I’ve just come across a post from a week ago by Dani Rodrik which previews a forthcoming book by Larry Bartels. The post includes this fascinating diagram:
What this diagram shows is the percentage growth in income under a Republican and a Democratic administration over the course of a four year Presidential term. It gives the lie to the common assertion that it doesn’t matter to the ordinary citizen who is in power. Read more
Every election time you hear the same old story that rational people don’t vote. Why is it that so many people mix up rationality with selfishness? Over at Vox a pair of political scientists set the record straight:
If you think your preferred candidate could bring the equivalent of a $100 improvement in the quality of life to the average person in your country… you’re now buying a billion-dollar lottery ticket. With this payoff, a 1 in 10 million chance of being decisive isn’t bad odds.
And many people do see it that way. Surveys show that voters choose based on who they think will do better for their country as a whole, rather than their personal betterment. Indeed, when it comes to voting, it is irrational to be selfish.
So the people who vote are the altruists amongst us, who care more for the nation than for themselves. It’s not just a heartwarming tale though: it’s a lesson in sensibly reconciling the evidence with the theory. If it doesn’t make sense for selfish, rational beings to vote then why would we model them as selfish?
Over at the very good blog Long ago and not true anyway,
Utilitarianism leaves no place for justice at a philosophical level … (in utilitarianism) justice is there simply because it helps make us all better off; not because it is right to put wrongs to right
Given that the economic method is fundamentally utilitarian I feel that I have to say a little about this.
I recently mentioned that prospect theory tells us that most people are risk seeking in losses. CPW commented that this seems to be at odds with the fact that people buy insurance. After all, if people like risky losses, why would they pay money to avoid them by purchasing insurance? According to John Nyman the answer lies in a straightforward reframing of the choice consumers face when they buy insurance. Read more
It can get a bit depressing talking about negative externalities all the time. It’s important not to forget that solving problems like climate change isn’t just about internalising negative externalities, we can also harness positive externalities. Apparently a ‘green’ club is installing a dancefloor that will use the kinetic energy of people dancing to power the light show! Video after the jump. Read more
Economics seems to endure an awful lot of criticism for using models which simplify reality. I really like the analogy Free Exchange draws between economic models and geographical maps:
If a map included every detail in the geography (trees, country roads, etc.) it would be intractable, rendering it useless. Maps do give you a sense of scale and how variables relate. This facilitates your journey, but does not eliminate unforeseen diversions and the potential for accidents.
Our models are far from perfect and are constantly improving. However, it is our ability to simplify that makes the models useful. If we had to REALLY model reality we’d be neuroscientists, not economists, and have yet to contribute anything to an understanding of markets, policy or finance.