Review: The WEIRDest People in the World by Joseph Henrich

What made Western societies so different from the rest of the world? Henrich argues that a key factor was the Church’s Marriage and Family Program (MFP)—especially its ban on cousin marriage. This policy gradually weakened kin-based social structures, fostering individualism, economic competition, and impersonal markets. Over time, these cultural shifts laid the foundation for property rights, democratic institutions, and economic growth. 

Henrich presents compelling evidence showing how regions with longer exposure to these norms developed stronger markets, higher literacy, and more analytical thinking. 

This book clarified many historical puzzles: 

Why some societies emphasize kin loyalty while others value individualism. 

Why economic development took different paths in Europe, China, and the Middle East. 

How culture shapes institutions and long-term prosperity. 

A must-read for those interested in economics, anthropology, and cultural evolution. Have you read it? What are your thoughts?

Advice from Hal Varian to Econ Grad-Students

Wikimedia Commons

From an interesting and challenging article by Hal R. Varian:

In fact, my standard advice to graduate students these days is go to the computer science department and take a class in machine learning.

He gives interesting examples of techniques that can help analyse big data and their relevance for economics. He  explains:

Google has seen 30 trillion URLs, crawls over 20 billion of those a day, and answers 100 billion search queries a month... At Google, for example, I have found that random samples on the order of 0.1 percent work fine for analysis of business data. (p. 3)

And

An important insight from machine learning is that averaging over many small models tends to give better out-of-sample prediction than choosing a single model. p. 24 

An example

In 2006, Netflflix offered a million dollar prize to researchers who could provide the largest improvement to their existing movie recommendation system. The winning submission involved a “complex blending of no fewer than 800 models,” though they also point out that “predictions of good quality can usually be obtained by combining a small number of judiciously chosen methods” (Feuerverger, He, and Khatri 2012). It also turned out that a blend of the best- and second-best submissions outperformed either of them.

Good reading suggestions are in the final summary of the article. 

New drug for old insomnia

The FDA has been quite a controversial government agency, particulary regarding the process for new-drugs approval. Once again, a new drug has been developed; this time, Merck is trying to fight insomnia with an effective slepping pill without the common side effects of the existing sleep disorder medication. Ian Parker wrote an article regarding this matter in The New Yorker called "Big Sleep". In this article, Parker reviews the "sleeping pill" industry and provides an insight of the troubled, bureaucratic F.D.A drug approval process. What are the economic consequences of such approval processes? What should really be the role of the F.D.A, specially concerning the approval of medications that could benefit millions of people?

A few weeks later, the F.D.A. wrote to Merck. The letter encouraged the company to revise its application, making ten milligrams the drug’s starting dose. Merck could also include doses of fifteen and twenty milligrams, for people who tried the starting dose and found it unhelpful. This summer, Rick Derrickson designed a ten-milligram tablet: small, round, and green. Several hundred of these tablets now sit on shelves, in rooms set at various temperatures and humidity levels; the tablets are regularly inspected for signs of disintegration.

The F.D.A.’s decision left Merck facing an unusual challenge. In the Phase II trial, this dose of suvorexant had helped to turn off the orexin system in the brains of insomniacs, and it had extended sleep, but its impact didn’t register with users. It worked, but who would notice? Still, suvorexant had a good story—the brain was being targeted in a genuinely innovative way—and pharmaceutical companies are very skilled at selling stories.

Merck has told investors that it intends to seek approval for the new doses next year. I recently asked John Renger how everyday insomniacs would respond to ten milligrams of suvorexant. He responded, “This is a great question.” After the approval process is finished, the marketing division of Merck—a company whose worldwide sales last year totalled forty-seven billion dollars—will conduct a different kind of public trial. The study will address this question: How successfully can a pharmaceutical giant—through advertising and sales visits to doctors’ offices—sell a drug at a dose that has been repeatedly described as ineffective by the scientists who developed it? (Ian Parker, "Big Sleep"). 

Insomnia, far from being just a sleep disorder, has negative biological and cognitive consequences and, unfortunately, is terribly common. 

• About 30 percent of adults have symptoms of insomnia 

• About 10 percent of adults have insomnia that is severe enough to cause daytime 

consequences 

• Less than 10 percent of adults are likely to have chronic insomnia (according to the American Academy of Sleep Medicine.)

"Mommy, the President is drinking my chocolate milk!"

“Men in Black III” came out May 25^th of 2012, almost seven months before Barack Obama was elected president for his second time November 6^th. 

