of the winner.

The probability of that is zero, because election results are not
broken down by interest groups. (Am I missing something?) I'd think
that politicans instead decide which groups to pander to based on their
own polling.

Re: lotteries and elections

2004-09-03 Thread Wei Dai
In other words, what you're suggesting is that for some, lotteries and
voting are like candy, pornography, birth control, or narcotics, i.e., a
legitimate way (in some cultures) for a person to deliberately subvert his
own genetic programming and obtain pleasure that he doesn't deserve.

Ok, I can buy that, but I still think there must be a large fraction
of lottery players and voters who don't know, even intellectually, that
their chances of winning or changing the election outcome are tiny. But it
doesn't look like enough data exist to settle the matter either way.

On Wed, Sep 01, 2004 at 10:07:00PM -0400, Robert A. Book wrote:
 Whenever I ask seemingly intelligent lottery players why they play,
 the answer is usually something along the lines of I know they
 chances of winning are tiny, but for a dollar I get to dream of
 winning for a whole week.  In other words, they (may) know the
 probability is extremely small, but that extremely small probability
 has a utility value beyond value the chance of dollars that goes with
 it.  This is analogous to the entertainment value of playing Las Vegas
 style gambling games like cards, roulette, and slot machines.

 Something similar may apply to voting -- everyone knows the chances of
 an election being decided by a single vote are miniscule, but they get
 some satisfaction from participating in the process, and maybe even
 from knowing that they made the total for their candidate in their
 county printed in the newspaper the next day from 138,298 to

 --Robert Book

Re: lotteries and elections

2004-09-01 Thread Wei Dai
On Tue, Aug 31, 2004 at 08:25:16PM -0500, Jeffrey Rous wrote:
 When people ask me why I vote, my standard answer is because I can. Voting simply 
 reminds me that we have something special going here in the free world. I do a 
 decent job of learning about the candidates and issues not because I think my single 
 vote matters, but because, overall, voting does matter and I get a kick out of being 
 part of the process.

Maybe you know that your vote doesn't matter and still vote anyway, but I
bet there is a high positive correlation among the general population
between the belief that one's vote matters, and willingness to vote.

Using ourselves for anecdotes in this case is a bad idea. We as a
self-selected group of armchair economists already know that the
probability that one's vote will make a difference in the outcome is tiny,
so of course anybody who still votes will be voting for other reasons.

Re: lotteries and elections

2004-09-01 Thread Wei Dai
On Tue, Aug 31, 2004 at 07:50:08PM -0400, [EMAIL PROTECTED] wrote:
 I've been discussing with my undergradute students the rationality of voting.

What about the possibility that many people do not deal well with with
small probabilities, and mistakenly think that their votes matter?

Why have economists latched onto the idea of expressive voting, when a
much simpler explanation is that most apparently irrational voting really
is irrational? Of course expressive voting preserves the assumption of
rationality, but there is still the problem of participation in lotteries
with negative expected payoffs. Is that just to be ignored, or will
someone come up with a theory of expressive lottery ticket purchase?

lotteries and elections

2004-08-31 Thread Wei Dai
Does anyone know if there is a correlation between a person's
willingness to buy lottery tickets, and his willingness to vote in large
elections (where the chances of any vote being pivotal is tiny)?

A simple explanation for both of these phenomena, where people choose
to do things with apparently negative expected payoff, is misunderstanding
or miscalculation of probabilities. This theory would predict a positive
correlation. I'm curious if anyone has done a survey or experiment to test

Re: insanity vs. irrationality

2004-03-25 Thread Wei Dai
On Wed, Mar 24, 2004 at 10:54:25AM -0500, Stephen Miller wrote:
 I'm confused.  How does one decide whether the younger version's
 preferences are more right than the elder's?

When considering whether or not to return stolen goods to its original
owner, how does one decide whether the original owner's preferences are
more right than the thief's?

In this case, the elder (mentally ill) version is an interloper who has
stolen the younger version's body, so involuntary treatment just returns
the body back to its rightful owner. Economically, this can be justified
by the argument that people would be more likely to invest in the future
if we reduce their risk of losing that investment to someone with
radically different preferences.

