jamesz

Donate to Radiohead

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As I’m sure you’ve heard by now, Radiohead have decided to give away their new album online in exchange for a voluntary donation. When one buys the album you choose how much you want to pay for it, with no lower or upper limit on how much you can pay. the idea of paying for something that you can get for free is one that’s puzzled economists for some time. The classic experiment in the field is the Dictator game. In this game one person has an endowment of money and they choose how to split it between them and another person. Despite having no pressure to do so, many people give money to the other person in the experiment. There have been a truckload of different experimental designs employed to investigate this phenomenon.

The key difficulty is that people have the opportunity to donate money to strangers in everyday life but few tend to. Why is it that they then give money away when faced with this experiment? Most explanations focus on the contrived nature of the situation: with a researcher standing there observing your donation one worries about being thought of as selfish if one keeps all the money. Indeed, a large scale anonymous experiment with no researcher present showed very little evidence of altruistic donations.

So what’s my pick for the Radiohead sales? Well, the donation is unobserved and anonymous so the evidence suggests that casual listeners are unlikely to pay for it. However, publicising how much you donated for the album could be a credible signal of your dedication to the band. I’d expect fans of the band to give fairly generously and make their donation known to others. I see also that to get the album you have to enter your credit card details, however much you intend to pay. This seems like a good way of reducing the marginal transaction costs of giving: if you have to enter your details anyway then it’s easy to give a couple of dollars at the same time.

jamesz

Trust the professionals?

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I was talking to a keen cyclist a few days ago who told me that he never fixes so much as a puncture on his gleaming pride and joy. “I’d rather leave it to a professional who knows what they’re doing than risk stuffing it up myself,” he told me. I was bemused at the time by his unwavering faith in ‘professionals’ to be able to do a better job than him. It’s not that I don’t think there are some great mechanics around, but there are likely to be far more who are not as wonderful as they think they are. Why is it that people believe that professionals are the best at what they do, even when they have no evidence and little means of evaluating performance?

Part of it might be a misunderstanding of comparative advantage. This sort of reasoning is commonly used to explain international trade, but is equally applicable to micro-level bargaining and job selection. Suppose a (rather unusual) lawyer is a better plumber than the guy he hires to fix the pipes. Yet, because it would be very costly to the lawyer to take a day off work to fix pipes he’s better off going to work and paying someone else to do his plumbing. The plumber doesn’t have an absolute advantage at plumbing but he does have a comparative advantage over the lawyer at plumbing. The opportunity cost to the plumber of working in his trade is far lower than it is for the lawyer. The lawyer has an absolute advantage over the plumber at both plumbing and legal work but has a comparative advantage in only the latter. Thus, it is not the case that a person doing a job is the best at it: they just have a comparative advantage at what they do.

Of course, once a person has chosen a profession they build up specific job skills that allow them to be more productive at that job than most others. So it may be that the heuristic of assuming a professional can do the job better than you is usually correct. At least, the cost of obtaining more precise information about their skills may be greater than the expected benefit of the extra information. In that case it would be best just to let professionals do their job and quit micro-managing stuff cos you think you know better.

jamesz

Insiders vs outsiders

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Government departments are constantly criticised for their lavish spending on outside consultants. Why, the newspapers ask, couldn’t they rely on the inside talent that taxpayers are already forking out for. This paper, mentioned by Eliezer Yudkowsky may give some clue. It turns out that people are not only incredibly bad at predicting how long it will take them to complete a task, they also get worse at predicting it as they know more about it.

A person who knows the ins and outs of a project will estimate the completion time of the project by taking in to account all of the things that they know need to be done for that particular project. In doing so they tend to disregard all of the unforseen stuff-ups that could happen along the way. An outsider will tend to estimate completion time by looking at how long similar projects have atken in the past. It turns out that the latter approach is not only far more accurate, but also estimates completion times far, far longer than ever predicted by insiders.

Could it be that, in some cases, ministries are actually saving us money by getting an outside perspective on a project? Quite conceivably, the money spent hiring the consultant improves project planning to the point that less money will be wasted on false expectations of the project’s success. We should also disregard the protestations of the ministry insiders that the hiring of the consultant was a waste of money because the consultants know very little about the project. It is precisely because they are not involved in the micro-management of the project that they can provide a realistic estimate of the project’s expected success and completion time. Of course, advocating more government spending on consultants is hardly an election winning strategy.

jamesz

The sad reality of public life

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I have often wondered why there is such a strong reaction to news of politicians’ mistakes. Just recently, Damien O’Connor made the error of allowing a suspended employee to play in the Parliamentary rugby team. The only concern here is the possible appearance of improper influence, as the employee is personally known to Mr O’Connor. I could understand the Prime Minister rebuking him for under-estimating the media reaction to his conduct; however, the PM has not gone to any lengths to disabuse the press of the notion that his position as minister is under threat. It seems common for ministers to be demoted when the cloud of potential impropriety hangs over their heads, and for their alleged misconduct to blight their careers for some time.

I have long been baffled by this seeming over-reaction to the ‘misconduct’ of political figures. Then I read this article on peoples’ recollection of accusations and exonerations. Shankar Vedantam writes:

The conventional response to myths and urban legends is to counter bad information with accurate information. But the new psychological studies show that denials and clarifications, for all their intuitive appeal, can paradoxically contribute to the resiliency of popular myths.

So it may in fact be rational to dismiss people from their positions as public figures if damaging allegations are made against them, regardless of the truth of those accusations. The damage done to their reputation could be irreparable since any later finding of innocence will probably be forgotten by a large number of people. Sadly, the spectre of a scandal could be enough to get you relegated from your ministerial chair to a back-room policy position. The cognitive biases of the electorate make it the rational choice for the PM to fire you.