Surfing and zapping through TV channels, I´ve frequently stumbled upon Hollywood blockbuster "Men in Black III", and actually watched it for a couple of times for mere entertainment. Yesterday, I ventured into watching it for a third (or fourth) time and it surprised me with dialogues crammed with great deal of social criticism and political and economical satire. Certainly, the movie could have been a great success without those elements of criticism and spoof but, for whatever reason, (I’m thinking the sense of “making extra box-office money over viewers’ laughter” prevailed) the director and the producers chose to include such likable ingredients.

Despite their motivations, it is interesting that such explicit allusions to the past and present circumstances of politics and economics (if you watch the movie again you’ll know what I’m talking about) make it to the big screen and I believe they respond to a widespread fear that has virally infected the conscience of the American citizens and the not-so-citizens (they call them “immigrants”; some of us think of them of an important part of the labor supply of the United States of America).  People are confused and they feel that they live governed by uncertainty and inconsistency, two phenomena that work subconsciously against the interests of the rule of law and a dynamic, productive market.

"Mommy, the President is drinking my chocolate milk!”, said a young little girl in the arms of her mother, confusing “Agent ‘K’” (Will Smith) with president Obama. “And he didn’t say thank you”…  What I hear is: “Mommy, the President is taking things away from us and he is being rude!” I believe that most of us think of government just like this little girl; this administration has made decisions without transparency, righteousness or any sort of reliable and consistent criteria. And this feeling reveals itself in polls like the ones published by Gallup and the Washington Post.

President Obama’s administration has had its ups and downs like any other presidency but, in this case, hazardous characteristics have perpetrated as distinctive traits of his government: the lack of consistency in management horizontally through his collaborates, uncertainty and the erosion of trust and confidence from the American citizens and citizens and leaders from the rest of the world. I’m afraid that his administration will transcend and critically affect the next government, interrupting economic development and political efficency. Obamacare, NSA, CIA, Syria, Iran, War, Snowden, Migratory policies, Benghazi, shutdown… Stop lying! Stop saying you are sorry! Stop stealing our chocolate milk! 

Sexy choice

In the end, economics is all about individuals choosing. As obvious as it might seem, this fundamental premise is constantly evaded and abandoned when the conversations among the people and the news around the world are jam-packed with fiery debates regarding macro-economic variables and the everlasting tensions between politics and economics, particularly the conflicts regarding fiscal and monetary policies.  

Today, yet another social tendency can be explained through the basic principles of economic theory. We can summon the socio-economic institution of “choice” to explain what we might think is a social discriminatory conduct but one that has not been analyzed thoroughly: women earn less than men.  During this four minute video, Prof. Steven Horwitz unveils the myth that differences of income levels between men and women are due to discriminatory conducts of society expressed through the labor market. Instead, he explains this variance by analyzing the choices that both men and women undertake before entering the labor market, particularly those regarding their education and their investment in knowledge and work experience.

Henry Hazlitt once made his case for depicting the spirit of a good economist that can serve us well for understanding the good spirit of a scientist in any field. In his book Economics in one lesson”, Hazlitt proclaims: 

"in this lies almost the whole difference between good economics and bad. The bad economist sees only what immediately strikes the eye; the good economist also looks beyond. The bad economist sees only the direct consequences of a proposed course; the good economist looks also at the longer and indirect consequences". 

Then, let us not be satisfied with the cries of society but rather be curious in understanding what lies underneath the superficiality of discrimination-targeted campaigns and any other social phenomena. Yes, women earn less than men, but do we know why? To each her (his) own...  

Link for complete video: 

http://www.youtube.com/watch?v=EwogDPh-Sow&noredirect=1

Brutality of the ordinary entrepreneurs.

In the fields related to economic development, management and business, the single, most used word in the past decade has been “entrepreneur". Beyond its French origins and stylish pronunciation, this word has been used as a denomination for people who "choose and build their own path" and refers to “one who undertakes or manages”. Having found great acceptance among the men and women of today’s business world, the term itself has been granted with a specific status quo that has been deeply rooted within the elite of "successful people". The ordinary citizens aspire to become entrepreneurs and people are proud to be known as entrepreneurs…The question being brought to reflect upon today is: do we know what it takes?  Are we getting the whole picture of what it takes to choose and endure the entrepreneurial journey or are we getting the biased, hero-like story from the general media propaganda?

Far from being a discouraging letter to all of us out there trying to make a living with projects of our own, the most important message of this piece of writing is to step down the epic idea of a business man or so-called “entrepreneur”, and portray the struggles of people who have chosen their own way in an exhilarating world dominated by fear, uncertainty and never-ending stressful moments.