Re: new paper

2004-03-24 Thread Wei Dai
On Thu, Mar 11, 2004 at 01:44:42PM -0500, Bryan Caplan wrote:
 My new paper on the economics of mental illness, entitled The Economics
 of Szasz can now be downloaded from my webpage at:

The paper makes the point that what psychology views as mental diseases in
many cases can be interpreted simply as extreme or unusual preferences,
and in those cases involuntary psychiatric treatment can not be justified
as a benefit for the patient.

This makes sense to me, but perhaps involuntary psychiatric treatment can
still be justified as a benefit for the younger version of the patient
(i.e., before he became sick) who presumably had more normal
preferences, and who would have prefered that he be given treatment to
reverse any radical preference changes. Unlike with intra-family
externality, the Coasean argument doesn't seem to apply here -- how would
you negotiate side payments with your past self?

comic strip

2003-12-01 Thread Wei Dai
Here's a funny comic strip about using game theory for dating:

You might also want to check out the blog it was based on:

Re: why aren't we smarter?

2003-12-01 Thread Wei Dai
On Sun, Nov 30, 2003 at 11:18:21AM -0500, Robin Hanson wrote:
 That and the difficulty of creating intelligence.

It can't be the latter, because the intelligence that already exist was
not selected for. Consider again the fact that Jews have an average IQ
that is about one standard deviation higher than non-Jewish whites. This
clearly shows that the potential for higher intelligence is already in our
gene pool. How would you explain why the IQ distribution of the general
population does not look more like that of Jews?

(BTW, imagine what that would be like. America would have 13 times the
number of Nobel-level (by our standards) scientists as it actually does.)

 I argue that (a) can be an equilibrium.  We are rather smart in some areas,
 but the mechanisms in us that allow that are not up to the task of faking
 being dumb in other areas - we are actually dumb in those other areas.  This
 is/was an equilibrium because people who tried to fake often got caught.

I don't disagree that this occurs to some degree. But there must be
a limit to how smart you can be in one area and still be dumb in
another. I suggest we have already reached it, because otherwise the facts
are hard to explain.

Re: why aren't we smarter?

2003-11-26 Thread Wei Dai
On Wed, Nov 26, 2003 at 04:47:17PM -0500, Robin Hanson wrote:
 There certainly do seem to be some situations in which it can pay not be
 seen as too clever by half.  But of course there are many other situations
 in which being clever pays well.  So unless the first set of situations are
 more important than the second, it seems unlikely that evolution makes us
 dumb in general on purpose.

Perhaps the first set of situations is more important than you think. For
example, could the Holocaust (and anti-semitism in general) fall into that
category, given that Jews have a higher average IQ than gentiles? (116 vs
100, according to

 The question instead is whether evolution
 was able to identify the particular topic areas where we were better off
 being dumber, so as to tailor our minds to be dumber mainly in those areas.

I'd argue no, at least beyond a certain degree, because if you have
sufficient general intelligence, you can apply it to any area but still
fake being dumb in particular areas. The only way to convince others of
actually being dumb in those areas is to be dumb in general.

 Yet most educated people actually seem
 to understand physics better than economics.

Do you have any evidence for this? At least personally I find economics
easier to understand than, say, string theory, or even electromagnetism.

why aren't we smarter?

2003-11-25 Thread Wei Dai
Given that there is significant existing variation in human intelligence,
it's curious that we are not all much smarter than we actually are.
Besides the well-known costs of higher intelligence (e.g., more energy
use, bigger heads causing more difficult births), it seems that being
smart can be a disadvantage when playing some non-zero-sum games. Here is
one example. How often do these games occur in real life, I wonder?

Consider an infinitely repeated game with 2n players, where in each round
all players are randomly matched against each other in n seperate
prisoner's dillema stage games. After each round is finished, the outcomes
are recorded and published.

One plausible outcome of this game is for everyone to follow this strategy
(let's call it A): Initially mark all players as good. If anyone defects
against a player who is marked as good, mark him as bad. Play
cooperate against good players, defect against bad players.