An excerpt from the article clearly states its main purpose:

“Until recently, admitting such sentiments was taboo. Rather than showing vulnerability, business leaders have practiced what social psychiatrists call impression management--also known as "fake it till you make it." Toby Thomas, CEO of EnSite Solutions (No. 188 on the Inc. 500), explains the phenomenon with his favorite analogy: a man riding a lion. "People look at him and think, This guy's really got it together! He's brave!" says Thomas. "And the man riding the lion is thinking, How the hell did I get on a lion, and how do I keep from getting eaten?"  -The Psychological Price of Entrepreneurship, by Jessica Bruder.

After reading the full article, you will have a better set of tools to further analyze the implications of being an entrepreneur with examples of people evaluated from a psychological perspective and grasp the challenging brutality involved in striving with a company of your own.

Read the full article: 

http://www.inc.com/magazine/201309/jessica-bruder/psychological-price-of-entrepreneurship.html 

The Psychological Price of Entrepreneurship, by Jessica Bruder.

What Do We Learn from the Weather? The New Climate-Economy Literature

The graph is from this paper by Melissa Dell Benjamin F. Jones Benjamin A. Olken. An interesting paragraph on the climate-crime link

A small number of rigorous panel studies relate weather fluctuations to crime. Using a fixed effects panel specification, Jacob, Lefgren and Moretti (2007) find that higher temperatures in a given week increase both violent and property crime in the U.S. during that week, whereas higher precipitation reduces violent crime but has no impact on property crime. Using a 50-year panel of monthly crime and weather data for nearly 3,000 U.S. counties, Ranson (2012) also finds that increased temperatures lead to increased criminal activity. He finds roughly linear positive effects of temperature on violent crimes. For property crimes, he finds that very cold days (below 40 degrees F) reduce property crimes, but very hot days do not increase them. Together, these studies and the evidence discussed above suggest that weather has an immediate effect upon criminal activity, particularly for violent crime. Some researchers have argued for a biological pathway through which temperature affects serotonin neurotransmission in the brain, influencing impulsivity and aggression (see for example Tiihonen, Räsänen, and Hakko 1997), but this hypothesis remains controversial (see, for example, Maes et al. 1993). Whether the temperature-aggression nexus occurs via neurological or social-psychological channels remains an important area of research in criminology, and studying potential linkages between aggression mechanisms and broader social conflict (Section 3.7) is an interesting subject for further research. 

Rubinstein's Experienced Advice for “Lost” Graduate Students in Economics

One of my favorites: 

Q3. I have already written 30 pages. I have repeated myself several times, and my proofs are much longer than necessary. I have added uncertainty wherever I could and I have moved from a discrete case to Banach spaces. My adviser still says I hardly even have enough for a note. How long should my paper be? 

If you don’t have a good idea, then keep going. Don’t stop at less than 60 single-spaced pages. Nobody will read your paper in any case, so at least you have a chance to publish the paper in QJE or Econometrica.

If you have a really good idea, my advice is to limit yourself to 15 double-spaced pages. I have not seen any paper in economics which deserved more than that, and yours is no exception. It is true that papers in economics are long, but then almost all of them are deathly boring. Who can read a 50-page Econometica paper and remain sane? So make your contribution to the world by writing short papers—focus on new ideas, shorten proofs to the bare minimum (yes, that is possible!), avoid stupid extensions, and write elegantly!

And

Find comfort in my motto: “A paper that has not been rejected should not be published.” But beware of the faulty logic in assuming that “every paper that has been rejected should be published.”

See more here. 

Questions on economic facts

Do authors submit, and journals accept, only statistically significant findings or those findings that are in accord with economic theory? Is empirical economics distorted by publication selection?

Some conjectures are here (Doucouliagos & Stanley, Journal of Economic Surveys, April 2013). A draft of the paper is here.  

Economics and medicine

I am reading Complications by surgeon and writer Atul Gawande - very interesting! The subtitle is: "A surgeon's Notes On An Imperfect Science."

Some parts of the text (I have read only a few pages, but it is excellent):

In surgery, as in anything else, skill and confidence are learned through experience -- haltingly and humiliatingly. Like the tennis player and the oboist and the guy who fixes hard drives, we need practice to get good at what we do. There is one difference in medicine, though: it is people we practice upon. P. 18.

Surgeons, as a group, adhere to a curious egalitarianism. They believe in practice, not talent. P. 19.

Conscious learning becomes unconscious knowledge, and you cannot say precisely how. P. 21  

Studies generally find teaching hospitals have better outcomes than non-teaching hospitals. P. 24

Why economics is not more like medicine (or surgery)?

For an applied micro-economist patients could probably be small, medium, or large businesses that might need some help with costs, pricing, etc. Why aren't those services, call them consulting or businesses health-care, more common as something economists do on a regular basis? Some possible answers:

1) There isn't an effective demand for those services. Perhaps businesses don't see the need of economics because it could be too expensive and they simply can not afford that. 

2) There is no much value economics can add to a business from a micro-economics perspective, real world is so messy that abstract micro-models simply do not apply. 

3) Economists are already doing it (consulting firms) but only the very fortunate few serve the demand. 

4) Other professionals are already doing that instead of economists, such as DBAs, MBAs, etc.

5) In areas like macroeconomics the market is more limited than it is for micro. Only economics super-stars are called by governments. 

6) There is no need for that, economics is a totally different field. 

7) Economics can add a lot of value to businesses and that is why business hire them as part of the internal staff. No need for them to deal with professors and external researchers. 

8) Economists don't like to go out there . . . 

Of course, thinking of economics as medicine would lead us to think about what economics really is or should be. But imagine re-writing the quote above by Gawande as follows:

In economics, as in anything else, skill and confidence are learned through experience -- haltingly and humiliatingly. Like the tennis player and the oboist and the guy who fixes hard drives, we need practice to get good at what we do. There is one difference in economics, though: it is real businesses [or insert your favorite real-world entity here] we practice upon. P. 18.

Some development economists are becoming more like medical doctors with the use of randomized control trials, and they look at what interventions or prescriptions work better than others, or don't work at all to improve human well being. That is great! But I am thinking here in something else, the direct contact of the economist and the business (the patient). 

We are Teaching Too Much . . .

Robert Flank in a new paper:  

Studies have shown that when students are tested about their knowledge of basic economic principles six months after completing an introductory economics course, they score no better, on average, than those who never took the course. That remarkable failure is explained in part by the fact that many professors try to teach their students far too much, and in part because many employ excessive mathematical formalism. This paper describes an alternative approach inspired by evidence that the human brain absorbs new ideas most efficiently when they are expressed in narrative form. It describes an extraordinarily effective pedagogical device–the economic naturalist–writing assignment, in which the student is asked to pose an interesting question based on personal observation or experience, and then use basic economic principles in an attempt to craft a plausible answer to it.

HT: Diane Coyle.

"The Econometric Mafia"

In this paper we take a purely descriptive look at the relationship between becoming a Fellow of the Econometric Society and receiving the Nobel Prize in economics. We discover some interesting aspects: of all 69 Nobel Prize Laureates between 1969 and 2011, only 9 of them were not also Fellows. Moreover, the proportion of future Nobel winners among the Fellows has been quite high throughout time and a large share of researchers who became Fellows between the 1930s and 1950s became Nobel Laureates at a later stage. On average, researchers become Fellows relatively early in their career (14.9 years after their PhD) and those who were subsequently made Nobel Laureates become Fellows earlier than other researchers. Interestingly, Harvard and MIT have been the dominant PhD granting institutions to generate Fellows and Nobel Laureates in the past. 

Who are (were) not Fellows:

Elinor Ostrom (2009), Robert A. Mundell (1999), Douglass C. North (1993), Ronald H. Coase (1991), William F. Sharpe (1990), James M. Buchanan Jr. (1986), Theodore W. Schultz (1979), Sir Arthur Lewis (1979) and James E. Meade (1977). 

That is from the paper "Econometric Fellows and Nobel Laureates in Economics" by Fai Chan and Torgler. 
An interesting quote from the paper:

A quote by Samuelson (2004, p. 60) demonstrates that researchers are also motivated by recognition: “Let me close with a few remarks on the motivation and rewards of scientists. Scientists are as avaricious and competitive as Smithian businessmen. The coin they seek is not apples, nuts, and yachts; nor is it the coin itself, or power as that term is ordinarily used. Scholars seek fame. The fame they seek, as I noted in my 1961 American Economic Association presidential address, is fame with their peers—the other scientists whom they respect and whose respect they strive for. The sociologist Robert K. Merton has documented what I call this dirty little secret in his book The Sociology of Science. I am no exception. Abraham Lincoln’s law partner and biographer William Herndon observed that there was always a little clock of ambition ticking in the bosom of honest and whimsical Abe. No celebrity as a Newsweek columnist, no millions of clever-begotten speculative gains, no power as the Svengali or Rasputin to the prince and president could count as a pennyweight in my balance of worth against the prospect of recognition for having contributed to the empire of science”.

A graph from the paper:

The title of the post comes from this (p. 4): 

Simon (1996) also stresses that “[i]t is perhaps not too disrespectful to label the people who brought about this revolution the Econometric Mafia. Who were they? If you examine the list of Fellows of the Econometric Society in 1954, fifteen years before the first Nobel Prize in economics was awarded, you will find the names of 20 of the first 27 prizewinners.

HT: Jonas Holmstrom.