Now suppose in each stage game, there is probability p that the outcome is
not made public. Also assume that n is large enough so that we can
disregard the possibility that two players might face each other again in
the future and remember a previous non-published outcome. Now depending on
p, the discount factor, and the actual payoffs, it can still be an
equilibrium for everyone to follow strategy A.

For example, suppose the payoffs are 2,2/3,-10/-10,3/0,0, and p=0.5. If a
player deviates from the above strategy and plays defect against a
good player, he gains 1 utility (compared to strategy A) for the current
round, but has a probability of 0.5 of losing 2 utility in each future

Now further suppose that the random number generator used to decide
whether each outcome is published or not is only pseudorandom, and there
are some smart players who are able to recognize the pattern and predict
whether a given stage game's outcome will be published. And suppose it's
public knowledge who these smart players are. In this third game, its no
longer an equilibrium for everyone to follow strategy A, because a smart
player should always play defect in any round in which he predicts the
outcome won't be published. The normal players can follow strategy A, or
they can follow a modified strategy (B) which starts by marking all
smart  players as bad, in which case the smart players should also
start by marking all normal players as bad.

In either case the total surplus is less than if there were no smart
players. But with some game parameters, only the latter is an equilibria,
in which case smart players actually end up worse off than normal
players. (Note that even when the first outcome is an equlibrium, it is
not coalition-proof. I.e., the normal players have an incentive to
collectively switch to strategy B.)

For example, consider the above payoffs again. When a normal player
faces a smart player, he knows there is .5 probability that the smart
player will defect. If he deviates from strategy A to play defect, there
is .5 probability that he gains 10 utility, and .5 probability that he
gains 1 utility in the current round and loses no more than 2 utilities in
each future round. Therefore depending on the time discount factor he may
have an incentive to play defect.

Re: Economics and E.T.s

2003-08-22 Thread Wei Dai
On Mon, Aug 18, 2003 at 05:28:34PM -0400, Bryan Caplan wrote:
 One idea he did not explore: Maybe there is no inter-stellar travel
 because the benefits almost never exceed the costs.  It takes years to
 get anywhere, and at best you find some unused natural resources.  If
 Julian Simon's observation about declining resource scarcity holds, then
 as inter-stellar travel gets cheaper with technological progress, it
 also gets less beneficial because resources are getting cheaper at a
 faster rate.

Given that the amount of natural resources in the solar system is finite,
I don't see how resources could continue to get cheaper forever. The
reason natural resources are getting cheaper is that the cost of mining
resources is droping, right? But suppose the cost of mining were to drop
to zero and no inter-stellar travel occurs. Then shouldn't the prices of
natural resources rise at a rate equal to the interest rate until they're
all used up?

reproductive subsidies

2003-08-22 Thread Wei Dai
James Surowiecki has an article in the New Yorker (available at arguing
in favor of child tax credits, on the grounds that raising children
produces positive externalities.  My question is, has anyone done a study
that quantifies how much social benefit (or cost?) is produced by raising
a child?

Another question is that the child himself captures most of the benefits
external to the parents, so why not fund most of the subsidy out of the
child's future income, rather than from general tax revenues?

Re: Economics and E.T.s

2003-08-22 Thread Wei Dai
On Fri, Aug 22, 2003 at 10:50:35AM -0700, Fred Foldvary wrote:
 However, the earth is not a closed system, as we continually get energy
 from the sun, so even if we use up some resources, solar radiation will
 supply energy, and technologicalp progress will make ever more efficient
 use of it.

The total amount of energy within the solar system is limited, so it's not
possible to recycle resources indefinitely. Or to think of it another way,
the ultimate resource is negentropy (i.e., maximium entropy minus current
entropy) which is finite and must be used up to do anything at all,
including to recycle other resources.

Technological progress that allow more efficient use of resources in the
future will not cause prices to drop on average, because the progress
should already be expected and taken into account in current market
prices. Only progress that lowers the cost of *mining* will cause price
drops, but these can't continue forever because the cost of mining can't
drop below zero.